Arthur Twining Hadley.

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Protection may foster new industries which would benefit the
country by giving a chance for the employment of high grade labor,
which otherwise would not be developed at all. This is their argu-
ment. Sec. 479.



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If we could assume that, legislation would be wise and uncorrupt"
able, we might devise a tariff which would be of greater benefit than
any system of national taxation now in use. But the legislature
does not look at the problem wisely. Sec. 480.

The apparent prosperity which follows the just operation of a
protective tariff increases the probability of mistakes. After a
while the mills which have been busy making duplicate plants shut
down, and the laborers are thrown out. The whole industrial world
suffers from this duplication of fixed capital and restricted facilities
of exchange. Sec. 481.

Legislation is more apt to stimulate an exhaustion of soil than a
protection of it. Protection exhausts all the resources of the pro-
tected goods. Sec. 482.

The duty on copper shows its effects in the price of shares in the
well regulated copper mines. The advantages of protection accrue
most often to the capitalist, those of free trade to the consumer,
the laborer. Sec. 483.

Protection of infant industries in some cases is good. It does
not, however, justify the expense involved. The period of infancy
is generally longer than was expected. The nominal reductions of
the tariff are often ineffectual because the cost of production has
decreased faster than the decrease in the tariff. All talk about
protections cheapening prices is bosh. They would have gone
down anyhow. Sec. 484..

The foreigner sells his goods as low as he can since he competes
with the world. Sec. 485.

The good of protection is much less than the good of cheap
consumption. Sec. 486.

The variableness of the tariff is bad. If the legislature was wise
and unbiased these theoretical arguments would deserve more
weight. As it is, the safer economic policy is to adjust the tariff for
purposes of revenue. Sec. 487.

The military argument is of course not an economic one. A
small part of the proceeds of a revenue tarriff would do more to
put a country on an even footing than is accomplished by a protective
tariff. Sec. 488.

Protection destroyed our merchant marine by making materials
high priced. Sec. 489.

Subsidized boats prove useful in times of war. It is poor
economy. It makes an over supply of vessels. This lowers the



47

rate of freight. The advantages are hard to show, for the sums spent
in this way. Sec. 490.

Many believe in protective tariff because it hurts other nations.
Sec. 491.

The commercial hostility which is engendered by the protective
tariff involves evil both commercially and politically to all parties
involved. Sec. 492.

Colonization as a means of national protection and a means of
finding profitable labor has two advantages, (i) It relieves the
pressure of labor. (2) It adds to the resources of the country by
increasing their diversity. Wlien colonies are weak they have to be
fostered. As soon as they become strong they wibh to be indepen-
dent. Their only " raison d'etre is a political one.

CHAPTER XIV.

The ordinary sources of revenue are prices, fees and assessments,
and taxes. Prices are charges for special services which people are
not compelled to accept. A fee is a charge for services which people
are compelled to accept. A tax is a forced contribution to the
general expenses of the government. It is not based on special
services. Sec. 494.

When the government charges for any of its services more than
individuals, the payment exacted is known as monopoly price, and
is treated as a tax on the consumer. When the payment exacted
is equal to the price of private individuals it is a quasi private price.
When the price is less than the individual's price, it is a public
price. Sec. 495.

An assessment is levied once for all ; a fee is repeatedly levied.
Assessments are levied on property and there is usually an attempt
to make the service rendered correspond to the assessment more
than can possibly be the case with fees. Sec. 496.

The income which is not included in prices, fees and assessments,
must be lumped as taxation. Sec. 497.

Taxes have now come to be regarded as a self levied contribution
to the general fund for the support of general services. Sec. 498.

Adam Smith laid down four criteria of a good tax system, equity,
certainty, convenience of time of payment and avoidance of unnec-
essary cost of collection. Equity as an ideal is right, but as a
guiding principle it will defeat the realization of the ideal. Sec. 499.



48

Certainty is the fundamantally important object, without which,
attempts at equality prove illusory. Sec. 500.

Uncertainty may result from failure to discover the objects which
should be taxed or from doubt as to their value, or from the
possibility of collusion between the assessor and the person taxed
by which consent is given to a low rate. Sec. 501.

Taxes should be levied on visible tangible objects. Sec. 502.

The most important of these is real estate. Mortgages should be
taxed at their full value. The chief obstacle is the apparent loss to
communities of lenders in allowing projjerty which their citizens own
to be taxed in the place where it is invested. But the amount
collected in this way is small compared with the vexation involved.
Another objection is that real estate will be overburdened, while
personal property will be relieved. The result will be that by
relieving the lender from taxation, the rate of interest will be lowered.
The owner of personal property will thus indirectly pay a larger share
of the taxes than he does now. If such loans can be reached by
this indirect method one of the largest items of personal property
will be taxed. Sec. 503.

In the assessment of corporate property no deduction should be
allowed for indebtedness. Sec. 504.

The attempt to levy taxes on the thing where the value originates,
rather than on the person who receives the benefit is known as the
policy of stoppage at source. This ensures the government against
dishonesty and is much easier. Sec. 505.

The second source of uncertainty arises from doubt as to the
actual value of the property or transactions assessed. It is difficult
to determine the net earnings of a business. Some states substitute
a low tax on the gross earnings for a higher tax on the net earnings.
The latter would be more equitable for often a tax on gross earn-
ings would bear hard when the business is large and the rates and
profits low. But the superior certainty out weighs the theoretical .
disadvantages. In levying customs specific duties are more certain
though less equitable than ad valorum duties. Sec. 506.

A third source of uncertainty arises from the danger of collusion
of assessors and tax payers. This comes chiefly where minor civil
divisions are asked to contribute to the general government on the
basis of this assessed valuation. This leads to under valuation.
For certainty of valuation the objects of national and local taxation
should be kept separate. Sec. 507.



49

Double taxation should be avoided in the interest of certainty no
less than economy and equity. Sec. 508

A tax which meets the demands of certainty tends to become
more equitable. The equality quality of the burden will reduce itself
by the reinvestment of capital. Sec. 509.

If taxes were continuous this shifting process would make them
equitable ; but they are not so that there must be constant adjust-
ments to burdens. Sec. 510.

A direct tax is one levied on the person who is expected to pay it.
An indirect tax is one whose burden is presumably siiifted upon some
one else. The custom duty is an indirect tax because the consumer
pays it finally, although the importer really pays it at the time of
collection. Sec. 511.

The transfer of taxes from one man to another is, sometimes
perfectly simple and direct. Some taxes are transfered by com-
mercial competition. A duty is laid on certain goods the price goes
up because the dealers find it impossible to furnish the goods at the
old price. Competition raises the price and the tax is transfered to
the consumers. Some taxes are transfered by industrial competition
instead of commercial by the withdrawal of capital invested in cer-
tain lines when the tax has borne heavily, and a slow indirect
readjustment of the relations of supply and demand. Sec. 512.

A tax is direct when its immediate burden is shifted only by the
first of these processes. It is indirect when the burden is shifted by
the second of these processes. Sec. 513.

Indirect taxes are not generally available for local purposes. Sec.

The question of taxation on wealth or income is one on which
there is no unanimity. Capital and income are really the same in
their results. A tax is paid out of the capital when the accumulation
is diminished by just that amount. It is paid out of income when
the expenditures are cut down to meet the tax. Sec. 515.

The question between income and property taxes must be decided
on the basis of certainty of assessment and ease of collection. The
measurements of capital presents more theoritical difficulties than the
measurement of incomes ; but practically it rests with the preferences
and habits of the people. Sec. 516.

The question of taxation on the basis of equality and progression
is more important. A property tax can be made progressive without
much disaster. An income tax involves the exemption of a minimum
income necessary to the support of a family. Sec. 517.



60

A progressive tax increases the difficulty of collection. This
uncertainty makes the progressive tax inapplicable. Sec. 518.

The single tax on landed property and monopolized advantages
have been suggested as a means of combining certainty with equality.
Sec. 519.

The losses incident to the collection of government revenue are
as follows : (i) The consumers have to go without a certain amount
of goods. (2) A rise in price reduces the consumers surplus from
the series of transactions. (3) The labor which produced the goods
is thrown out of employment. (4) A fall in wages reduces the pro-
ducer's surplus. (5) The field of investment is reduced by the
amount of reduction of wages. Sec. 519.

The supporters of the single tax draw a sharp distinction between
profits and rent. They propose to make land common property and
let the gain accrue to the public ; or to leave the title in private hands,
but tax economic rent to its full amount in place of all other taxes.
Sec. 521.

Rent and profits are closely connected. Rent has come to be a
return which depends upon the skill of the investor. The single
tax would not guarantee him against losses. It therefore would
destroy the motives to invest a capital in projects of land improve-
ment. Sec. 522.

The ethical and political difficulties are more pronouned than the
economic ones. The land if taken away would have to be paid for
by the government. Rent would diminish if the land belonged to
the government, because no one would improve their land. As a
fiscal measure it is radically defective. Sec. 524.

The assessment of improved land for more than the uuimproved
is bad because it does not foster progress. Sec. 525.

Poll taxes are neither productive nor equitable. Inheritance taxes
are just but easily evaded. Taxes on occupations are managed in
this country as a means of rectricting the number of those engaged
in certain kinds of business. See. 525.

Indirect taxes may be divided into three groups : excise charges,
exports duties and import duties. Sec. 526.

For purposes of revenue, indirect taxes have several disadvantages
as compared with direct taxes. It is hard to predict the amount of
income. High taxes foster evasion of taxes. High custom duties
foster home industry, which tends to replace the imports. Sec. 527.

The revenue from fines and forfeitures has ceased to be important.
Sec. 528.



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Unpaid bills of the government are the floating debt. Formal
obligations to pay the interest and principal on debts make the debt
a funded debt. When these obligations set a date of maturity they
are bonds. When the principal is paid by the issue of a new loan,
the operation is known as refunding. Sec. 530.

A nation cannot permanently rely on loans to pay its debtors.
Sec. 531.

There are two cases where recourse to loans is necessary, (i) In
an extraordinary emergency like war. (2) In the case of permanent
productive investments. In war wealth is destroyed, but property
rights and relations are conserved. Sec. 532.

The great advantage of loans over capital is that they enable the
government to secure unequal contributions from different citizens.
They are placed with good feeling, taxes are more burdensome.
Sec. 533.

Things which do not promise a return excepting war and the like,
should be undertaken with the revenue from taxation. Sec. 534.

Equally bad with unnecessary loans are those for speculative enter-
prises. Sec. 535.

In the case of loans for industrial improvements which promise a
sure return it is different. It is best to keep the loan within such
limits that the investment will pay interest and make a slight return
to capital. Sec. 536.

It is best to pay war debts as soon as possible. Sec. 537.

Unless fiscal checks are rigidly applied and fiscal deficits made up
by present taxation rather than by promises for the future, the danger
of waste far outweighs the probability of good. Sec. 538.



QUESTIONS FOR REVIEW.

For what reason does Hadley compare public wealth with private
property ?

What did Mill think prevented the abolition of misery among the
lower classes ?

What does Hadley think ?

Is it sufficiently safe to help the poor; (i) by outdoor relief; (2)
by indoor relief; (2) public works; (4) compulsory insurance; (5)
labor bureaus ?

What are the differences between the commercial and socalistic
theory of value ?

Name some cases in which state regulation of competition is
good ?

How does Hadley treat the equation of demand and supply ?
How does Mill ?

What determines the value of bye products ? Why is gambling
bad?

Why is insurance good ?

What are the services which speculation render to the community ?

How great a part of modern profits is compensation for risk ? Is
this justifiable?

How do the following encourage the investment of capital ?
Private ownership of land ?

Patents, copyrights and tariff to protect young industries ?
Limited liability of corporations ?
Interest ?

Why is competition keen with large investments of capital ?
What devices aim to check this ? Apart from legislation what pre-
vents monopolies from raising prices ?

What are some of the legal methods of regulating monopolies ?
Which does Hadley think the most promising ?

What are the evils which tabular standard and bimetallism aim to
remedy ?

Is this slow depreciation of gold unjust to debtors ? Is it a handi-
cap to production. Is the concurrent use of gold and silver as legal
tender practicable ?

What is Gresham's law ?



53



How does domestic exchange compare with foreign exchange ?
How are they similar ? How are they unlike ?

Why should the increase of bank notes be guarded against ?

How is the U. S. government at present doing a banking business ?

How does Hadley view distribution ?

How does Hadley think interest and rent are determined? Does
the amount of accumulation correspond closely to the rate of interest ?
Is rent an unearned increment; according to Hadley? According
to Mill ?

According to the popular theory what is the demand for labor ?
What is it according to the wage fund theory ? What, according to
the residual theory ?

What are the three arguments against machinery ? Are they valid
and why ?

What are the distinctive characteristics of the modern trade union-
ism and its methods.

Why have profit sharing schemes succeeded better in Europe than
in the United States ?

Why has consumers ' corporation been more successful than pro-
ducers ' ?

Under what conditions is the government management of industry
successful ?

Is the popular argument for an eight hour labor day sound ?

Should convict and pauper be allowed to compete with free labor ?

Explain the popular arguments for the protective tariff ? What
is the infant industries argument ? The military argument ?

What are the three kinds of taxes ?

What is the fundamentally important object ?

What is the policy of stoppage at source, equality and progression
of taxes ?

What is the single tax ? Is it good ? In what cases are public
loans desirable ?



OCT IS WIS





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Online LibraryArthur Twining HadleyEconomics I → online text (page 5 of 5)