Book V, Chapter II, 10

Because wages of labor are regulated everywhere partly by the demand for labor and partly by the average price of the necessities of life, anything that raises this average price must also raise wages. Only then can the laborer still buy the quantity of necessities required by the state of demand for labor, whether that demand is growing, stationary, or declining. [See book i.chap. 8] A tax on these articles necessarily raises their price somewhat more than the amount of the tax, since the dealer who advances it must generally recover it with a profit. Such a tax must therefore raise wages in proportion to the rise in price.

This is how a tax on the necessities of life works exactly like a direct tax on wages. Though the laborer may pay it out of his own hand, he cannot properly be said even to advance it, at least for any considerable time. In the long run his immediate employer must always advance it to him in the form of higher wages. If the employer is a manufacturer, he will add the rise in wages, together with a profit, to the price of his goods; the consumer will thus bear the final payment of the tax and this surcharge. If the employer is a farmer, the final payment, with a similar surcharge, will fall on the landlord's rent.

Taxes on what I call luxuries, even the luxuries of the poor, are different. A rise in the price of the taxed goods does not necessarily bring any rise in wages. A tax on tobacco, for example, a luxury of poor and rich alike, will not raise wages. Though in England tobacco is taxed at three times its original price, and in France at fifteen times that price, these high duties seem to have no effect on wages. The same may be said of taxes on tea and sugar, which in England and Holland have become luxuries of the lowest ranks, and of taxes on chocolate, which is said to have done so in Spain.

The various taxes imposed on spirituous liquors in Great Britain during the present century are not thought to have affected wages. The increase in the price of porter caused by an additional tax of three shillings on a barrel of strong beer has not raised ordinary wages in London. These were about eighteen pence or twenty pence a day before the tax, and are no higher now.

High prices for such goods do not necessarily diminish the ability of the lower ranks to raise families. For the sober and industrious poor, taxes on these goods act like sumptuary laws, prompting them to moderate their use of luxuries they can no longer easily afford, or to give them up entirely. Rather than diminishing their ability to raise families, this enforced frugality may often increase it. It is the sober and industrious poor who generally raise the largest families and principally supply the demand for useful labor. Not all the poor, certainly, are sober and industrious. The dissolute and disorderly might go on indulging in these goods after the rise in price, just as before, without regard for the distress their indulgence may bring on their families. Such disorderly people, however, seldom raise large families: their children generally perish through neglect, mismanagement, or insufficient or unwholesome food. Even if strong constitutions enable the children to survive the hardships caused by their parents' bad conduct, its example commonly corrupts their morals. Instead of serving society through their industry, they become public nuisances through their vices and disorders. Thus, although the higher price of the poor's luxuries might somewhat increase the distress of such disorderly families, and thereby somewhat impair their ability to raise children, it would probably not much reduce the country's useful population.

Any rise in the average price of necessities, unless offset by a proportional rise in wages, must to some degree diminish the poor's ability to raise large families and, consequently, to meet the demand for useful labor. This holds whatever the state of that demand—growing, stationary, or declining—and whether it calls for a growing, stationary, or declining population.

Taxes on luxuries do not tend to raise the price of any goods except those taxed. Taxes on necessities, by raising wages, necessarily tend to raise the price of all manufactured goods and so reduce the extent of their sale and consumption. Taxes on luxuries are paid finally by the consumers of the taxed goods, without reimbursement. They fall alike on every kind of revenue: wages of labor, profits of stock, and rent of land. Taxes on necessities, insofar as they affect the laboring poor, are ultimately paid partly by landlords through diminished rent, and partly by wealthy consumers, whether landlords or others, through higher prices for manufactured goods; and they are always paid with a considerable surcharge. A further rise in wages must compensate the poor for the increased price of manufactured goods that are genuine necessities intended for their use, such as coarse woolens. If the middle and upper ranks understood their own interest, they would always oppose taxes on the necessities of life as well as taxes on wages. The final cost of both falls entirely on them, and always with a substantial surcharge. Landlords bear the heaviest burden, paying twice: as landlords through reduced rent, and as wealthy consumers through increased expense. Sir Matthew Decker's observation that certain taxes are sometimes repeated and accumulated four or five times in the price of certain goods is entirely sound as regards taxes on necessities. In the price of leather, for example, you pay not only the tax on the leather in your own shoes, but part of the tax on the shoes of the shoemaker and the tanner. You also pay the taxes on the salt, soap, and candles these workers use while working for you, and the tax on the leather used by the saltmaker, soap-maker, and candle-maker while working for them.

In Great Britain the principal taxes on necessities are those on the four goods just mentioned: salt, leather, soap, and candles.

Salt has been taxed since ancient times and almost everywhere. It was taxed among the Romans, and, I believe, is now taxed throughout Europe. Each person's annual consumption is so small, and the salt can be bought so gradually, that it seems to have been thought no one would feel even a fairly heavy tax on it very keenly. In England the tax is three shillings and fourpence a bushel, about three times the original price of salt. In some other countries it is higher still. Leather is a genuine necessity. The use of linen makes soap one. Where winter nights are long, candles are a necessary instrument of trade. In Great Britain leather and soap are taxed at three halfpence a pound, and candles at a penny. Relative to their original prices, these taxes may amount to about eight or ten per cent. on leather, about twenty or five-and-twenty per cent. on soap, and about fourteen or fifteen per cent. on candles. Though lighter than the tax on salt, they are still very heavy. Because all four goods are genuine necessities, such heavy taxes must somewhat increase the expenses of the sober and industrious poor, and must consequently raise their wages to some degree.

In a country with winters as cold as Great Britain's, fuel is, during that season, a necessity of life in the strictest sense: not only for cooking food, but for the comfortable subsistence of many kinds of workers employed indoors. Coal is the cheapest fuel of all. Its price has so great an influence on the price of labor that manufactures throughout Great Britain have settled chiefly in the coal counties; other parts of the country cannot work as cheaply because this necessary article costs more there. Coal, moreover, is a necessary instrument of trade in some manufactures, such as glass, iron, and all other metals. If a bounty could ever be justified, it might perhaps be one for transporting coal from parts of the country where it abounds to those where it is needed. Instead of a bounty, however, the legislature has imposed a tax of three shillings and threepence a ton on coal carried coastwise—more than sixty per cent. of the original price at the pit for most sorts of coal. Coal carried by land or inland waterways pays no duty. Where it is naturally cheap it is consumed duty-free; where naturally dear, it bears a heavy duty.

Such taxes raise the price of subsistence, and therefore wages, but they also bring government substantial revenue that might not easily be found elsewhere. There may thus be good reasons to retain them. A bounty on the export of corn, insofar as it raises the price of that necessity under the present state of cultivation, produces all the same harmful effects; and instead of bringing in revenue, it often imposes a very great expense on government. The high duties on imported foreign corn, which amount to a prohibition in years of moderate abundance, and the outright prohibition on importing either live cattle or salted provisions under ordinary law—now temporarily suspended, because of scarcity, for Ireland and the British plantations—have all had the harmful effects of taxes on necessities, yet bring government no revenue. To repeal such regulations, it seems necessary only to convince the public of the futility of the system under which they were established.

Taxes on necessities are much higher in many other countries than in Great Britain. Many countries impose duties on flour and meal when ground at the mill and on bread when baked in the oven. In Holland such taxes are thought to double the money price of bread eaten in towns. In place of part of these taxes, country people pay an annual per-head charge according to the kind of bread they are presumed to eat. Those who eat wheat bread pay three guilders fifteen stivers, about six shillings and ninepence halfpenny. These and similar taxes, by raising the price of labor, are said to have ruined most of Holland's manufactures [Memoires concernant les Droits, etc. p. 210, 211.]. Similar taxes, though not quite so heavy, exist in the Milanese, the states of Genoa, the duchy of Modena, the duchies of Parma, Placentia, and Guastalla, and the Ecclesiastical state. A French author [Le Reformateur] of some standing has proposed to reform his country's finances by replacing most other taxes with this most ruinous of all taxes. Nothing is so absurd, Cicero says, that some philosophers have not at times asserted it.

Taxes on butcher's meat are even more common than taxes on bread. Yet one may doubt whether butcher's meat is anywhere a necessity of life. Experience shows that grain and other vegetables, with milk, cheese, and butter—or oil where butter cannot be had—can furnish, without any butcher's meat, a diet most ample, wholesome, nourishing, and invigorating. Decency nowhere requires a man to eat butcher's meat, as in most places it requires him to wear a linen shirt or leather shoes.

Consumable goods, necessities and luxuries alike, can be taxed in two ways. The consumer can pay an annual sum for using or consuming a certain kind of goods; or the goods can be taxed while still in the dealer's hands, before delivery to the consumer. Goods that last a considerable time before being entirely consumed are most suitably taxed in the first way; goods consumed immediately or more quickly, in the second. The coach tax and plate tax exemplify the first method; most other excise and customs duties, the second.

With proper care, a coach can last ten or twelve years. It could be taxed once and for all before it leaves the coach-maker's hands. But it is surely more convenient for a buyer to pay four pounds a year for the privilege of keeping a coach than to pay the coach-maker an additional forty or forty-eight pounds all at once, or a sum equivalent to what the tax would probably cost over the period in which the buyer uses that coach. A service of plate, likewise, can last more than a century. It is surely easier for its owner to pay five shillings a year for every hundred ounces of plate, nearly one per cent. of its value, than to redeem this long annuity at five-and-twenty or thirty years' purchase, which would raise its price by at least five-and-twenty or thirty per cent. The various taxes on houses, too, are surely more conveniently paid in moderate annual installments than as a heavy tax of equal value at the house's initial construction or sale.

Wages are set partly by the demand for labor and partly by the average price of the necessities of life. Anything that raises that average price must raise wages too. Workers must still be able to buy the amount of necessities that the demand for labor requires them to have, whether that demand is growing, steady, or falling. [See book i.chap. 8] A tax on necessities raises their price by more than the tax itself. Dealers who pay the tax in advance generally need to recover it with a profit. Such a tax therefore raises wages in proportion to the rise in price.

A tax on necessities thus works just like a direct tax on wages. A worker may hand over the money, but over any significant period cannot even be said to advance the tax. In the long run, the worker's immediate employer must advance it through higher wages. A manufacturer then adds the wage increase, plus a profit, to the price of the goods. The consumer ultimately pays both the tax and this extra charge. If the employer is a farmer, the final payment, including a similar extra charge, comes out of the landlord's rent.

Taxes on what I call luxuries work differently, even when poor people use them. Raising the price of these goods does not necessarily raise wages. A tax on tobacco, for example, does not raise wages, although tobacco is a luxury of poor and rich alike. It is taxed in England at three times its original price, and in France at fifteen times that price. Yet those high duties seem to have no effect on wages. The same can be said of taxes on tea and sugar, which even the lowest ranks in England and Holland now enjoy as luxuries. It also applies to chocolate, which is said to have reached that position in Spain.

The various taxes placed on spirits in Great Britain during the present century are not thought to have affected wages. An additional tax of three shillings per barrel of strong beer raised the price of porter, but did not raise ordinary wages in London. Those wages were about eighteen pence or twenty pence a day before the tax and are no higher now.

High prices for these goods do not necessarily make poorer people less able to raise families. For sober, hardworking poor people, such taxes act as laws against luxury. They lead people to cut back on, or give up, extras they can no longer easily afford. This enforced thrift may often increase, rather than reduce, their ability to raise families. Sober and hardworking poor people usually raise the largest families. They provide most of the labor that society needs. Of course, not all poor people are sober and hardworking. Reckless, disorderly people might keep buying these goods despite the price rise, ignoring the hardship it causes their families. But such people seldom raise large families. Their children generally die from neglect, bad care, or too little food or unhealthy food. Even if their strong constitutions let them survive the hardship caused by their parents' conduct, that example usually corrupts their character. Rather than benefiting society through work, they become a public burden through their vices and disorder. Higher prices for poor people's luxuries might therefore make these disorderly families somewhat worse off and somewhat less able to raise children. But they would probably do little to reduce the country's useful working population.

Any increase in the average price of necessities must make poor people less able to raise large families unless wages rise by the same proportion. It must therefore reduce their ability to supply needed labor, whatever the state of demand for that labor. This holds whether demand is growing, steady, or falling, and whether it calls for a growing, steady, or falling population.

Taxes on luxuries do not tend to raise the prices of goods other than the ones taxed. Taxes on necessities raise wages and thus tend to raise the prices of all manufactured goods, reducing how much of them people buy and use. Consumers ultimately pay taxes on luxuries without being repaid. Such taxes fall on every kind of revenue: wages, profits of stock, and rent from land. Taxes on necessities that affect working poor people are ultimately paid partly by landlords through lower rent, and partly by wealthy consumers, landlords or others, through higher prices for manufactured goods. They always pay a substantial extra charge as well. If a manufactured good is itself a necessity for poor people, such as coarse woolen cloth, its higher price must be covered by a further rise in their wages. Middle- and upper-ranking people should always oppose taxes on necessities and taxes on wages, if they understand their interests. They ultimately pay both types in full, always with a substantial extra charge. Landlords bear the most because they pay twice: as landlords through reduced rent, and as wealthy consumers through higher spending. Sir Matthew Decker was quite right to observe that some taxes can be repeated and added to prices four or five times over. This is true of taxes on necessities. When you buy leather shoes, for instance, you pay not only the tax on their leather but part of the tax on the leather used by the shoemaker and tanner. You also pay for the taxes on the salt, soap, and candles those workers use while serving you, and the tax on leather used by the saltmaker, soap-maker, and candle-maker while serving them.

In Great Britain, the main taxes on necessities are those on the four goods just mentioned: salt, leather, soap, and candles.

Salt has been taxed widely since ancient times. The Romans taxed it, and I believe every part of Europe taxes it now. Each person uses so little of it in a year and can buy it in such small amounts that people seem to have thought even a fairly heavy tax would hardly be felt. In England it is taxed at three shillings and fourpence a bushel, about three times its original price. Some countries tax it still more heavily. Leather is a genuine necessity. Wearing linen makes soap a necessity too. Where winter nights are long, candles are needed for work. In Great Britain, leather and soap are each taxed at three halfpence a pound, and candles at a penny. The tax is about eight or ten per cent. of the original price of leather, twenty or five-and-twenty per cent. of soap's, and fourteen or fifteen per cent. of candles'. These taxes are lighter than the salt tax but still very heavy. Since all four goods are necessities, such high taxes increase what sober, hardworking poor people must spend. Their wages must therefore rise to some extent.

In a country with winters as cold as Great Britain's, fuel is strictly necessary during winter. People need it both to cook and to keep many indoor workers comfortable enough to live and work. Coal is the cheapest fuel. Its price matters so much to labor costs that manufacturing throughout Great Britain is concentrated mainly in coal counties. Other areas cannot produce as cheaply because this necessity costs more there. Coal is also needed directly in making glass, iron, and all other metals. If a bounty on anything could be reasonable, it might be one for carrying coal from places that have plenty to places that need it. Instead, the legislature has taxed coal carried along the coast at three shillings and threepence a ton. For most kinds of coal this is more than sixty per cent. of the original pit price. Coal carried by land or inland waterways pays no duty. Where coal is naturally cheap, it is used tax-free. Where it is naturally expensive, a heavy tax is added.

These taxes raise the cost of living and therefore wages. But they also bring the government substantial revenue that might be hard to find elsewhere, so there may be good reasons to keep them. A bounty on corn exports, insofar as it raises the price of that necessity under present farming conditions, does all the same harm. Yet instead of raising revenue it often costs the government a great deal. High duties on foreign corn effectively prohibit its import in years with moderately plentiful supplies. The law also normally forbids importing live cattle or salted provisions. Because of scarcity, that outright prohibition is currently suspended for a limited time for Ireland and the British plantations. These rules all have the harmful effects of taxes on necessities but raise no government revenue. All that seems needed to repeal them is to convince the public that the system behind them is useless.

Many other countries tax necessities far more heavily than Great Britain. Many levy duties on flour and meal when they are ground at the mill and on bread when it is baked. In Holland, such taxes are thought to double the money price of bread eaten in towns. Instead of paying some of those taxes, rural residents pay an annual amount per person based on the kind of bread they are presumed to eat. Consumers of wheat bread pay three guilders fifteen stivers, about six shillings and ninepence halfpenny. These and similar taxes are said to have ruined most Dutch manufactures by raising labor costs [Memoires concernant les Droits, etc. p. 210, 211.]. Similar, though somewhat lighter, taxes exist in the Milanese, the states of Genoa, the duchy of Modena, the duchies of Parma, Placentia, and Guastalla, and the Ecclesiastical state. A fairly well-known French author [Le Reformateur] has proposed fixing his country's finances by replacing most other taxes with this most ruinous kind. As Cicero says, there is nothing so absurd that some philosophers have not sometimes asserted it.

Taxes on butcher's meat are even more widespread than taxes on bread. It is open to question whether meat is necessary anywhere. Experience shows that grain and other vegetables, with milk, cheese, and butter—or oil where butter is unavailable—can provide an abundant, healthy, nourishing, strengthening diet without any meat. Standards of decency nowhere require a man to eat meat, although in most places they do require him to wear a linen shirt or leather shoes.

Consumable goods, whether necessities or luxuries, can be taxed in two ways. A consumer can pay a yearly sum for using goods of a certain kind. Or the goods can be taxed while dealers still hold them, before delivery to consumers. A yearly charge best suits goods that last a long time. A tax before delivery best suits goods used immediately or quickly. The coach tax and plate tax illustrate the first method; most other excise and customs duties illustrate the second.

With good care, a coach can last ten or twelve years. It could be taxed once when it leaves the coach-maker. But paying four pounds a year to keep it is certainly easier for a buyer than paying the coach-maker an extra forty or forty-eight pounds at once, or some other amount equal to the likely tax during the period of ownership. A set of silver plate can likewise last more than a century. Paying five shillings a year on every hundred ounces of plate, nearly one per cent. of its value, is easier than buying out that long-running annual charge at five-and-twenty or thirty years' purchase. That would raise the price by at least five-and-twenty or thirty per cent. Taxes on houses are likewise much easier to pay in moderate yearly installments than as one equally valuable but heavy tax when the house is first built or sold.