Mohammad Shaker

Key terms

Ricardo asks whether capitalists can pass a profits tax into prices. His answer depends on whether the charge hits one trade or capital generally.

Term	Meaning
Profit	The residual return on advanced capital after wages and other costs
General profits tax	A proportional charge applied across employments of capital
Partial tax	A tax applied to one trade or commodity only
Ordinary rate	The return capital can expect across competing employments
Capital mobility	The movement of investment away from low-profit trades
Necessaries	Goods workers require, whose price can affect money wages

One trade taxed versus every trade taxed

If hats alone are taxed, hat makers earn less than other capitalists at the old price. Capital leaves, hat supply contracts, and hat prices rise.

If every trade pays the same proportional profits tax, there is no untaxed domestic trade to flee toward. Relative production costs are not changed merely by the uniform charge.

Worked miniature: uniform tax

Three trades each advance £1,000 and earn £100 before tax.

Trade	Gross profit	20% profits tax	Net profit
Cloth	£100	£20	£80
Shoes	£100	£20	£80
Farming	£100	£20	£80

No trade gains by moving into another. A general tax reduces the net rate from 10 percent to 8 percent.

before: £100 / £1,000 = 10%
after:   £80 / £1,000 =  8%

Use the Lab to increase the wage bill while holding sale value fixed. Ricardo treats taxes on workers' necessaries as an indirect profits tax because higher necessary wages reduce the same residual.

Necessaries create a second route to profits

A luxury tax falls on people who choose the luxury. A tax on workers' necessaries can reach profits even when capitalists consume little of the taxed good.

This is why a corn tax matters beyond the capitalist's own grocery bill. It changes the wage cost of employing labour throughout the economy.

tax on workers' necessities
        --> cost of subsistence rises
        --> money wages rise
        --> residual profits fall

Why prices cannot all solve the problem

A single producer can imagine adding the tax to price. But if cloth, shoes, tools, and corn all rise together, capitalists still pay more for what they buy. A general nominal rise does not recreate the real product taken by government.

Taxation reallocates part of the annual product. Changing every price label cannot make that transferred product reappear.

Unequal capital structures

Ricardo adds a complication: trades use different mixtures of fixed capital, circulating capital, and labour. A tax that is nominally equal may affect prices differently when the time capital remains tied up differs.

Production pattern	Main advance	Sensitivity
Labour-heavy, rapid turnover	Wages	Strong response to wage changes
Machinery-heavy, slow turnover	Fixed capital	Strong response to required return over time
Mixed farming	Labour, seed, fixed improvements	Both channels matter

The simple equal-capital table isolates the core incidence claim; it does not erase Chapter I's complications about durable capital and time.

Key takeaways

A tax on one trade can raise that commodity's price through capital exit.
A uniform profits tax lowers net profits because relative trade incentives stay aligned.
Taxes on workers' necessaries can operate like indirect taxes on profits.
General price inflation cannot replace the real goods transferred to government.
Different capital structures complicate exact price movements without overturning the incidence logic.

Checklist

[ ] Can you contrast a partial tax with a general profits tax?
[ ] Can you calculate the new net rate after a proportional tax?
[ ] Can you explain why capital mobility raises one taxed commodity's price?
[ ] Can you trace a necessaries tax into wages and profits?
[ ] Can you state why “all firms raise prices” is not a complete answer?