194 PUBLIC FINANCE 



railroad may decrease facilities rather than increase revenue. The 

 assessment of mortgages may hit the farmer rather than the money- 

 lender. The taxation of the laborer may limit the market rather 

 than increase the profits of the capitalist. Whether we desire it or 

 not, modern economic conditions are engendering a situation where 

 every one is in a larger sense his brother's keeper and where at all 

 events it is unsafe to disregard the often hidden and recondite, but 

 none the less active, influence exerted by each economic class upon 

 the others. 



All these changes in economic life have affected the practical sys- 

 tem of taxation throughout the world. They have created new 

 problems for the scientific student. The justification of finance, 

 however, as a science, rests upon the correlation of fiscal problems 

 with economic principle. We thus come to the third part of the 

 discussion, the influence of economic analysis on fiscal facts. 



Ill 



The first result of economic analysis was to show the errors of a 

 tax system resting exclusively or in great part upon consumption. 

 The theory of consumption as the test of faculty or ability to pay 

 was promulgated in the later middle ages by reformers who despaired 

 of reaching the privileged class in any other way. Every man, it 

 was said, must consume, and the more idle a man is, the more luxuries 

 will he consume. A consumption tax thus seemed to be the sole 

 method of securing universality of taxation. To these considera- 

 tions there was added the thought on the part of some that so far 

 as the working-classes were concerned, taxes on the necessities of 

 life would be admirable, in that they would compel the laborers to 

 work harder. 



In opposition to this view, a more careful economic analysis dis- 

 closed the fact that a tax on consumption, regarded as a universal 

 system, was unwise and unjust unwise because a tax on mere 

 luxuries would be most disappointing in the yield; unjust because 

 a tax on necessities would fall with crushing severity on those classes 

 which could least afford to bear the burden. Above all, it was 

 recognized that by checking consumption we were thereby checking 

 production, and that a general tax on consumption would possess 

 most of the disadvantages of a tax on production and few of its 

 advantages. Consumption taxes, therefore, as a sole or chief reliance 

 of the government, have been fast disappearing. One of the first 

 'acts of the American Government in Cuba and the Philippines was 

 to abolish the consumo tax; and it is well recognized that the con- 

 tinuance of the municipal octroi in France and Italy is deplored by 

 all serious students. 



