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Chapter XI.

Taxation a Stimulus to Industry.

The analysis of the canons of taxation has brought us to an important conclusion. The justice and expediency of taxation of the unimproved value of land has been made abundantly clear. No further elaboration is required to establish the principle that communal expanses are most fittingly met by a value or fund communally created. So long as there is any form of civic or national government, there must he revenue provided by taxation. It is better to discharge this obligation by forcing unearned rather than earned increments into contribution. We have arrived, then, at this point: that it is most inequitable to attach any portion of the earnings of those whose means are insufficient to provide more than a bare subsistence whilst any class of men are in receipt of incomes which are the product not of their own labour, but of the labour of others.

So far, the argument has been consistent with the doctrine that the only legitimate function of taxation is to supply revenue. A protest must now be made against such limitation. Accordingly the proposition is boldly put forth that if the Stale did not require revenue the taxation of land values would none the less be desirable. Land taxation does something nunc than divert a community-created income into the Public Treasury; it does something more than make possible the exemption of the necessaries of existence? it does something more than make contribution for public purposes proportionate to benefits received from public expenditure and enterprise; it increases the productive capacity of the community and effects a more equitable distribution of its wealth. Land taxation, therefore, is urgent irrespective of the needs of government. If it stimulates industry and ensures a fairer distribution of its products, it promotes the objects to which all efficacious industrial reform must be directed. Let the proposition now be supported by argument.

Land taxation increases a nation's productiveness, and it does so in two ways.

First: So far as it is in substitution of taxation upon the direct products of labour, it removes a burden which weighs upon industry and thrift. To tax any commodity is to discourage its production. All commodities produced by labour have their price increased by the imposition upon them of taxes. The tax becomes part of the cost of their production. As a general rule there is a decline in page 94 consumption with an advance in price. The demand for a commodity varies with its price. It is always easier to sell a large stock at a low price than at a high price. Where boots, clothing, etc., are enhanced in price by taxation, people will economise more their use of them. So where a municipality draws its revenue from improvements, improvements are discouraged. Where rating is proportioned to industry, industry will be checked. It is impossible to increase the cost of production of anything without lessening its production. But to tax or rate land is not to increase its cost of production, because it is not produced by labour. Land does not rise in price as the burden of a tax is placed upon it. The price of everything is fixed by the relation of supply and demand. Ths price or value of land is determined by the relation which the available supply of it bears to the demand for the use of it. That relation is not disturbed by the imposition of a tax. A tax certainly does not lessen the community's need of land, and it has power neither to increase nor diminish the supply. It cannot affect it. Affecting neither the supply nor demand, it cannot affect the price of land.

The result is essentially different in the case of commodities produced by labour. It is true that the price of these, too, is governed by the relation of supply and demand. But in this case the relation is disturbed by the imposition of a tax. The price of any commodity produced by labour must be sufficient to cover the cost of its production, otherwise the supply will fall off. Industries are run on business principles, and no man will continue to produce an article the price of which does not reimburse him for its cost. A tax on boots increases the price of boots; a tax on corn increases the price of corn and bread. But the tax is not the immediate cause of the increase in price. The proximate cause is the effect of the tax on the supply of the boots "and grain. If the conditions of the market are such that an increase in the price is impossible—that is, if the supply is so abundant, relative to the demand, that it would be impossible for vendors, to dispose of their stock at enhanced prices—then manufacturers of hoots and producers of grain will reduce their output—dimmish the supply—to the point at which the price will rise sufficiently to cover the added cost of production due to the tax.

The equalising effects of competition must always be kept in mind. Profits tend to an equality in all industries, because capital is ever seeking the most profitable investments, and being mobile, is readily transferred from one branch of production to another. As soon as a particular industry offers profits above the general level, streams of capital from all directions begin to flow into it; and the influx continues until the increased output brings prices, and therefore profits, down to normal.

A precisely contrary effect is produced where the profits in a particular industry (through over-production or contracted demand page 95 causing a drop in the price of the product) have fallen below the normal. Capital leaves a non-paying industry with all the expedition possible, and all new capital is repulsed. As capital flows into the more profitable, it flows out of the less profitable industries.

So if a tax is imposed on the products of one particular class of producers, their branch of industry is loaded with a special burden which, unless prices are raised, will lessen profits. Now so far as competition was operative, the profits before the tax could not have been above the normal. That being so, the tax causes them to fall below the normal. Capital starts to leave the taxed industry; supply is thereby diminished; with diminishing supply, the demand remaining the same, prices begin to rise; and the process goes on until prices have reached the higher level which, after payment of the tax, will yield the ordinary rate of profits. Such are the adjustments which competition effects between trade and trade.

It becomes obvious, therefore, that to tax a commodity, the product of labour, will raise its price through the effect upon supply. Thus the burden falls upon the consumer. But tax land or anything the supply of which is independent of human effort, and there is no tendency set in motion to reduce its quantity or supply. The withdrawal of labour and capital from land cannot reduce the supply of it. Now price only varies with the variations in supply or demand; and as a tax on land cannot affect either, the relation of supply and demand cannot be disturbed, hence the price of land cannot rise. In other words, a tax on land values, in the economic sense, must be borne by the landowner; it cannot raise the value of land; therefore it cannot raise the rent of land; therefore it cannot be shifted upon the tenant or the user of land.

This proposition is of the first importance. Tax the goods of the grocer, the baker, the bootmaker, and the burden is shifted by them upon the consumer, by means of increased prices. Tax the land of the landowner, and he has no power to rid himself of the impost. An increase in the price of his land is impossible; he must pay the tax himself: he cannot recoup himself from the lessees, tenants, or purchasers, because competition, operating through the laws of supply and demand, disables him from obtaining any higher price for the use or sale of his land on account of the tax. Upon pis point there is absolute unanimity on the part of writers on Political Economy. Indeed, it will appear later, a tax on land lessens the value and rent of land—a tendency which finds no parallel in the taxation of other commodities.

Let the argument under this head be closed with a brief summary of the conclusions. A tax on articles produced by labour lessens their supply, and increases their price; it furnishes less for consumption, and provides this less at an enhanced price; a tax on land or any natural agent not produced by labour does not lessen page 96 the supply of land and does not increase its price. A tax on commodities, although at first paid by the producer or dealer, is ultimately paid by the consumer: a tax on land is paid by the owner, and cannot be forced on tenant or purchaser. Finally, by shifting taxation from commodities to land values, a discouragement to production is removed, or what amounts to the same thing production is stimulated. The taxation of land values encourages, the taxation of the products of labour discourages, production.

Secondly: Land taxation increases a nation's productiveness by rendering land more easily available for industry. Land lies at the basis of all production; it is the storehouse of the raw materials which labour works up into consumable goods. From it come the cereals; upon it arc fed the animals which provide man with meat, the sheep that furnish him with wool; in its womb are the ores which labour can fashion but not create, and the coal which animates the world's workshops. In "Past and Present," Carlyle says:—

The land is the mother of us all: nourishes, shelters gladdens, lovingly enriches us all. In how many ways, from our first waking to our last sleep on her blessed mother-bosom, does she as with blessed mother-arms enfold us all? . . . . Mystic, deep as the world's centre, are the roots I have struck into my native soil; no tree that grows is rooted so. From noblest patriotism to humblest industrial mechanism, from highest dying for your country to lowest quarrying and coalboring for it, a nation's life depends upon its land.

Lafcadio Hearn, that wondrously sympathetic writer on Japanese life, sounds a note of warning to Japan as she opens her ports to foreign commerce, and her mind to Western ideas: "When Japan yields to foreign capital the right to hold a rood of land, it will sell its birthright and liberty."

It were needless to emphasise the importance to a country of an abundance of fertile land. It is equally important that such land should be readily accessible to labour. Land locked from productive effort contributes nothing to a country's prosperity, and by diminishing the supply available, for industry, causes rents to rise and the productive capacity of the country to be contracted. No nation can reach the high-water mark of wealth and prosperity unless its soil is open to the efforts of labour and capital. Slowly this truth is laying hold of the Liberal Party of Great Britain. At the beginning of the year the Prime Minister of England, at a political demonstration in Glasgow, uttered the following significant passage:—

When I see the time of the House of Commons occupied tor days together in discussions about the rights of landowners in their pheasants and hares, and when I am told that the page 7 only class of rural work which lias increased during the last few years is the game-keeping class, and when I hear that from one district to another the demand for land for the purposes of labour is met with a blank denial, I say we should fail in our duty if we sat with folded hands consenting to such a state of things. Our task as reformers is to apply such terms to the land as will facilitate its utility to the utmost. We must see that no arbirary obstacles are set in the way of that demand.

The evil of locking up land, whether for speculative purposes, for parks, or game preserves, is obvious to a moment's thought. Economic rent arises, as we have seen, from the niggardliness of nature. Did the supply of suitable land grow with the needs of an advancing population, rent would be unknown. It is to the limitation of the supply of land that we must ascribe the rise and growth of rent. Well, then, whatever lessens the supply of land available to meet the demand for it for productive purposes raises rent, or, in ether words, increases the price which labour must pay for the right to the use of that natural agent, which is at the foundation of all industry. The converse is true, that whatever increases the supply of land available to meet the demand lessens rent or decreases the price which labour must pay for the use of it.

Now what effect would a tax on the value of land have upon land withdrawn by speculation or lordly greed from cultivation or use? It would have to be paid by the owner, for we have seen that it could not be shifted on to the producer or consumer in the shape of increased rents. The tax would thus increase the cost of speculation or game-preserving. The profits being diminished, or the burdens augmented of locking up land, straightway owners would begin to throw open such land. If the tax were heavy enough, no man could afford to withhold his land from productive purposes. To tax land is always to discourage speculation, is always to bring idle land into cultivation and vacant land into occupation. It is harder to bold land speculatively for a rise in value when an annual tax is levied while the speculator waits for a rise, than when no such tax is imposed. Wherever rating on unimproved land values has been tried in New Zealand, it has invariably been the means of bringing vacant lands upon the market. A tax on land, therefore, increases the supply of land accessible to labour. By doing so it lessens the value of land, and thus the rent. Value depends upon supply and demand, and the tax, by unlocking land, increases the supply: hence the price of land falls, We have already seen that a tax on commodities increases their price, whilst a tax on land has no such effect on the price of land. We can now advance a step further: a tax on land decreases the value of land. Not only is the tax paid by the landowner, but the rent he can obtain for it is reduced.

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Again, let us sum up the results of a land tax. It cannot raise the value of land; it cannot raise the rent of land; it cannot be shifted upon the tenant or user of land. On the other hand, it can and does lessen the value of land; it does lessen the rent of land; it falls upon a value unearned by individual labour; it falls upon a value created by public expenditure, general enterprise, and growth of population; it relieves industry to the extent that it takes the place of imposts on the products of labour; it renders speculation unprolitable; it increases the quantity of land accessible to labour; it enlarges a community's productive capacity. In short, its action in lifting burdens, off industry and unlocking land promotes abundance of commodities and abundance of land.

A land tax has effects which reach far beyond the supply of industrial activity, and augments the fruitfulness of a country's revenue by the cheapest and most equitable means. It stimulates industry. Doing this, it deserves the earnest attention of electors.