ment of the individual's expenditure. The theory of utility teaches that every person tends to distribute his expenditure on every form of outlay so that he gets equal marginal utility (or efficiency) in each direction of outlay. When the individual's income is forcibly reduced he will curtail to the greatest extent expenditure on those commodities or forms of enjoyment for which the marginal utility functions (utility curves) are most elastic; and he will soon arrive at a new equilibrium of his monthly or annual outlay in which equal marginal efficiency in every direction of outlay is again realized with the smaller income. In this case the State has simply taken some of the man's income, but has done nothing which will concentrate the reduction of expenditure on one or more particular commodities rather than others. The man is left to cut out those superfluities which are of the least marginal significance to him. The result is different when increased taxation involves taxes based on commodities, either new taxes, or the increase of existing taxes of this class. Taxes on commodities are almost invariably indirect, being shifted to the consumer with some increase or decrease of his loss. Taxes on services are sometimes direct, e.g., carriage licences, or taxes on household servants. Whether direct or indirect the effect of a tax on a commodity is to cause a loss of income to a consumer proportional to his consumption of the commodity, through its price being raised. In accordance with the principle of the distribution of expenditure according to equal marginal efficiency his outlay on the taxed commodities will be reduced in accordance with the elasticity of his utility curve for the commodity in question, and the extent of the rise of price. Some direct taxes, such as house-taxes based on annual value, or the old window and hearth taxes of England, are assessed on
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H. STANLEY JEVONS
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