NOTE INHERITANCE AND LIFE INSURANCE. One form of inherited wealth is the benefit accruing under a policy of life insurance. Under the present British law, life insurance premiums, up to one-sixth of any person's income, are exempt from income tax, but the benefit under the policy is liable to death duties. Under the scheme of inheritance taxation proposed in the preceding chapter, such benefit would only be liable to the second of our two taxes, and even if, as a result of a steepened graduation, the total yield of the British inheritance taxes was considerably increased, it is probable that many life insurance benefits would be less heavily taxed than they are now. In the future it is possible, especially if modern communities move in a socialistic direction, that other forms of inheritance will be increasingly replaced by life insurance, and also that, if the average income rises while the inequality of incomes is greatly reduced, there will be a large and steady growth of the habit of insuring one's life. Life insurance, of course, is a form of saving and such a habit, if widely diffused, would be a very valuable force, making for increased productive power. There seems no good reason why the business of life insurance should not now become a government monopoly in this country, as it already is in Italy. For it is a form of business requiring very little of that "constructive imagination," which is always called for, but not always found, in those who conduct industrial enterprises. 1 For an account of the Italian scheme, originated by Signor Nitti in 1912, see Nitti, Scienza delle Finanze, pp. 990-993, and on the general question, Webb, How to Pay for the War, pp. 183-217, and Nitti, op. cit., pp. 810-815 and 968-990. The latter discussion contains a large number of further references. Such a monopoly would put into the hands of the Government a further weapon for reducing to a slight extent the inequality of incomes. This is the monopolist's familiar weapon of discriminating prices. The premiums could be arranged in such a way, that those insuring for large amounts would be required to pay rather more than what was actuarially necessary, and the surplus thus obtained might either be applied to reducing the premiums payable on small insurances or might be treated as public revenue. It would, of course, be necessary, here as elsewhere, to use this weapon of monopoly power with moderation, so as not to reduce the total of premiums below the maximum obtainable.1 But, used with moderation, it might also increase saving. 1 For an interesting discussion of the theory of discriminating monopoly see Pigou, Wealth and Welfare, Part II., Chapter XII. An obvious reflection suggested by this analysis is that, in order effectively to practise discrimination of this kind, a government must not only have a monopoly of insurance in its own territory, but must also be willing and able to prevent any of its subjects from insuring abroad. CHAPTER XI SOME FINAL CONSIDERATIONS ON THE INEQUALITY OF INCOMES. §1. It is not part of the plan of this book, for reasons explained in the Preface, to deal in detail with various other important factors affecting the inequality of incomes. But some of these factors may be briefly referred to here. §2. The whole field of Public Finance is relevant. On the side of revenue, the more progressive the tax system, the smaller, other things being equal, will be the inequality of incomes, in the estimation of which, of course, it is necessary to consider, not what is taken by taxation, but what is left behind. On the side of expenditure, in so far as it is possible to trace the benefits of expenditure to particular persons, it is likewise true that, the more regressive the expenditure system, the smaller, other things being equal, will be the inequality of incomes. The whole of Public Finance, from this point of view, resolves itself into a series of transfers of real income from certain persons to certain other persons, and a transfer from richer to poorer involves a reduction of inequality. The working out of a system 1 For a statistical discussion of the extent to which the British tax-system has become more progressive during the war, see Samuel, Taxation of the People (Statistical Journal, March, 1919). 1 By analogy with a progressive tax system, a regressive expenditure system signifies a system under which, the smaller an individual's income, the greater the proportion which is added to it by means of public expenditure. See, for a more detailed discussion, my forthcoming study on the Measurement of the Inequality of Incomes. of Public Finance, which shall best combine reduction of inequality with increase of production, is too large a problem to be dealt with here. But the following elements should probably be embodied in it. On the revenue side, in addition to the treatment of inherited wealth and the creation of public assets on the lines suggested in the last chapter, a steeply progressive income tax and, as an emergency measure, a steeply graduated Capital Levy for the redemption of War Debt and for the deflation of the currency; also, in so far as Government monopolies of consumable commodities and services are created, and the policy of discrimination is practicable, discriminating prices against the richer purchasers. On the expenditure side, in addition to the deliberate increase of income from civil rights, and of expenditure on education, on the lines suggested in Chapters II and III above, there is a stronger argument than is often supposed for subsidies from public funds to various forms of socially desirable expenditure by the poorer classes. Housing is a case in point.1 The strength of the argument largely depends upon the existence of great inequality of incomes, and would be weakened if inequality were reduced. §3. Monopolies in private ownership and control generally aggravate inequality. For the ordinary use of private monopoly power is to secure monopoly profits by charging higher prices than would otherwise prevail and, as a rule, those who pay the higher prices are many and those who pocket the monopoly profits are few. Further, as a rule, most of the former are relatively poor and most of the latter relatively rich. Manual and clerical workers can seldom hope to obtain an appreciable See the argument of Professor Pigou in a lecture delivered at Manchester in 1914 and published by the Manchester University Press, together with a lecture by Mr. B. S. Rowntree, under the title, Lectures on Housing, pp. 57–66. share of monopoly profits, unless their trade union organisation is very strong. When large monopoly profits are concentrated in few hands, reinvested and transmitted by inheritance, the cumulative aggravation of inequality becomes still more serious. Apart from its effects on inequality, the exercise of private monopoly power tends to increase production, both in the industry directly concerned and also in industry as a whole. As regards the industry directly concerned, and other industries dependent upon it, the case is clear enough, since it is only deliberate restriction of output that can enable higher prices to be charged. As regards industry as a whole, the reader is referred to certain arguments of Professor Pigou, which are incapable of being shortly summarised.1 In addition to their tendency to increase inequality and diminish production, powerful private monopolies are often sources of gross political corruption. Modern Governments have, therefore, a threefold reason for watching their growth with an unfriendly eye. In many cases it is open to question, whether any method of control, short of nationalisation, is likely to be effective. §4. Another factor in inequality, of special importance during recent years, is the possibility of changes in the value of money. A rise in the value of money is, of course, the same thing as a fall in the general level of prices, and a fall in the value of money the same thing as a rise in the general level of prices. The effects of changes in the value of money upon production are disputable. Probably the effects of gradual changes in 1 Wealth and Welfare, pp. 193-8 and 211-4. Of course, if a private monopoly in any industry develops markedly greater productive efficiency than would have been developed under competition, production may not suffer, especially if the demand for the monopolised product is elastic. Compare Pigou, op. cit., pp. 251–289 and Report of Committee on Trusts (1918). See also the series of reports issued by Committees of the Board of Trade under the Profiteering Act. |