in the great augmentation of national wealth by which it has been accompanied,1 we have perceived an assurance of sound development and an economic and political guaranty for the future. According to those who interpret the transition to the status of a predominantly manufacturing state in terms of a national calamity, this phenomenon has been an illusion. Our future appears to them to find a safer guaranty in a less rapid increase of wealth and population; and it is for this reason that they advocate a return to the organization of the predominantly agrarian state. 1 According to the income statistics given above, this increase in wealth has by no means been confined to the cities. In the cities of Prussia the assessed income rose, from 1892 to 1900, 42.1 per cent, while in the country districts the increase, while not so marked as in the cities, amounted to 27.8 per cent; similar figures are available for Saxony. XVI MARSHALL: THE FISCAL POLICY OF INTERNATIONAL TRADE1 PART I. THE DIRECT EFFECTS OF IMPORT DUTIES A. THE PROBLEM CAN BE PARTIALLY SOLVED BY THE HE first issue to which my attention has been called is the incidence of import duties. It is my opinion that, in nearly all important cases, they are borne almost exclusively by the consumer. But there is no absolute rule in the matter. Cases can be conceived on a large scale, and have actually existed on a small scale, in which a perceptible part of the burden of an import duty is borne by foreigners. And, of course, a part of the pressure of every new tax of whatever kind is apt to rest temporarily on producers, merchants, shippers, and others; until they are able to shift it to its permanent resting-place on the shoulders of consumers. 2. The problem cannot be completely solved by a mere study of price movements. That indeed seems to show that the consumer must necessarily bear the whole burden of every such tax, together with the profits on it of each stratum of traders through whose hands it passes. But the primâ facie case thus made out is not valid, at all events in relation to a system of import duties in contrast to a single duty. The primâ facie case is this:-As a general rule the exporters are indifferent as to the market to which they send their goods; and select that which will yield them the best price after paying all the costs. If, therefore, the cost of delivering any commodity in a certain market is increased by the levying of an import tax of 1 l. 1 Alfred Marshall (1842- ), Memorandum on the Fiscal Policy of International Trade (1903). (Pp. 3–8, 11-20, 22-29, of 2d (1908) ed.) upon it; exporters will avoid that market until, by making the commodity scarce in that market, and rather more abundant than before in other markets, they have raised its price (duty paid) in that market by 1. relatively to its price in other markets in which there has been no new tax. The ultimate consumer may, therefore, be expected to have to pay this 1 l., together with profits on the extra capital required for moving the taxed commodity by all the dealers through whose hands it passes on its way to him. And price statistics show that he has to do so, if he has no alternative source of supply. 3. This primâ facie case for the conclusion that the whole burden of an import tax is always borne by the consumer is invalid, because it neglects the fact that the purchasing power of money in any country may be affected by its tariff policy. For taxes on certain imports into a country raise their value in that country relatively to things which are not taxed; and one of these is gold. Therefore the purchasing power of gold is generally low in a country which levies many high import duties; and when we know that a certain fiscal policy has raised the price of any given commodity to a consumer by, say, a quarter, we have not got an answer to the question how great the burden on him really is. 4. It is, however, important to remember that, if the taxes affect a small portion only of the country's imports, they will not cause an appreciable substitution of gold and other untaxed imports for taxed imports; that is, they will not appreciably alter the general level of prices. The taxed commodities will cost more money to the consumer (near the frontier) by the full amount of the tax; and this increase of price will indicate a nearly corresponding increase of real cost, because the value of money will be but little changed. 5. There are, moreover, other difficulties besides that connected with changes in the purchasing power of money, which resist the endeavour to decide by direct observation what is the incidence of import duties. For instance, improvements in production and transport are constantly raising money incomes relatively to prices; and if the influence of such improvements is being felt in the same decade in which a tariff is raised, the rise in money incomes relatively to prices may be considerable; and yet it may be much less than it would have been if the tariff had not been raised. No doubt the influence of this disturbing cause can be partly eliminated by comparing the movements of incomes relatively to prices in countries in the same industrial phase, whose tariffs have not moved in the same direction. But, not to mention the difficulties of obtaining such statistics, they cannot be interpreted without taking account of the different influences which are being exerted in different countries by education, by wise and thrifty household management, and by the development of latent natural resources through the spread of railways and otherwise. The question cannot be handled effectively except by a study of those causes of causes on which this Memorandum touches but slightly. All that can be done here is to indicate that a country cannot expect to throw any considerable share of the burden of her tariff on other countries, unless she is in a position to dispense with a great part of the goods which she imports from them; while she is at the same time in the possession of such large and firmly established partial monopolies, that those countries can not easily dispense with any considerable part of their imports from her. So far as the latter condition is concerned, England was in a strong position early in last century. But not even America is in a strong position now; while England and Germany are, as it seems to me, in weak positions. A thorough answer to the question can be found only by going back to the great truth which Committees of the House of Commons at the beginning of last century investigated, and which was stated forcibly by Ricardo. It is that gold is a mere commodity in international trade; and that the levels of international prices do not govern the course of international trade, but are governed by it. Reasoning on this basis is troublesome; and the difficult argument which follows under head (B) is not essential for the main purpose of this Memorandum. A résumé of it is given in § 55. B. A PARTIAL THEORETICAL SOLUTION OF THE PROBLEM OF THE INCIDENCE OF IMPORT DUTIES 6. Suppose two countries, A and B, to trade with one another, and only with one another; and to levy no taxes on imports. The price of A's goods in B will differ from their prices at home only by costs of transport (including costs of handling), and vice versâ. But now A puts a tax of 50 per cent. on all imports, except of course gold. The prices of A's goods will still be higher in B than at home merely by the cost of carriage. But the prices of B's goods to consumers in A are now bound to rise 50 per cent. relatively to their level in B: for, unless and until that happens, it will answer to send gold instead of goods from B to A. This rise in price of B's goods in A relatively to their price in B takes place whatever be the urgencies of B's demand for A's goods, and of A's demand for B's goods. But it is mainly on the urgencies of these reciprocal demands that the incidence of the tax depends; and the observed price movement, taken by itself, proves nothing conclusively. 7. The burden of these taxes will be thrown mainly on B in the exceptional case in which B's demand for A's goods is very urgent (and inelastic) while A's demand for B's goods is not. For then the tax will first raise the price of B's goods in A; secondly, diminish their sales there a little; thirdly, lessen the supply of A's goods in B a little; and since B's demand is inelastic, the small check to their supply will cause each of these goods to be disposed of for a much greater quantity of the labour and general commodities of B than before. It might conceivably exchange for just double as much as before of B's goods in B, or in bond in A; and therefore for just as much as before duty paid. In this case, the whole burden of the tax would be thrown upon B. Here the solution of this particular case ends, so far as essentials go. But its secondary consequences in terms of price movements should be added. Since A's goods can be disposed of in B's markets on such favourable terms, gold will be sent from B to buy them. Therefore, gold will become very plentiful in A; prices generally will rise there, and a rise in money wages will follow in due course. Therefore, though B's goods in A sell for twice the price they do at home, yet their prices will not represent much more effort than before; they may not represent any more effort at all. In B, on the other hand, gold will have become relatively scarce, and will command more of B's goods and services than before. Therefore, although A's goods sell in B for only their price at home, together with cost of carriage, yet their real cost to B will be very much increased. The consumers in A will be nearly as well off as before, and their Government will have got the taxes mainly at the expense of B. |