A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

A third of the net product, or, if we accept Baudeau’s figures, six-twentieths, i.e. 30 per cent., was to be paid in taxes. Taking the net product at 2 milliard francs, which is the figure given in the Explication du Tableau économique, this gives us exactly 600 million francs as the amount of the tax.[96]

The proprietors, who were then for the most part free from taxation, felt that this was a very considerable contribution, and that the Physiocrats demanded a heavy price for the high honour which they had conferred upon them. Even to-day a tax of 30 per cent. on the gross revenue of landlords would cause some consternation. The Physiocrats anticipated this objection, and in reply brought forward an argument which shows that they possessed exceptionally keen economic insight. They argued that none would feel the burden, seeing that no one was really paying it. Land would now be bought at 70 per cent. of its former value, so that the 30 per cent. nominally paid by the proprietor was in reality not paid by him at all.[97] Land let at £10,000 would be valued at £200,000. But with a tax of £3000 it is really only yielding £7000, and its value will be £140,000. The buyer who pays this price, despite the fact that he has paid a tax of £3000, will enjoy all the revenue to which he has any claim, for he can only lay claim to what he has paid for, and he did not pay for that portion of the revenue which is affected by the tax. It is exactly as if he had only bought seven-tenths of the land, the remaining three-tenths being the State’s. And if at some later time this tax should be abolished, it would merely mean making him a present of £3000 a year—the equivalent of a lump sum of £60,000.[98]

The reasoning was excellent for those buying land after the tax had been levied. It had, however, a much wider import than the Physiocrats thought, for it might be applied not merely to taxes on land, but also to taxes on capital. But this gave little consolation to those who were to have the honour of inaugurating the new régime, and the first task evidently was to convert them.[99]

The sovereign’s position in the main is like that of the landed proprietors, which is in agreement with the Physiocratic conception of sovereignty. The landed proprietors and the king in reality form one class of fellow landowners, with the same rights, the same duties, and the same revenues. Hence the sovereign’s interests are completely bound up with those of his country.[100]

The Physiocrats attached the greatest practical importance to their fiscal system, and were thoroughly convinced that the misery of the people was due to the unequal distribution of the burden of taxation. They thought that this was the true source of injustice—in short, that this was the social problem. To-day we ascribe misery to unequal distribution of wealth rather than to any particular fiscal system, and consequently the Physiocratic view seems to us somewhat extreme. Still, it was perhaps not so difficult to justify, in view of the frightful conditions of fiscal organisation under the old régime.

The objections which a single tax, levied only on the landed interest, was bound to provoke were not unforeseen by the Physiocrats, nor did they neglect to answer them.

To the objection that it was unjust to place the burden of taxation upon the shoulders of a single class of the nation,[101] instead of distributing it equally among all classes, the Physiocrats replied that the statesman’s ideal was not equal taxation, but the complete abolition of all taxation. This could only be achieved by taxing the “net product.”

Suppose that we agree that the taxes should be paid by some other class. The question then is to determine what class of the community should be chosen.

Shall we say that the farmer must pay them? But after deducting the “net product” what remains for the farmer is just the bare equivalent of his original outlay. Consequently, if we take 600 millions from the farmers by way of taxation there will be so much less capital for the land, resulting in a smaller gross product the following year,[102] unless they agitate for a reduction of 600 millions in their rents. If they succeed this will leave the proprietors in the position of having paid over the 600 millions to the State. But we must also reckon the losses and friction incurred in every deviation from the “natural order.” Suppose we decide that the sterile classes should pay the taxes. This class is ex hypothesi sterile—that is, it produces the exact equivalent of what it consumes. To take 600 millions from this class is tantamount to a reduction of its consumption by 600 millions, or an equivalent limitation of its purchases of raw material. The result would be a diminished product in the future, unless the industrial classes succeeded in increasing prices by an equivalent amount. Even in that case the landed proprietors will have to bear the brunt of it: firstly, they will have to reduce their own consumption, and secondly, their tenants’, whose efficiency will thereby be impaired.[103]