Reflections on the Formation and the Distribution of Riches/Appendix

EXCERPTS FROM TURGOT'S CORRESPONDENCE.

1. Turgot to Hume, July 23, 1766.

I am tempted to send you at the same time a trifle of a very different sort,—the programme of an academic prize I think of offering, on a subject we have sometimes discussed. The best means of deciding this, like all other questions, is to get it discussed by the public. I have tried to set forth the state of the question in a clear fashion, as well as the different aspects under which it may be considered. I very much wish you could have the time to give us your ideas. We should take essays on the subject even in English. Our economic philosophers, who belong to Quesnay's sect,^[1] will strongly maintain the system of their master. This is a system from which the English writers have been far removed, up to the present; and it is too hard to reconcile its principles with the ambition to monopolize the commerce of the universe for one to expect that they will adopt it from this side for a long time to come. It would, however, be very desirable that Mr. Pitt, and all those who lead the nations, should think as Quesnay does upon all these points. I fear greatly lest your famous demagogue should follow altogether different principles, and think himself interested in keeping up in your nation the prejudice you have called "The Jealousy of Trade." It would be a great misfortune for the two nations. I believe, however, the almost equal exhaustion on both sides will prevent this folly from being long maintained.

2. Hume to Turgot, Aug. 5, 1766.

. . . I highly approve of your prize; yet why so much restrict the essays of the competitors, by assuming, as a recognized truth, that all taxes fall on the proprietors of land? You know that no government of any age or country has ever relied on this hypothesis: it has always been supposed that taxes fell on those who paid them upon consuming the products; and this universal rule, added to the evident appearance of things, at any rate leaves some room for doubt. Perhaps it would not have been bad to set that very question itself as the subject of discussion.

3. Turgot to Hume, Sept. 7, 1766.

I don't know why you have thought that those who would like to maintain that indirect taxation is favourable to the proprietors of landed estates will be excluded from competing for my prize. I assure you that if you will give us an essay looking at the question from that point of view, it will be very well received. It is true that the instructions seem to direct authors to look at it from another. But the fact is I have offered the prize rather to get people to see what they can do in the way of estimating the effects of indirect taxation,—for I am still uncertain how the exact share (of each class in the burden?—Ed.) should be reckoned,^[2]—than to get a discussion of the general question, as to which my mind is entirely made up.^[3]

I have said it was agreed that indirect taxation fell back altogether on the proprietors, since as a matter of fact I have supposed that most of those who defended indirect taxation for other reasons have agreed as to this, especially during the last fifteen or twenty years; and because most of the people agreed with it with whom I have had occasion to talk on the matter. I well know that the practice of no government at all conforms to the principle; but, in the first place, you know, as well as I do, that the principles put into practice by all the governments do not change as easily as speculative principles. The financial system of all the peoples was formed in periods when men gave little thought to these matters; and, although people might be quite convinced that it was established on weak foundations, it would still be a good deal of trouble, and take a good deal of time, to remove a machine in full working and substitute another for it. You know, also, as well as I do, what is the great aim of all the governments of the earth: obedience and money. The object is, as the saying goes, to pluck the hen without making it cry out; but it is the proprietors who cry out, and the government has always preferred to attack them indirectly, because then they do not perceive the harm until after the matter has become law; and, moreover, intelligence is not widely enough distributed, and the principles involved are not clearly enough proved, for them to attribute the evil they suffer to its true cause. I am always sorry not to find myself in accord with you. But I rely upon your tolerance....

4. Hume to Turgot, undated.

...I am tempted to say a word on the political question which we have so often raised, as to the method of establishing taxes, and as to whether it is better to place them upon landed proprietors or upon consumption. You recognize that, as the public revenue is employed for the defence of the entire nation, it is more equitable to levy them upon everybody; but you say that this is impracticable, the taxes will ultimately fall upon the land, and it would be better to lay them there in the first instance. You suppose, then, that the labourers always raise the price of their labour in proportion to the taxes; but this is contrary to experience. Manual labour is dearer in the canton of Neufchâtel, and in other parts of Switzerland, where there are no taxes, than in the neighbouring provinces of France where there are a good many. There are scarcely any taxes in the English colonies; and yet labour is three times as dear there as in any country of Europe. There are heavy taxes upon consumption in Holland, and the Republic does not possess lands upon which these taxes can ultimately fall.

The price of labour will always depend on the quantity of offers of labour and the quantity of the demand,^[4] and not upon the taxes. Tradesmen^[5] who manufacture stuffs^[6] to be exported cannot augment the price of their labour; because, in that case, the stuffs would cost too much to be able to be sold in foreign markets. And tradesmen who manufacture stuffs for consumption within the country are equally unable to raise their price, because there cannot be two prices for the same sort of labour. This applies to all commodities whereof part is exported,—i.e. to almost all commodities. Even if there existed some commodities whereof no part was exported, the price of the labour employed in their production could not rise; for the rise of the price would induce so many hands to turn to this kind of industry that the prices would immediately fall. It seems to me that, where there is a tax on consumption, the immediate consequence is that the workpeople either consume less or work more. There is no workman who is not nimble enough to be able to add a few additional hours to his week's work; and there is hardly any individual so poor that he cannot retrench somewhat in his expenditure. What happens when corn goes up in price? Does not the poor man live more meagrely and work harder? A tax has the same effect.

I beg you to remember, also, that besides landed proprietors and poor labourers, there is, in every civilized nation, a very considerable and very opulent body of persons, which employs its capitals in commerce, and which enjoys a large revenue while giving work to the poorer class. I am persuaded that in France and in England the revenues of this nature are more considerable than those which come from the land: for besides merchants properly so called, I include in this class all the shopkeepers and notable tradesmen of every kind. Now it is very just that these should pay for the maintenance of the community,—and this cannot be brought about unless the taxes are placed upon consumption. It seems to me that there is no warrant for saying that this class of taxpayers is compelled to shift its taxes upon the landed proprietors; for its profits^[7] and its revenues can certainly bear a deduction.

5. Turgot to Hume, March 25, 1767.

I should very much have liked to enter into some detail on the subject of taxation; but to reply to your objections it would have been necessary, so to speak, to write a book and earn my own prize. I will only indicate to you the principle from which I set out, and which I believe incontestable: it is, that there is no other revenue possible in a State than the sum of the annual productions of the land; that the total mass of these productions falls into two parts: one set aside for^[8] the reproduction of the following year, which comprises not only the portion of the crops that the undertakers of agriculture consume in kind, but also all they use to pay the wages of the workmen of every kind who labour for them: blacksmiths, wheelwrights, saddlers, weavers, tailors &c; it includes, also, their profits and the interests upon their advances. The other part is the net produce, which the farmer pays over to the proprietor, when the person of the latter is distinguished from that of the vator,—which is not always the case; the proprietor employs it to pay all that labour for him. If this is granted,^[9] it necessarily follows that that taxation which does not bear directly upon the proprietor, falls either upon the wage-earners^[10] who live upon the net produce, or upon those whose labour is paid on the part of the cultivator. If wages^[11] have been reduced by competition to their just price, they cannot go up; and as they cannot go up except at the expense of those who pay them, one part falls ultimately upon the proprietor for the expenditure he engages in with his net product, the other part increases the expenditure of the cultivators, who are consequently obliged to give less to the proprietor. It is, therefore, in all cases the proprietor who pays.

You remark that I am supposing that wages increase in proportion to taxes, and that experience proves the falsity of this principle: and you justly observe that it is not taxes, high or low, which determine the price of wages, but simply the relation of supply and demand.^[12]

This principle has certainly never been disputed; it is the only principle which fixes at the time^[13] the price of all the things which have a value in commerce. But one must distinguish two prices, the current price,^[14] which is established by the relation of supply to demand, and the fundamental price,^[15] which, in the case of a commodity, is what the thing costs the workman. In the case of the workman's wages, the fundamental price is what his subsistence costs the workman. You cannot tax the man who receives wages without increasing the price of his subsistence, since he has to add to his old expenditure that involved by the tax. You thus increase the fundamental price of labour. But although the fundamental price be not the immediate principle of the current value,^[16] it is nevertheless a minimum below which it cannot fall. For if a merchant loses by his trade, he ceases to sell or manufacture; if a workman cannot live by his labour, he becomes a mendicant or leaves the country. That is not all: it is necessary that the workman obtain a certain profit,^[17] to provide for accidents, to bring up his family. In a nation where trade and industry are free and vigorous, competition fixes this profit at the lowest possible rate.^[18] A kind of equilibrium establishes itself between the value of all the productions of the land, the consumption of the different kinds of commodities, the different sorts of works, the number of men employed at them, and the price of their wages.

Wages can be fixed and remain constantly at a definite point only in virtue of this equilibrium, and of the influence which all the parts of the society, all the branches of production and commerce, exercise upon one another. This granted, if you change one of the weights, a movement cannot but result from it in the whole of the machine which tends to restore the old equilibrium. The proportion which the current value of wages bears to their fundamental value was established by the laws of this equilibrium and by the combination of all the circumstances under which all the parts of the society are placed.

You augment the fundamental value: the circumstances which have before fixed the proportion which the current value bears to this fundamental value cannot but cause the current value to rise until the proportion is re-established. I am aware that this result will not be sudden; and that in every complicated machine there are frictions^[19] which delay the results^[20] most infallibly demonstrated by theory. Even in the case of a fluid perfectly homogeneous, it takes time for the level to be restored; but with time it always is restored. It is the same with the equilibrium of the values which we are examining. The workman, as you say, taxes his ingenuity to work more or consume less; but all this is only temporary.^[21] Doubtless there is no man who works as much as he could. But it is no more natural for men to work as much as they can than for a cord to be stretched as much as it can be. There is a degree of relaxation necessary in every machine, without which it would run the risk of breaking at any moment. This degree of relaxation in the case of labour is fixed by a thousand causes which continue to operate after the tax is imposed; and consequently, even if by a first effort the tension had increased, things would not be long in regaining their natural shape.

What I have said about the augmentation of labour I also say about the diminution of consumption. Wants are always the same.^[22] That kind of superfluity out of which retrenchment can, strictly speaking, be made, is nevertheless a necessary element in the usual subsistence of the workmen and their families. Molière's miser says that when dinner is laid for five, a sixth can always make a meal; but by pushing this reasoning a little further one would quickly fall into absurdity. I add that the diminution of consumption has another effect upon the revenue of the proprietor which is very serious,—through the diminution of the value of commodities and of the products of his land.

I do not enter into the details of the objection drawn from foreign trade, which I cannot regard as a very important matter^[23] in any nation, save in so far as it contributes to augment the revenue from lands; and which, moreover, you cannot tax without causing it to diminish. But the time fails me, and I am forced to conclude, although I should have a good deal to say as to the inconveniences caused to the consumers by a tax whereof the very collection involves a perpetual assault on the liberty of the citizens: they have to be searched in custom-houses, their houses have to be entered for aides and excises; not to mention the horrors of smuggling, and of the sacrifice of human life to the pecuniary interest of the treasury,—a fine sermon legislation preaches to highwaymen!

6. Turgot to Du Pont, December 9, 1766.

...I have drawn up some questions for the two Chinese I have mentioned to you; and to enable them to see their object and meaning, I have prefaced them by a sketchy sort of analysis^[24] of the labours of Society and of the distribution of riches. I have put no algebra into it, and there is nothing of the Tableau économique^[25] but the metaphysical part; moreover I have left a good many questions on one side which one would have to treat to make the work complete. But I have gone pretty thoroughly into what concerns the formation and the movement^[26] of capitals, the interest of money &c . . .

7. Turgot to Du Pont, February 2, 1770.

. . . The passage about the original agricultural advances^[27] has especially troubled me; you know how I have argued on this point with the abbé Baudeau in your presence. I may be wrong, but everybody likes to be himself and not somebody else. . . . These additions all tend to make me out an economist, which I don't wish to be any more than an encyclopædist.

8. Turgot to Du Pont, February 20, 1770.

. . . Although the advances which you call foncières contribute their share to the production of the crops,—as I should have said if my object had been to expound the principles of the Tableau économique, yet it is false that the avances foncières are the principle of property.^[28] . . . It is this alteration which has given me most annoyance.

. . . I will content myself with simply telling you this: that no one can argue from what I have said that slavery was good for any society, even in its infancy. As to individuals who have slaves, that is another matter. I should be glad to think you are right in maintaining that slavery is for no one's advantage, for it is an abominable and barbarous injustice; but I very much fear that you are mistaken, and that this injustice may sometimes be useful to the man that perpetrates it. . . .

9. Turgot to Du Pont, March 23, 1770.

To suppose that saving and hoarding^[29] are synonymous, what a confusion of ideas, or rather of language! and that to cover certain mistaken expressions which fell from the good doctor^[30] in his earlier writings. Oh, this sectarian spirit!^[31]

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10. Hume to Morellet, July 10, 1769.

I see you take care in your prospectus not to offend your economists by a declaration of your views; and in this I commend your prudence. But I hope in your work you will batter them, crush them, pound them, reduce them to dust and ashes! The fact is they are the most fanciful^[32] and arrogant set of men to be found nowadays, since the destruction of the Sorbonne. . . . I ask myself with amazement what can have induced our friend M. Turgot to join them.^[33]

1. Sectateurs de Quesnay.
2. Pour engager à travailler sur Pappréciation des effets de l'impôt indirect, évaluation encore incertaine pour moi quant à la quotité.
3. J'ai une conviction entière.
4. Dépendra de la quantité des offres du travail et de la quantité de la demande.
5. Les commerçants.
6. Les étoffes.
7. Bénéfices.
8. Affectée à.
9. Cela posé.
10. Les salariés.
11. Le salaire.
12. Le rapport de l'offre à la demande.
13. Immédiatement.
14. Le prix courant.
15. Le prix fondamental.
16. Le principe immédiat de la valeur courante.
17. Un certain profit.
18. Au taux le plus bas qu'il soit possible.
19. Des frottements qui ralentissent les effets.
20. ditto
21. Passager.
22. Les besoins sont toujours les mêmes.
23. Un objet bien considérable.
24. Une espèce d'esquisse de l'analyse.
25. [Quesnay's Tableau économique (1758) has been reproduced in facsimile for the British Economic Association, 1894. (New York: The Macmillan Co.)]
26. La marche.
27. L'endroit des avances foncières. [Adam Smith, Wealth of Nations, Bk. iv, Ch. ix, translates dépenses foncières "ground expenses."]
28. Le principe de la propriété.
29. Épargner et thésauriser.
30. [Quesnay.]
31. Esprit de secte.
32. Chimérique.
33. S'associer à eux.