Book V, Chapter II, 9

The wages of workers in the lower ranks, as I have tried to show in the first book, are everywhere necessarily regulated by two different circumstances: the demand for labor and the ordinary or average price of provisions. The demand for labor, according as it is rising, steady, or falling—or calls for a rising, steady, or falling population—governs the laborer’s subsistence and determines whether it is ample, moderate, or scanty. The ordinary average price of provisions determines the amount of money the worker must be paid to enable him, from year to year, to purchase this ample, moderate, or scanty subsistence. Therefore, so long as the demand for labor and the price of provisions remain the same, a direct tax on wages can have no other effect than to raise wages by somewhat more than the tax. Suppose, for example, that in a particular place demand for labor and the price of provisions make ten shillings a week the ordinary wage, and a tax of one-fifth, or four shillings in the pound, is imposed on wages. If demand for labor and the price of provisions remain the same, the laborer in that place must still earn the subsistence that can be bought only for ten shillings a week, so that after paying the tax he has ten shillings a week in take-home wages. But to leave him this amount after paying such a tax, the price of labor in that place must soon rise not merely to twelve shillings a week but to twelve and sixpence. That is, to enable him to pay a tax of one-fifth, his wages must soon rise not merely by one-fifth but by one-fourth. Whatever the proportion of the tax, wages must in every case rise by more than that proportion. If the tax, for example, were one-tenth, wages would soon have to rise not merely by one-tenth but by one-eighth.

A direct tax on wages, therefore, though the laborer might perhaps pay it from his own hand, could not properly be said even to be advanced by him—at least if demand for labor and the average price of provisions remained the same after the tax as before. In every such case, the person immediately employing him would in reality advance not only the tax but something more. The ultimate burden would fall on different people in different cases. A rise in manufacturing wages caused by such a tax would be advanced by the manufacturer, who would be both entitled and obliged to add it, together with a profit, to the price of his goods. The ultimate burden of this rise in wages, together with the manufacturer’s additional profit, would therefore fall on the consumer. A rise in rural wages caused by such a tax would be advanced by the farmer, who would need to employ more capital to maintain the same number of laborers as before. To recover this additional capital together with the ordinary profits of stock, he would have to retain a larger portion of the land’s produce, or, what amounts to the same thing, the price of a larger portion; consequently he would pay less rent to the landlord. The ultimate burden of this rise in wages would therefore fall on the landlord, together with the additional profit of the farmer who advanced it. In every case a direct tax on wages must in the long run cause both a greater reduction in land rent and a greater rise in the price of manufactured goods than would result from properly assessing a sum equal to the tax’s yield, partly on land rent and partly on consumable commodities.

If direct taxes on wages have not always caused wages to rise proportionately, it is because they have generally brought about a substantial fall in the demand for labor. A decline in industry, a loss of employment for the poor, and a reduction in the annual produce of the country’s land and labor have generally followed such taxes. Even so, wages must always be higher as a result than they would have been under the actual conditions of demand without the taxes; and this increase, together with the profit of those who advance it, must ultimately be paid by landlords and consumers.

A tax on rural wages does not raise the price of the land’s raw produce in proportion to the tax, for the same reason that a tax on the farmer’s profit does not raise that price in proportion to it.

Absurd and destructive as such taxes are, they nonetheless exist in many countries. In France, the part of the taille charged on the labor of workers and day laborers in country villages is properly a tax of this kind. Their wages are calculated at the usual rate in the district where they live; to make them as little liable to overcharging as possible, their yearly earnings are estimated at no more than two hundred working days in the year. [Memoires concernant les Droits, etc. tom. ii. p. 108.] Each person’s tax varies from year to year according to different circumstances judged by the collector or by the commissioner appointed by the intendant to assist him. In Bohemia, as a result of the changes to the financial system begun in 1748, a very heavy tax is imposed on artisans’ labor. They are divided into four classes. The highest class pays a hundred florins a year, which, at two-and-twenty pence half penny a florin, amounts to £9:7:6. The second class is taxed at seventy; the third at fifty; and the fourth, which includes artisans in villages and the lowest class of those in towns, at twenty-five florins. [Memoires concernant les Droits, etc. tom. iii. p. 87.]

The compensation of skilled artists and members of the learned professions, as I have tried to show in the first book, necessarily bears a certain proportion to the earnings of humbler trades. A tax on that compensation could therefore have no other effect than to raise it by somewhat more than the tax’s proportion. If it did not rise in this way, the skilled arts and learned professions, no longer on a level with other trades, would be abandoned by so many people that their earnings would soon return to that level.

The earnings of public offices are not, like those of trades and professions, regulated by free competition in the market, and therefore do not always bear a fair proportion to what the work requires. In most countries they are perhaps higher than the work requires, since those who administer government are generally disposed to favor themselves and their immediate dependents rather more than enough. The earnings of public offices can therefore, in most cases, very well bear taxation. Moreover, those who hold public office, especially the more lucrative offices, are objects of widespread envy in every country; a tax on their earnings, even if somewhat higher than on other kinds of revenue, is always very popular. In England, for example, when the land tax was supposed to assess every other kind of revenue at four shillings in the pound, it was very popular to impose an actual tax of five shillings and sixpence in the pound on salaries from offices paying more than a hundred pounds a year. The pensions of younger members of the royal family, the pay of army and navy officers, and a few others less exposed to envy were excepted. There are no other direct taxes on wages in England.

ARTICLE IV.—Taxes Intended to Fall Equally on Every Different Kind of Revenue.

The taxes intended to fall equally on every different kind of revenue are capitation taxes and taxes on consumable commodities. These must be paid out of whatever revenue contributors possess: the rent of their land, the profits of their stock, or the wages of their labor.

Capitation Taxes.

Capitation taxes become wholly arbitrary if an attempt is made to proportion them to each contributor’s fortune or revenue. A person’s fortune changes from day to day and, without an inquiry more intolerable than any tax, renewed at least once a year, can only be guessed at. His assessment must therefore in most cases depend on the good or bad temper of his assessors, and thus be wholly arbitrary and uncertain.

Capitation taxes become wholly unequal if they are proportioned not to supposed fortune but to each contributor’s rank; fortunes often differ even among people of the same rank.

If an attempt is made to make such taxes equal, then, they become wholly arbitrary and uncertain; if the attempt is to make them certain and not arbitrary, they become wholly unequal. Whether the tax is light or heavy, uncertainty is always a great grievance. With a light tax, a considerable degree of inequality may be borne; with a heavy one, it is wholly intolerable.

In the various poll taxes imposed in England during the reign of William III., most contributors were assessed according to their rank: dukes, marquises, earls, viscounts, barons, esquires, gentlemen, the eldest and youngest sons of peers, etc. All shopkeepers and tradesmen worth more than three hundred pounds—the more prosperous among them—were subject to the same assessment, however much their fortunes might differ. Their rank counted for more than their fortune. Several people assessed in the first poll tax according to their supposed fortune were later assessed according to rank. Serjeants, attorneys, and proctors at law, assessed under the first poll tax at three shillings in the pound of their supposed income, were later assessed as gentlemen. In assessing a tax that was not very heavy, considerable inequality had proved less intolerable than any degree of uncertainty.

In the capitation tax levied in France without interruption since the beginning of the present century, people of the highest orders are assessed according to rank at an unchanging rate; the lower orders are assessed according to their supposed fortune, at a rate that changes from year to year. Officers of the king’s court, judges and other officers of the superior courts of justice, officers of the troops, etc. are assessed in the first way. People of the lower ranks in the provinces are assessed in the second. In France, the great readily tolerate considerable inequality in a tax that is not very heavy for them, but could not endure assessment at the arbitrary will of an intendant.

In that country the lower ranks must patiently endure whatever treatment their superiors see fit to give them.

In England, the various poll taxes never yielded the sum expected of them, or the sum they were thought capable of yielding if collected exactly. In France, the capitation tax always yields the sum expected. The milder government of England, when it assessed the different ranks for the poll tax, accepted whatever that assessment happened to produce and demanded no compensation for the loss the state might suffer from people who could not pay or those who would not pay (and there were many of these), whom the lenient enforcement of the law did not compel to pay. The more severe government of France assesses a fixed sum on each generality, which the intendant must raise as best he can. If a province complains that its assessment is too high, it may obtain a reduction the following year proportionate to the previous year’s excess, but meanwhile it must pay. To ensure that he could raise the sum assessed on his generality, the intendant was empowered to assess a larger sum, so that the failure or inability of some contributors could be offset by overcharging the rest; until 1765 the size of this surplus assessment was left entirely to his discretion. In that year, however, the council assumed this power itself. In the capitation tax of the provinces, the thoroughly well-informed author of the Memoirs upon the Impositions in France observes, the share borne by the nobility and by those whose privileges exempt them from the taille is the smallest. The largest share falls on those subject to the taille, who are assessed for the capitation at a certain amount per pound of what they pay under that other tax. Capitation taxes, insofar as they are levied on the lower ranks, are direct taxes on wages and bring all the inconveniences of such taxes.

Capitation taxes cost little to collect and, where rigorously exacted, provide the state with a very secure revenue. This is why capitation taxes are very common in countries where little attention is paid to the ease, comfort, and security of the lower ranks. Generally, however, only a small part of the public revenue of a great empire has ever been drawn from such taxes; even the largest sum they have ever yielded could always have been raised in another way much more convenient to the people.

Taxes on Consumable Commodities.

The impossibility of taxing people in proportion to their revenue through any capitation tax seems to have prompted the invention of taxes on consumable commodities. Not knowing how to tax its subjects’ revenue directly and proportionately, the state tries to tax it indirectly by taxing their expenditure, which is presumed in most cases to be nearly proportionate to their revenue. Their expenditure is taxed by taxing the consumable commodities on which it is spent.

Consumable commodities are either necessities or luxuries.

By necessities I mean not only the commodities indispensable to life, but whatever the custom of a country makes it indecent for respectable people, even of the lowest rank, to do without. A linen shirt, for example, is not strictly a necessity of life. The Greeks and Romans, I suppose, lived quite comfortably without linen. But today, throughout most of Europe, a respectable day laborer would be ashamed to appear in public without a linen shirt. Its absence would be taken as a sign of that disgraceful degree of poverty into which, it is assumed, no one can readily fall without extreme misconduct. Custom has likewise made leather shoes a necessity of life in England. The poorest respectable person, whether man or woman, would be ashamed to appear in public without them. In Scotland, custom has made them necessary to men of the lowest rank, but not to women of that rank, who may go barefoot without any discredit. In France they are necessary to neither men nor women; people of the lowest rank of both sexes sometimes appear in public in wooden shoes and sometimes barefoot, without any discredit. By necessities, therefore, I include not only what nature requires, but what established rules of decency have made necessary to the lowest rank of people. Everything else I call luxuries, without intending the slightest reproach to their moderate use. Beer and ale in Great Britain, for example, and wine even in wine-producing countries, I call luxuries. A person of any rank may abstain altogether from such drinks without reproach. Nature does not require them for the preservation of life; nowhere does custom make it indecent to live without them.

As I tried to show in the first book, wages for lower-paid workers are necessarily governed everywhere by two things: the demand for labor and the usual average price of provisions. Whether labor demand is rising, steady, or falling determines whether the population must rise, remain steady, or fall. It therefore determines whether workers can live comfortably, moderately, or sparsely. The usual average price of provisions determines how much money workers must receive to buy that standard of living from one year to the next. So if both labor demand and the price of provisions stay the same, a direct tax on wages can only raise wages by somewhat more than the tax. Suppose, for example, that demand and provision prices in a certain place make ten shillings a week the normal wage. Suppose wages are then taxed at one-fifth, or four shillings in the pound. If demand and prices do not change, workers there must still be able to buy provisions costing ten shillings a week. They therefore need ten shillings a week left after tax. To leave them that much, wages must soon rise not merely to twelve shillings a week, but to twelve and sixpence. To let a worker pay a tax of one-fifth, wages must rise not just by one-fifth but by one-fourth. Whatever the tax rate, wages must rise by more than that rate. If, for example, the tax is one-tenth, wages must soon rise not merely by one-tenth but by one-eighth.

Workers might physically hand over a direct wage tax, but they cannot really be said even to advance it, provided labor demand and average provision prices stay unchanged after the tax. In all such cases, employers actually advance both the tax and an additional amount. Who ultimately pays differs from case to case. A wage rise caused by such a tax in manufacturing is advanced by manufacturers. They are both entitled and obliged to add it, along with a profit, to their goods’ prices. Consumers ultimately pay both the wage increase and the manufacturer’s extra profit. A rise in farmworkers’ wages is advanced by farmers. To keep the same number of workers, farmers need more capital. To recover that extra capital plus the normal profits of stock, farmers must retain a larger share of the land’s produce, or the price of a larger share. They must therefore pay their landlords less rent. In this case landlords ultimately pay for the wage increase and the extra profit of the farmer who advanced it. In the long run, a direct tax on wages must always lower land rent more and raise manufactured-goods prices more than if a sum equal to the tax’s proceeds had instead been properly assessed partly on land rent and partly on consumable goods.

If direct wage taxes have not always raised wages by the expected proportion, it is because they have generally reduced labor demand substantially. Such taxes have usually caused industry to decline, reduced jobs for the poor, and cut the annual output of the country’s land and labor. Even so, wages must always be higher than they would otherwise have been at the resulting level of demand. Landlords and consumers ultimately pay this extra cost, along with the profits of those who advance it.

A tax on farmworkers’ wages does not raise the price of unprocessed produce from the land in proportion to the tax. This is for the same reason that a tax on farmers’ profits does not raise that price in the same proportion.

Despite being absurd and destructive, such taxes exist in many countries. In France, the portion of the taille charged on the work of tradespeople and day laborers in country villages is really such a tax. Their wages are calculated at the usual rate in their district. To minimize overcharging, their yearly earnings are estimated at no more than two hundred working days in the year. [Memoires concernant les Droits, etc. tom. ii. p. 108.] Each person’s tax changes from year to year according to circumstances judged by the collector or the commissary whom the intendant appoints to assist the collector. In Bohemia, a change to public finances begun in 1748 led to a very heavy tax on the work of artisans. They are divided into four classes. The highest class pays a hundred florins a year. At two-and-twenty pence half penny a florin, that is £9:7:6. The second class pays seventy florins, the third fifty, and the fourth twenty-five florins. The last class includes village artisans and the lowest class of town artisans. [Memoires concernant les Droits, etc. tom. iii. p. 87.]

As I tried to show in the first book, the pay of skilled artists and members of learned professions necessarily bears a certain relation to the earnings of lower-paid trades. A tax on their pay can therefore only raise it by somewhat more than the tax rate. If it did not rise this way, the skilled arts and learned professions would no longer be as rewarding as other trades. People would leave them until the pay again reached that level.

Unlike earnings from trades and professions, pay from public offices is not set by free market competition. It therefore does not always correspond fairly to the demands of the job. In most countries it may be higher than necessary: people running governments generally take more than enough care of themselves and those directly dependent on them. Pay for public office can therefore usually stand to be taxed. Besides, holders of public offices, especially highly paid ones, are widely envied in every country. So a tax on their pay is always popular, even if its rate is somewhat higher than that on other kinds of revenue. In England, for example, the land tax supposedly assessed all other kinds of revenue at four shillings in the pound. A real tax of five shillings and sixpence in the pound on salaries from offices paying more than a hundred pounds a year was therefore very popular. Exceptions were made for pensions of younger members of the royal family, the pay of army and navy officers, and a few others who aroused less envy. England has no other direct taxes on wages.

ARTICLE IV.—Taxes Intended to Fall Equally on Every Kind of Revenue.

Taxes intended to fall equally on every kind of revenue are capitation taxes and taxes on consumable goods. Contributors pay these taxes no matter where their revenue comes from: land rent, profits from stock, or wages.

Capitation Taxes.

If a capitation tax tries to match each contributor’s wealth or revenue, it becomes entirely arbitrary. A person’s wealth changes daily. It can only be guessed at without an investigation more unbearable than any tax, repeated at least every year. The assessment therefore usually depends on the assessor’s mood and is entirely arbitrary and uncertain.

If capitation taxes are based on each contributor’s rank instead of supposed wealth, they become entirely unequal. People of the same rank often have very different amounts of wealth.

Trying to make these taxes equal makes them completely arbitrary and uncertain. Trying to make them certain and nonarbitrary makes them completely unequal. Uncertainty is a major hardship whether the tax is light or heavy. People can tolerate considerable inequality in a light tax. In a heavy one it is unbearable.

During William III.’s reign, England imposed various poll taxes. Most contributors were assessed by rank: dukes, marquises, earls, viscounts, barons, esquires, gentlemen, eldest and youngest sons of peers, etc. All shopkeepers and tradespeople worth more than three hundred pounds—the better-off ones—paid the same assessment, however much their wealth differed. Rank counted more than wealth. Several people initially rated according to their supposed wealth were later rated by rank. Legal serjeants, attorneys, and proctors were assessed under the first poll tax at three shillings in the pound of their supposed income. Later they were assessed as gentlemen. For a tax that was not very heavy, substantial inequality had proved easier to bear than any uncertainty.

France has levied its capitation tax continuously since the beginning of the present century. Its highest social orders pay according to rank on a fixed scale. Lower orders pay according to supposed wealth on an assessment that changes each year. Royal court officers, judges and other officers of the higher courts, military officers, etc. pay under the first method. Lower-ranking people in the provinces pay under the second. In France, the wealthy readily accept considerable inequality in a tax that is not very heavy for them. But they would not tolerate an intendant deciding their assessments arbitrarily.

Lower-ranking people in that country must patiently endure whatever treatment their superiors choose to give them.

England’s various poll taxes never raised the amounts expected of them, or the amounts people thought they might have raised if collected exactly. In France, the capitation always raises the expected sum. When England’s more lenient government assessed people of different ranks for poll tax, it accepted the revenue the assessment happened to bring in. It demanded no compensation for losses from people who could not pay or refused to pay—and there were many who refused and were not forced to pay under the lenient application of the law. France’s stricter government charges each generality a set amount, which the intendant must find however possible. A province that complains of an excessive charge may receive a corresponding reduction in next year’s assessment, but must pay this year. To ensure collection of the required sum, the intendant could assess more than that sum. The extra payments from some contributors would cover failures or inability to pay among others. Until 1765, the amount of this excess was entirely at the intendant’s discretion. In that year the council took over that power. The well-informed author of the Memoirs upon the Impositions in France notes that, in the provincial capitation, the nobility and people whose privileges exempt them from the taille pay the smallest share. The largest share falls on those subject to the taille. Their capitation tax is assessed at a certain amount per pound of their taille payment. To the extent capitation taxes are charged to lower-ranking people, they are direct wage taxes with all the disadvantages such taxes bring.

Capitation taxes cost little to collect. Where rigorously enforced, they provide the state with a very reliable revenue. That is why they are common in countries that pay little attention to the comfort and security of lower-ranking people. In a great empire, however, these taxes have generally supplied only a small part of public revenue. Even the most they have ever raised could always have been found another way that was much more convenient for the people.

Taxes on Consumable Goods.

Capitation taxes cannot be made proportional to people’s revenue. This difficulty seems to have led to the invention of taxes on consumable goods. Unable to tax its subjects’ revenue directly and proportionally, the state tries to tax it indirectly through their spending. Spending is assumed to be roughly proportional to revenue in most cases. The state taxes spending by taxing the goods on which people spend their money.

Consumable goods are either necessities or luxuries.

By necessities I mean not only things indispensable for life, but also things that local custom makes it shameful for respectable people, even among the poorest, to go without. Strictly speaking, for example, a linen shirt is not necessary for life. The Greeks and Romans, I suppose, lived comfortably enough without linen. But today, in most of Europe, a respectable day laborer would be ashamed to appear in public without a linen shirt. Going without one would be seen as a sign of disgraceful poverty, which people assume no one reaches without exceptionally bad behavior. Likewise, custom has made leather shoes a necessity in England. The poorest respectable person, man or woman, would be ashamed to appear in public without them. In Scotland custom has made shoes necessary for even the poorest men, but not for women of the same rank, who can go barefoot without shame. In France they are necessary for neither men nor women. People of the lowest rank there sometimes appear in public wearing wooden shoes and sometimes barefoot, with no shame in either case. By necessities, then, I mean what nature requires and what accepted standards of decency require even of the poorest. I call everything else luxuries. I do not mean that using them in moderation deserves any criticism. Beer and ale in Great Britain, for example, and wine even in wine-producing countries, are luxuries in this sense. A person of any rank may abstain completely from those drinks without criticism. Nature does not require them to sustain life, and nowhere does custom make it shameful to live without them.