liable may deduct a certain amount for life-insurances actually effected. The first of these exemptions recognises that the bare maintenance of the labourer is no part of the profit of labour, though even to be roughly equitable it should be extended to all industrial incomes alike; the second acknowledges that the capital sum expended for making the labourer fit for his work should be replaced. Of course however, if the investment destined to replace the wear and tear of labour be taxed when it is saved, and taxed while it is being invested, all appearance of equity passes away. Now, I repeat, that as far as the aggregate of public wealth is considered, such a replacement is equally effected, whether the recipient of income devotes some of his savings to insurance, or employs them more wisely and productively in educating his children.

These facts are not alleged with a view to inferring that a system of taxation which levies unequal imposts on equal revenues is essentially vicious, for such an evil may be inevitable, but to show what would be the true incidence of a tax which exactly fulfilled Adam Smith's condition, and also what should be, as far as possible, before the mind of a financier when he imposes or adjusts taxes. That which cannot be cured may be

palliated.

All taxation either diminishes the enjoyments of those who pay it, or appropriates part of their savings. It cannot, in the long run, take away from that part of a man's income which is needed for his maintenance. In such a case, the source of the tax would be extinguished. There are persons who may be constrained to say, 'If we pay we starve.' Their existence may be so near

the margin of bare subsistence, and the food they live on may be so cheap and scanty, that they may be wholly unable to contribute any portion of their income to fiscal purposes. I cannot quote any example of such a class of persons, but it is said that many millions of the inhabitants of the Indian peninsula are nearly in such a condition, and that the salt tax is the only impost which will reach them.

The margin, therefore, from which taxation can be procured, increases with the increase of a nation's enjoyments, and by the excess of these enjoyments over the necessaries of life. The rate of taxation per head levied on the inhabitants of Australia is much greater than that levied on the population of the United Kingdom. The public expenditure may be extravagant and unnecessary; but its incidence is much lighter, as food is cheap and wages are high. The same facts apply to taxation in the United States. It is possible, to judge from the present course of events it is probable, that the fiscal system of the Union is a violation of every one of the rules laid down by Adam Smith, and endorsed by almost all economists. But the mischief is not so ruinous as the adoption of similar expedients would be, in a country possessing a denser population, and therefore fewer unappropriated resources.

Again, taxation is borne much more easily when wealth is distributed. In India a few persons possess much wealth. The impression which the glitter of such wealth induced on the imagination of the first visitors of India was very slowly effaced. In time it was found out that the people was in the aggregate poor, that the mass of the population was sunk in squalid misery. The wealth

of Great Britain, though some portions of it are accumulated in few hands, and particular classes of the community are thereupon depressed, is fairly distributed; the fiscal reforms of the last twenty-five years having greatly contributed to such a result. As a consequence, that part of the public revenue is most buoyant which is derived from the consumption of the mass of the people. In the fifteen years from 1851 to 1865, the reductions of taxation were computed at nearly £15,000,000 of annual impost. But the revenue raised in 1865 was £10,000,000 in excess of that raised in 1851. The explanation is to be found in the enormous increase of the customs, that is, in the taxes paid for the use of common comforts or luxuries, which a series of prudent changes has brought more and more within the reach of a great part of the community.

I have observed that taxes are generally levied on enjoyments. But they may be levied on capital, that is, they may take away part of an individual's savings. Yet it cannot be generally laid down that a tax has the former or the latter incidence, for the appropriation of any resources which an individual obtains is matter of private judgment and action. He may at his discretion spend or save what he gets.

It is generally assumed, if a tax is likely to be levied on capital, that it is a bad tax; and on this ground Mr. Ricardo objected to legacy duties. But apart from the impossibility of determining what will be the incidence of the tax in particular cases, it does not follow that a tax which appropriates part of private capital is a public evil. The resources of the individual are doubtlessly diminished; it does not follow that the resources of

the community will be. The State may employ the proceeds of the tax in public works, and may add by these means far more to the public wealth, than the persons from whom the capital is taken could have possibly added. The State may consume the proceeds unproductively in the maintenance of soldiers. But the original possessor might have also employed it as unproductively in the manufacture of luxuries to be consumed at home. In the hands of the State, it has distributed greater benefits than it would have in the hands of its original owner, for it has increased the occupation of the commoner kinds of labour.

If therefore the people at large suffers in no degree, but rather benefits by such an appropriation of capital, the particular instance is one in which every condition of equitable taxation seems to be satisfied. It is only by municipal law that a person is able to dispose of his property by will. The heir or legatee enters upon that which he has never laboured for, in which he has no property, or at best only an expectation of property. The law which allows testamentary disposition, can justly claim something for its concession; the recipient of the legacy, who is entering upon increased resources, can easily bear the deduction from his new acquisition. The only limit of such an impost is suggested by the risk which this source of public income would run, if the tax were so high as to induce a general evasion of it by a donatio inter vivos, or the erection of a fictitious obligation, of which the legacy would be a quittance. The contingency of such a risk seems to have dictated that graduated scale of legacy duties, in which the impost varies with the proximity of relationship between the testator and the

legatee. The risk of this evasion is not imaginary. Some years ago, a penurious nobleman granted all his personal estate to his son, reserving to himself an annuity, with the secret purpose of defeating the legacy duties. The expedient failed, for the son became a lunatic and died. The father therefore inherited his own estate, and had to pay legacy duty on it, besides the additional charges. incurred for the administration of an intestate person's effects. Ultimately, on the nobleman's decease, the same estate paid legacy duty again.

Of all taxes the worst are those levied on raw materials; i. e. on such goods as are not available for consumption until they have undergone further manipulation, or those goods the consumption of which is necessary for some industrial process. Thus, for example, a tax levied on raw cotton is of the former kind, a tax levied on coal used for the purpose of putting machinery in motion ist of the latter. A similar tax is that levied on food required for the maintenance of productive labour.

These taxes violate Adam Smith's fourth rule. They take out of the pocket of the consumer more than they put into the coffers of the State. They add to the cost of production in the first stage of the process, and by increasing the capital needed for supplying the object in question, accumulate a charge on the consumer. If a tax of two-pence a pound were levied on raw cotton, the increase in the price of a pound weight of cotton cloth would be much more than the amount of the tax. A tax on food, moreover, depresses the condition of the labourer. It creates, says Adam Smith, an artificial barrenness.

When a tax is imposed on any article which is imported from abroad, and is produced untaxed at home,