If the government presented a greater demand for the produce of immediate labour, less for thatof fixed capital, than was presented by the labourers, there would so far be an increase ofdemand for labour, and a rise of wages, which would so far be a compensation to the labourerfor the tax, at the expense, however, of profits, and with an uncompensated loss to the extent ofall the produce which the superseded capital would have yielded.
(4.vii.18) Properly speaking, however, this rise of wages is not an effect of the tax uponwages. It is the effect of a very different cause; of a supposed peculiarity in the nature of the governmentexpenditure. When we are talking, therefore, of the effect of a tax upon wages, in increasing ordiminishing the demand for labour, this extraneous circumstance, which may or may not beconcomitant, ought to be left out of the account. The only essential effect of a tax upon wages isto take so much from the labourer, just as a tax upon profits takes so much from the capitalist, atax upon rent takes so much from the landlord.
(4.vii.19) It is further essential to this question to observe, that the effect of the governmentexpenditure in raising wages, by furnishing a greater demand for immediate labour, less for theproduce of fixed capital, would take place equally if the tax were levied upon profits, or uponrent. If this is the effect of the expenditure of government, upon whatever source of income thetax is levied, to lay the tax upon wages is only to prevent the labourer from reaping the benefit ofthat rise of wages, the full benefit of which be would otherwise enjoy. In this sense, therefore,also, and, when this is included, all are included, it is evident that the tax really falls upon thelabourer.
(4.vii.20) The argument may be shortly, stated thus. Before the tax, a certain demand existedfor labour; arising, in part from the funds of the landlord, in part from those of the capitalist, and inpart from those of the those labourer. After the tax the two former remain the same. But thedemand arising from the funds of the labourer is diminished. If this loss of demand were notcompensated, the labourer would sustain two evils in consequence of the tax. He would pay thetax; and his wages would fall. The second of these evils he does not sustain, because thediminution of demand on the part of the labourers is compensated. The increase of demand onthe part of government is exactly equal to the diminution of the demand on the part of thelabourers. This prevents wages from failing, but it does no more. It yields nothing incompensation for the tax.
Section VIII. Direct Taxes Which Are Destined to Fall EquallyUpon All Sources of Income (4.viii.1) Assessed taxes, poll taxes, and income taxes, are of this description. After what hasbeen said, it is not difficult to see upon whom, in each instance, the burden of them falls.
(4.viii.2) In as far as they are paid by the man, whose income is derived from rent, or theman whose income is derived from profits of stock, the burden of them is borne by these classes. Noadditional demand arises from the tax; and, therefore, neither can landlords raise their rents, norcapitalists the price of their commodities.
(4.viii.3) In respect to the labourer, the result is different in different cases. If his wages arealready at their lowest rate, no portion of such tax can fall upon him. His wages will rise, andthrow his share upon the capitalist. If the wages of the labourer are sufficiently high, he willsustain his share of the burthen.
(4.viii.4) The effect of these taxes upon prices may be easily ascertained. A tax upon rentwould produce no alteration in the price of any thing. Rent is the effect of price; and the effect cannotoperate upon the cause. A tax upon profits would alter prices, only as a tax upon wages altersthem.
(4.viii.5) Of the tax upon wages, there are two cases; that in which it raises wages, and thatin which it does not raise them. In the case in which it does not raise them it will hardly besupposed that any alteration of prices should ensue. The capital of the country is not supposed toundergo any alteration, nor, of course, the quantity of produce. With respect to the demand, aportion of the power of purchasing, which belonged to the labourers, is taken from them: but thewhole of what is taken from them is transferred to the government. Government may sendabroad the amount of the tax. If we suppose, however, that it sends it abroad in goods, it isevident, that no diminution of prices will ensue. And if it sends it abroad in bullion, the case, inthe long run, is the same; for as the vacuity which is thus made in the bullion market, is to besupplied, goods must go abroad to purchase it. The exportation of the bullion, if it diminishes thequantity of money, will produce a temporary depression of price. But the same effect wouldfollow from the same cause on any other occasion.
(4.viii.6) In the case in which wages do rise, it may also be seen, that the capital and produceof the country remain the same, the amount of demand and supply the same, and the value ofmoney the same. The aggregate of prices, therefore, one thing being compensated by another, isthe same. That change, indeed, which takes place in the relative value of certain kinds ofcommodities, as often as wages rise and profits fall, is necessarily produced on this occasion.
Those commodities, which are chiefly produced by fixed capital, and where little payment ofwages is required, fall in price, as compared with those in producing which immediate labour isthe principal instrument, and where little or nothing of fixed capital is required. Thecompensation, however, is complete; for as much as the one of these two sets of commoditiesfalls in price, the other rises; and the price of both, taken aggregately, or the medium of the two,remains the same as before.
