A tax imposed upon an article at a certain stage of its production or manufacture may enforce the expediency or necessity of a state monopoly. Where the supervision of the state agents must be so close as to interfere with the conduct of the industry, the state intervenes and itself controls the manufacture and sale. Tobacco has long been subject to this fiscal régime, and, proving so productive of revenue, there is little to be said against a monopoly by the state of its manufacture and sale.
In Italy the tobacco monopoly is conceded to a company, but its return of net revenue to the state is nearly as large as the revenue derived from the taxes on real property (about thirty-eight million dollars a year). Prussia imposes a charge on the home-grown tobacco by a tax on the land devoted to its culture, but the return is very small, and Bismarck wished to introduce a true tobacco monopoly, modeled on that of France. But the conditions were opposed to his scheme, for the use of tobacco is general throughout the empire, and a proposition to increase its price by taxation or modify its free manufacture and distribution excited a widespread opposition. France maintains a full monopoly, and finds it too profitable to be lightly set aside unless some equally profitable source of revenue is discovered to make good the loss its abolition would involve.
While historical support is given to the maintenance of a monopoly as in France, it is not probable that the system will find imitators in other states, however tempting the returns obtained might seem. Great Britain has by her insular position solved the problem in another way. By interdicting the domestic cultivation of tobacco, all that is consumed must be imported, and a customs duty offers a ready instrument for making the plant, in whatever form it enters, contribute its dues to the exchequer. In Russia, as in the United States, where tobacco is a domestic product, the tax is imposed upon its manufacture, and this method requires supervision but no monopoly of the state.
The tobacco régime is defended almost entirely on fiscal grounds, and as a monopoly, an extreme measure, has proved its value as an instrument of taxation. Other reasons, of a moral character, are urged to induce the state to monopolize the manufacture and sale of distilled spirits. Both France and Germany have considered this question, and, in spite of confident predictions of a large profit, have decided not to undertake it. Russia, on the other hand, has taken it up quite as much on social as on revenue grounds, and is gradually securing a monopoly of the trade in spirits. The initial cost of the undertaking is large, and, as the system has not yet been perfected, it is too early to give a judgment on its availability as a financial instrument.