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Chapter III. Of Direct Taxes.


§ 1. Direct taxes either on income or on expenditure 495

2. Taxes on rent 498

3. — on profits 496

4. — on wages 498

5. An Income Tax 499

6. A House Tax 601

Chapter IV. Of Taxes on Commodities.

§ 1. A Tax on all Commodities would fall on profits . 504

2. Taxes on particular commodities fall on the consumer 505

3. Peculiar effects of taxes on necessaries 506

4. — how modified by the tendency of profits to a minimum . . . 507

5. Effects of discriminating duties 510

6. Effects produced on international exchange by duties on exports

and on imports 512

Chapteb V. Of some other Taxes.

§ 1. Taxes on contracts 517

2. Taxes on communication 518-

3. Law Taxes 519

4. Modes of taxation for local purposes 520

Chaptee VI. Comparison between Direct and Indirect


§ 1. Arguments for and against direct taxation 521

2. What forms of indirect taxation most eligible 523-

3. Practical rules for indirect taxation 524

Chaptee VII. Of a National Debt.

§ 1. Is it desirable to defray extraordinary public expenses by loans? . 526

Not desirable to redeem a national debt by a general contribution 528

3. In what cases desirable to maintain a surplus revenue for the

redemption of debt . . 529'

Chapter VIII. Of the Ordinary Functions of Government,

considered as to their Economical Effects.

11. Effects of imperfect security of person and property 531

2. Effects of over-taxation 532-

3. Effects of imperfection in the system of the laws, and in the admi-

nistration of justice ,. . 533

Chapteb IX. The same subject continued.

§1. Laws of Inheritance 536

2. Law and Custom of Primogeniture 537

3. Entails 539

§ 4. Law of compulsory equal division of inheritances 540

5. Laws of Partnership 541

6. Partnerships with limited liability. Chartered Companies. . . 542

7. Partnerships in commandite 545

8. Laws relating to insolvency - 548

Chapteb X. Of Interferences of Government grounded on
Erroneous Theories.

§ 1. Doctrine of Protection to Native Industry 552

2. Usury Laws 558

3. Attempts to regulate the prices of commodities .561

4. Monopolies 562

5. Laws against Combination of Workmen 563

6. Restraints on opinion or on its publication 566

Chapteb XX Of the Grounds and Limits of the Laisser-faire

or Non-interference Principle.

S 1. Governmental intervention distinguished into authoritative and

unauthoritative 567

2. Objections to government intervention—the compulsory character

of the intervention itself, or of the levy of funds to support it. . 568

3. — increase of the power and influence of government 570

4. — increase of the occupations and responsibilities of government . 570

5. — superior efficiency of private agency, owing to stronger interest

in the work 571

6. — importance of cultivating habits of collective action in the

people 572

7. Laisnerfaire the general rule 573

8. — but liable to large exceptions. Cases in which the consumer is

an incompetent judge of the commodity. Education .... 575

9. Case of persons exercising power over others. Protection of chil-

dren and young persons; of the lower animals. Case of women

not analogous 577

10. Case of contracts in perpetuity 579

11. Cases of delegated management 579

12. Cases in which public intervention maybe necessary to give effect

to the wishes of the persons interested. Examples: hours of

labour; disposal of colonial lands 581

13. Case of acts done for the benefit of others than the persons con-

cerned. Poor Laws 583

14. Colonization 585

15. — other miscellaneous examples 589

16. Government intervention may be necessary in default of private

agency, in cases where private agency would be more suitable . 590





Is every department of human affairs, Practice long precedes Science: systematic enquiry into the modes of action of the powers of nature, is the tardy product of a long course of efforts to use those powers for practical ends. The conception, accordingly, of Political Economy as a branch of science, is extremely modern; but the subject with which its enquiries are conversant has in all ages necessarily constituted one of the chief practical interests of mankind, and, in some, a most unduly engrossing one.

That subject is Wealth. Writers on Political Economy profess to teach, or to investigate, the nature of Wealth, and the laws of its production and distribution: including, directly or remotely, the operation of all the causes bv which the condition of mankind, or of any society of human beings, in respect to this universal object of human desire, is made prosperous or the reverse. Not that any treatise on Political Economy can discuss or even enumerate all these causes; but it undertakes to set forth as much as is known of the laws and principles according to which they operate.

Every one has a notion, sufficiently correct for common purposes, of what is meant by wealth. The enquiries which relate to it are in no danger of being confounded with those relating to any other of the great human in)— terests. All know that it is one . thing to be rich, another thing to be enlightened, brave, or humane; that

the questions how a nation is made wealthy, and how it is made free, or virtuous, or eminent in literature, in the fine arts, in arms, or in polity, are totally distinct enquiries. Those things, indeed, are all indirectly connected, and react upon one another. A people has sometimes become free, because it had first grown wealthy; or wealthy, because it had first become free. The creed and laws of a people act powerfully upon their economical condition; and this again, by its influence on their mental development and social relations, reacts upon their creed and laws. But though the subjects are in very close contact, they are essentially different, and have never been supposed to be otherwise.

It is no part of the design of this treatise to aim at metaphysical nicety of definition, where the ideas suggested by a term are already as determinate as practical purposes require. But, little as it might be expected that any mischievous confusion of ideas could take place on a subject so simple as the question, what is to be considered as wealth, it is matter of history that such confusion of ideas has existed— that theorists and practical politicians have been equally, and at one period universally, infected by it, and that for many generations it gave a thoroughly false direction to the policy of Europe. I refer to the set of doctrines designated, since the time of Adam Smith, by the appellation of the Mercantile System.

While this system prevailed, it was assumed, either expressly or tacitly, in the whole policy of nations, that wealth consisted solely of money; or of the precious metals, which, when not already m the state of money, are capable of being directly converted into it. According to the doctrines then prevalent, whatever tended to heap up money or bullion in a country added to its wealth. Whatever sent the precious metals out of a country impoverished it. If a country possessed no gold or silver mines, the only industry by which it could be enriched was foreign trade, being the only one which could bring in money. Any branch of trade which was supposed to send out more money than it brought in, however ample and valuable might be the returns in another shape, was looked upon as a losing trade. Exportation of goods was favoured and encouraged (even by means extremely onerous to the real resources of the country), because the exported goods being stipulated to be paid for in money, it was hoped that the returns would actually be made in gold and silver. Importation of anything, other than the precious metals, was regarded as a loss to the nation of the whole price of the things imported; unless they were brought in to be re-exported at a profit, or unless, being the materials or instruments of some industry practised in the country itself, they gave the power of producing exportable articles at smaller cost, and thereby effecting a larger exportation. The commerce of the world was looked upon as a struggle among nations, which could draw to itself the largest share of the gold and silver in existence; and in this competition no nation could gain anything, except by making others lose as much, or, at the least, preventing them from gaining it.

It often happens that the universal belief of one age of mankind—a belief from which no one was, nor without an extraordinary effort of genius and courage, could at that time be free— becomes to a subsequent age so palpable an absurdity, that the only difficulty then is to imagine how such a thing

can ever have appeared credible. It has so happened with the doctrine that money is synonymous with wealth. The conceit seems too preposterous to be thought of as a serious opinion. It looks like one of the crude fancies of childhood, instantly corrected by a word from any grown person. But lot no one feel confident that he would have escaped the delusion if he had lived at the time when it prevailed. All the associations engendered by common life, and by the ordinary course of business, concurred in promoting it. So long as those associations were the only medium through which the subject was looked at, what we now think so gross an absurdity seemed a truism. Once questioned, indeed, it was doomed; but no one was likely to think of questioning it whose mind had not become familiar with certain modes of stating ana of contemplating economical phenomena, which have only found their way into the general understanding through the influence of Adam Smith and of his expositors.

In common discourse, wealth is always expressed in money. If you ask how rich a person is, you are answered that he has so many thousand pounds. All income and expenditure, all gains and losses, everything by which one becomes richer or poorer, are reckoned as the coming in or going out of so much money. It is true that in the inventory of a person's fortune are included, not only the money in his actual possession, or due to liim, but all other articles of value. These, however, enter, not in their own character, but in virtue of the sums of money which they would sell for; and if they would sell for less, their owner is reputed less rich, though the things themselves are precisely the same. It is true, also, that people do not grow rich by keeping their money unused, and that they must be willing to spend in order to gain. Those who enrich themselves by commerce, do so by giving money for goods as well as goods for money; and the first is as necessary a part of the process as the last. But a person who buys goods for purposes of gain, does so to sell them again for money, and in the expectation of receiving more money than lie laid out: to get money, therefore, seems even to the person himself the ultimate end of the whole. It often happens that he is not paid in money, but in something else; having bought goods to a value equivalent, which are set oif against those he sold. But he accepted these at a money valuation, and in the belief that they would bring in more money eventually than the price at which they were made over to him. A dealer doing a large amount of business, and turning over his capital rapidly, has but a small portion of it in ready money at any one time. But he only feels it valuable to him as it is convertible into money: he considers no transaction closed until the net result is either paid or credited in money: when he retires from business it is into money that he converts the whole, and not until then does he deem himself to have realized his gains: just as if money were the only wealth, and money's worth were only the means of attaining it. If it be now asked for what end money is desirable, unless to supply the wants or pleasures of oneself or others, the champion of the system would not be at all embarrassed by the question. True, he would say, these are the uses of wealth, and very laudable uses while confined to domestic commodities, because in that case, by exactly the amount which you expend, you enrich others of your countrymen. Spend your wealth, if yon please, in whatever indulgences you have a taste for; but your wealth is not the indulgences, it is the sum of money, or the annual money income, with which you purchase them.

While there were so many things to render the assumption which is the basis of the mercantile system plausible, there is also some small foundation in reason, though a very insufficient one, for the distinction which that system Bo emphatically draws between money and every other kind of valuable possession. We really, and justly, look upon a person as possessing the idvantages ot wealth, not in proportion to the useful and agreeable things of

which he is in the actual enjoyment, but to his command over the general fund of things useful and agreeable", the power he possesses of providing for any exigency, or obtaining any object of desire. Now, money is itself that power; while all other things, in a civilized state, seem to confer it only by their capacity of being exchanged for money. To possess any other article of wealth, is to possess that particular thing, and nothing else: if you wish for another thing instead of it, you have first to sell it, or to submit to the inconvenience and delay (if not the impossibility) of finding some one who has what you want, and is willing to barter it for what you have. But with money you are at once able to buy whatever things are for sale: and one whose fortune is in money, or in things rapidly convertible into it, seems both to himself and others t o possess not any one thing, but all the things which the money places it at his option to purchase. The greatest part of the utility of wealth, beyond a very moderate quantity, is not the indulgences it procures, but the reserved power which its possessor holds in his hands of attaining purposes generally; and this power no other kind of wealth confers so immediately or so certainly as money. It is the only form of wealth which is not merely applicable to some one use, but can be turned at once to any use. And this distinction was the more likely to make an impression upon governments, as it is one of considerable importance to them. A civilized government derives comparatively little advantage from taxes unless it can collect them in money: and if it has large or sudden payments to make, especially payments in foreign countries for wars or subsidies, either for the sake of conquering or of not being conquered (the two chief objects of national policy until a late period), scarcely any medium of payment except money will serve the purpose. All these causes conspire to make both individuals and governments, in estimating their means, attach almost exclusive importance to money, either in esse or in posse, and look upon all other things

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