Chapter 2

Descending a little from this abstract argument, our opponent says, "If you go on buying wheat for gold, and cannot sell your cutlery and broadcloth out of the country for gold, you _must_ run out of gold." But the fact has been proved by many years' experience not so to be: for many years our imports have been some £150,000,000 sterling more than our exports, while our stock of gold in the Bank of England (and the gold in circulation) remain the same from year to year. This is one of those many things (like the supply of meat to London) which will regulate itself perfectly and insensibly (without any violent disturbances in trade or the money market) if Government will only leave the matter entirely alone. If our stock of gold is at all short our merchants give a little less per quarter for American wheat; the trade is checked; the sensibility of the market--the experience of our corn-traders--is such that the balance is preserved with very slight oscillations. The refusal of the Americans (enforced by an import duty) to purchase our cutlery, etc., _does_ partially check the reflux of gold to this country, and does lower sensibly the price which the Americans get for their wheat from us. Errors in political economy avenge themselves--often fearfully--on their perpetrators. But our objector will still want to have explained to him where the £150,000,000 sterling required in England annually comes from. It is not essential to, or indeed any part of, my present argument to explain this; but I will anticipate matters so far as to say shortly here that this £150,000,000 is, roughly speaking, the interest on English capital invested in foreign countries paid in cash to the owners resident in England--it is equivalent to an annual tribute.

Professor Henry Fawcett's _Lectures on Free Trade_ is a sound and admirable book: it is occupied a good deal with the practical question why so few foreign nations have adopted Free Trade, and how such foreign nations are to be converted to the orthodox creed of Adam Smith. But, as I think, unfortunately Professor Fawcett has in that book used the words Reciprocity and Retaliation pretty freely. Their mere use is enough to fortify a French or American Protectionist in his present policy; he naturally says, "The English Free-traders themselves admit that we are making money out of them: we take their gold for our wine and wheat; we refuse to give our gold for their cutlery and broadcloth: those English have now to come to us whining for Reciprocity; as to their Retaliation we are not alarmed--we know they _must_ have wheat and _will_ have wine." I would wish to expunge the words Reciprocity and Retaliation from the subject, as being words merely suggestive of false views. But the most fatal course to the adoption of a Free Trade policy by foreign nations has been our plan of humbling, begging (and indirectly giving a consideration for) Commercial Treaties. Such a course is enough to (and does) counterbalance with foreign nations all our theoretical writings about Free Trade. We go to France and say, "We will let in your wines at a lower duty provided you do us the favour and give us the advantage of lowering your duties on English manufactures." I cannot conceive any way of putting the matter more strongly calculated to convince the French that we believe we lose by purchasing their wines and gain by selling them our manufactures.

It appears to me that if we wish to convince Europe and America of the truth of Free Trade (as understood by our political economists), our proper course is to adopt Free Trade ourselves FULLY (if the principle is good for wheat it is good for tea--I shall return to this), and then to say to foreigners, "See how we prosper under Free Trade." If the Americans continue to maintain Protectionist duties on our manufactures, our line of conduct is not to offer to pay them indirectly to relax those duties, but to say, "You are losing more by your duties than we are; the proof of the pudding is in the eating." If I believe, as I do, that the Americans are gaining less wealth under Protection than they would under Free Trade, I cannot imagine any plan less likely to convert them to my views than my going to them and saying, "We will give you £5,000,000 sterling (or some valued political advantage) if you will alter your mistaken policy." If this course did not confirm the Americans in the very deepest suspicions that Protection is really advantageous to them, and that we in our inmost heart think so too, my ideas of human nature are altogether at fault. But every foreign debate, whether in France, Germany, or America, on Free Trade, convinces me that I am not mistaken in the effect which I attribute to our prayers to every foreign nation to grant us a Commercial Treaty.

3. UNIVERSAL FREE TRADE.

Wheat is now admitted to England free of duty. Tea pays a duty of about £4,000,000 sterling a year. This is called a duty for revenue, not for protection. Tea is an article of universal consumption; the tax on it is open to the objections against a poll tax or hearth tax, viz. that by it many a poor old woman is taxed as heavily as far richer people; indeed, owing to the poor consuming the lower-priced teas, they are by the present duty taxed at a higher rate than those who can afford the more expensive teas.

The reply in defence of these anomalies is, "We have to raise £4,000,000 sterling by a duty on something; on whatever we put it, it will no doubt be bad." Granting, however, this for a moment, the onus lies on the defender of the existing tariff to prove that it is better to raise the £4,000,000 required from tea than from wheat, or than to raise £2,000,000 from tea, £2,000,000 from wheat. Mr. Raban, a leading tea-planter in Assam, has observed that if the duty on tea was replaced by one on wheat to raise the same gross amount, the pressure on the English poor would be less; while an encouragement would thus be given both to tea-planting in India and to agriculture in England. I adduce this case of the duty on tea merely to bring out strongly the fact that Free Trade in wheat is not universal Free Trade. I do not recommend that the duty on tea should be replaced by other duties: I am going to raise the question whether it should not be replaced by direct taxation.

In the case of tea, the duty can hardly be said to be "protective," except so far as by raising the cost of tea it impels English drinkers to have more free recourse than they otherwise would to other drinks; but in a large number of cases a duty operates both as a revenue and as a protective duty. It is a curious fact that the fanners, after unanimously struggling FOR the duty on wheat because it was a protective duty, subsequently unanimously struggled for thirty years AGAINST the malt tax (involving a duty on barley) because it was a revenue duty. As soon, however, as the malt duty was repealed, they discovered that it had been a protective duty; barley fell in price (malting samples) about l2s. a quarter, and has never recovered, nor does any farmer now suppose it ever will. This is rather a complex case, because on the abolition of the malt tax an equal tax (in gross amount) was put on beer; and it might be supposed at first sight that this would not affect the price of barley. It has in several ways: Firstly, Many brewers now brew common beer with one-third malt, two-thirds molasses, cane sugar, etc. The tax being on the beer, Government no longer cares whether it is brewed from malt or from rubbish, and the consumers grow soon accustomed to the lowered taste of malt in their beer; Secondly, The admission of foreign malt and barley without duty has quickened the importation by removing those restraints and interferences which hamper trade out of all proportion to their expressed amounts in pounds, shillings, and pence.

In order to establish a Universal Free Trade and to make every port in England a free port, it would be necessary to raise by direct taxation about £40,000,000 annually, because the excise on beer, etc., would have to be abandoned with the Customs duties. We will consider the possibility of raising this £40,000,000 by direct taxation before we dilate on the advantages which would follow Universal Free Trade.

Ricardo, at the end of his masterly consideration of the effect of taxation variously levied, comes to the general conclusion that the best tax is that which is least in amount. Adam Smith and the older economists held that one test which a well-devised tax had to satisfy was that it should take the money from the taxpayer insensibly, indirectly. Now, all taxes that thus insensibly drain the taxpayers invariably take more in gross from them than reaches the Government. To raise £40,000,000 by customs and excise costs about £3,000,000; so that the people have to pay £43,000,000, while the Government gets £40,000,000. In direct taxes, as income taxes, property rates, the cost of collection is very small--about two-pence in the pound. In public as in private business it is much more economic to look payments in the face and make them with our eyes open than to let the money slip away in driblets. Moreover, modern politicians think, in opposition to Adam Smith, that it has a good moral effect on the body politic to be made to feel exactly what taxes they pay, so that they cannot help knowing whenever taxation is increased.

A serious objection to indirect taxation is that it always falls with unfair weight on the poor, as in the case of tea duties stated above. It may be urged that the existing duties are (except tea) nearly all on luxuries, as beer, spirits, tobacco. But the English have drunk beer for many hundred years; the taste for beer is largely fixed by inheritance; beer as supplying sustenance in a form that _rapidly_ assists exhausted nature is, to very many at least, as much a necessary of life as tea is. Whether we believe tobacco to be injurious or not, we have no right to impose on an article so very largely consumed a duty which amounts to taxing the poor out of proportion to the rich.

If all the indirect taxes are removed, the poor (at least down to those earning £1 a week and upwards) must be made to contribute to direct taxes. It may be urged against Universal Free Trade that the poor are so ignorant that they would sooner pay sixteen-pence a week in taxes indirectly than eightpence directly. This might prove a fatal objection to carrying out Universal Free Trade at the first attempt; but one of the objects to be gained by direct taxation is the education of the people. It may also be urged that the whole political power being now in the hands of the masses, they are so selfish and unjust that if taxation is made a plain matter they will put all taxation on the rich and refuse to pay anything themselves. The reply to this is, If this is your estimate of the understanding and morality of the masses, you should not have put the whole political power in their hands.

We are only attempting at present to show that the £40,000,000 sterling (to replace duties and those parts of the excise which hang on duties) _could_ be raised by direct taxation: we are not attempting to show the best way it could be raised by direct taxation; it will be seen hereafter that a portion of it might perhaps be better raised by a National Property Rate.

The £40,000,000 would be raised by an income tax of sixteen-pence in the pound--(I am underestimating safely--about a shilling in the pound would raise it really),--carried down to £156 a year without any reductions; while incomes of £1 a week paid eightpence weekly, and incomes of £2 a week paid twelvepence weekly. In the Crimean War the nation endured an income tax of sixteen-pence in the pound; it is certain that the nation is richer now, and better able to bear such a rate.

But this is not the strength of the argument. In the Crimean War England endured sixteen-pence in the pound _extra_, in addition to all existing taxes (some of which were raised too), and the capital thus taken from the people was destroyed (much of it) or dissipated in the Crimea. But the sixteen-pence in the pound here suggested would be in lieu of an equal amount of taxes taken off (it would be rather less in amount than the taxes taken off): the nation therefore, would not feel it at all, though individuals would feel it in different ways. A poor man would have eightpence a week deducted from his wages, but he would get his beer at three-fifths the present price, his tea at two-thirds the present price, etc. He would soon feel that he gained by the change. The rich would find that they lost; but that loss would, I believe, be made up to them over and over again.

First, I believe it is impossible to realise the effect on our trade of having London, Liverpool, etc., free ports. We possess at present half the ocean trade of the world: with our ports free, we should get a yet larger share of the world's trade, and secure it permanently. That is to say, we should certainly keep it until other nations adopted Universal Free Trade.

Secondly, The fall in the price of tea, beer, etc., would be more than the amount of the tax remitted: the freedom of universal manufacture without any Government interference, the liberty to land tea without delay, and put it into the market without having to advance the duty, would cause at once a great activity in the trades, and at the same time a fall in price. By diminishing the need for middle-men the quality of the beer, tea, etc., would be raised, and adulteration diminished.

Thirdly, The fall in the price of tea and beer would bring down the price of all competing drinks: it would at first diminish the consumption of competing drinks. The cheapening the price of some of the prime necessaries of life would be to some extent divided between capital and labour. As in the case of wheat, the labourer would be made better off, while the profits of capital would be raised. A general and permanent improvement in all trades would result, except possibly in those of the tea-dealer and brewer--but I do not think they would lose. I see no end to the developments from Universal Free Trade: we can only gain some idea of what they would be by tracing as far as we may what the results of Free Trade in one article--wheat--have been; and in doing this we must recollect that before 1846 the quantity of wheat imported was trifling compared with the present importation.

To this scheme of direct taxation Edward Wilson objects, "Taxation should fall on expenditure, not on income." It is true that our object must always be to encourage accumulation, and discourage destruction of capital (expenditure). Practically, it does not appear that a heavy income tax diminishes the taste for accumulation in England: it does increase the tendency of large capitalists to invest their capital out of England, so as to avoid the State charges on capital in England. But the capital in England and the quantity of English capital invested abroad are already so enormous that the "tendency" of an increased income tax may be disregarded. Lastly, it may be objected, Would the sixteen-pence income tax levied as you propose (or nearly so) raise £40,000,000? At the time of the Crimean War each penny in the pound income tax brought in a million sterling. At the present time, each penny in the pound income tax brings in nearer two millions sterling, but the productiveness of the tax is much interfered with by the large remissions now allowed, and subtractions which take effect just where the contributors to the tax are most numerous, say from £100 to £300 a year. I therefore reckon that, without remissions, the tax of sixteen-pence in the pound down to £156 a year would produce about £30,000,000, and that the tax down to £52 a year would about produce the rest. The _total_ income that income tax is now levied on is nearly £600,000,000. We need not be surprised at the productiveness of the income tax. A man of £10,000 a year pays tax on that. But he has a steward on £300 a year, he is worth to his firm of lawyers £100 a year, and so on: these pay income tax on the £300 and the £100 over again. When the income tax is carried down to incomes on £1 a week, the tax will be levied on the same income over and over again. Even a spendthrift with £10,000 a year usually scatters more than he actually destroys.

Lastly, It has not been overlooked that there is an income tax now: and if the whole proceeds of the sixteen-pence income tax were used to fill up the deficiency in customs and excise, then we have to make up a deficiency equal to the present proceeds of the income tax. This might be done (to start with) by the National Property Rate now to be suggested. But the expectation is, that with Universal Free Trade, and the tremendous stimulus thereby given to commerce and manufacture, the National Income would rise with a bound, and that in two or three years a much lower rate than sixteen-pence income tax in the pound would supply the amount of all the indirect taxes abandoned.

4. THE RANSOM OF THE LAND.

Many people see quite clearly that, the population of England being 25,000,000, the next baby born has a right to one twenty-fifth-millionth part of the area of England in soil of average fertility. The arrangements of society by which the laud is partitioned among a limited class, and the complicated rights sanctioned by law in one plot of land, are considered of no validity as against the natural right of the new-born baby. I do not see this theory to be self-evident: on the other hand the supporters of it always give it as fundamental, axiomatic; they no doubt presume rightly that the land is limited, and that if one man holds more than his arithmetical share, he must push out somebody else from his arithmetical share: while a man who keeps a hundred pocket-knives does not perceptibly hinder other people having numerous pocket-knives. Still I do not see how this consideration weighs against Lord Derby's title to his lands, if the body politic has determined that on the whole it is best for the community that land should not be held equally by all, and sanctions by law Lord Derby's monopoly of a large area. On the theory of the natural right of every infant born to its arithmetical share, the monopolisers of land are liable to a perpetually recurring ransom: this can only practically be carried out by a special National Rate on Real Property (_i.e._ Land, with the houses, mines, etc., inseparably attached to it), which must be in addition to such taxes as income tax, succession duty, etc., which land already suffers equally with trades, professions, offices, and personalty. The local rates in England exceed £25,000,000 annually; and the ratepayers perhaps reckon this a large enough ransom. I should remark in passing that one man with 1000 acres of land does not dispossess any more babies of their rights than do ten men with 100 acres each. The ransom therefore must be a strictly level rate: to put a higher rate on large holders, or to despoil large holders of a portion of their landed property, will be to work the ransom unfairly. It hence will follow that any heavy ransom is now impracticable. Of late years some farms have gone out of cultivation because they will not pay the tithe, land tax, and rates already on them: to put any heavy ransom on the land would at once throw large areas in England out of cultivation.

The question of the ransom, therefore, is not so all-important as has been considered; the rates at present being £25,000,000, it might be possible to levy an additional national rate of £5,000,000 to keep down the perpetually upspringing rights of new-born infants, without throwing land out of cultivation to any sensible extent. The whole question will lie thus between a total rate of £25,000,000 and £30,000,000. I am about, however, as a corollary to this subject, to suggest a way of forming a National Rate Book which probably would not materially alter the present rating, but which would alter entirely the taking of land for public purposes, and would effectuate all that is good in the phrase the Nationalisation of Land.

This phrase is liberally used but rarely defined. Different orators appear to have quite different ideas as to what it means; and when they explain what they suppose it to mean, they generally prove that, in the way they understand it, it would be serious national damage.

It is unnecessary to observe that landlords now (omitting individual exceptions and idiosyncrasies) expend their best endeavours in getting the best rent they can for their land. They have no prejudices in favour of farms of a particular size; a landlord of a farm of 1000 acres would let it directly in five-acre plots if he could get a better (and equally certain) gross rent by so doing. "Nationalisation" is often taken to mean that Government is to buy land and let it out in small plots. But apart from expense of Government management and objections to Government interference, we may safely assume that there would be a national loss by this procedure: the private owner would discover very quickly if he could make a profit by letting his farms piecemeal.

All Government interference can do to improve the produce of the land is to abolish all restrictive laws, and to make the general tenure of land such that every piece of land shall fall into the hands of that man who is able to make the most of it. The National Rate Book now suggested is designed to accomplish this end. We will subsequently consider how it might assist public companies. As the suggested way of getting a National Rate Book is at first sight rather startling, I would premise that it is no rash invention of mine; it worked admirably in Attica--as see Demosthenes or Boeckh.

To make the National Rate Book, each landowner values (with the magistrate) his land at what price he pleases; the State has the right to buy the land at any time at that price, plus 33-1/3 per cent for compulsory purchase. The magistrate sees that each separate house, farm, and plot is valued separately. No person need prove his title; any man can value any piece of land, and need not prove himself to be owner, tenant, or agent; but any piece of land valued by no one would be claimed as public property.

A man who valued himself unfairly low would not be bought out at once and dispossessed by Government, unless it happened that during that year his land was taken up by Government or by a railway company for some public purpose. The regular course of business would be as follows:--An owner A would put his house and curtilage in the Rate Book at £1200. The sycophant B would come to the magistrate, offer £1600 for the property, and lodge the £1600 with the magistrate. The magistrate then, without divulging the name of the sycophant, would write to A either to rate his house at £1600 (paying a fine for so doing), or to take £1600 for it. If he took the £1600, B would get the property, and Government the increased rate. If A preferred raising his rateable value to £1600, B would get the fine, Government would get the increased rate.

_The utmost pressure put upon any owner under this system would be that, if he would not pay rates on x pounds for his property, he would lie obliged to take x pounds for the property._