TOPICS OF THE DAY.
THE CONSCRIPTION OF CAPITAL. THE Conscription of Capital is the subject of more con- fused thinking than any other at present before the public. We shall only deal very shortly with the first cause of confusion—that which arises from the suggestion that, Labour having been conscripted, Wealth should be conscripted also. The analogy is so fallacious that the arguments based upon it will soon disappear of themselves. The famous attempt to co-ordinate a pound of butter with five o'clock is less barren of results. If hand-labour has been con- scripted, so has brain-labour, and so also has the man who lives on his earnings or the earnings of former generations. Let us take as a specific case the family group of some agricultural labourer and the family group of the late Prime Minister, Mr. Asquith—a person who, though he may not be accounted a rich man by millionaires, will certainly be regarded as belonging to the wealthy classes by the advocates of the Conscription of Capital. Every male member of Mr. Asquith's family is serving, or has served, the State in arms. One son died at his post and two have been wounded. We do not for a moment suggest that the sacrifice due to Conscription here (as a matter of fact none of the service recorded happens to have been compulsory) is greater than that of the agricul- tural labourer's family group. Every one must admit, however, that it is just as great. The notion that the rich must have their money conscripted because they have escaped from the personal sacrifices made by Labour will not hold water for an instant. One of the great advantages of Com- pulsory Service is that it puts the rich man and the poor man on a complete equality, and does not enable the rich man to escape service through his riches. It is equally absurd to suggest that Capital has not been already con- scripted and will not have to endure still further levies. Even in Ireland, where men escape Compulsory Service because, as one of them said, " compulsory soldiering isn't fair when there is a war on," the man rich enough to pay Super Tax contributes hal his Income to the Treasury. In a word, a sufficient answer to the question, " Why is not Conscription applied to Wealth ? " is that it has been applied already.
We do not, however, wish to rely upon any of these con- siderations to meet the demand put forward by the Leader of the Labour Party in the Commons on the day of the adjourn- ment of Parliament. Our aim is a much more practical one. It is to ask the Labour Leaders, and Trade Unionists generally, to get a little closer to the whole subject, and to think it out to the bottom. If they do this, we feel sure that they will find that in advocating the Conscription of Capital they are building upon a foundation of paradox, and that nothing fruitful can come of their proposals. The first thing to do in this process of thinking the matter out is to dig down to the fundamental principle of taxation—a fundamental principle usually ignored by our fiscal experts, and yet one which cannot be neglected without disaster. It is this. We talk loosely of taxing land, or taxing stocks, or taxing this or that commodity, or of taxing Capital generally, but as a matter of fact none of these inanimate or abstract things can pay taxes. It takes a man to pay a tax—a hungering, thirsting man with a breeches- pocket into which he can put his hand, or a cheque-book in which he can draw a cheque. No doubt the amount that the said man can be compelled to pay in taxation may be infinitely varied. You may measure the amount you are going to make him pay by all sorts of standards—by the number of motor- cars he possesses ; by the number of thoroughbreds in his stables ; by the number of acres he owns ; by the number of Raphaels, Turners, diamonds, pieces of Louis XVI. furniture, or other non-income-producing valuables of which he is pos- sessed. Finally, you may estimate the amount that the State is going to take from him by the total amount of his possessions. But it is essential to remember, when you are doing this, that it is the man, not the thing, whom you are taxing ; and further, that, if you take away from him the whole of the Wealth he possesses, you can only do it once. Next time you come to estimate his taxable capacity, it will be nil. But no doubt it will be said by the advocates of the Conscription of Capital that they do not intend to be met by a reduetio ad absurdum. The fact remains that there are plenty of countries in which men are made to pay an annual tax which is calculated on the total Wealth which they possess ; or, as we should put it, the amount asked from them by the State in each year is measured by reference to the total amount of their worldly possessions. Admitted. The thing is done in. many American S fates, and is done here on the death of each individual. The persons to whom the deceased's Wealth goes are compelled to pay contributions to the State, which are measured by the amount of money they receive, and also by their degree of relationship or want of rela- tionship to the dead man. We admit, further, that in the abstract what can b3 done at intervals can be done, if the State so enacts, every year. Our point is that the State has hitherto refused to adopt the annual taxation of Capital, for good and sufficient reasons, and if it is wise it will continue to refuse such taxation on grounds of fiscal expediency. It is not by accident that British Chancellors of the Exchequer have preferred to tax Income, rather than what is called Chpital. In the last resort, their reason for doing so is a very simple one. Income values itself. Capital does not, and therefore you have to guess at its value. To put it in another way, it is always possible, granted that you can defeat perjury and other forms of dis- honesty, to find out what is a man's Income, to know what he has received, what has been paid to his banking account, within a year. He has got it, or has had it, in his hand, and you can settle his contribution to the State in any way you will. You can ask for a quarter, or a third, or a half, or three-quarters of what he has received. The thing is merely a question of-law and arithmetic when you are taxing Income. When you tax Capital you are in a very different position. You have to make an estimate of, that is, make a guess at, the value of a man's property. Whereas Income, as we have said, values itself, it requires an army of guessers and counter-guessers to arrive at the money value of Capital. The exact amount of Income expressed in terms of cash is determinate. The exact amount of Capital so expressed is indeterminate. You can only guess what it will sell for ; i.e., what is its value.
But this difficulty of knowing what is the value of land which has not been put up to auction or to any kind of sale for the last fifty or sixty years, or, again, of knowing what blood horses, or pearl necklaces, or Leonardo drawings, or pictures by Memling or Sir Joshua, will fetch, is as nothing compared with some of the other difficulties connected with the Conscription of Capital. Even if you entertain a blind belief in the capacity of Levison and Golding (late Goldburger), valuers for Probate Duty, to guess what Mr. Jones's property will fetch at auction at the particular moment, you are by no means out of the wood. If Capital is going to be con- scripted, the thing will have to be done, not on an average once every twenty-five years, but every year. But this means that the resort to the Mart, which is necessary for Conscription, will not be confined to cases locally isolated, and to cases which occur some in March, some in June, some in November, and so on, but to the case of all capitalists at one particular period of the year. If 25 per cent. of everybody's Capital is demanded on the 1st of January in one year, the vast majority of persons ordered to pay will have to sell stock or diamonds, or other valuable non-income-producing possessions, to meet the demand. 'But now comes in the trouble. Let us take a specifics case. Jones is a capitalist. When the valuers have made their valuation, they find that the Capital owned. by him of all sorts amounts to £100,000. The levy on Capital is 25 per cent., and therefore he will have to pay L25,000. But Jones has not got this money in bullion or banknotes in his cellar or at the bank, and can only produce it in two ways—either by selling something, or by borrowing the money from his banker or from some other person whose function it is to lend money. Now if Jones were the only man paying a Capital Tax, or if he were one of a group which numbered only a thirtieth of the capitalists of the country, as in the case of Death Duties, there would be little trouble about the matter. Jones might feel himself an impoverished man, but he would be able to raise the necessary £25,000, either through his stockbroker or through his banker. But if everybody had got to raise the money at the same moment, Jones would find himself in Queer Street with a vengeance. When he went to his banker for a loan, the banker would say : " We are very sorry, but the total amount of money we are now in a position to lend is four millions. But by this morn- ing's post we have had applications amounting to four hundred millions. If we lend to you, we should be obliged to ask 70 per cent. interest ; but that, we admit, is impossible.- Wo can only suggest that you should sell out stock—say, your Railway Debentures." Jones would then repair to his broker, but it would be the same story in different words. The broker would say " Unfortunately your Debentures, and indeed all Stocks, are quite unsaleable. The price has dropped to such a point that the best British Railway. Debenture Stock can now be purchased to pay 80 per cent., and yet there arc practically no buyers, but only sellers. In fact, it is useless for you to think of selling when everybody else is trying to do the • same. For our transactions there must be a seller and a buyer, and the buyer is for the moment an extinct - mammal." What is Jones to do ? If he is a man of mental resource, he may possibly go off to the Tax Collector and say to him : " I cannot pay you that £25,000 in cash, because I cannot raise it. But I'll tell you what I will do. Here is the sworn valuation that the • Govern- ment valuer made of my possessions ; i.e., the list of capital values which you accepted as the basis on which I was to be taxed. You will see that in the list there is a pearl necklace valued at £2,000, and a diamond tiara also at £2,000. That makes £4,000. My collection of drawings from the Old Masters is put down at £2,000, and my Raeburn of the Scots Judge at £6,000. That makes £12,000 in all. There is a block of Railway Debentures down for £8;000, and my Saturday-to-Monday cottage in the country is valued at £5,000. In all these make £25,000. I propose to hand them over to the Government in lieu of cash. They surely cannot refuse. To do so would be to deny that they are worth the sums which the Government valuer placed upon them only six weeks ago." What would be the answer of the Capital Tax Collector ? In spite of Jones's logic, it would, we fear, be a flat refusal to take payment in kind. He would tell the embarrassed capitalist that the State did not want diamonds or cottages hr the country. It wanted,' and must have, money down. To this the capitalist would have to reply : " Very well, then, come and take it. Perhaps you will be able to arrange a sale. All I know is that I can't."
To put the case shortly, a Government engaged in the task of raising a very large sum of money from all the owners of Capital at one and the same time would find themselves involved in the dilemma which has always been staring the political economist in the face, but which he has never had the courage to meet. • No one has- ever really given us a satisfactory definition of Capital, or has scientifically dis- tinguished between Capital and Income. In fact, we believe there is rio essential difference. Both are forms of Wealth, but that is almost all you can venture to say in the matter. For practical- purposes it is, no doubt, convenient to divide the Wealth derived from hiring during a fixed period, from other forms of Wealth, but the discrimination is apt to be arbitrary. We should not be surprised, indeed, if, as the result of .an -attempt to draw up a more scientific analysis of Wealth, it were found convenient to distinguish between Wealth which had been marketed at a particular moment and remained in currency, and so has an ascertained value, and Wealth which had been invested, and so has ceased to have an ascertained value till it is • again marketed ; i.e., till it has again been sold. But if that is a true distinction, then obviously it is in the interest of the State to go for the marketed ascertainable Wealth, which we call Income, rather than for the unmarketed Wealth of which nobody knows the value, the Wealth which depends upon a sale in the future.
No doubt the pure Socialist would, if he were quite frank, say that all these objections- we have raised are nothing to him, that he would be perfectly willing to see the nation paid in kind, and that he would go on taxing Capital at the rate of 25 per cent. per annum till- the whole of the Capital of the • country was taken out of the hands of individuals and lodged in the hands of the State. Those, however, who are not Socialists, and do not want the State to be the sole owner of property, will, we venture to say, draw back from this Bolshevik conclusion, and, reverting to the wisdom of our ancestors, determine to tax Income and not Capital, returns rand not investments. To put it more scientifically, they will measure the amount which each man is to contribute to the needs of the State. in any one year, by basing that measure- - went upon the amount of Wealth which has come into his hands in currency, or the equivalents of currency, during that year. They will find that -to do so will save a great deal 'of trouble, and will produce a great deal more ready cash than .-the plan of taxing, i.e., conscripting, Capital. If these funda- -mental considerations in regard to who pays taxes, and what is the difference between Capital and Income, are honestly thought out, the idea that anythinw practical is to come of. the Conscription of Capital will, we believe, soon fade away. A good deal has been said during the past week as to what Mr. Bonar Law said, or meant to say, on the subject of the Conscription of Wealth when he addressed a Labour deputation some two months ago. Frankly, we are unable .to: unravel his exact meaning. All we are certain of is that he did not mean to propose anything which could, even- in the most remote degree, contain a suggestion of repudiation. The promises -made to those who lead money to the State are absolutely sacred, , -and will not be broken,-no matter how tremendous the sacrifices which may be required from the taxpayers of the nation. Even f we end the war with a Debt of 120,000,000,000 and a perpetual 50 per cent. Income Tax, faith will be kept.
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