The Frank Ramsey Rule of taxation, as stated by himself in 1927, and by his mentor, Arthur Pigou, says that to minimize the excess burden of taxation we should tax only those items whose supply or demand is least elastic. We should tax no item at all if we can find another one whose demand or supply is less elastic. This rule leads directly to obliterating all taxes except on land values.
Inelastic demand over a range of prices is impossible, because buyers inevitably run out of money as prices rise. (Economists like to call that the “income effect,” but it involves wealth and liquidity as well as income.”) That leaves supply, and only land is supplied inelastically. If there are exceptions they are too rare and contrived to concern anyone except as debating ploys. Ramsey cautiously left that to inference (and then died young). Later economists, citing this rule over the years, have quietly dropped the word “supply”. Charles McLure and George Zodrow and Laurence Lindsey, and most texts on public finance, are examples. The only exception I have found is Stiglitz. — M. G.