Part III: Of Revenue



In the beginnings of society all public offices were performed by the magistrate without any reward, and he was fully satisfied with the eminence of his station. This is the case among the Tartars, Arabs, and Hottentots even to this day. Voluntary presents only are accepted, which have always a bad effect, but cannot be prevented while one is willing to give, and another to receive. It was in this manner, too, that the governors of the Roman provinces got their revenues. When government becomes so complex as to take up the whole attention of the public magistrate, he must undoubtedly have some reward, and if this be not given him by the public, he will fall upon some more dangerous method of obtaining it; few will be so generous as to exact nothing1. When applications are made, every one must bring his present, and the man who pays best will be best heard.

When government is a little farther advanced, magazines must be provided, ships built, palaces and other public buildings erected and kept up, and consequently a public revenue levied. At first indeed among the Romans there [238] was no revenue levied for carrying on war, because the soldiers required no pay. In savage nations this is always the case; every one of the Athenians went out to war at his own expense. The same was the case with our feudal lords; the burden of going to war was connected with the duty of the tenant or vassal. Such a practice cannot be of long duration, and accordingly we find that it ceased at Rome, and was the great cause of the dissolution of that republic. The governors of provinces made such grievous exactions from the people, that they alienated their affections, so that they gave no assistance in defending the state when it stood in need of assistance.

[§ 1. Of Taxes on Possessions.]

After the appropriation of land property, a portion of lands was commonly assigned for the maintenance of government. The free states of Greece had land set apart for this purpose, and we find Aristotle giving his opinion that private property should surround the royal lands, because those who were near a city were always for war, because they were sure of defence, and as the enemy would first come upon those lands which were near the boundaries1. In all [barbarous] countries we find lands appropriated to the purposes of sovereignty, and therefore little occasion for taxes and customs. We shall show that this is a bad police, and one cause of the slow progress of opulence.

Let us conceive what an immense tract of land would be required to support the British government. The annual expense of it in times of peace amounts to 3 millions, the whole land rents amount2 to 24 millions3. Therefore [239] the government must have an eighth part in its own hands. If we conceive, further, how such a tract of land would be cultivated, the quantity requisite would be prodigious. Allow it but to be half as well cultivated as the rest, which for many reasons would not be the case, the government would have in its hands a fourth of the whole country. By this therefore the stock of the country would be greatly diminished, and fewer people maintained. After government becomes expensive, it is the worst possible method to support it by a land rent. We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that the one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich. There are many expenses necessary in a civilized country for which there is no occasion in one that is barbarous. Armies, fleets, fortified places, and public buildings, judges, and officers of the revenue must be supported, and if they be neglected, disorder will ensue. A land rent, to serve all these purposes, would be the most improper thing in the world.

All taxes may be considered under two divisions, to wit, taxes upon possessions and taxes upon consumptions. These are the two ways of making the subjects contribute to the support of government. The land tax is of the former kind, and all taxes upon commodities of the latter.

Possessions are of three kinds, to wit, land, stock, and money. It is easy to levy a tax upon land, because it is evident what quantity every one possesses, but it is very difficult to lay a tax upon stock or money without very arbitrary proceedings1. It is a hardship upon a man in trade to oblige him to show his books, which is the [240] only way in which we can know how much he is worth. It is a breach of liberty, and may be productive of very bad consequences by ruining his credit; the circumstances of people in trade are at some times far worse than at others. But if on account of this difficulty you were to tax land, and neither tax money nor stock, ye would do a piece of very great injustice. But though it be a difficult thing to tax money or stock without being oppressive, yet this method is used in several countries. In France, for example, in order to ascertain the circumstances of the subject, every bill is assigned, and all business transacted in presence of a public notary, and entered into his books, so that land, stock, and money are there all taxed in the same manner. Of these three only land is taxed in England1, because to tax the other two has some appearance of despotism, and would greatly enrage a free people. Excepting the land tax, our taxes are generally upon commodities, and in these there is a much greater inequality than in the taxes on land possession. The consumptions of people are not always according to what they possess, but in proportion to their liberality. When taxes are laid upon commodities, their prices must rise, the concurrence of tradesmen must be prevented, an artificial dearth occasioned, less industry excited, and a smaller quantity of goods produced.2

Taxes upon land possessions have this great advantage, that they are levied without any great expense; the whole land tax of England does not cost the government above eight or ten thousand pounds. Collectors are chosen by the gentlemen of the county, and are obliged to [241] produce proper security for their carrying safely to the exchequer the money which they collect. The taxes of customs and excise, which produce such immense sums, are almost eaten up by the legions of officers that are employed in collecting them. These officers must have supervisors over them to examine their proceedings. The supervisors have over them collectors, who are under the commissioners, who have to account to the exchequer; to support these officers there must be levied a great deal more than the government requires, which is a manifest disadvantage.

Another advantage of a land tax is, that it does not tend to raise the price of commodities, as it is not paid in proportion to the corn and cattle, but in proportion to the rent. If the tenant pay the tax, he pays just so much less rent. Excise raises the price of commodities, and makes fewer people able to carry on business. If a man purchase £1000 worth of tobacco, he has an hundred pounds of tax to pay, and therefore cannot deal to such an extent as he would otherwise do; thus, as it requires greater stock to carry on trade, the dealers must be fewer, and the rich have, as it were, a monopoly against the poor. It was observed before that in England, from a kind of delicacy with regard to examining into the circumstances of particular persons, which is apparently an infringement upon liberty, no tax is laid upon stock or money, but all upon consumptions. Whatever advantages this method may have, there is evidently in it an inequality. The landlord who pays his annual land tax pays also a great part of the taxes on consumptions. On this account the landed interest complains first of a war, thinking the burden of it falls upon them, while on the other hand the monied men are gainers, and therefore oppose them. This perhaps occasions the continuance of what is called the Tory interest.


[§ 2. Of Taxes on Consumptions.]

Taxes upon possessions are naturally equal, but those upon consumptions naturally unequal, as they are sometimes paid by the merchant, sometimes by the consumer, and sometimes by the importer, who must be repaid it by the consumer. In Holland all goods are deposited in a public warehouse, one key of which is kept by the commissioner of the customs, and another by the owner of the goods. If the goods are exported, no tax is advanced, but if they go into the country the consumer pays down the price to the merchant and the custom to the commissioner. This method is much the same with the famous excise scheme of Sir Robert Walpole, which was at last his ruin. It was to this effect, that a general excise should be established, and all goods imported deposited in a public warehouse, and the tax should only be paid upon the inland sale of them1. Though this scheme be liable to inconveniences, such as subjecting the owner to anxiety from not having his goods entirely in his own power, yet it is plainly this which gives the Dutch so great an advantage over all the other nations of Europe. The Dutch are in a manner the carriers of the other Europeans; they bring corn from the Baltic and those places where it is cheap, and wines from those places where there has been a good vintage, and keep them by them till they hear of a dearth, and then export them to the places where it is. But in England the moment you bring the commodities to the country, you must pay the tax and sell them where you please. Thus the merchant may lie out of his interest for a long time, and therefore must sell his commodities dearer. The Dutch, having no tax to pay but upon inland sale, are enabled to sell cheaper than the English or any other nation.

Taxes on consumptions have however some advantage over those on possessions. They are not felt, being paid [243] imperceptibly; but a person possessed of a thousand pounds of land-rent feels very sensibly an hundred pounds going from him. The taxes on consumptions are not so much murmured against, because they are laid upon the merchant, who lays them on the price of goods, and thus they are insensibly paid by the people. When we buy a pound of tea we do not reflect that the most part of the price is a duty paid to the government, and therefore pay it contentedly, as though it were only the natural price of the commodity. In the same manner when an additional tax is laid upon beer, the price of it must be raised, but the mob do not directly vent their malice against the government, who are the proper objects of it, but upon the brewers, as they confound the tax price with the natural one. Taxes upon consumptions therefore, which are paid by the merchant, seem most to favour liberty, and will always be favoured by this government. In Holland they buy a hogshead of wine and first pay the price to the merchant, and then so much to the officers of excise, as it were to get leave to drink it. We in reality do the very same thing, but as we do not feel it immediately, we imagine it all one price, and never reflect that we might drink port wine below sixpence a bottle, were it not for the duty.

Taxes on consumptions have still another advantage over those on possessions. If a person be possessed of a land-rent of an hundred pounds per annum, and this estate be valued at a high rate, he perhaps pays £20 to the government. The collector must be paid at a certain time of the year, and few people have so much self-command as to lay up money to be ready. He has therefore £20 to borrow to answer his present demands. When next payment comes, he has not only the tax to pay, but also the interest of the money borrowed the former year. He begins to encumber his estate; and thus upon examination it will be found that many landholders have been ruined. The best method of [244]preventing this is to make the tenant pay the land tax in part payment of his rent1. The taxes on consumptions are not liable to this inconvenience. When a person finds that he is spending too much on the elegancies of life, he can immediately diminish his consumption. Taxes upon consumptions are therefore more eligible than taxes upon possessions, as they have not so great a tendency to ruin the circumstances of individuals.

It is to be observed that taxes both on consumptions and possessions are more or less advantageous to industry according to the manner in which they are levied. The land tax in England is permanent and uniform, and does not rise with the rent, which is regulated by the improvement of the land2; notwithstanding modern improvements it is the same that it was formerly. In France the tax rises proportionably to the rent, which is a great discouragement to the landholder. It has much the same effect with the tithes in England. When we know that the produce is to be divided with those who lay out nothing, it hinders us from laying out what we would otherwise do upon the improvement of our lands. We are better financiers than the French3, as we have also the advantage of them in the following particulars.

In the method of levying our customs we have an advantage over the French. Our customs are all paid at once by the merchants, and goods, after their entry in the custom house books, may be carried by a permit through any part of the country without molestation and expense, except some trifles upon tolls, &c. In France a duty is paid at the end of almost every town they go into, equal, if not greater, to what is paid by us at first; inland [245] industry is embarrassed by theirs, and only foreign trade by ours.

We have another advantage in levying our taxes by commission, while theirs are levied by farm, by which means not one half of what they raise goes into the hands of the government. In England the whole expense of levying above seven millions does not come to £300,000. In France twenty-four millions are levied every year, and not above twelve goes to the expense of the government, the rest goes for defraying the expense of levying it, and for the profit of the farmer1. In England no excise officers are requisite but at the seaports, except a few up and down the country. The profits of the farmers in France would pay the expense of them all. In the collecting of our excise there is a regular subordination of officers who have their fixed salaries and nothing more, but in France the highest bidder has the place, and, as the man who undertakes it must advance the sum at a certain time, and runs a risk of not getting it up, he deserves a very high profit: besides, in an auction of this kind there are few bidders, as none are capable of undertaking the office but those who are brought up to business, and are possessed both of a great stock and credit, and can produce good security. When there are few bidders they can easily enter into an association among themselves, and have the whole at a very easy rate2. Upon the whole we may observe that the English are the best financiers in Europe, and their taxes are levied with more propriety than those of any country whatever3.

Upon this subject it is in general to be observed that taxes upon exportation are much more hurtful than [246] those upon importation. When the inhabitants of a country are in a manner prohibited by high taxes from exporting the produce of their industry, they are confined to home consumption, and their motives to industry are diminished. Taxes upon importation, on the contrary, encourage the manufacturing of these particular commodities. The tax upon Hamburgh linen, for example, hinders the importation of great quantities of it, and causes more linen to be manufactured at home. In general, however, all taxes upon importation are hurtful in this respect, that they divert the industry of the country to an unnatural channel. The more stock there is employed in one way, there is the less to be employed in another; but the effects of taxes upon exportation are still more pernicious. This is one great cause of the poverty of Spain; they have imposed a high tax on the exportation of every commodity, and think that by this means the taxes are paid by foreigners, whereas, if they were to impose a tax on importation, it would be paid by their own subjects1, not reflecting that by bringing a burden on the exportation of commodities, they so far confine the consumption of them, and diminish industry2.

To conclude all that is to be said of taxes, we may observe that the common prejudice that wealth consists in money has not been in this respect so hurtful as might have been imagined, and has even given occasion3 to regulations not very inconvenient. Those nations to whom we give more goods than we receive, generally send us [247] manufactured goods; those on the contrary, from whom we receive more goods than we give, or with respect to whom the balance is in our favour, generally send us unmanufactured goods. To Russia, for example, we send fine linen and other manufactured goods, and for a small quantity of these receive, in return, great quantities of unmanufactured goods. This kind of trade is very advantageous, because goods in an unmanufactured and rude state afford employment and maintenance to a great number of persons. It is merely from the absurd notion that wealth consists in money, that the British encourage most of those branches of foreign trade, where the balance is paid in money.

There are still some other species of taxes, but as their nature is much the same, it is unnecessary to mention them.

Having thus given a general view of taxes, it will not be improper here, on account of their connexion, to consider the nature of stocks, and the causes of their rising and falling.

[§ 3. Of Stocks.]

Soon after the Revolution, on account of the necessities of government, it was necessary to borrow money from subjects, generally at a higher rate than common interest, to be repaid in a few years. The funds allotted for payment of this interest were taxes on certain commodities. These taxes were at first laid on for a certain number of years, according to the term for which the money was borrowed; but when, by various arts of government, these loans came to be perpetual, the taxes came, of course, to be perpetual, and thus the funds were mortgaged. Though they1 were made perpetual when money could no longer be borrowed upon them, yet they were still redeemable [248] upon paying up the money borrowed on them1. When these taxes were laid on, nothing would have shocked people more, than to have thought that they were to be perpetual, but their progress was so insensible, that it was never murmured at. What shocks at first will soon become easy from custom, which sanctifies everything. Thus [the] taxes were first laid on, and thus they came to the situation in which they are at present. When a sum of money is lent to a private person, the creditor can come upon the debtor when he pleases for both capital and interest; but it is not on this footing that the government borrows money; they give you a right to a perpetual annuity of three or four per cent., but not to redemand your capital. It seems very odd at first sight that the creditor should consent to such an inconvenience as that his money should never be paid up2, but this is really his advantage. If you lend to the government a thousand pounds in time of war, as they have immediate use for it, they will perhaps be obliged to give you five per cent. of interest, and when peace comes they continue your annuity. You have it in your power to dispose of your annuity, and as your money is perfectly secure, and interest is paid by no private person with so much punctuality as by the government, you may very often sell the annuity of your £1000 at £1100 or more. The government, finding that these annuities sold above par, and for the same reason that people were much disposed to subscribe to the government funds, they resolved, as the funds were still redeemable, to take the advantage by paying up the sums borrowed at five per cent., and [249] borrowing money at a lower rate1. This made the contractors with the government to be on their guard, and, as they saw their design, they would not lend them any more money, without at least some part of the interest should be irredeemable, perhaps two per cent. of the four they were to receive. In every fund therefore there was a part irredeemable2, which made them continue to sell above par.

In the reigns of King William, Queen Anne, and in the beginning of that of King George I, the funds rose and fell, according to the credit of the government, as there was still some risk of a revolution. Of late, though there be no danger of a revolution, even in the times of peace stocks are sometimes at ten, twenty, or even fifty per cent. below par, and sometimes as much above it3. Nobody can suspect any risk of losing that money by change of government. How then comes it that stocks are thus everyday fluctuating without any visible cause? How comes it that good or bad news have such an influence on the rising and falling of stocks? The real cause is as follows:

Every misfortune in war makes peace to be at a greater distance, and every fortunate occurrence seems to favour its approach. When war continues, the necessities of government must be supplied, more money levied and new subscriptions opened for these purposes. As in war the interest must necessarily rise, every one is eager to be in the new subscription, and they who have annuities find that it will be for their advantage to sell out of the old stocks in prospect of a higher interest. The number of sellers, therefore, increases with the prospect of a war, and [250] consequently stocks fall. On the other hand, whenever there is a prospect of peace, as there are no expectations that new subscriptions will be opened, they who have annuities are not fond of selling them; and therefore, the number of sellers decreasing, stocks must rise. In time of war, every one who has any stock runs to have it in the hands of the government, as it cannot be so advantageously employed anywhere else, as they get interest perhaps at seven or eight per cent., of which two or three perhaps is [ir]redeemable, and frequently a lottery ticket into the bargain. A person who has an annuity only at three per cent. will do all he can to sell it, that he may employ his stock to greater advantage, and for this reason will often sell it below par, and consequently stocks must necessarily fall. But in time of war, for the following reasons, even the new subscriptions come to sell below par.

As there are a great many stock-holders who are merchants, and who keep their stocks in the hands of the government that they may be ready to sell out on any sudden demand, and take the advantage of a good bargain when it casts up1, and as these chances occur most frequently in time of war, they have often occasion to sell out, and thus more stock runs to the market, and the new subscriptions sink2below par. But further, in time of war, as was observed before, stock cannot be so advantageously employed, and everybody is tempted to subscribe. Even those whose circumstances are but very inconsiderable, subscribe for great sums in hopes that stocks will rise, and that they may sell out before the time of delivery, to great advantage; but when things do not answer their expectations, and they are forced to sell out one way or another to support their credit, they are often obliged to sell below par. In this manner the new subscriptions may fall. Stock-jobbers that are well acquainted with their business, observe particularly when a number of indigent persons [251] are in the subscriptions, and as they are soon obliged to sell out, and consequently stocks fall, it is their proper time to purchase them.

[§ 4. Of Stock-jobbing.]

The practice of stock-jobbing, or the buying stocks by time has, too, on all occasions, a very considerable influence on the rise and fall of stocks. The method in which this practice is carried on is as follows. A man who has not perhaps £1000 in the world, subscribes for £100,000, which is to be delivered at several fixed times, and in certain portions. He therefore hopes to get these several portions sold out to great advantage by the rising of the stocks before they fall due, but as anything he is worth would go if the stocks should fall, he uses all means to make them rise, he spreads reports at Change Alley that victories are gained, that peace is to be concluded, &c.1 On the other hand, they who want to purchase a stock, and want that it should fall, propagate such reports as will sink the stocks as low as possible, such as that war will continue, that new subscriptions are thought on, &c. It is owing to this that, in time of war, our newspapers are so filled with invasions and schemes that never were thought of. In the language of Change Alley the buyer is called the bull2, and the seller the bear3, and as the bulls or bears predominate, [252] stocks rise or fall. This practice of buying stocks by time is prohibited by the government, and accordingly, though they should not deliver up the stocks they have engaged for, the law gives no redress1. There is no natural reason why £1000 in the stocks should not be delivered, or the delivery of it enforced, as well as £1000 worth of goods; but after the South Sea Scheme this was thought upon as an expedient to prevent such practices, though it proved ineffectual. In the same manner, all laws against gaming never hinder it, and though there is no redress for a sum above £52, yet all the great sums that are lost are punctually paid. Persons who game must keep their credit, else nobody will deal with them. It is quite the same in stock-jobbing, they who do not keep their credit will soon be turned out, and in the language of Change Alley be called lame duck3. It is unnecessary here to give any account of particular funds, as they are all of the same nature, and the security equal. If the interest of any sum of money be not paid by the funds allotted for that purpose, it is paid out of the sinking fund, which is the surplus of all the rest. There is perhaps some little difference in the facility of payment, but this is by no means considerable, and merits not our attention.