Denmark Let Shippers Name Their Price, Then Kept the Right to Buy It
Declare too low and the crown could snap up the cargo. Declare too high and you overpaid the tax.
My First Million · Rory Sutherland: completely legal marketing hacks that always workAdvertising veteran Rory Sutherland was arguing that people a few hundred years ago were far from dim. With fewer modern distractions, he suggested, they had more time to think clearly.
Then he offered his exhibit, a toll once charged on ships passing through the strait off Denmark. The Danish crown had a stranglehold on the passage and wanted customs duty on every cargo that sailed through.
At first, Sutherland said, Denmark sent men aboard to estimate what each cargo was worth and charged 10 percent. The work was a nuisance.
So Denmark stopped guessing. It let the merchants passing through name the value themselves, and charged 10 percent on that number, with one condition attached.
"You tell us what your cargo's worth," Sutherland said, recounting the offer. "We'll charge you 10 percent on that. Oh, and by the way, every now and then we'll randomly buy your cargo at the price you quoted."
Sutherland argues the ingenuity was in that threat. Declare too low a value to cheat the duty, and the crown could take the cargo at a bargain. Declare too high, and the merchant paid too much tax. In his telling, the threat did the work the inspectors once did, making honest declaration the safe bet.
Someone in the conversation compared it to how taxes are paid. Sutherland agreed, and extended the logic to houses.
"You tell us what your house is worth," he said, "and the only deal is we have the right to buy your house for that amount of money."
Questions people ask
Did Denmark really collect a toll like that?
Yes. Denmark collected the Sound Dues at Elsinore on ships entering or leaving the Baltic for more than four centuries. Shipmasters declared their cargo values for duty, under a system backed by the crown's right to purchase at the declared value.
How often did the crown actually buy the cargo?
The episode does not give a number, and the historical emphasis is on the threat rather than a tally. The logic Sutherland stresses is that a credible right to buy makes honest declaration the safest course, whether or not purchases were frequent.
Could this work for property taxes today?
In theory, yes, and economists have proposed versions of it under the name Harberger taxation. Owners would declare a value, pay tax on it, and face a small chance of forced sale at that price. The practical objections are politics, fairness to cash poor households, and who gets to force the purchase.