EFFECTS OF THE WAR ON CREDIT, CURRENCY, AND FINANCE. 275 
is just as easy to pass on a direct tax as an indirect tax if circumstances are 
favourable.’ 
In reply to the above criticism, Mr. Gibson expresses his opinion that direct 
taxes, such as the income tax, do not ‘stick where they fall’ should the person 
directly taxed be in a position to pass on the tax to other shoulders. To support 
this opinion he gives the following illustration :— 
Imagine a wool merchant in normal times to be making 5000/7. a year, after 
payment of income tax. Next imagine direct taxation to be increased to such 
an extent as to cause the merchant’s net income to be reduced, say, to 4000/. 
The merchant will widen his percentage gross profit on future sales in an 
endeavour to restore his customary net income and standard of living. The 
same applies to other traders, particularly retailers, who find their net incomes 
reduced by increased direct taxation. To what extent it will be possible to 
pass the increased direct taxation on to the consumer will depend on the strength 
of competition, home and foreign. 
For this and other reasons Mr. Gibson states he has never been in favour 
of a direct tax on wages. As consumers, wage-earners indirectly pay part of 
the direct taxation levied on manufacturers, merchants, retailers, and other 
classes who are in a position to pass part or the whole of increased direct 
taxation on to the consumer. 
Referring to the Excess Profits Duty, Mr. Gibson writes : ‘It was a direct 
tax, though it became indirect on the consumer. The report of the Committee 
appointed to investigate the prices, costs, and profits of the manufacture of 
Yorkshire tweed cloths contained the following statement (Cmd. 858, p. 4) : ‘‘ In 
practice we find that Excess Profits Duty is added by manufacturers to the 
prime cost of the article, and is an important factor in putting up prices.”’’ 
QuxEstion 6.—Has the value of indirect taxation been lessened by the great 
increase in the number of Government employees, and by the acceptance of the 
principle that wages and salaries should rise as the cost of living rises? Is the 
last principle valid ? 
This question has been rather misunderstood. The idea was that if the 
wages of Government employees rose with the cost of living, while the Govern- 
Ment was employing millions of people during the War, it was little use to put 
taxes on commodities, because to do so would be to raise the cost of living 
and so increase the Government’s expenditure. 
Mr. Hilton Young replies : ‘Undoubtedly it has. Now that wages are so 
sensitive to the cost of living it is vain to try to load the burden on to the 
Wage-earning class by means of indirect taxes. They can pass it straight on.’ 
‘Dr. Cannan takes the opposite view of the first part of the question; but he 
answers the second part—‘ Certainly not; it’s a kitten chasing its tail!’ 
Mr. Hirst (perhaps misunderstanding the intention of the question) replies : 
‘I do not see why Government employees should not smoke and drink as much 
as private employees. When the cost of living rises in consequence of capital 
aving been wasted in war, an attempt to raise wages and salaries in proportion 
to the rise in the cost of living is bound to end in unemployment and disaster.’ 
Mr. Robertson, drawing a distinction between the effect of inflation on 
prices and that of broader economic causes, replies: ‘It is reasonable that a 
rise in prices arising out of the expansion of the instruments of payment 
should be followed by a roughly proportionate rise in money wages and salaries; 
otherwise, those whose money incomes fluctuate with prices—i.e. the recipients 
of business profits—make a gain at the expense of the other classes. But 
‘it is not reasonable that the recipients of wages and salaries should never be 
_ called upon to bear a share, in the shape of rising prices, of a general national 
_ burden (occasioned, e.g. by war or a general decrease in the productivity of 
industry) except in cases where their incomes were already so low as to be 
barely compatible with decency or efficiency. The general argument for raising 
part of the revenue by well-devised indirect taxes is not, therefore, destroyed 
by the fact that of recent years money wages have been progressively raised in 
order to compensate for the effect of expansion of the instruments of payment. 
_ How far are such taxes, even though desirable, rendered ineffective by 
the fact that they are refunded in part to railwaymen, Government employees, 
and others, whose money wages vary with the price of commodities? I have 
not studied this question, but I should have thought that (1) the articles taxed 
