Terry Dwyer & Dirk Loehr
1. The forgotten insights of the classical economists
Land and capital: The big confusion
The theorem that a tax on rent cannot be shifted is the oldest theorem in economics, dating back at least to John Locke (1692). As the French Physiocrats realized in the 18th century when they sought unsuccessfully to reform an oppressive French tax system ahead of a revolution (Turgot was dismissed as Finance Minister in 1776), this followed from the fact that land had no cost of production and no cost of supply. The rent of land was thus a free surplus to be taken by the sovereign as a natural revenue to sustain good government. In addition, John Locke also formulated the proposition that all taxes come out of rent, a proposition which was taken up by the Physiocrats and, properly understood, can be traced through Adam Smith to twentieth century theories of the incidence of taxation as falling on infra-marginal surplus returns to a factor of production.
