CHAPTER 7 Observations on the Paper by Graslin in Favour of the Indirect Tax, to which the Royal Agricultural Society of Limoges has Given an Honorable Mention

he author inappropriately charges the writers whom he attacks with considering the net product of the soil only, that is, the revenue as wealth. All that the earth produces is wealth. But these writers maintain correctly that the total of the renascent wealth of a State is confined to the total annual output of the soil. This output is divided into two parts, one of which is destined for the subsistence and the satisfaction of the wants of the cultivator, for the interest on and the replacement of the advances, in short, for all that is necessary, directly and indirectly, for the reproduction of the following year. But once this part is deducted, the surplus, which the cultivator gives to the proprietor of the soil forms the latter’s revenue, which not being in any way necessary for the reproduction of the following year, is completely free, disposable, and susceptible to division among the titular owner, the recipient of the tithe, the seigneur censier,¹ the State, etc.

The author does not understand either the real distinction between the two working classes, one of which, applied directly to the work of the soil, produces, or, to remove all ambiguity, gathers directly all the wealth which the earth yields; the other, receiving nothing directly except by way of those who have gathered the fruits of the earth, earns its subsistence and receives it in exchange for its work, but does not add any new wealth to the total wealth produced by the earth alone.

It is not, as the author believes, all real wealth which can pay the tax; it must also be disposable, i.e., it must not be essential for the reproduction of the following year, be it immediately or a little later. Any wealth can be seized by a superior power, but no wealth which is essential for the work of reproduction can be diverted from it without harming this production, the national wealth, and by consequence, the source of power of the government. This comprises the whole of the theory of taxation.

The three primary consequences of this doctrine of the economic writers are summarized in unlimited freedom of trade. The usefulness of this liberty as declaimed by the principles which the author attacks, is based, moreover, on so many other incontestable propositions that its certainty does not depend by any means on the system adopted as regards the nature of wealth and of the revenue. It should not be believed either that in permitting the selling and buying of what and to whom one pleases, the whole of industry is abandoned for this, as the author and the other partisans of protection imagine or argue: the argument of those who, to create fear of freedom, assume that the foreigners will buy all our raw materials, will get hold of all of our industry, and will carry on the whole of our commerce, this argument is of the same type as that of the people who fear that the freedom of selling our grain abroad will cause us to die of hunger, although this freedom, of necessity, will increase our production and our stores, which will never seek an outlet in foreign parts when they find a profitable one at home.

I define as goods (bona) all objects of enjoyment, of property, of desire and of need. I define as value (merae) all things susceptible to exchange and evaluation. I define as wealth (opes) all goods which may be traded, all objects of enjoyment which have a value. The revenue is the wealth which the earth yields over and above the expenses and the returns to those who cultivate it. Water is a good which has no value at all. Work has a value, and is not in itself a good. Corn and cloth are wealth. What the farmer renders to the proprietor of an estate is a revenue.

It follows from these definitions that the output of the land, when it is only equal to the expenses, is wealth, but non disposable wealth; wealth and not revenue. In the example cited of a field planted with flax, which costs the cultivator one hundred francs and returns him only one hundredf rancs, this flax is wealth and has undoubtedly, like all other forms of wealth, its usefulness; but it is obvious that it does not yield any revenue either to the proprietor or to the State. The cultivator would not give a sou to the proprietor of such a field for permission to cultivate it; for what he gives could only be taken from his bodily needs. By the same argument, the State can draw nothing from this field, nor ask anything from the cultivator, without depriving him of his subsistence and consequently making it impossible for him to work. If all the fields of a kingdom were cultivated in this manner, it is obvious that the State could not levy any taxes, not because there would be no wealth, but because there would be no revenue, no disposable wealth; because, the whole annual output being set aside for the bodily needs of those who produce it, anything that might be taken from it would destroy the cultivation and the reproduction of the following year.

It is quite true, considering things vaguely, that as the subsistence of the cultivator makes up part of the expenses, the less the cultivator consumes for himself, the more remains for the net product. It is certain that if a farmer wore clothes of velvet, and his wife wore lace, this expense would have to be recovered from the product of the earth by diminishing the portion of the proprietor. But it does by no means follow that the misery of the cultivator increases the net product. On the contrary, it has been shown that the wealth of agricultural entrepreneurs is no less necessary than work itself to obtain a plentiful output from the soil. Since the fertility of the soil is limited, there is undoubtedly a point at which the augmentation of the advances would not increase the output in proportion to the increase of expenses; but at present this limit is far from being attained, and experience proves that in those places where the advances are largest, that is, where the cultivators are most wealthy, there is not only the greatest output, but also the greatest net product.

Assuming the output to remain the same, the smaller the share of the cultivator, the larger that of the proprietor or the other partakers of the net product. But, if the cultivator would not receive a fair amount in proportion to his advances, if he were not sufficiently wealthy to have a right to a large profit from large advances, the output would no longer be the same at all, and it would become even more scanty as the cultivator grows even poorer, up to the point when, at a certain level of poverty, there would no longer be any net product. Thus it is very far from true that the principles attacked by the author contradict the resolution which humanity dictated to Henry IV.

Moreover, the author does not appear to have distinguished here between the agricultural entrepreneur and the rural wage laborer, the ploughman, the day laborer, who works the soil with his arms. Yet these are two very different types of men who cooperate in quite different ways in the great work of the annual reproduction of wealth. The agricultural entrepreneur contributes to the reproduction through his advances; the man of toil contributes through his labor, for which the agricultural entrepreneur pays him his wages. It must, moreover, be admitted that the more the entrepreneur pays in wages to his carters, the more dearly he pays for the time of the reapers and other day laborers whom he employs, the more he lays out in costs, and that this outlay is always a deduction from the net product. What can be concluded from this? Is this not true in all systems? Is there any type of work in which profits are not diminished by the dearness of the labor? And is there any inhumanity in admitting a truth which only has to be expressed in words to become obvious? Moreover, there exists a natural proportion between the wealth produced, the revenue, and the wages, a proportion which establishes itself, and which causes that neither the entrepreneurs nor the proprietors have an interest in lowering the wages below this proportion. Apart from the fact that, in any kind of work, an ill paid man, who does not earn a plentiful livelihood by his work, works less well, the exchange value of the rural output is less. Now, if, when the cultivator pays his laborers less, he sells his grain for less, it is obvious that he is none the wealthier from this. The exchange value of the output of the soil is, normally, the measure of the wealth gathered each year by the cultivator, who shares it with the proprietor. A high exchange value of the produce of the soil and a large revenue enable the cultivator and the proprietor to pay high wages to men who live by their manual labor. High wages, on the one hand enable wage earners to consume more, and to increase their well-being: on the other hand, this well-being and these high wages offered, encourage population; the fruitfulness of the earth attracts foreigners, multiplies the people; and the increase in people in turn lowers wages through competition, while the number maintains the consumption and its exchange value. The exchange value of the produce, the revenue, the wage rate, the population, are things related to each other by a mutual dependence, which spontaneously reach their equilibrium according to a natural proportion; and this proportion is always maintained when commerce and competition are completely free.

The single practical conclusion that can be drawn from this, is that wage laborers must be completely free to work for whom they desire, in order that the employers, by contending for them when they need them, may place a just price on their labor; and that, on the other hand, the employers must be completely free to use such men as they deem proper, in order that the local workers may not, by taking advantage of their small number, force them to increase wages above the natural proportion which depends on the stock of wealth, the value of subsistence goods, the amount of work available and the number of workers, but which can never be settled by anything other than competition and freedom.

Although the expenses of agriculture are spent in the State, it does not follow that, as the author believes, the State will be just as wealthy when the costs increase at the expense of the net product. The State has not, and cannot have, any strength except for the net product, because all that is necessary for the reproduction is assigned to the needs of the individuals who work to create it, in such a way that nothing of it can be seized for the public expenditure. Now, if there can be no public expenditure, if there is no communal power to be used in the common interest, there is no State properly speaking; there is only a country peopled by inhabitants who are born, who live, and who die near each other. The expenses of agriculture remain in the State in the sense that they are expended between the Rhine, the Alps, the Pyrenees and the sea; but they neither are, nor can be, the property of the State considered as the body politic formed by the union of communal forces directed toward a common interest. The comparison with the silver mine, which costs one hundred marcs to exploit and which produces one hundred marcs, is fallacious. This silver mine obviously returns nothing to its proprietor, nor to the entrepreneur who would exploit it at his pleasure, but it is true that it leaves a value of one hundred marcs which, not being consumed, increases the sum of value existing in the State until this money flows abroad by means of the exchanges. In this respect, the renascent wealth of the soil which is consumed and reproduced annually, is very different from the non-consumable values which circulate continually without ever being destroyed. Certainly, the sum of values spent each year on the expenses of agriculture is consumed and destroyed entirely as subsistence for the agents of the reproduction. As for the values which circulate without being destroyed, such as the products of mines, the expenditure of the costs of extraction does not completely annihilate them, and only causes them to change hands. It may therefore be said that the State has gained one hundred marcs, in the sense that one hundred marcs exist in the country. But what increase in the wealth of the State, considered as the body politic, results from this? None, except in so far as the existence of this new circulating value can increase the sum of the revenue or the net product of the earth, be it in augmenting the advances allocated to the reproduction or to commerce, if the money is set aside to form a capital which is directed to a profitable use; or be it in increasing the exchange value of the output, if this money, carried immediately to the circulation, is presented in the market in current purchases and causes their price to rise. This proposition is capable of proof, but in order to demonstrate it fully it would be necessary to develop the true use of money in trade and the result of its introduction into a State in greater or lesser quantity, by considering this State as if it were isolated, and then as if it were surrounded by other States with which it has different commercial and political relations. These questions, which have never been fully developed, are too lengthy to be treated here. I shall say only that the author is very much mistaken by regarding money purely as a conventional token of wealth. It is not at all by virtue of a convention that money is exchanged for all the other values: it is because it is itself an object of commerce, a form of wealth, because it has a value, and because any value exchanges in trade for an equal value.

The author puts forward an objection to the principles of his adversaries which may be reduced to these questions: “If industry and trade do not produce any wealth, how do purely industrial and commercial nations live? How do they enrich themselves? If taxation can only be levied on the net product of the estates, how can these nations pay taxes? Would industry be a source of wealth in a commercial State but not in an agricultural State?”

There are no nations which are industrial and commercial as opposed to agricultural; and neither are there any nations which are agricultural to the exclusion of all industry and trade. The word nation has not as yet been defined very exactly, because nations have often been confused with bodies politic or States.

A nation is a collection of people who speak the same language. Thus all Greeks belonged to the same nation, even though they were divided into a host of States. Nowadays the Italians form a nation, and the Germans another, even though Italy and Germany are divided into several independent sovereign States. In former times the French nation was not united into a single monarchy; several provinces obeyed various sovereigns, and all those who speak French are not even united into the Kingdom of France.

A State is a collection of men united under a single government. In this connection, this distinction is neither as strictly grammatical nor as irrelevant as it appears.

The term nation can only be applied to a large populace distributed over a vast stretch of country which yields the inhabitants enough to satisfy their needs. The soil, through the work of agriculture, gives them food and raw materials for their clothes, industry fashions these raw materials and makes them suitable for various uses. Commerce brings consumers and producers together, saving them the trouble of searching for each other, and assuring them that they will find the commodity in the place and at the time they need it. Commerce, as the author of this paper says so well, is responsible for transportation, warehouses, stocks, and for waiting. The mutual needs of buyers and sellers encourage them to come together and they must naturally gather in those places in every province which are the most conveniently located, most densely populated, at which the course which each follows for his own affairs cross in the greatest number. Those points naturally become the commercial meeting places, the dwellings of the middle-men are gathered there, they develop into boroughs and towns where the gathering of buyers and sellers increases all the more as they are more certain of finding the opportunity to buy and sell there. Therefore, everywhere different centers of commerce spring up, more or less closely together and corresponding to districts of different sizes by reason of the abundance of the country’s production, the size of the population, and the relative ease of transporting the commodities. The markets established in the principal places of each province for the retail trade and for the objects of daily consumption constitute as it were the first order of these centers of commerce, each of them corresponding to a very limited district only. There are also commodities with a less general and less frequent use, which are not consumed in sufficient quantity to allow the profitable establishment of their cultivation of manufacture in every individual place. The value of these commodities is normally high enough for a small volume to be able to bear the costs of long transport. The commerce in these goods is carried on in larger lots which are afterward distributed to the retailers. The same principle which established markets for the trade in the most common commodities in the places with the most frequented gatherings, establishes markets of a higher order for the wholesale trade. These correspond to a more extensive district, and merchandise gathers there from further afield to be distributed to more remote places. These large markets (emporia) are exactly what are called ports of commerce, entrepôts. They were towns of the kind which, in the centuries of feudal barbarism, having joined together for the general defense, formed the Hanseatic league. These ports of commerce are always large towns, and in any case they would become so by the gathering of citizens drawn to them by the commercial activity. It is the advantageous situation of towns at the crossroads, if I may be so bold to speak like this, of large commercial routes, or at the mouth of navigable rivers, the good quality of the harbors, and sometimes the industry of the inhabitants and the flourishing state of certain manufactures which causes the great entrepôts of commerce to be established there. Thus Nantes is the outlet of the Loire, Rouen that of the Seine, Bordeaux of the provinces through which the Garonne and Dordogne flow, the towns of Holland and Zealand of the Rhine, the Maas and the Scheldt, Hamburg of the Elbe, Venice of the Po. Tyre, Carthage, Messina, Genoa, and Cadiz have had an advantageous maritime location as their only advantage. Lyon, Geneva, Strasbourg, Orleans, Limoges, are entrepôts of a slightly lower order. In all these towns, commerce and trade are the principal occupations of the inhabitants, and each town corresponds to a more or less extensive area of several districts or provinces of which it is the entrepot, from which it gathers the products, and to which it distributes their needs. The territory and commerce of these entrepot towns are two correlated things necessary to each other, and the distinction between the commerce in the produce of the soil and the entrepôts or retail trade does not exist with respect to nations or regions. The fact is that certain towns and maritime coasts which served as entrepôts to an extensive commerce, have been able, through chance of circumstances, to form little political States separated from the territory of which they are the entrepot; but this chance has changed nothing in the nature of things. Holland, whatever be its government, will still be the outlet of the Rhine, the Maas and the Scheldt, and of the canals of prolific Belgium; she will still be a favorable place of commerce and entrepot for all the harbors of England, France and the Baltic States, and consequently also for most of the other countries which wish to keep up relations and exchange with these different States, for which Holland is particularly necessary.

Therefore to have advantage of location is to have a type of exclusive privilege in comparison with less happily situated places. Because of this privilege, which is a natural one and therefore not unjust, wages may be received which exceed the needs of those who earn them, even with economy for those who pay them, above all if the former are wise enough to live thriftily, as the Dutch do.

Consequently, from the excess of their wages over their needs, which they are well able to curtail, people in this situation easily accumulate capitals which lower the interest of money among them. This assures them a further claim to preference, a further increase in wages. It is from the excess of these wages over their needs that the Dutch are able to discharge their public expenditure and continue to enrich themselves.

They have not produced these wages, nor the wealth which pays them; they have earned them legitimately by their work which their location has made both lucrative for them and useful to those who employ them; they have earned their wages like the commission agents of our cities earn theirs.

In wealthy, civilized countries, illustrious scholars, great doctors, artists, poets, and even great comedians, may also earn respectable salaries, live in ease, afford considerable expenditure, practice charity, accumulate capitals. No one thinks that they have produced any of this wealth which they acquire, which they can dispose of, and which is transmitted to them, by whom? by the proprietors of the estates; who obtain it—from whom? from the cultivators, from the advances and from the work of agriculture: advances, work of which the process can neither be constrained nor interrupted without ruin; and it is of this last maxim that the theory of taxation consists, as I have already said.

The author, and those who share his opinions, persist by saying: “Since there are people who earn high salaries, they are therefore able to pay the tax: you agree that the Dutch pay taxes which sustain their republic. In order that the tax may not be arbitrary and be proportioned approximately to resources, is it not proper to levy it on consumer goods?

To this I reply:

Firstly, that the Dutch add the need to pay tax to their other needs, which must be provided for by their wages which other nations pay them; so that, apart from the portion which burdens the Dutch territory directly, the other nations pay the tax of that republic.

Secondly, that it is impossible to make consumers who are not proprietors pay tax on their consumption, because as soon as it is imposed, they are compelled either to curtail their consumption, or to lower the price which they are able to offer for the products which they consume, and because the one or the other measure throws this tax back on the producers and the sellers of these products.

Thirdly, that the price of high wages, like that of moderate ones, is regulated by competition and therefore cannot be impaired without the wage-earner recouping himself for it, for otherwise he would withdraw his labor and take it elsewhere.

To this must be added, fourthly, that if it is desired to place the tax on the more expensive consumption of the wealthier wage-earners, it will yield almost nothing, because the number of these rich wage-earners is always very small. And that, if, in order to increase the receipts, common consumption goods are made to bear the burden, it becomes very disproportionate to wages, almost nothing on those of the wage earners who earn a lot, and crushing, at least temporarily and until they have been able to reimburse themselves, on those of the poor wage-earners who carry out the most laborious and most useful work, to whom belong naturally all the specifically agricultural wage earners, who make up the greatest part of the population. This inevitably raises the costs of cultivation, and this is the most onerous manner of shifting the tax back onto the proprietors; the most ruinous for the capitals set aside for the cultivation in countries where estates are leased; the manner which causes the speediest abandonment of mediocre land, which, therefore, most inevitably decreases the subsistence of the population and most rapidly leads a nation to misery.

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Written 1767. Graslin’s paper entitled, Essai analytique sur la richesse et sur l’impôt, was written for a competition organized by the Royal Agricultural Society of Limoges on the subject of indirect taxation.

¹ I.e., the feudal lord to whom the commoners owed their sens or dues.

Value and Money

Turgot distinguishes between money as a commodity (“actual money”) and money of account. The former can be measured. In contemporary European countries, commodity money consists of gold and silver, so the monies of different countries can be directly compared with one another as units of weight. Monies of account must first be given a value in terms of actual money before they can be compared with the money of another country. Turgot then proceeds to a general account of value, starting with the values of an isolated individual. A person will value goods according to the satisfaction they provide him: his opinion of these satisfactions is subject to change over time. In considering the value of a good, the person will take account of its scarcity. Exchanging goods with another person is an important way a person can increase his satisfaction. In an exchange, each person prefers the good he will acquire to the good he gives up. Turgot gives a complicated account of how this difference in valuation is consistent with equality in exchange. He extends his analysis to markets with more than two participants.