tion. In 1816 most of the tolls or internal customs duties which had been so widespread in the Middle Ages were abolished, and in 1818 a general customs tariff for the entire state was adopted, with practically free trade as between the separate provinces - a great step forward in political development.1 In 1819 the old general excise was definitely abandoned, and the excise duties which were now made applicable to the entire state were limited to taxes on tobacco, beer, wine and brandy. Prussia thus reached in this respect a position which England did not attain until several decades later, with the important exception, however, that the salt monopoly (Salzverkaufsregal) still continued, even though the old and vexatious obligation of purchasing a certain quantity of salt (Salzconscription) was abolished in 1816.

In 1820 the business tax, which was now uniform throughout Prussia, was remodelled. The various kinds of business were divided into a number of classes, some of which were taxed according to external criteria, as in France. In other cases, however, the interesting expedient was devised of assessing a lump sum upon the particular trade as a whole in each locality and then providing for a repartition of a tax to each individual through the medium of tax associations (Steuergesellschaften)-one in each trade. As a matter of fact, although it is not commonly known, this was an old scheme, which can be traced back to medieval Spain.2 Thus was attained a kind of personal tax in indirect fashion; but the tax was light and the yield very small. In 1822 a new and uniform stamp tax was imposed, which replaced all the local and provincial stamp taxes. In the case of the chief source of revenue, however, the so-called land tax, which was actually a tax on all real estate, it proved to be impossible to bring

1 This aspect of the law is well elucidated in G. Schmoller, Rectoratsrede über das Preussische Handels- und Zollgezetz von 1818. Berlin, 1898. Cf. also the same author's "Die Epochen der Preussichen Finanzpolitik "in HoltzendorffBrentano's Jahrbuch für Gesetzgebung, etc., vol. i (1877), pp. 31 et seq.

2 The same is true, as we have seen above, p. 52, of the French vingtièmes d'industrie. Wagner was evidently ignorant of both these facts when he spoke of the Prussian system as a "Singularität." Finanzwissenschaft, op. cit., p. 20.

about the desired uniformity, the only general regulation which it was practicable to enact being to the effect that wherever the tax had been introduced or increased since 1789 it should not exceed one-fifth of the net produce.

The chief feature of the legislation of 1820, however, consisted in the introduction of the class tax. The government was not favorable to an expansion of direct taxation, but the growing fiscal needs, combined with the unalterable opposition of the rural districts to the grist tax, left the government no alternative. As a consequence a law was now enacted whereby the whole country, with the exception of the larger towns, 132 in number, was compelled to pay in addition to the land tax a so-called class tax According to this law the population was divided into a small number of categories or classes, differentiated according to simple external criteria like social standing, occupation, general estimate of wealth, and ordinary mode of life. The same sum was payable by each household in the class. In the original bill provision had been made for four classes, but the law as enacted increased these to six, and in 1822 a final arrangement was made providing for a still further classification into four chief sections, with three sub-classes in each; that is, in reality, twelve classes. The rates varied from a minimum of one-half a thaler, in the lowest sub-class, to 144 thalers in the highest class.1 Liability to taxation began at the age of 14 (changed in 1828 to 16), and ended at the age of 60 (as changed by the law of 1827). In the 132 larger towns, however, the class tax was not levied. They were liable, in addition to the light business and stamp taxes, only to a combined grist and slaughter tax, the administration of which rendered necessary a continuation of the octroi or local customs duty. It was provided, however, that if the city so chose, it might, with the consent of the general government, vote itself liable to the class tax instead of the grist tax, and the privilege of an inverse choice was conferred on the rural districts and

1 The exact rates were half a thaler, 2, 3-4, 6, 8-12, 18, 24-48, 96, 144 thalers respectively. A thaler is about 75 cents.

towns. A number of cities exercised this right, so that by 1851 only 83 were left in the category of grist-tax cities. The relative importance of the three direct taxes in 1821 may be inferred from the fact that in that year the land tax yielded 9,878,752 thalers; the class tax, 6,285,874 thalers; and the business tax, 1,706,234 thalers

The class tax seemed to many to be the proper solution of the problem. The ministerial ordinance of 1820 tells us that it "is entitled to be the happy medium between an income tax, which is always odious because it cannot be enforced without an inquisitorial inspection into the conditions of the taxpayer's wealth, and a poll tax levied at the same rate on the whole population, without any differentiation. It is intended to reach the various classes of taxpayers according to a gradation resting on a few easily visible criteria." And it adds: "In order not to let the tax degenerate into an income tax we must be careful to avoid putting into the figures any definite amount of the property or income of the members of the various classes. The notorious mode of life and the taxpayer's own view of the situation will thus take the place of the very odious inquisition which is moreover least of all suitable for a tax that endeavors to reach so small a part of a man's income." 1

The general principles underlying the class tax were perhaps most emphatically defended by Hoffmann, the author of the weightiest German book on taxation in the first half of the century.2 Hoffmann calls attention to the fact that in the existing structure of German society there were in reality four sharply differentiated classes. In the country one could easily distinguish between the large landowners, the smaller farmers, the peasants and the agricultural laborers. In the towns, also, a similar distinction was to be drawn between the

1 The ordinance will be found in Held, op. cit., p. 275.

2 Die Lehre von den Steuern als Anleitung zu gründlichen Urtheilen über das Steuerwesen mit besonderer Beziehung auf den preussischen Staat vorgetragen. Von J. G. Hoffmann. Berlin, 1840. Cf. also F. G. Schimmelpfennig, Die preussischen direkten Steuern, 2 vols. Potsdam, 1843; and especially Sinnhold, Die Klassensteuerverfassung des Preussischen Staats. Liegnitz, 1831.

large capitalists, the higher middle classes, the small tradesmen and the day laborers. Hoffmann therefore considered. the class tax far superior to any practicable income tax.

From our point of view it may be conceded that the class tax was perhaps as great a step in advance as was possible at the time. As Gneist, the distinguished jurist, forcibly expressed it many years later: "The founders of the class tax and especially Hoffmann, with that practical insight which characterized them, recognized that an income tax could not be forthwith introduced among a people where more than nine-tenths of the families were not accustomed, nor even able, to calculate their revenues and expenditure in money, and to strike a balance of income. It was also recognized that even for the privileged and exempted classes of the population, an assessment of income, without reference to any personal distinctions, would seem to them as unfamiliar as it was in contradiction to their conceptions of rank."1 Entirely apart, however, from the fact that the class tax did not apply at all to the large cities, it carried out only to a very slight degree the principle of ability to pay, and possessed no machinery calculated to make the enrolment in the various classes conform to the real wealth of the taxpayers. In fact, even by 1846 there were only 346 persons enrolled in the highest class paying 144 thalers annually. The overwhelmingly large part of the yield was derived from the lower and the lowest classes. It was therefore inevitable that after a time the demand for putting a greater share of the burden on those better able to pay should make itself heard. This demand took the form of a recommendation of the income tax.

§ 2. The Movement toward the Income Tax

The general opinion as to the desirability of an income tax was considerably divided. Among the public at large and in government circles the judgment was undoubtedly adverse,

1 Die Preussische Finanz Reform durch Regulirung der Gemeindesteuern. Von Rudolf Gneist. Berlin, 1881. 2 Held, op. cit., p. 284.

for very much the same reasons that had made the old income tax so unpopular in England. Among the scientists the matter was slightly different. The old writers on finance during the first half of the nineteenth century were for the most part content to adopt Adam Smith's first rule (which, it will be remembered, declared that the norm of taxation was the revenue that the individual enjoyed under the protection of the state), without, however, taking up in any detail the question as to whether this general ideal was to be reached by an income tax.1 When they began to discuss the income tax as such, most of the authoritative writers, like Rau, preferred a continuance of the system of taxes on product as it existed or was being developed.2 On the other hand, so prominent an author as Murhard was a warm advocate not only of an

1 The most important of these writers were :—

C. Kröncke, Das Steuerwesen nach seiner Natur und Wirkungen untersucht. Darmstadt, 1804; and Ausführliche Anleitung zur Regulirung der Steuern. Giessen, 1810; Christian von Schlözer, Anfangsgründe der Staatswirthschaft. Riga, 1805; Stockar von Neuforn, Finanzwissenschaft. Rothenburg, 1808; D. H. Eschenmayer, Vorschlag zu einem einfachen Steuersysteme. Heidelberg, 1808 [E. was opposed to the excise]; J. P. Harl, Vollständiges Theoretisch-praktisches Handbuch der gesammten Steuerregulirungen oder der Steuerwissenschaft. Erlangen, 1816; E. Kröncke, Ueber die Grundsätze einer gerechten Besteuerung. Heidelberg, 1819; D. Krehl, Das Steuersystem nach den Grundsätzen des Staatsrechts und der Staatswirthschaft. Erlangen, 1816; Georg F. v. Sartorius, Ueber die gleiche Besteuerung des Königreichs Hannover. Göttingen, 1815; W. J. Behr, Die Lehre von der Wirthschaft des Staats, oder Pragmatische Theorie der Finanzgesetzgebung und Finanzverwaltung. Leipzig, 1822; J. F. E. Lotz, Handbuch der Staatswirthschaftlehre. Erlangen, 1822; L. H. von Jakob. Die Staatsfinanzwissenchaft theoretisch und praktisch dargestellt. Halle, 1823; A. S. von Kremer, Darstellung des Steuerwesens. Wien, 1825; C. A. von Malchus, Handbuch der Finanzwissenschaft und Finanzverwaltung. Stuttgart, 1830; F. C. Fulda, Handbuch der Finanzwissenschaft. Tübingen, 1827; and Ueber die Wirkung der verschiedenen Arten der Steuern auf die Moralität, den Fleiss, und die Industrie des Volks. Stuttgart, 1837; J. Schön, Die Grundsätze der Finanz. Eine kritische Entwickelung. Breslau, 1832; A. L. V. Seutter, Die Besteuerung der Völker, rechts- und geldwissenschaftlich untersucht. Speyer, 1828; K. V. Rotteck, Lehrbuch der ökonomischen Politik. 1835. A fuller treatment of some of these authors will be found in Seligman, Progressive Taxation, 2d. ed., 1908, pp. 176 et seq.; 187 et seq.

2 Karl H. Rau, Grundsätze der Finanzwissenschaft. 1832-1837. Held, op. cit., p. 248, attempts rather unsuccessfully to explain away Rau's objections.