The Theory Of Taxation

The Physiocrats and the Impot Unique, The Theory Of Taxation

About the same time as the German Kameralists, perhaps a little before, the reaction against Mercantilism had swung into full force in the Physiocratic doctrines in France. The Physio­crats' principal objection to Mercantilism was to the Mercan­tilist insistence that foreign trade alone could bring a nation wealth and power. The Physiocrats thought differently and pro­ceeded to show why. This part of their discussion we have already reviewed.

Much of the Physiocratic system is concerned with theories of taxation. In a sense this aspect of their work remains their most significant contribution to economic thought. In spite of the large-scale reduction in the functions of the state which they advocated, the remaining duties of the state—secondary legislation, defense of rights, education, and public works—required revenues. The method of securing them was woven closely into the general pat­tern of Physiocratic economic theory. They held that agricul­ture was the only source of wealth. When all expenses are paid for agricultural enterprise, and funds are available for the next season, and capital equipment is reconditioned, the surplus or produit net represents the only and the true increase in wealth. This is the source of state revenue and since the entire surplus is taken over by the proprietor he must bear the entire tax. As cal­culated from the figures given in Quesnay's Tableau economi-que, the amount of the tax should be approximately 30% of the total income from agriculture.

Objections by the landed proprietors to such a system of taxa­tion were naturally expected, especially since under the old condi­tions landlords paid but a small proportion of the tax burden. The Physiocrats contended that the landlord did not really pay the tax; therefore, he should not feel the burden of die tax. Land would.now be sold at 30% less than its former value, so no one would lose. To the objection that it was unreasonable to ask one class in the population to bear the total burden of taxation, the Physiocrats replied that in taxing the produit net they were really taxing the annual surplus. It was true that the landlord received this surplus as income, but if the tax were to be shifted to any other class it would reduce the working capital of farm or in­dustry which would reduce the income of the nation. Wages were irreducible at the subsistence level anyway, and consequently could, not support the tax. Therefore, the income, of die landlords was the only source of revenue which did not affect future pro­duction or natural law.

A further advantage of a single tax on the surplus income from agriculture was that it set a natural value upon the tax and pre­vented arbitrary levies—a barrier against the autocracy of the sovereign. Taxes were definite as to incidence (the landlord) and amount (the produit net). The writings of Dupont de Nemours, Baudeau, Turgot, and Quesnay are filled with statements of their distrust of indirect taxes and their implicit faith that the impot unique, that is, the single tax upon the surplus earned by land, provided an ample source of direct taxation that would injure no one.

The idea of a single tax upon land had extensive popularity among the French public until Voltaire held the idea up to scorn and ridicule in his famous literary caricature called L'homme a quarante ecus (The Man of Forty Crowns). The chief character in the story is a peasant who by dint of strenuous toil forces from his land produce equivalent to forty crowns. The tax gatherer appears, and finding that existence is possible for the peasant on twenty crowns, taxes him the remaining twenty. An old acquaintance of the peasant, originally poor, who received an inheritance worth 400,000 crowns a year in money and securi­ties drives by in a handsome coach with six coachmen each re­ceiving double the peasant's income. "You pay, of course, half your income, 200,000 crowns, to the state?" asks the peasant. "You are joking, my friend," answers the rich acquaintance, "I am no landed proprietor like you. The tax-gatherer would be an imbecile to assess me; for everything I have comes ultimately from the land, and somebody has paid the tax already. To make me pay would be intolerable double taxation. Ta-ta, my friend; you just pay your single tax, enjoy in peace your clear income of twenty crowns, serve your country well, and come once in a while to take dinner with my coachman. Yes, yes, the single tax it is a glorious thing." The story emphasizes well the practical dif­ficulties which have so beset the followers of Henry George, the modern exponent of the single tax. How can the earnings of land be separated from the earnings of the labor expended upon it? Should a tax be levied upon land cultivated by the owner or only on land for which rent is paid?

The Physiocrats proclaimed a conception of the state in rela­tion to economic life which is unique even today. They believed first of all that human society was governed by natural law which needed no improvement or elaboration by earthly legis­lators. It was natural that they should seek to reduce legislation to a minimum, confining its scope to a restatement or specific application of natural law. In spite of the contempt in which they held man-made law they nevertheless placed great emphasis upon centralized authority. Dupont de Nemours felt that only through the hereditary monarchy could all interests of the state, present and future, be safeguarded—in fact, he carried his ideas to the extreme of advocating a despotism. However, the function of the despot was to guarantee rights and enforce those laws which were decreed by nature. Thus neither the king's law nor the people's will was important since the welfare of the state was dependent upon the obedience to natural law.

The relation of the state to economic life was simply that of giving free play to natural laws. Violators of such laws of course should be punished and obstructions should be removed. The character of these natural laws as related to economic life has already been reviewed. Private property in land, freedom of exchange in foreign and domestic commerce, concentration upon agriculture as the source of all wealth, taxation of the natural surplus produced by the land {impot unique) as found in the produit net, were the most important aspects of a natural eco­nomic order.