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DEC 18 1891



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Ir is necessary to raise more than fifty millions sterling every year to defray the expenses of the government and the interest of the national debt. Of this sum, rather more than half is required to pay the interest of the debt contracted by our ancestors, and therefore cannot be avoided, and can scarcely be reduced by any efforts of economy on our parts. But as the national estates yield little more than the expenses of managing them, and of keeping up a few parks for the recreation of the people, it is necessary to levy the immense sum of fifty millions every year by taxation.

Long before the national debt or the public expenditure had reached its present amount, the mode of collecting the public revenue had attracted the attention of our political writers, and the following maxims were propounded by Adam Smith, the earliest British author of any note on political economy, and have received very few additions or improvements from his successors. We extract them from Mr. McCulloch's work, p. 17.

First Maxim

"The subjects of every state ought to contribute towards the support of the Government, as nearly as possible in proportion to their respective abilities;. that is, in proportion to the revenue which they respectively enjoy under the state. The expense of governments to the individuals of a great nation, is like the expense of management to the joint tenants of a great estate, who are obliged to contribute in proportions to their

respective interests in the state. In the observation or neglect of this maxim consists, what is called, the equality or inequality of taxation."

Second Maxim :—


"The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person. When it is otherwise, every person, subject to the tax, is put, more or less, in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite for himself. uncertainty of taxation encourages the insolence, and favours the corruption of an order of men who are naturally unpopular, even when they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations is not near so great an evil as a very small degree of uncertainty."

Third Maxim :

"Every tax ought to be levied at the time and in the manner in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land, or of houses, payable at the same term at which rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to pay, or when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are arti

A Treatise on the Principles and Practical Influence of Taxation and te Funding System. By J. R. M'Culloch, Esq. 8vo. London 1845.

VOL. XXVI-No. 151.


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"The distinguishing characteristic of the best tax is, not that it is most nearly proportioned to the means of individuals, but that it is easily assessed and collected, and is, at the same time, most conducive, all things considered, to the public interest."—p. 19.

In this assertion we do not see much to which any fair objection can be made; but it is one of those true propositions which are so abstract and general, that, notwithstanding their truth, they are of little use, from the difficulty of applying them rightly to any particular case. We learn very

little when we are informed that the best tax is that which is most conducive to the public interests; but we do learn something useful, when our attention is directed to any particular merit or demerit which ought to be sought for or avoided in any system of taxation; and it is certain that Adam Smith's maxims have been of great service to the kingdom, by directing public attention to the particular points of view in which each tax ought to be considered. His illustrations of these maxims, also, were in general just and important. But we must not carry our obedience to those maxims too far, nor decide that a tax ought to be rejected because it cannot be imposed in exact conformity with those maxims. When it is necessary to raise so large a sum by taxation, it becomes impossible to avoid some objectionable taxes. It is the duty of

the statesman to avoid all unnecessary mischief, and by judicious economy to supply the place of a large public revenue, having due regard to Mr. Say's apothegm, that the best system of finance is to spend little, and the lightest tax is the best.


It was at one time, indeed, thought that economy in the administration of public affairs was very little conducive to the general welfare, and that, apart from the accidental evils caused by any particular injudicious tax, there was very little evil in the increase of taxation caused by an extravagant government. It was argued that the expenses of the government brought back to the people, in wages and salaries, and in the purchase of commodities, the money that was taken from them by taxes. It is almost unnecessary to refute or expose such an argument at the present day. The labourer from whom one day's wages are taken by the taxgatherer, without adequate necessity, has not his just cause of complaint removed, by a promise that the person who ultimately receives the tax will procure him another day's employment. The issue would be, merely that he had to work two days for the wages of And even when the tax falls upon an idle consumer, it is to be remembered, that the power of this idle consumer to employ labour, or to purchase the produce of manufacturing industry, is just as much diminished by the payment, as that of the tax-receiver is increased by the receipt of the tax. In all discussions of subjects connected with political economy, we must attribute no weight to the fact that employment is provided for a certain number of labourers. Nothing but ignorance will ever keep labourers out of employment; what we desire for them is good wages, and these must, in most cases, be ultimately paid out of the fund which is produced by the labourer's exertions. An increase in the rate of wages can be produced only by increasing the productiveness of labour; an amelioration of the labourer's condition may be effected, either by increasing his income, or by reforming his habits, so as to enable him with the same income to lead a more happy life.

What the public really gain in return for the taxes which they are required to pay, are the services which are paid for


by the taxes. In exchange for that portion of his income which is taken from him by the tax-gatherer, the individual gains the assistance of the army and navy to defend him from foreign aggression, the administration of justice, and the protection of the laws at home-a participation in the advantages derived from a number of public works, roads, canals, quays, docks, bridges, harbours, &c.—and a variety of benefits which it is unnecessary to mention. There cannot be the slightest doubt that the services performed by government are worth many times more than the price we pay for them but this leaves untouched the questions whether those services could not be procured on more reasonable terms, and whether the price which we pay for them could not be levied in a more judicious manner. The former question depends upon the manner in which the government performs those services, and upon the salaries (generally too large) which are paid to the various persons in the employment of the government, and, perhaps, even more upon the particular nature of the services which can be most suitably performed by government, and which can be best left to the care of the individuals interested.

But it is with the manner in which the public income is to be raised that we are at present most concerned; and in the first place we ought to observe, that Adam Smith's first maxim cannot be properly applied to any particular tax, although it is a principle which ought not to be lost sight of when we are called upon to form a judgment on our entire system of taxation.

Thus, it would be very unreasonable to try by this test the merit of a tax upon tobacco, by which many of the richest men in the kingdom are entirely unaffected, or even the tax upon income, by which a man with an income of £160 a year pays about £6, while his neighbour whose income is only £140 escapes it altogether. However, in the entire system of taxation, the statesman ought not to lose sight of the principle of equality, but endeavour, as far as possible, to make one tax correct the deficiencies of another, so that, on the whole, no person can avoid contributing his just share. It may be also not unreasonably required, that no

particular tax shall violate this rule without good cause.

"The great defect, for example, in the system of taxation in France, previously to the revolution, consisted not so much in its magnitude, or in the oppressive manner in which it was colfected, as in its inequality. The principal taxes were direct, and should therefore have been proportioned to the abilities of the contributors. But, on the contrary, those who had the largest fortunes, and who consequently derived the greatest advantage from the protection afforded by government, were expressly relieved from the burthen of direct taxation. The nobility and clergy, while they engrossed every situation of power and emolument, were, as far as possible, exempted from the taille, and other heavy and vexatious imposts."M'Culloch, p. 22.

There can be little doubt that the unfairness and inequality of the direct taxation of France was one of the leading causes of the French Revolution. But the old French system of taxation had many other faults. It was carried to an excessive height, affecting many articles of constant and necessary consumption among the poor; it was unequal in the different provinces, and thus injuriously prevented a free commercial intercourse between different parts of the kingdom, and supplied irresistible temptations to smugglers; while all those evils, and the annoyance and irritation arising from them, usual, of farming out the principal were aggravated by the system then taxes - the government receiving a fixed sum from the farmer of the tax, who was permitted to make as much of it as he could. Adam Smith's remarks on this system are forcible and just:

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"The best and most frugal way of levying a tax can never be by farm. Over and above what is necessary for paying the stipulated rent, the salaries of the officers, and the whole expense of administration, the farmer must always draw from the produce of the tax a certain profit, proportioned, at least, to the advance which he makes, to the risk which he runs, to the trouble which he is at, and to the knowledge and skill which it requires to manage so very compli cated a concern. Government, by establishing an administration under their own immediate inspection, of the same

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