Chapter XXVIII: Appendix: C (6)

[742] E.g. "The common mode of levying a tax on the conveyance of letters is by making the Government the sole authorized carrier of them, and demanding a monopoly price. When this price is so moderate as it is in this country under the uniform penny postage, scarcely if at all exceeding what would be charged under the freest competition by any private company, it can hardly be considered as taxation, but rather as the profits of a business; whatever excess there is above the ordinary profits of stock being a fair result of the saving of expense, caused by having only one establishment and one set of arrangements for the whole country, instead of many competing ones."--J. S. Mill, _Principles of Political Economy_, London, 1871, vol. ii. p. 461.

[743] _Vide_ note 2, opposite.

[744] "Wherever the benefit to the individual can be even approximately estimated there is a strong presumption in favour of levying the cost incurred from him and converting the tax into a 'fee.'"--C. F. Bastable, op. cit., p. 267.

"To be properly remunerative to the State, as to a private individual, the price at which a commodity is sold must be sufficient to pay interest on the capital invested in the business, that is to say, to pay for the use of the property which must be used in producing the commodity, as well as to pay the more immediate cost of its production in wages and materials. There is no ground at all for the theory sometimes put forward that the State should deliberately abstain from making a profit from the working of an institution like the Post Office. Taxpayers are indeed nearly all users of the Post Office, and users of the Post Office are nearly all taxpayers, but there is nothing to show that people are taxed in the same proportion as they use the Post Office--the largest taxpayers are not necessarily the largest users of the Post Office. Consequently it is not a matter of complete indifference whether the State, which in this case means the taxpayers, makes a profit on the business or not. The only question difficult to decide is how much interest on the capital invested the State ought to obtain, in order to make the business remunerative but not a source of taxation. When the State has no monopoly, or only a monopoly secured by driving out all competitors in fair commercial rivalry (if such a case has ever occurred), it may charge what it can get for the commodity sold without making the business a source of taxation. But when the State has conferred on itself a monopoly of a business, it is evident that to charge the price which would bring in the largest profit would often be simply equivalent to laying a tax on the commodity. In this case, the price charged should only be such as would produce a rate of interest which would satisfy private individuals or joint-stock companies, supposing there were no monopoly. The rate of interest should be reckoned in relation to the actual market value of the property used, not in relation to what it may have originally cost the State. When the State makes a bad investment the loss should be written off once for all as soon as it is discovered. If, for instance, a State has bought telegraph apparatus for far more than it is worth, there can be no reason why the senders of telegrams, and not the whole body of taxpayers, should pay for the mistake."--Edwin Cannan, _Elementary Political Economy_, London, 1903, pp. 130-1.

The cost which ought in strictness to be taken is the cost of the most economical private commercial undertaking which would provide an equal service if the monopoly of the Post Office were withdrawn:--

"I do not regard the greater part of the Post Office revenue as a tax at all. If all of it were earned by doing for the public on a large scale work that no private company could do as cheaply, because it would have to do it on a small scale, then I should say that none of the Post Office revenue was a tax. That part, however, of its revenue which it gets by prohibiting others from performing services for the public is a tax."--Alfred Marshall, _The Times_, 6th April 1891.

[745] The terms "Mixed Taxes" and "Quasi-Taxes" have been applied to charges of this character. "Mixed Taxes, or Quasi-Taxes, naturally arise when a governing body makes demands for payments, and gives something in return, but without any pretence of equivalence between individual payments and individual returns."--R. Jones, _The Nature and First Principle of Taxation_, London, 1914, p. 7.

[746] E.g. "Many definitions of the word 'tax' have been proposed, but I know of none which would include just so much of the Post Office revenue as happens to be in excess of the amount expended in the year and no more.

"I believe that the desire to reckon this amount and no more as a tax, arises from a somewhat dim impression that it is the sum which the State exacts in excess of what a private company, without any legal or natural monopoly, would have to be satisfied with for performing the same services. But it is not. In the first place, such a private company would expect and receive about 3 per cent. on its capital in addition to the mere working expenses. We do not know what the capital of the Post Office is, but it must be very great, seeing that all the more important offices are owned in fee simple. Secondly, a company would raise new capital for new buildings and the purchase of more land, instead of defraying the expense as if it were current working expenditure. Thirdly, a company would not 'encourage thrift' by giving away upwards of [L]700,000 a year to the depositors in the savings bank, by paying 2-1/2 per cent. Fourthly, in all sorts of ways the Post Office is not conducted as a commercial enterprise would be. For example, it spends more than a company would do in the less profitable districts.

"The only argument I know of in favour of treating the so-called 'net revenue' alone as a tax, thus breaks down. If any part of the gross revenue is a tax, the whole must be."--E. Cannan (_Memoranda on Classification and Incidence_, p. 163).

[747] "The payment for the same service may be a price in one State, a fee in a second, or a tax in a third.... The controlling consideration in the classification of public revenues is not so much the conditions attending the action of government or the kinds of businesses conducted by the government, as the economic relations existing between the individual and the government."--E. R. A. Seligman, _Essays in Taxation_, p. 423.

[748] This has been held a justification for regarding the letter rate as a whole as a pure tax:--

"A special service is no doubt rendered to each contributor of the tax, as well as a general service to the whole community, by means of the facilities of communication always available; but the charge is what is technically known as a tax, and the fact that a particular, as well as a general, service is rendered, does not alter the tax nature of the charge. Apart from the theory it has also to be considered that the productive portion of the Post Office revenue is derived from charges where the cost is very little--from letters, for instance, in the metropolitan district, or in and between great centres of population, where the cost of conveyance and delivery does not exceed, probably, one-tenth of a penny per letter, and the surplus of nine-tenths is spent on other services of the Post Office on which there is a deficit."--Sir Robert Giffen, K.C.B. (_Memoranda on Classification and Incidence_, p. 94).

The argument is that in large towns the cost of the service is infinitesimal, and the charge is therefore tax. Obviously this has no application to country services.

Plehn does not take this view:--

"_Postal surplus not the result of taxation._"

"There are some writers who regard any surplus acquired in this way as practically the result of taxation, and class any charge for the public service, above the cost thereof, as a special tax. This classification presupposes that the service is, by nature, of a public character, an assumption contrary to the fact, for no function except that of governing itself, in the narrowest possible sense, is _by nature_ of a public character, nor, on the other hand, _by nature_ of a private character. On this consideration, therefore, it is better to class these gains, not as taxes, but as the earnings of a public industry."--C. C. Plehn, _Introduction to Public Finance_, p. 358.

[749] "On the purely financial side the gain from the service must generally be a small one; the return for capital employed is little, and the only remaining element would be the economy that results from the application of monopoly, and the consequent unity of the service. Any further charge is really a form of taxation."--C. F. Bastable, _Public Finance_, London, 1903, p. 209.

"When we come to look more closely into the essential character of this 'public utility' in respect of its economic and financial value, it will appear that in this case an important administrative function has attached to it, as it were involuntarily, an effective contrivance for the levying of a tax, such as to require that the Post Office be taken up in connection with the theory of taxation."--G. Cohn, _Science of Finance_, translated by T. B. Veblen, Chicago, 1895, p. 126.

[750] The rates for postcards, printed matter, and samples roughly correspond with the cost of service and are perhaps to some extent prices.

[751] The suggested classification, if satisfactory from the speculative point of view, does, however, give rise to practical difficulties. In public financial statements it is, of course, impossible to show the actual nature of the revenue on such a basis. The only practicable course is to classify as a whole the gross revenue and the net revenue for the entire service. There is difference of opinion even as to this apparently simple problem. The common-sense solution would seem to be that recommended by Sir Edward Hamilton, viz. to reckon the net revenue as a tax and the balance of gross revenue as payment for services rendered; although in view of the complications resulting from the existence of unremunerative services, and the failure to make proper allowance in respect of the capital employed in the service, such a course is unscientific and misleading.

"The whole of the receipts from the various sources administered by the Post Office has always been treated in our Public Accounts as 'Non-Tax Revenue.' It is all carried to the Exchequer; and the whole cost is annually provided by Parliament. Therefore, to omit altogether this public receipt from a classification of taxes would seem to be the natural course to take. But the charge which is made for the carriage of letters, telegrams, and parcels, so far as the Post Office services are a State monopoly, is unquestionably 'an obligatory contribution by persons in respect of or incidental to something which they do.' Accordingly, to take no account of this charge, which nobody can avoid, would be to omit something which falls within our definition of a tax. At the same time it is obvious that to treat the whole of the Post Office revenue as a tax would for present purposes be misleading, inasmuch as the amount actually expended by the State represents direct and immediate service rendered to those who write letters or send telegrams. Regard being had to these considerations, when balanced one with another, it appears to me that the least incorrect course to adopt is to treat as a tax the amount by which the revenue derived from Post Office services exceeds the cost of administering those services."--Sir E. W. Hamilton, K.C.B. (_Memoranda on Classification and Incidence_, p. 36).

See also p. 361, n. 2, _supra._

[752] "There cannot be devised a more eligible method than this of raising money upon the subject; for therein both the Government and the people find a mutual benefit. The Government acquires a large revenue, and the people do their business with greater ease, expedition, and cheapness than they would be able to do if no such tax (and of course no such office) existed."--Sir William Blackstone, _Commentaries on the Laws of England_, London, 1783, vol. i. p. 324.

"Nor, while the rates of postage are confined within due limits, or not carried so high as to form any serious obstacle to correspondence, is there, perhaps, a more unobjectionable tax."--J. R. McCulloch, _Taxation and Funding_, p. 320.

[753] "The Post Office in reality is neither a commercial nor a philanthropic establishment, but simply one of the revenue departments of the Government. It very rightly insists that no country post office shall be established unless the correspondence passing through it shall warrant the increased expense, and it maintains a tariff which has no accordance whatever with the cost of conveyance. Books, newspapers, and even unsealed manuscripts, can be sent up to the weight of 4 ounces for a penny; whereas if a sealed letter in the least exceeds 1/2 ounce it is charged 2d. It is obvious that the charges of the Post Office are for the most part a purely arbitrary system of taxes, designed to maintain the large net revenue of the Post Office, now (1867) amounting to a million and a half sterling.

"It will thus be apparent that Sir Rowland Hill's scheme of postal tariff consisted in substituting one arbitrary system of charges for a system more arbitrary and onerous."--W. S. Jevons, _Methods of Social Reform_, London, 1883, p. 280.

[754] "Will it pay?

"I will here lay down what may seem to financiers in this House a somewhat startling position. I hold that the State has no right to make a profit out of the Post Office. (Cheers.) ... Probably half the letters sent are business letters; and another very large share is sent by persons of small means who have many stern inducements to take care of their pence. In other words, one half of your postal revenue is derived from a tax on the machinery of trade, and another large share from the poorest class of citizens.

"This is practically a tax on commerce."--Sir J. Henniker Heaton, _Parl. Debates_ (_Commons_), 30th March 1886.

[755] "Regarded as a tax diffused over the whole community, it is on the whole defensible, though the tendency to insist that the postal profits shall be devoted to improving the service is already becoming more pronounced."--C. F. Bastable, op. cit., p. 575.

"The Post Office, therefore, is at present one of the best sources from which this country derives its revenue. But a postage much exceeding what would be paid for the same service in a system of freedom is not a desirable tax. Its chief weight falls on letters of business, and increases the expense of mercantile relations between distant places. It is like an attempt to raise a large revenue by heavy tolls: it obstructs all operations by which goods are conveyed from place to place, and discourages the production of commodities in one place for consumption in another; which is not only in itself one of the greatest sources of economy of labour, but is a necessary condition of almost all improvements in production and one of the strongest stimulants to industry and promoters of civilization."--J. S. Mill, _Principles of Political Economy_, London, 1871, vol. ii. p. 462.

"It may happen (quite acceptably) that a surplus comes in from an undertaking which is primarily carried on for administrative purposes alone. A striking instance of this is afforded by the letter post. If the administrative purpose in question admitted of no aim beyond the covering of its own expenses, such a surplus would have no meaning, or at any rate no other meaning than that of a surplus in the hands of a consumers' club, which is returned to the members, on the closing of the accounts for the year, in the proportion in which they have contributed to it. The fact that the postal service not only retains any such surplus but even (with due regard to its primarily administrative function) consciously seeks it, is to be explained on the ground that, without hindrance to the administrative function, the different abilities of the citizens to contribute to public purposes may be drawn on by this means, with desirable results which are not attainable in any other way."--G. Cohn, op. cit., p. 94. Cf. _The Development of the Post Office_, Fabian Research Department, London, 1916, pp. 43-7.

[756] The extent to which any such disadvantage may be experienced is, of course, largely minimized by the existence of a low rate containing no element of tax, (see _supra_ Chapter IV) for most of the formal documents of commerce.

[757] "It is wholly misleading to point to the fact that the business of the Post Office now yields a very considerable profit, and to suggest that increased remuneration can easily be provided from that source. That profit is not in a bag to be drawn upon at will. It goes into the National Exchequer, and forms part of the revenue of the country, and if two or three millions is taken from it, the deficit in the Exchequer must be made good in other ways. And it has never been admitted, nor can it now be admitted, that the profits of the Post Office belong in equity to the staff rather than to the taxpayer. The Post Office is not like a private business. Parliament has established a monopoly, and has fixed certain rates of postage. If Parliament chose to relax that monopoly, or to reduce those rates of postage, the profit would straightway disappear. It does not do so, because it desires to retain for the Exchequer the sums so brought.

"Parliament has also established the sixpenny telegram, extended the telegraph service into remote rural districts, and has given very cheap rates to the Press. This has resulted in the telegraphs being worked at a loss of over a million a year. No one would suggest that it would be just, because of this loss, to reduce the wages of the men and women employed in the telegraph service, and it is equally beside the mark to quote the profits on the postal side as though the pay of the staff should be determined by their amount."--The Right Hon. Herbert Samuel, British Postmaster General, to a deputation from the staff, 19th November 1913.

[758] Pekin.

[759] From the _British Official Records_.

[760] Exeter.

[761] From the _British Official Records_.

[762] From the _British Official Records_ (undated).

* * * * *

Transcriber's Notes

With the exception of a few minor punctuation corrections, changes have been made to the text only as follows:

Footnote 240: "Werte" changed to "Werke" (zu Werke gegangen)

Footnote 240: "bedeutender" changed to "bedeutende" (...hatte die Erleichterungen ohne bedeutende Opfer aus der Postkasse erkauft)

Footnote 250: "Reichs-Post" changed (added hyphen) to "Reichs-Post-" (Die Finanzen der Reichs-Post- und Telegraphenverwaltung)

Footnote 251: "Post" changed (hyphen added) to "Post-" (Entwickelung des deutschen Post- und Telegraphenwesen)

Page 174: added closing parenthesis in "(Hauptblattes)"

Footnote 384: "Jahrengeklagt" changed to "Jahren geklagt" (Das sind Erscheinungen, [:u]ber die seit Jahren geklagt wird)

Footnote 384: "Bl[:a]tte" changed to "Bl[:a]tter" (Wenn Sie beide Bl[:a]tter nun auf ihren Inhalt pr[:u]fen,...)

Footnote 387: "worden" changed to "werden" (...es soll ein anderer Tarif aufgestellt werden.)

Footnote 390: "vorgeben" changed to "vorgehen" (gleichfalls mit einer Erm[:a]ssigung des Abonnementspreises hat vorgehen m[:u]ssen)

Footnote 398: "erachten" changed to "erachtet" (derjenigen Zeitung oder Zeitschrift erachtet werden k[:o]nnen)

Footnote 435: "charakter ihre Ein K[:u]nfte" changed to "Charakter ihrer Eink[:u]nfte" (Die Post und der Charakter ihrer Eink[:u]nfte)

Footnote 459: "seine" changed to "seiner" (seiner Billigkeit)

Footnote 459: "Weberi" changed to "Weberei" (Bezug von Rohstoffen f[:u]r Spinnerei, Weberei, u.s.w.)

Footnote 460: "kostspeiliger" changed to "kostspieliger" (und ist zu dem Zwecke oft zur Einstellung kostspieliger Transportmittel (Eisenbahnbeiwagen) gen[:o]tigt.)

Page 223: the anchor position for Footnote 472 did not appear in the original text, but is inferred from context.

Page 225 "Schriften" changed to "Schriften-" (under the name of _Schriften- und Aktentaxe_)

Footnote 521: "zu gelassen" changed to "zugelassen" (Als Gesch[:a]ftspapiere sind zugelassen...)

Footnote 521: "personlichen" changed to "pers[:o]nlichen" (die Eigenschaft einer eigentlichen und pers[:o]nlichen Korrespondenz)

Footnote 521: "Dienst" changed to "Dienst-" (Lohn-, Dienst- oder Arbeitsb[:u]cher)

Page 406: changed "releived" to "relieved" (they were relieved by your Lordships)

Footnote 564: "ein" changed to "im" (Als Nachbarorte im Sinne des Gesetzes...)

Footnote 707: "Post" changed (hyphen added) to "Post-" (dem Taxis w[:a]re nur das Post-, nicht das Botenwesen zu Lehen gegeben)

Footnote 718: "Taxis'sche" changed to "Taxis'schen" (Trotz der Ausdehnung der Taxis'schen Posten)

End of Project Gutenberg's The Development of Rates of Postage, by A. D. Smith

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