The trend of the development of taxation was abruptly changed by the industrial revolution at the close of the last century. On the one hand, the development of constitutionalism, vesting, as it did, the control of the purse in the people, and especially in the tax-payers, had the inevitable effect of changing the ideas underlying the tax systems. New ideas as to the justification of taxation developed, and with them a tendency to seek new measures of taxation. On the other hand, the rapid increase in wealth, the growth of new forms of wealth, such as invested capital, the birth of new kinds of property, as the many kinds of credits, and the rapid change in the distribution of wealth among the different classes in the community, — all of these and other similar causes led to the constant extension of taxation to the new forms. Old taxes which were well suited to certain simpler conditions of society become under new conditions unjust, and give rise to dissatisfaction, to many attempted and some accomplished reforms. These reforms in turn prove no more satisfactory in the long run, for the conditions they were intended to meet change again.

Just as the attention of economists was chiefly directed to the study of productive agencies during the first three-quarters of the century, so the general tendency of the same period in finance may be broadly characterised as an attempt to compel the different agencies of production to contribute to the support of the government. It is claimed that economists have, during the last two decades, turned their attention more to the consideration of questions of distribution, and it is certainly true that the most recent tax reforms have been in the direction of securing a better division of the burden among the sharers of the new wealth rather than among the producers thereof. Subordinate to this tendency are various proposals and attempts to alter the distribution of wealth by the use of the taxing power.

The demands upon the revenues increased vastly during and immediately after the period of war which followed the French Revolution. Large debts had been accumulated; great armies and navies claimed support even in times of peace. New functions were being thrust upon the governments. Moreover, the new economic era demanded the payment of all charges upon the State in money and necessitated the collection of revenues in money. The old feudal receipts and services became more and more inadequate; new industrial receipts were, in general, not calculated to be much larger than the sums necessary to support the service or institution which furnished them. Consequently, taxation on an ever increasing scale becomes the basis of all State finances. Taxation is no longer regarded as a temporary expedient to meet passing and extraordinary needs. It is admittedly a necessary and permanent policy.

The doctrine of political equality when generally accepted leads to a demand for universality and equality of taxation. The difficulties that arise are no longer as to the justification of taxation in general, but as to the justice of certain forms and measures of taxation. The main question is, what is equality, and what the best method of attaining it. The methods and direction of reform were necessarily prescribed by the constitutions of the various countries and differ much from land to land. Different economic and social conditions have also an inevitable effect. Among the constitutional features that determine the direction of taxation the following may be mentioned. First, federal governments have generally been excluded from the field of directtaxation. The central governments of the German Empire, Switzerland, and the United States depend for revenues from taxation on customs duties and internal excises. The sense of loyalty to the central government is inferior to that to the commonwealth governments so far as willingness to contribute directly to its support is concerned. The partial concealment or at least lack of prominence of the indirect contribution permits of its collection without calling the attention of the contributors forcibly to the fact that they are taxed by a new authority. Just that advantage of partial concealment in this tax which appealed so strongly to the monarchies, before the birth of political consciousness on the part of the people, appeals to the federal governments. At the same time the practical necessity of uniform rates over the whole country, which arises from the fact that these taxes disturb the economic balance of industry and commerce, and the greater ease of administration with a larger territory and a single boundary, make it advisable to put all of them in the hands of the central organ. It was the latter considerations in regard to custom duties that led to the establishment of the Zollverein and eventually of the German Empire.¹

On the other hand, the different States of which the federal governments are composed have shown themselves inclined to restrict their taxation to the direct taxes, leaving all but a few of the indirect ones to the central governments.

¹ See Bowring's Report on the Prussian Commercial Union, Parliamentary Documents, 1840, Vol. XXL, pp. 1-17. Reprinted in Rand, Economic History, p. 170. Also Legoyt's La France et l'Étranger, Vol. I., pp. 250-255 ; ibid.

But this separation of the assessment of direct and indirect taxes between different authorities has been productive of great difficulties. For it is impossible to assess any tax justly and equally without reference to the other burdens already imposed on the contributors. It would seem that the demands of justice which dictate that the whole system of taxation should work toward a definite and single purpose, will necessitate either the co-ordination of these forms or the placing of both of them in the hands of the same authorities. The proper coordination of all taxes is hard to accomplish when the taxing power is in different hands. This is one of the hardest problems of American taxation.

The development of direct taxation will now be traced in detail by reference to some of the more important countries. Indirect taxes cannot properly be said to have undergone any process of development. Many changes have, indeed, been made, dictated by different economic theories and purposes. But it has been simply a flux backward and forward. Sometimes ulterior aims, as protection, have been abandoned and strict fiscal principles allowed sway. In those cases we find a simplification and a decrease in the number of articles taxed. But no general principles have been developed.