Book V, Chapter II, 13

In London's porter breweries, a quarter of malt commonly yields more than two and a half barrels, sometimes three barrels, of porter. The several taxes on malt amount to six shillings per quarter; those on strong ale and beer to eight shillings per barrel. In porter brewing, then, the several taxes on malt, beer, and ale amount to between twenty-six and thirty shillings on the product of a quarter of malt. In country breweries supplying the ordinary country market, a quarter of malt seldom yields less than two barrels of strong beer and one barrel of small beer; it frequently yields two and a half barrels of strong beer. The several taxes on small beer amount to one shilling and fourpence per barrel. In country brewing, then, the several taxes on malt, beer, and ale seldom amount to less than twenty-three shillings and fourpence, and frequently amount to twenty-six shillings, on the product of a quarter of malt. Across the kingdom, therefore, the total duties on malt, beer, and ale cannot be estimated at less than twenty-four or twenty-five shillings on the product of a quarter of malt. Yet by abolishing all the separate duties on beer and ale and tripling the malt tax, raising it from six to eighteen shillings per quarter, this single tax, it is said, might yield more revenue than all those heavier taxes now yield together.

In 1772, the old malt tax produced £722,023: 11: 11; the additional tax, £356,776: 7: 9¾. In 1773, the old tax produced £561,627: 3: 7½; the additional tax, £278,650: 15: 3¾. In 1774, the old tax produced £624,614: 17: 5¾; the additional tax, £310,745: 2: 8½. In 1775, the old tax produced £657,357: 0: 8¼; the additional tax, £323,785: 12: 6¼. Total for four years: £3,835,580: 12: 0¾. Average of these four years: £958,895: 3: 0.

In 1772, the country excise produced £1,243,120: 5: 3; the London brewery, 408,260: 7: 2¾. In 1773, the country excise produced £1,245,808: 3: 3; the London brewery, 405,406: 17: 10½. In 1774, the country excise produced £1,246,373: 14: 5½; the London brewery, 320,601: 18: 0¼. In 1775, the country excise produced £1,214,583: 6: 1¼; the London brewery, 463,670: 7: 0¼. Total for four years: £6,547,832 19: 2¼. Average of these four years: £1,636,958: 4: 9½. Add the average malt tax: 958,895: 3: 0¼.

The total of these several taxes comes to £2,595,835: 7: 10.

But by tripling the malt tax, raising it from six to eighteen shillings per quarter of malt, that tax alone would yield £2,876,685: 9: 0—a sum exceeding the preceding one by 280,832: 1: 3.

The old malt tax, it is true, includes a tax of four shillings per hogshead of cider and another of ten shillings per barrel of mum. In 1774 the cider tax produced only £3,083:6:8. This was probably somewhat below its usual yield, since all the different cider taxes brought in less than usual that year. The tax on mum, though much heavier, yields even less because less of that liquor is consumed. But, to offset whatever those two taxes ordinarily yield, the so-called country excise includes, first, the old excise of six shillings and eightpence per hogshead of cider; second, a similar tax of six shillings and eightpence per hogshead of verjuice; third, one of eight shillings and ninepence per hogshead of vinegar; and, finally, a fourth tax of elevenpence per gallon of mead or metheglin. The yield of these several taxes will probably much more than offset the duties imposed on cider and mum under what is called the annual malt tax.

Malt is used not only to brew beer and ale but also to make low wines and spirits. If the malt tax rose to eighteen shillings per quarter, it might be necessary to reduce some of the excise duties imposed on those particular kinds of low wines and spirits whose ingredients include malt. In so-called malt spirits, malt commonly makes up only a third of the ingredients; the other two-thirds are either raw barley or one-third barley and one-third wheat. In distilling malt spirits, both the opportunity and the temptation to smuggle are much greater than in either a brewery or a malthouse: the opportunity because the commodity is less bulky and more valuable, and the temptation because the duties are higher, amounting to 3s. 10 ⅔d. per gallon of spirits. [Although the duties directly imposed on proof spirits amount to only 2s. 6d per gallon, these, added to the duties on the low wines from which they are distilled, amount to 3s 10 ⅔d. To prevent fraud, both low wines and proof spirits are now assessed according to their measured yield in the wash.]

By raising the duties on malt and lowering those on distilling, both the opportunities and the temptation to smuggle would diminish, perhaps increasing revenue still further.

For some time Great Britain has pursued a policy of discouraging the consumption of spirituous liquors, because of their supposed tendency to ruin the health and corrupt the morals of ordinary people. Under this policy, taxes on distilling should not be reduced enough to lower the price of these liquors at all. Spirits could remain as expensive as ever, while the price of the wholesome and invigorating drinks, beer and ale, could fall considerably. The people could thus gain some relief from one of the burdens of which they now complain most, while revenue could rise considerably.

Dr Davenant's objections to this change in the present system of excise duties seem groundless. He objects that, instead of being divided, as it now is, fairly evenly among the profits of the maltster, the brewer, and the retailer, the tax, to the extent that it affected profit, would fall entirely on the maltster's profit; that the maltster could not recover the tax as easily through a higher price for his malt as the brewer and retailer could through a higher price for their liquor; and that so heavy a tax on malt might lower the rent and profit of barley land.

No tax can lower the rate of profit in any particular trade for any considerable time: that rate must always remain level with those in neighboring trades. The present duties on malt, beer, and ale do not affect the profits of those who deal in these commodities. They all recover the tax, with an additional profit, through the higher price of their goods. A tax can, to be sure, make the goods on which it is imposed so expensive that their consumption declines. But malt is consumed in malt liquors; and a tax of eighteen shillings per quarter of malt could hardly make those liquors dearer than do the present several taxes amounting to twenty-four or twenty-five shillings. On the contrary, these liquors would probably become cheaper, and their consumption would be more likely to increase than decrease.

It is not easy to see why recovering eighteen shillings through a higher price for malt should be harder for the maltster than recovering twenty-four or twenty-five, sometimes thirty, shillings through a higher price for liquor is now for the brewer. The maltster, admittedly, would have to advance a tax of eighteen rather than six shillings on each quarter of malt. But the brewer must now advance twenty-four or twenty-five, sometimes thirty, shillings on each quarter of malt he brews. Advancing the lighter tax could not be more inconvenient for the maltster than advancing the heavier one is now for the brewer. Nor does the maltster always keep in his granaries a stock of malt that takes longer to sell than the stock of beer and ale the brewer often keeps in his cellars. The former may therefore often recover his money as soon as the latter. Whatever inconvenience the maltster might suffer from having to advance a heavier tax could easily be remedied by granting him a few months more credit than is now commonly granted to the brewer.

Nothing could lower the rent and profit of barley land unless it lowered the demand for barley. But a reform that reduced the duties on a quarter of malt brewed into beer and ale from twenty-four or twenty-five shillings to eighteen would be more likely to increase that demand than to diminish it. Besides, the rent and profit of barley land must always be nearly equal to those of other land equally fertile and equally well cultivated. If they were lower, some barley land would soon be put to another use; if higher, more land would soon be used to grow barley. When the ordinary price of a particular product of the land is what may be called a monopoly price, a tax on that product necessarily lowers the rent and profit of the land that produces it. Consider the precious vineyards whose wine falls so far short of effective demand that its price always exceeds its natural proportion to the price of the produce of other equally fertile and equally well-cultivated land. A tax on their wine would necessarily lower their rent and profit. The price of the wine is already the highest obtainable for the quantity ordinarily sent to market. It could not rise further without reducing that quantity, and that quantity could not be reduced without even greater loss, since the land could not be turned to any other equally valuable product. The whole burden of the tax would therefore fall on rent and profit, or, more precisely, on the vineyard's rent. When a new tax on sugar has been proposed, our sugar planters have frequently complained that its entire burden fell not on consumers but on producers: after the tax, they have never been able to raise their sugar's price above its former level. The price before the tax was, it seems, a monopoly price. Their arguments for sugar's unsuitability as an object of taxation perhaps proved precisely its suitability; the gains of monopolists, whenever they can be reached, are surely the most suitable objects of all. But the ordinary price of barley has never been a monopoly price, and the rent and profit of barley land have never stood above their natural proportion to those of other equally fertile and equally well-cultivated land. The various taxes imposed on malt, beer, and ale have never lowered the price of barley or the rent and profit of barley land. The price of malt to the brewer has consistently risen in proportion to the taxes imposed on it. Those taxes, together with the several duties on beer and ale, have consistently either raised the price of those drinks to the consumer or, what amounts to the same thing, lowered their quality. The final burden of these taxes has always fallen on the consumer, not the producer.

The only people likely to suffer under this proposed reform are those who brew for their own private use. But the exemption this higher rank of people now enjoys from very heavy taxes paid by the poor laborer and artisan is surely most unjust and unequal. It ought to be removed even if this reform were never adopted. Yet it is probably the interests of this higher order that have so far prevented a reform that could hardly fail both to increase revenue and to relieve the people.

Besides the customs and excise duties already mentioned, there are several others that affect the prices of goods more unevenly and indirectly. Among these are the duties called péages in French, called duties of passage in old Saxon times, and apparently first established for the same purpose as our turnpike tolls or tolls on canals and navigable rivers: maintaining the road or waterway. When used for such purposes, they are most properly charged by the bulk or weight of the goods. Since they were originally local and provincial duties serving local and provincial purposes, their administration was usually entrusted to the particular town, parish, or lordship in which they were collected, on the assumption that these communities would in some way be accountable for their use. In many countries the sovereign, who is not accountable at all, has taken over the administration of these duties. Though he has usually raised the duty considerably, in many cases he has entirely neglected its purpose. If Great Britain's turnpike tolls ever become a source of government revenue, the example of many other nations can teach us the probable consequence. Such tolls are undoubtedly paid in the end by consumers; but a consumer paying by the bulk or weight of what he consumes, rather than by its value, is not taxed in proportion to his expenditure. If these duties are charged according to the supposed value of goods instead of their bulk or weight, they become, in effect, a kind of inland customs or excise, gravely obstructing the most important branch of commerce: the country's internal commerce.

In some small states, duties resembling these passage duties are imposed on goods transported by land or water across their territory from one foreign country to another. In some countries they are called transit duties. Some of the little Italian states along the Po and its tributaries derive revenue from duties of this kind, paid entirely by foreigners. These are perhaps the only duties one state can impose on the subjects of another without obstructing its own industry or commerce in any way. The world's most important transit duty is the one levied by the king of Denmark on all merchant ships passing through the Sound.

In London's porter breweries, a quarter of malt usually makes more than two and a-half barrels of porter, and sometimes three barrels. The various taxes on malt total six shillings a-quarter, while those on strong ale and beer total eight shillings a-barrel. So in a porter brewery, the taxes on malt, beer, and ale add up to between twenty-six and thirty shillings on what a quarter of malt produces. A country brewery selling locally seldom gets less than two barrels of strong beer and one barrel of small beer from a quarter of malt. It often gets two barrels and a-half of strong beer. The taxes on small beer total one shilling and fourpence a-barrel. So in a country brewery, taxes on malt, beer, and ale seldom add up to less than twenty-three shillings and fourpence, and often reach twenty-six shillings, on what a quarter of malt produces. Across the whole kingdom, the total taxes on malt, beer, and ale cannot be estimated at less than twenty-four or twenty-five shillings on the product of a quarter of malt. Yet it is said that removing all the taxes on beer and ale and tripling the malt tax—from six to eighteen shillings per quarter of malt—would raise more revenue from this one tax than all those heavier taxes now raise.

In 1772, the old malt tax produced......... £722,023: 11: 11 The additional... £356,776: 7: 9¾ In 1773, the old tax produced............... £561,627: 3: 7½ The additional... £278,650: 15: 3¾ In 1774, the old tax produced............. £624,614: 17: 5¾ The additional....£310,745: 2: 8½ In 1775, the old tax produced..............£657,357: 0: 8¼ The additional....£323,785: 12: 6¼ 4)£3,835,580: 12: 0¾ Average of these four years............... £958,895: 3: 0

In 1772, the country excise produced.......£1,243,120: 5: 3 The London brewery 408,260: 7: 2¾ In 1773, the country excise................£1,245,808: 3: 3 The London brewery 405,406: 17: 10½ In 1774, the country excise................£1,246,373: 14: 5½ The London brewery 320,601: 18: 0¼ In 1775, the country excise................£1,214,583: 6: 1¼ The London brewery 463,670: 7: 0¼ 4)£6,547,832 19: 2¼ Average of these four years...............£1,636,958: 4: 9½ To this add the average malt tax........ 958,895: 3: 0¼

The total of these different taxes comes to........£2,595,835: 7: 10

But tripling the malt tax, raising it from six to eighteen shillings per quarter of malt, would make that one tax yield.....£2,876,685: 9: 0 That exceeds the preceding amount by.... 280,832: 1: 3

The old malt tax does include a tax of four shillings on a hogshead of cider and another of ten shillings on a barrel of mum. In 1774, the cider tax brought in only £3,083:6:8. That was probably a little below its usual amount, since all the taxes on cider brought in less than usual that year. The tax on mum is much higher but brings in even less, because people drink less of it. Yet other taxes included in what is called the country excise should more than offset the usual proceeds of these two taxes. They are, first, the old excise of six shillings and eightpence on a hogshead of cider; second, a similar tax of six shillings and eightpence on a hogshead of verjuice; third, eight shillings and ninepence on a hogshead of vinegar; and fourth, elevenpence on a gallon of mead or metheglin. The revenue from these taxes will probably more than offset the duties that the so-called annual malt tax places on cider and mum.

Malt is used not only to brew beer and ale but also to make low wines and spirits. If the malt tax rose to eighteen shillings a quarter, it might be necessary to reduce some of the excise taxes on kinds of low wines and spirits made partly from malt. Malt usually makes up only a third of the ingredients in so-called malt spirits. The other two-thirds are either raw barley or one-third barley and one-third wheat. There is much more opportunity and incentive to smuggle at a malt-spirit distillery than at a brewery or a malt-house. The product is less bulky and more valuable, providing the opportunity; and the higher duties, which totaled 3s. 10 ⅔d. per gallon of spirits, provide the incentive. [Although the duties imposed directly on proof spirits amount to only 2s. 6d per gallon, adding the duties on the low wines from which they are distilled brings the total to 3s 10 ⅔d. To prevent fraud, low wines and proof spirits are now both assessed according to how much they gauge in the wash.]

Raising the duties on malt and lowering those on distilling would reduce both the opportunity and the incentive to smuggle. That could increase revenue still further.

For some time, Great Britain has tried to discourage drinking spirits because they are thought to damage ordinary people's health and morals. Under this policy, taxes on distilling should not be cut enough to lower the price of spirits at all. Spirits could remain just as expensive, while the price of the wholesome, strengthening drinks beer and ale could fall considerably. People could then get some relief from one of the burdens they complain about most, while revenue could rise considerably.

Dr Davenant's objections to this proposed change in excise duties seem groundless. He says that, instead of being spread fairly evenly across the profits of the maltster, brewer, and retailer as they are now, the taxes would fall entirely on the maltster's profit, to the extent they affect profit at all. He says the maltster could not recover the tax as easily by raising the price of malt as brewers and retailers can by raising drink prices. And he says that such a high malt tax might reduce the rent and profit of land growing barley.

No tax can lower the rate of profit in any one trade for long. That rate must stay in line with other nearby trades. Today's duties on malt, beer, and ale do not reduce the dealers' profits: all these dealers recover the tax, plus an additional profit, through higher prices. A tax can, of course, make a product so expensive that people buy less of it. But malt is consumed in malt drinks, and a tax of eighteen shillings per quarter of malt would hardly make those drinks more expensive than the various taxes totaling twenty-four or twenty-five shillings do now. Instead, those drinks would probably get cheaper, so consumption would be more likely to increase than decrease.

It is hard to see why maltsters would have more difficulty recovering eighteen shillings through a higher malt price than brewers now have recovering twenty-four or twenty-five, and sometimes thirty, shillings through higher drink prices. Maltsters would have to pay eighteen shillings rather than six in tax up front on each quarter of malt. But brewers now have to pay twenty-four or twenty-five, sometimes thirty, shillings up front on each quarter of malt they brew. Paying the smaller tax up front could not be more inconvenient for maltsters than paying the larger one is now for brewers. Maltsters do not always hold a stock of malt in their granaries that takes longer to sell than the stock of beer and ale brewers often hold in their cellars. So maltsters can often recover their money as quickly as brewers. Any inconvenience maltsters did face from having to pay a higher tax up front could easily be remedied by giving them a few more months of credit than brewers now usually receive.

Nothing could lower the rent and profit of barley land without lowering demand for barley. But a reform cutting duties on a quarter of malt brewed into beer and ale from twenty-four or twenty-five shillings to eighteen would be more likely to increase that demand than to reduce it. Moreover, the rent and profit of land growing barley must always be nearly equal to those of other land that is just as fertile and well cultivated. If they were lower, some barley land would soon be put to another use. If higher, more land would soon be used to grow barley. When the usual price of a particular crop is what we might call a monopoly price, a tax on that crop must lower the rent and profit of the land that grows it. Consider prized vineyards whose wine falls so far short of effective demand that its price is always higher than the natural proportion to crops from other land that is just as fertile and well cultivated. A tax on their wine would necessarily lower their rent and profit. The wine already sells at the highest price obtainable for the amount usually sent to market. Its price could not go higher without sending less wine to market; and sending less would cause an even greater loss, because the land could not produce anything else of equal value. The entire tax would therefore fall on rent and profit, or, more precisely, on vineyard rent. Whenever a new sugar tax has been proposed, our sugar planters have often complained that the producer, not the consumer, bears its full weight. They say they have never been able to raise the price of sugar above its pre-tax level. Apparently that price was already a monopoly price. Arguments meant to show that sugar was a poor choice for taxation may instead have shown that it was a good one: when they can be reached, monopolists' gains are surely the best possible subject for taxation. But the usual price of barley has never been a monopoly price. The rent and profit of barley land have never exceeded their natural proportion to those of other land that is just as fertile and well cultivated. The various taxes on malt, beer, and ale have never lowered the price of barley or the rent and profit of barley land. The price brewers pay for malt has consistently risen in step with the taxes on it. Those taxes, along with the duties on beer and ale, have consistently either raised prices for consumers or, which has the same effect, lowered the drinks' quality. The consumer, not the producer, has always paid these taxes in the end.

The only people likely to lose from this proposed reform are those who brew beer for their own use. But this higher social rank now enjoys an exemption from very heavy taxes paid by poor laborers and artisans. That exemption is surely unfair and unequal. It ought to end even if the reform itself never happens. Yet the interests of this higher rank have probably prevented a change that could hardly fail both to increase revenue and to relieve the people.

Besides the customs and excise duties already mentioned, several other duties affect prices less evenly and less directly. These include duties called peages in French and duties of passage in old Saxon times. They seem to have begun for the same purpose as our turnpike tolls and the tolls on canals and navigable rivers: maintaining the road or waterway. For that purpose, these duties are best charged by the bulk or weight of the goods. They began as local and provincial duties for local and provincial purposes. So their management was usually entrusted to the town, parish, or lordship where they were collected, since those communities were thought to be accountable in some way for spending the money. In many countries, the sovereign, who is accountable to no one, has taken over these duties. He has generally raised them a great deal and, in many cases, entirely neglected their intended use. If Great Britain's turnpike tolls ever become a government revenue source, other nations' experience shows us what will probably happen. Consumers ultimately pay these tolls, of course. But when the toll depends on the bulk or weight, rather than the value, of what a person consumes, it does not tax people in proportion to their spending. If instead the duty is charged on the goods' supposed value, it becomes a kind of inland customs duty or excise. This greatly obstructs the most important branch of commerce: trade within the country.

Some small states impose duties like these passage duties on goods traveling across their territory, by land or water, from one foreign country to another. In some countries these are called transit duties. A few small Italian states along the Po and the rivers feeding it earn some revenue from such duties. Foreigners pay all of them. Perhaps these are the only duties a state can impose on another state's people without obstructing its own industry or commerce in any way. The world's most important transit duty is the one the king of Denmark collects from every merchant ship passing through the Sound.