The money of a country, we have said, bears no determinate proportion to circulation; it is the money circulating, multiplied by the number of transitions from hand to hand. Again, we have said, that the prices of all things are determined by demand and competition. The meaning of this, as it concerns the present question, is, that in proportion to the competition of those who appear with money, in order to acquire what comes to market, a larger or a smaller sum is brought into circulation.
Now, according to the principles laid down in the first chapter, we saw how the full value of the industrious seller’s expence and profit were made up to him in the sale of his work; and if he even advanced any tax upon any part of his work or consumption, that it was refunded to him by the buyer, who, if he consumes in the light of an idle man, pays for the whole.
Farther, when a proportional tax is imposed, we said it was, in a manner, as if the state interposed at the time of alienation, and exacted of the purchaser a certain value in money, in proportion to the commodity, as the price of the permission to acquire what his own industry had not produced. From this I draw the following consequence, that in proportion to the tax an additional sum of money is drawn into circulation, which would otherwise have remained in the pocket of the purchaser; consequently, on imposing proportional taxes, they cannot, at first, exceed that proportion of money which is found in the pockets of the consumers, over and above what they used to pay for what they consumed.
The truth of this proposition is established upon many facts. First, in countries where people keep their money locked up, proportional taxes are very well paid. Hence the great amount of the alcavala and cientos in Spain, which amount together to 14 per cent. upon every consecutive alienation of the commodities, chiefly indeed for the consumption of the rich.
Secondly, When excises were augmented in England, in the reign of King William, Davenant tells us, that the price of the goods excised fell.
Thirdly, When a war has lasted any time in France, taxes cease to be so productive.
Are not all these, and many other appearances, resolved upon the same principle, viz. that taxes must come out of that money which exceeds what was necessary for carrying on alienation before they were imposed?
In Spain they draw money from the chests of the hoarders, and increase circulation for a while.
In England, during King William’s wars, the quantity of money being very small, and trade being very low, the tax upon malt could come out of no other fund than the price usually given for barley.
In France, people are better acquainted with taxes, and the great bulk of excises are administred by the farmers, who never lower their price; so that the diminution of the mass of coin diminishes consumption.