metrical ratio." 2. Taxation should be levied on the commodity; never on persons. 3. Taxes should never impede the liberty of labor. 4. Every tax ought to be levied as cheaply as possible. 5. There should be but one sole and single tax—namely, on fixed capital.[1]
The True Measure of the Burden of Taxation on Production.—In addition to the maxims, or canons, proposed by Adam Smith, another one, first pointed out by Mr. Edward Atkinson, of Massachusetts, is worthy of being added, and may even be regarded in the light of a fundamental principle; and that is, that the burden or injurious effect of a tax on production or exchange is not to be measured by the ratio which the tax may bear to the gross value of the subject of taxation, but rather by the proportion which the tax bears to the profit which might normally or naturally result from undertaking a certain line of industry or product. To practically illustrate this, let us take an example. Let us suppose two men, A and B, to start shops for the manufacture of machinery, each with a capital of $20,000, and that each in his operations expends $20,000 for coal and iron, $40,000 in wages, and $4,000 for transportation of the raw materials to the shops for manufacture. The total cost of the annual product of each shop will then be $64,000, or a little more than three times the capital; and a sale of their respective products, at the net price of $66,000, would yield the owners $2,000, or ten per cent profit. Now, suppose further that under such conditions A has a tax imposed on him of three and an eighth per cent upon the value of his product; it may be a customs or excise tax, or an increased rate of railroad freight. This amounts to $2,000 on the $64,000 of product—no excessive burden, it may be said, and only requiring A to sell his $66,000 for $2,000 additional. But suppose A can not get this $2,000 additional; and he certainly can not if the other man, B, is exempt from this three-and-an-eighth-per-cent tax, or contrives to evade it, and competes with A in the open market. Then, in such a case, this three-and-an-eighth-per-cent tax upon product manifests itself as ten per cent upon the entire investment and absorbs the entire profits which otherwise might have been realized; so that the business of A first drags, then stagnates, and
- ↑ M. Menier defines fixed capital as every utility of which the product does not change the identity, as useful machines, instruments of trade, profitable buildings, improvements of land, and the like. Circulating capital, on the other hand, produces utility only by being transformed. It is represented by three elements—materials, goods, money. "Facts prove that the suppression of circulation is a cause of ruin for the land as for every other source of production. Look at Spain since the expulsion of the Moors, who had carried to so great a height the theory and. practice of agriculture. The land, having become the property of a few great families or the clergy, was consolidated. Its circulation ceased completely, and production ceased with it."
