Cookies on this website
We use cookies to ensure that we give you the best experience on our website. If you click 'Continue' we'll assume that you are happy to receive all cookies and you won't see this message again. Click 'Find out more' for information on how to change your cookie settings.

© 2014 American Journal of Economics and Sociology, Inc. Regular, periodic taxation is a function of modern government, a practice that arose only because the rent of land and natural resources was transformed from the traditional source of public revenue in the Middle Ages to private property, starting in the 17th century. In the earlier era, taxes (special exactions on ordinary income and daily necessities) were imposed only under unusual circumstances, usually to fight wars. The French Physiocrats and their student, Adam Smith, proposed that the best form of modern taxation would be based on the same principle as the medieval system-a fee derived entirely from surpluses, not imposed as a burden on production. This was actually what Adam Smith meant by "ability to pay." Smith's sophisticated understanding of economic rent was, however, simplified and distorted by numerous economists throughout the 19th century, who buried the concept under layers of obfuscation. In particular, the substitution of "Paretian rent" for "Ricardian rent" committed the fallacy of composition by shifting rent from a social concept to a private, unit-level concept, which caused social surplus to simply "disappear." Bringing this "lost history" to light permits us to re-evaluate how modern societies might benefit from Smith's physiocratic concept of taxation. This work not only traces debates about rent-for example, whether rent arises from risk-taking, or whether a tax on rent raises commodity prices-but also discusses the practical benefits of taxing it today.

Original publication




Journal article


American Journal of Economics and Sociology

Publication Date





664 - 988