Revenue -- A Word for the Spin Doctors

Kenneth Jupp

[Reprinted from Land & Liberty, Spring 2000]

Turgot, the great 18th century French writer on economics, was in charge on behalf of the the Crown of a province of the Midi when he wrote:

In Picardy, Normandy, the country around Paris, and in most of the provinces of northern France the land is cultivated by farmers; in the provinces of the midi it is cultivated by share-croppers. The provinces of northern France are incomparably richer and better cultivated then those of the mind.[1]

Turgot reserved the word revenue to describe the surplus which labour and capital inevitably produce on these richer lands. It arises from the work which is done upon the land, but is the property of the landowner because only with his consent can the land be used.

When land lies idle there is no revenue from it. But the anticipation of its being worked gives a price which varies according to the degree of certainty that it will be worked, and the time which will elapse before it is worked. To leave the revenue in the hands of the workers, would be monstrous. It is not due to them but to the superior quality of the land that this surplus is produced. It is equally monstrous to let the landowner keep it, when, as landowner, all he has done is to give his permission for the work to be carried on there.

Adam Smith knew and admired Turgot. In The Wealth of Nations, with his usual felicity of expression, Smith reproduced Turgot's reflections on revenue in one sentence, and then compared it to the management of a great estate:

The subjects of every state ought to contribute to the support of government, as nearly as possible in proportion to their respective abilities; that is, in proportion to the revenue they enjoy under the protection of the state. The expense of government to the individuals of a great nation, is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their interest in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.[2]

If Smith was using the word revenue in the same sense as did Turgot, they would have been an excellent way of expressing the case for justice in the distribution of wealth. Unfortunately, however, Smith uses revenue in several different meanings elsewhere in his book, The word revenue is nevertheless an admirable tool for presenting the case for unburdening labour and capital of the oppressive taxation they have to bear. "The Inland Revenue should be concerned with the collection of the revenue", or "Revenue should be the public revenue" are worthy of consideration by spin doctors.

Adam Smith did, however, demonstrate that land used only for residence produces no revenue. Its amenities are for the personal enjoyment of the householder. He has to pay for these amenities out of money he has made elsewhere:

The rent of houses, though it in some respects resembles the rent of land, is in one respect essentially different from it. the rent of land is paid for the use of a productive subject, the land which pays it produces it. The rent of houses is paid for an unproductive subject. Neither the house nor the ground which it stands upon produce anything. The person who pays the rent, therefore, must draw it from some other source of revenue distinct from and independent of this subject.[3]

The amenities provided by natural surroundings, society, and government, make some places so obviously more congenial than others. Justice demands that those who enjoy these amenities should pay for the privilege according to the degree of benefit accruing to the position they occupy. But the arguments supporting this, although they do overlap, are not the same as those for taking the rent of productive land. This has become a very important consideration now that the renting of houses has declined and home ownership spread over all classes of the community.

Notes:

1. Reflexions sur la Formation et Distibulion des Richesses, para. 27.
2. The Wealth of Nations, Bk V, Ch 2, Pt. ii, p. 307 (italics added).
3. Ibid., Part V, Chapter 2, Pt II, Article 1 (Everyman, Vol.2, p.324).