Defend land ownership by taxing it
Physiocratic fiscal theory is often summed up in a radical proposition: as agriculture is the only producer of net product, the tax must be levied entirely on it, more exactly on the revenue received by landowners, since it is the only revenue available in the physiocratic sense, farmers have to replenish their advances to revive agricultural production.
The Physiocrats designate this class, not so much to ensure its military function as to support agriculture through taxation and the financing of the infrastructure needed for the circulation of agricultural commodities. They therefore advocate the establishment of a single territorial tax and reject the principle of indirect taxation. However, their position is not entirely inflexible, either on the justification for taxation or the abolition of indirect taxes, on which they oscillate between a radical measure and a more pragmatic approach.Physiocratic tax theory has a reforming aim (Delmas 2009). Two earlier works help to understand it, the Projet de dime royale by Sebastien Le Prestre de Vauban (1707) and the Projet de taille tarifee by Charles-Irenee Castel de Saint-Pierre
12 The dotted line is added to Quesnay’s original presentation. (1723). These two projects advocated a reform of direct taxation, in particular of one of the main levies, the “taille”, a personal or property tax considered to be arbitrary, unequal and unfair, because it was a burden on the weakest (Vauban 1707, 767; Saint-Pierre 1723, 29).
Vauban’s Projet (1633-1707) proposed transforming existing direct and indirect taxes into a tithe on all income, whatever it may be. The tax collected on harvests and payable in kind, called the “dime royale” and considered the most important resource fund for the State, made it possible to present the sovereign as a landowner holding a kind of “rent” with this new tax (Vauban 1707, 757).
The Projet was innovative in that it claimed a certain universality of tax and a certain equality, or rather a certain proportionality, as the rate or tariff set by the State was known in advance by taxpaying subjects. However, its objective was not the transformation of society, the universality of the tax implying the abolition of fiscal privileges, not that of social privileges, that is to say orders. The tax was based on the necessary consent of the subjects and was justified by the reciprocal interest that bound the sovereign and the latter by contract: on the one hand the enrichment of the kingdom, on the other the need for protection. Saint-Pierre’s Projet (16531743) advocated, with the same systemic approach as Vauban, a tax proportional to income, the rate of which was known in advance. Unlike Vauban, the abbot’s Projet only concerned the “taille” and its distribution, leaving indirect taxes intact, and made no reference to a contract justifying the tax; finally, it stipulated a levy in money, not in kind.In “Maximes generales”, Quesnay (1767-1768b, 574-5) criticised Vauban’s royal tithe on the grounds that this tax was levied in kind and that it was proportional to the total product of the harvest, not to the net product. It was therefore also paid by the farmer and drastically reduced his future expenditure. As for Saint-Pierre’s “taille tarifee”, its flaw was that, as with any “taille”, those who were privileged were not subject to it; unprivileged owners were, but less than the farmers. This tax therefore weighed heavily on the latter. Hence, the physiocratic proposition of a territorial tax paid by all landowners, privileged or not, was proportional to the amount of the net product.
The article “Impots” (1757b) delivered a certain number of important points in constructing the doctrine. Quesnay first points out that his fiscal thinking applies to agricultural nations, not to small trading nations that have little revenue from land. He then lays down the principle of the farmer’s tax immunity that he bases on the distinction between costs and revenue: cultivation costs (including the farmer’s profit) revive production but do not constitute a revenue in the physiocratic sense, cutting them off with a tax would be to cut off the reproduction itself.
Following the same argument, Quesnay extends tax immunity to the grain merchant who, through his trade, indirectly enhances land and that of manufacturers and of merchants in manufactures would come later. Finally, he criticises indirect taxes, on the grounds that they are all the more expensive as the circuit is long and parasitic, and as the collection costs multiply and fictitiously increase prices. However, he does not yet propose their abolition, but rather their gradual limitation: the aim is to make them less expensive, to simplify their distribution and their collection.In Theorie de l’impot (1760), Mirabeau presents tax as the result of a market contract concluded between free individuals, owners, essentially driven by their particular interests, seeking to guarantee their properties, and a superior force which offers them this guarantee in exchange for their consent to tax. This consent is therefore the subject of a transaction:
Everyone feels the need for an active force that defends them inside against internal greed and outside against that of foreigners. Consequently, everyone consents to contribute to this public force.... It is his advantage that everyone considers in this contribution. Decrease the advantage, his offer will decrease: withdraw the advantage completely, he will withdraw his offer. In short, this is a market like all the others, nothing for nothing, that is the motto of men.
(Mirabeau 1760, 7)
Tax is therefore a contribution that is agreed and not forced. If the sovereign imposed it, he would infringe the freedom of his subjects and would break the contract of association. But, Mirabeau emphasises,
we must not lose sight of the fact that this is a market, a tax that has as its object the common interest. However, in any market, everyone rigorously wants to find his point there... in a word, this all comes down to this rule: everyone seeks to give the least & get the most.
(Mirabeau 1760, 8)
The secret of taxation, he concludes, is
that the people pay the most possible & that they think they are paying the least....
To pay as much as possible is to render [the people] as much service as possible; to think of paying the least is to expect more from one’s contribution than is estimated in value.(Mirabeau 1760, 10-11)
In Theorie de l’impot, Mirabeau uses the term “co-ownership” only once (Mirabeau 1760, 293). This, widely used by Le Mercier de la Riviere (1767), provides another, complementary justification for tax. The starting point is the same: societies are conventions established essentially to protect land ownership against all forms of aggression, internal or external. This protection can only be effective through the establishment of a single tutelary authority, but the sovereign who is responsible for it is defined here as a landowner, the largest in the kingdom, taking part in the increase in agricultural production, providing the infrastructure necessary for circulation and having the same interest as all the other landowners placed under his domination, that of giving the greatest possible value to their properties. In a way, he is the co-owner of the net product of the land of the kingdom and, as such, he has a right like all the other owners, that of receiving a revenue in the form of tax. This notion of co-ownership that equates tax with a right to a part of the net product is established from the point of view of the sovereign, not that of the individual taxpaying owner and consumer of public services. Here, the tax is not so much the result of a market transaction, a calculated consent, or the price to be paid to guarantee individual property, as a right to dispose, in the name of the general interest, of a part of the subjects’ income.
This doctrine highlights the issue of tax incidence on economic development: on which sector and which class should the tax be imposed? For the Physiocrats, the incidence mechanism will always result in the burden of the tax, whatever form it takes, ultimately falling on the net product of land and thus on the landowners. It is therefore just as well to exempt farmers whose advances generate the net product. But by asking landowners to pay the tax instead of their farmers, it is still necessary to convince them that the land tax, once indirect forms of taxation they bear are eliminated, would be less costly for them: a real challenge.
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