THE DUTIES ON TEA.

Orr the question of a diminution of the duties upon tea, opinions are di- vided. An important and influential class contend, that the effects of a diminution of the duty on tea would be similar to those which-followed the reduotion of the duty on coffee; that the price to the consumer would fall in proportion to the remission of the tax; that the fall of price would increase consumption; that the amount of the lower duty, levied on the larger quantity imported, would equal and ultimately exceed the amount of the higher duty collected on the smaller quantity; that the revenue, in- stead of being diminished, would probably be increased; and that the greatly augmented importation from China would be accompanied by a corresponding increase in the exportation of British manufactures to that country. But, while the merchants and manufacturers of Liverpool and Manchester promulgate these opinions, other parties, as enlightened and influential as they, advocate opposite views. Economists of the highest name contend that the circumstances under which we obtain our supplies of coffee are so different from those under which we obtain our supply of tea, that it would be most illogical to infer that that which is true in the former case must also be true in the latter; that the principal effect of a reduction of the duty upon tea would be, not to reduce the price to the British consumer, but to raise it to the Chinese producer; that as there would be no material decrease of price in this country, there could not be an increase of consumption sufficient to raise the amount of the reduced duty to an equality with that now yielded by the existing duty; and that while there would be a serious defalcation in the revenue, requiring in- creased taxation in some other direction, there would be no increased importation from China to be balanced by an increased exportation of British manufactures.

These views of the question are clearly and ably enforced by Mr. Se- nior, in the following passage extracted from his masterly Treatise on Political Economy— "It must not be forgotten, that a part of the taxes received by the government of one country is often paid by the inhabitants of another. We now purchase annually in China about thirty millions of pounds of tea, at about ls. per pound. i On the tea so purchased we impose, in differentways, taxes to the amount of about two hundred per cent. Were we to repeal that taxation, and the price in China were to remain unaltered, our consumption would probably quadruple: but it is highly improbable that we could purchase one hundred and twenty millions of pounds of tea at le. a pound. The price in China might possibly double—it probably would rise one-half. That rise would have a tendency to raise the rent of land and the wages of labour in the tea-growing districts of China. It must be admitted, therefore, that they are both kept down by the existence of the tax; and that a portion of our duty on tea is in fact paid by the inhabitants of the tea-growing districts of China. The same reasoning proves that a part of the English duty on claret is paid by France; and that a part of the duties imposed by foreign nations on some of the commodities which we export is paid by Eng- hind."—Treatise on Political Economy, p. 206.

The proofs of the principles involved in the above passage are presented

with logical precision in Mr. J. S. " Essays on some Controverted Questions in Political Economy." This profound and original thinker says—. It may be laid down as a principle, that a taxon imported commodities, when it really operates as a tax, and not as a prohibition either total or partial, almost always fall in part upon the foreigners who consume our. goods; and that this is a mode in which a nation may be almost sure of appropriating to itself, at the ex- pense of foreigners, a larger share than would otherwise belong to it of the increase in the general productiveness of the labour and capital of the world, which result from the exchange of commodities among nations. Of the money which is brought into the treasury of any country by a tax of this description, [duties imposed not for protection but for revenae,] a part only is paid by the people of that country; the remainder by the foreign consumers of their goods Essays, pp. 27-28.

The views thus presented by these eminent thinkers are legitimate de- ductions from the principles of international exchange, originally pro- pounded by the late Mr. Ricardo—with the exception of Adam Smith the highest authority in economical science. But the question regarding the expediency of reducing the duty upon tea is one which cannot be decided upon authority. It is a fact, that the reduction of the duty upon coffee was followed by reduction of price, an increase of revenue, and an exten- sion of trade; and those who contend that a similar reduction in the duty upon tea would not be followed by similar results, are bound to show the counteracting circumstances through which the difference would be caused.

The reduction of the duty on coffee was followed by a corresponding re- duction of price, because simultaneously with the remission of duty there was a considerable reduction in the cost of production, and because the fields of production were so various and so widely extended that the influ- ence of monopoly was excluded, and that the value of coffee in the markets of the world fell to the level of its productive cost. Had these causes not been in operation—bad there been no diminution of productive cost, or had there been any species of monopoly, natural or artificial, limiting the supply—the great fall in the price of coffee subsequent to the remission of the duty could not have occurred. Now, before it can be inferred that a reduction of the duty on tea would be followed by results similar to those which attended the reduction of the duty on coffee, it must be shown that a remission of the duty on tea would be accompanied by a diminution in the cost of producing it, and that the existence of unlimited sources of sup- ply would keep its market-price at the level of its cost. But this cannot be shown. The field for the production of coffee belts the world; that for the production of tea is limited not only to a single country, but to a single district of that country. An increased demand for tea in England would, as Mr. Senior has justly observed, raise the rent of land and the wages of labour in the tea-growing district of China. Hence, the increase of de- mand would be accompanied not by a diminution but by an increase of productive cost. The price of tea would rise in China as the mitigation of the duty reduced it in England. The culture of the tea-plant would be rendered more profitable in China: but how much of the soil of China is adapted to this culture, and how much of the soil so adapted could be withdrawn in that densely-peopled country from the production of the first necessaries of life? Even upon the extravagant supposition that the culture of tea could be indefinitely extended, the increase in its market- price in China would for a considerable period exceed the increase in its productive cost. Tea is not an annual crop. Some years would elapse before there could be an additional supply proportionate to the additional demand. During those years, tea would sell in China at a monopoly price; and the effect of the remission of the duty would be to sacrifice a large amount of revenue for the benefit of the Chinese grower. No benefit could result to British consumers. On the contrary, they would have to make good the deficiency of the revenue by the payment of other taxes, rendered necessary by the abatement in the duty on tea. The commercial wealth of the country would be diminished, not increased. Commerce enriches a country by enabling it to obtain in exchange for the produce of its labour and capital a greater quantity of valuable commodities than it could other- wise acquire. The larger the quantity of foreign commodities exchanged for a given quantity of domestic commodities, the greater the advantage conferred by foreign trade. Were we to remit the duty on tea, and thereby increase its price in China, we should be obliged to give a greater quantity of the produce of British labour for the same quantity of the produce of Chinese labour. We should, on the principles so clearly demonstrated in Mr. Mill's Essays on Controverted Questions in Political Economy, deprive ourselves of no inconsiderable portion of the benefit which in our inter- course with China we now derive from the increased productiveness of labour and capital resulting from international divisions of employment. In our ignorance of that in which the advantage of free trade consists, we should lose the substance in grasping at the shadow.

The principle of protection is happily exploded. No individual, whose opinion is worthy of the least consideration, would now contend that we ought to prohibit foreign commodities in order to force their production at home. The only import-duties which can now be tolerated are those which may be imposed for revenue alone. The only question which remains for solution is—what species of import-duties will secure the largest share of the increased productiveness of labour, which results from international divisions of employment. The principle to be adopted for the attainment of this object is, to raise as large a portion of the revenue as may be prac- ticable from duties imposed upon those classes of foreign commodities which are produced under some species of monopoly, and the value of which in the markets of the world is consequently determined not by the cost of production but by the extent of demand. As this principle appears to have been hitherto unnoticed by writers on financial policy, a brief expla- nation of it may be necessary.

The field of production for some commodities, such as corn, is almost co- extensive with the world; while the field of production for other commo- dities, such as Tokay, Constantia, and the superior qualities of Bordeaux wines, is more or less limited by peculiarities of soil and climate. As the supply of the former class can be indefinitely increased, their value cannot permanently rise above the cost of production; while as the supply of the latter may be limited by soil and climate, or by the fiscal regulations of the countries in which they are exclusively produced, their value, under the influence of increased demand, may exceed their cost in an unassignable degree. Were the whole of the lands of Britain converted into parks and preserves, and were an increased demand for foreign corn equal to the entire consumption of the population to be created, the price of corn would not permanently rise above the cost of its production, including carriage and profit. Neither would an entii-c cessation of this large demand

have any permanent effect in depressing the value of foreign corn below the natural level. In the one case there would be a great extension, is the other a great contraction of tillage in foreign countries; and during the operation of these disturbing causes, the price of corn would be above or below the level to which on their cessation it would necessarily conform.

But widely different would be the result of any considerable extension or contraction of demand with respect to those commodities, the supply of which is limited either by natural or by fiscal causes. A greatly increased demand might raise their price a hundredfold without occasioning any con- siderable increase in their quantity; while a diminution of demand might reduce their price to the level of their cost, without diminishing the quan- tity produced. It will be apparent on an attentive consideration of these principles, that import-duties imposed upon commodities, the supply of which can be indefinitely increased, must be paid by the home consumer; while duties upon commodities which cannot be increased in the ratio of increased demand, must be paid either wholly or in part by the foreign consumer.

Let us suppose that the duty upon sugar, both foreign and colonial, is wholly remitted. The great increase of demand which this would occasion would rapidly call forth increasing supplies from all the sugar-growing

countries of the world, until the value of sugar fell to its cost par, and until the whole of that portion of its selling price which consisted of the

tax was saved to the consumer. Reimpose the duty, and the diminished demand will gradually contract the supply, until the quantity produced yields to the producer the ordinary rate of profit, and until the whole of the tax falls on the consumer.

Let us now suppose that the duty on tea is wholly remitted. In this case, as in the former, there would be a greatly increased demand; but it does not follow that in this, as in the former case, there would be a pro- portionately increased supply. While sugar can be produced throughout all the Tropics? Countries of the world, tea is the product not only of a single country, but of a single district of that country. There is already a natural limit to the supply; and the Chinese Government, by the impo- sition of an export-duty, might at any time supemdd an artificial limit

Under these circumstances, the increased demand in England would cause a permanent rise in the price of-tea in China; and the duty which had been paid into the British treasury would pass into the hands of the Chinese grower or of the Chinese Government. Reimpose the duty, and the di- minished demand in England will bring down the monopoly-price of tea in China: the treasury will be replenished without any material enhance- ment of price to the consumer. If the maintenance of public credit will admit of a reduction of our im- port-duties, the remission should be made, not on tea, but on sugar, coffee,

and such other articles as may admit of an indefinite increase of supply.

In a financial point of view; the duty upon tea is the best which can be im- posed; and it should be maintained at a point approaching to the limit at

which the evasion of the tax would cover the risk of the smuggler. But the merchants and manufacturers contend, that the question is not to be decided upon financial grounds alone. They maintain, that a reduction of the duty on tea is necessary in order to enable them to obtain increased re- mittances from China, and thus to increase their transactions with that ex- tensive empire. But they would not urge this argument had they made themselves acquainted with the science of international exchange. If they can supply the Chinese with manufactured goods at a less price than that at which the Chinese can supply themselves, it is a contradiction in terms to say that a remunerating return cannot be realized. Ha quantity of the goods, the cost of which, including manufacturer's profit and carriage, was equivalent to 1,000 ounces of silver, should sell in the Chinese market for 1,200 ounces, it would be absurd to affirm that there was a difficulty in obtaining a return. Assuming that these 1,200 ounces would not purchase Chinese commodi- ties capable of being sold at a profit in other markets, the 1,200 ounces would themselves constitute a remunerative return. Let our manufac- turers supply the Chinese with wrought goods at lower prices than those at which the Chinese can supply themselves, and payment will be received, if not in commodities, in money, until, from the abstraction of the precious metals, the value of money and the fall of prices in China admit of an in- creased exportation of Chinese productions to England, and bring the com- merce of the two countries to a trade of barter; with this important advan- tage upon our side, that all the productions of China, (tea, of course, in- cluded,) would be reduced in price to the British consumer, and that Eng- land would obtain a greater share than China of the increased produc- tiveness of labour caused by the international divisions of employment. Traders may urge, but thinkers will oppose, any considerable reduction of