Chap. I. Foreign circulation is carried on by bills of exchange.

When reciprocal debts are contracted by different countries, the creditors in both take payment at home for the bills they draw to the order of those who pay; and they again indorse the bills to their creditors abroad.

In this contract four parties concur: the domestic and foreign creditors; the domestic and foreign debtors. This operation can extend no farther than to the amount of reciprocal and equal debts; if there be a balance owing upon one side, this balance must be paid in value, either in money or merchandize. Now as a debt is much easier discharged by compensation than by payment, merchants endeavour to profit of this compensation; but as every one endeavours alike when there is a balance on one side, it operates upon the whole of the exchange, and every one must bear his share of the expence of paying it.

If London should owe a balance to the world, after compensating all that the world owes to her, every London-debtor to the world will wish to compensate; consequently, he will look out for one who is creditor to the world: but this search betrays the secret, and shews that he is the demander; upon which the other avails himself of his situation, and refuses to compensate without profit. Hence the secrecy said to be requisite in this branch of trade. It is requisite to the trader only, whose interest is concerned; because whatever one set of merchants in a place wish to conceal, another set have constantly an interest to divulge. The interest of the state consists in preserving an equality of profit and loss among them all; and in facilitating to them the paying and receiving the balances due upon the total of all their transactions. The loss of the nation is upon the balance due by the country; the expence of paying the balance, which is the price of exchange, is only a relative loss to some of her subjects, and a relative gain to others.

The attention, therefore, of a statesman in what regards exchange, is, 1mo, To take care that the true par between the value of the national money and the money of other nations, shall be as much as possible proportional to the quantity of metal contained in each.

2do, To remove domestic inconveniences in paying with the metals, or national coin, every unavoidable balance.

3tio, To hinder the expence of acquitting a small balance from occasioning a loss on the compensation of reciprocal debts.

And, 4to, When he finds an inconvenience in allowing the metals or coin to go out of the country, he must assist in having the balance paid in the way of credit.

Chap. II. The best method for determining exactly the true and intrinsic value of the metals, coin, or money, in which the balance due to or from a foreign nation, is to be paid, is to compare the respective value of fine bullion with the respective denominations of the coin in the two places exchanging; and to state the difference only, as the price paid for the exchange. To render this more practicable, a proposal for rendring all mint-weights more determinate is set forth in a note.

Chap. III. When upon the whole of a nation’s trade with the rest of the world, a balance is due, it must be paid, either in intrinsic value, which totally discharges it, or by giving security for it, and paying interest until the charge can be obtained. We consider in this chapter the methods of discharging it.

A statesman is the best judge when his people ought to pay with bullion, and when with credit. If he approves of their paying with bullion, that is, with gold and silver, he should render the exportation of the metals as easy as possible. If a duty be laid upon coinage, he need not be afraid that any one will send off the coin, as long as bullion can be found; and when this runs short, if he does not choose that his coin should go out, he must lend his assistance in paying with credit. If he finds it against his interest either to pay in one way or in the other, he must put a stop to the trade which creates the balance: for while such trade is permitted, he will find it beyond his power to prevent the payment of that balance in the most hurtful way possible to his country.

I here observe, that in countries unacquainted with trade, and in others where the whole external commerce is carried on by strangers, a good expedient for cutting off such hurtful branches of traffic is to lay all the restraints possible on the exportation of the metals, in order to promote the exportation of what the country can offer in return. But when trade and industry are established, these restrictions cease to be useful; because merchants then find a profit upon exporting domestic productions, which they never can have upon exporting an intrinsic value.

A statesman, therefore, should conduct his operations according to the situation of his country. If foreign trade be unprofitable, cut it off as much as possible, and lay every restraint upon the exportation of coin. If it be profitable, lay no restrictions on payments; because you are sure you will gain upon the whole. And if, in any particular case, you incline to keep your coin at home, mortgage your country, and pay with your credit.

If, when you are obliged to check foreign trade, and lay prohibitions on the exportation of coin, exchange is found to rise to a great height against you, yet will this exchange produce no national loss: it will be paid within the country by those who consume foreign commodities, to those who are at the trouble and expence of transacting the balance.

Chap. IV. Here I demonstrate what before I had in a manner taken for granted, viz. that the price of exchange is neither a national loss, or a national gain; but whether it be favourable or unfavourable, it produces an instability in the profits upon trade, and should therefore be kept at par by all possible methods. I also shew how exchange is favourable to exportation, when the balance is against a country, and how the exchange is unfavourable in that respect in proportion as the balance is for that country: and as whatever exchange is gained by exporters is lost by importers, and vice versa, some have concluded, that an unfavourable balance does of itself destroy its own pernicious effects, and sets the balance even. I endeavour to disprove this proposition, by shewing how the importers are indemnified, as to their loss by the exchange, from the additional price they get for their foreign commodities at home; whereas the exporters cannot raise their prices abroad; because foreign competition will not permit them. So that in one case the wrong balance hurts the rich consumer at home, who can bear the loss; and in the other, the right balance hurts the poor manufacturer, who cannot. Hence I conclude, that it is greatly for the interest of a trading state to keep exchange, at all times, as nearly at par as possible.

That this is a practicable scheme, I prove by a matter of fact, and by an experiment made in France by a late minister; where, upon a certain occasion, the exchange having risen to a great height against France, he immediately brought it to par, by ordering bills upon Holland to be furnished at that rate, to those who should demand them; and by taking upon himself the expence of sending the money paid for such bills, to the place upon which they were drawn.

I observe, however, that such operations can only be recommended to statesmen who preside over the interests of flourishing trading nations; because in proportion as they are benefited by facilitating the payment of the casual balances due by them from time to time, in so far is a prodigal nation hurt, by facilitating the dissipation of their property, and by contriving a ready method of transferring it to foreigners.

Chap. V. When a nation owes a balance, after all the payments they have been able to make, either in coin, bullion, bills, or merchandize, it is evident, that what remains can only be satisfied by obtaining credit for it, at the expence of mortgaging the country and paying interest for the remaining balance. When this, however, happens to be the case, it involves the nation-debtor in a multitude of expensive operations conducted by exchangers, who constantly find a profit in carrying them on, though at a very great loss to individuals within the country. To prevent this inconvenience, I propose, that the statesman should take upon himself the obtaining of credit abroad, for the balance due by the country he governs; and that the expence incurred by this operation should be defrayed by the public, whereby every individual within the state will contribute his share towards maintaining an uniformity in the profits upon trade, and supporting the stability of commerce, from the regularity of the course of exchange at all times. This operation resembles very much another of which we have already spoken in treating of banks of circulation upon mortgage. There we recommended the payment of foreign balances as a proper branch of bank administration: here we recommend it to a statesman to interpose voluntarily between his subjects and their foreign creditors. This is the best method of supporting commerce, when it happens accidentally to fall under the discouragement of an unfavourable balance.

Chap. I. The credit of a state resembles, in most things, that of an individual: they differ however in this, that when a private man contracts a debt, he himself is answerable for it. When a state contracts a debt, those who contract the obligation in the name of the state are not responsible for it. Hence it happens, that private people are commonly more anxious about paying their debts than statesmen are who administer for the public. Another difference is, that public debts do not so much affect the prosperity of a state as private debts do that of the debtor. The interest of a private debtor is simple and uncompounded; that of a state is so complex, that the debts they owe, when due to citizens, are, on the whole, rather advantageous than burdensome: they produce a new branch of circulation among individuals, but take nothing from the general patrimony.

In deducing the principles of public credit, we must suppose it the established maxim in the state to adhere to the faith of their engagements; and that a permanent fund is appropriated for the payment of the interest of all the money borrowed: a liberty must be supposed, at the same time, to redeem the obligation by adequate payment; and also an easy transfer of the capital from hand to hand, to indemnify every creditor for the loss of his capital, which is not demandable from the state, as the case commonly is in private securities.

The consequence of the swelling of public debts, is, to occasion a proportional augmentation of contributions out of private property. The consequence of this again, is, to produce a vibration in the balance of domestic wealth. This creates a monied interest, which swells in proportion as public debts increase; and which may swell to so great a height as to transfer the income of a whole nation from the nominal proprietors to the public creditors.

A statesman, therefore, ought carefully to attend to the spirit of the nation he governs, before he gives way to a regular and systematical augmentation of public debts. In monarchies, the proprietors of lands may bear for a while the temporary diminutions of their annual income, though they will not easily be made to subscribe to a plan which evidently tends to deprive them of all they have, and to transfer their power and property to a set of men whom they have always considered as their inferiors.

In monarchies, therefore, a great increase of public debts will more probably bring on a national bankruptcy, than in governments which participate of the republican form.

The consequences, therefore, of the swelling of public debts may be, either, 1mo, To disturb the tranquillity of the state, by an attempt to transfer the property of it from the real possessors to a new created monied interest: or,

2do, If a systematical plan of borrowing upon solid security be not laid down, it may mechanically draw on a general bankruptcy: or,

3tio, If debts be allowed to swell beyond due bounds, so as to hurt the interest of the great body of the proprietors, the state may be engaged to adopt the fatal expedient of a spunge: or,

4to, If the spirit of the people prove compatible with the system of borrowing and supporting public credit to the utmost extent, then the whole income of the nation will remain in perpetual fluctuation, passing from one set of creditors to another, the statesman still retaining the administration of it for their use: or,

5to, If the debts contracted become the property of foreigners, these will either remove into the country where their funds are, or the income of the whole will be converted into a foreign tribute.

Chap. II. While public expence was defrayed from treasures, public credit was a thing unknown. While supplied from rapine and extortion, it never could exist. During the simplicity of ancient manners, when there was neither industry or circulation, credit was unnecessary: the coin was more than sufficient to serve every purpose of alienation.

When trade and industry began to make a progress in Europe, in the Hans towns, and in the republics of Genoa and Venice, the consequences of their credit were soon felt by Princes, who aukwardly began to imitate their example; first, by borrowing money upon mortgages of their lands and principalities; and afterwards, by imposing taxes and selling them for what they could get to a most rapacious set of men, the tax-gatherers. This spread oppression, and this again soon brought the Prince to poverty.

Taxes, however, once established in this violent method, and upon urgent occasions, came, in time, to be improved, and formed a large fund, which now serves as a solid basis for public credit.

Chap. III. While taxes were only appropriated for a time, for the repayment of the debts contracted by a state, the attention both of the state and of the lenders was totally fixed upon the discharge of the capitals: but in proportion as money increased, in consequence of the whole system of modern political oeconomy, the lenders formed to themselves a new point of view, viz. the acquisition of a permanent interest arising from a transferable capital.

In order to make thisthis change of policy from borrowing with an intention to repay the capital, to borrowing with an intention to pay a perpetual interest, the more sensible, I have traced in this chapter the progress of the first, by a review of the plan of public credit in England until the end of the last century.

Here I analize briefly the sentiments of Dr. Davenant, and compare them with those established in our days, when the latter policy has taken place; and upon the whole I determine, that the difference in the system of public credit then and at present, has proceeded principally from the difference in the state of circulation, and from the expedients now fallen upon for increasing the quantity of money, in proportion to the uses found for it.

Chap. IV. I then compare the state of public credit in France, during the administration of Cardinal de Richlieu, with that of England after the revolution. Here I endeavour to point out the influence which the different forms of government have upon the stability of public credit, both in contracting and in paying off public debts.

In France, the power of the Prince furnishes many expedients for paying off capitals, which had been borrowed at an exorbitant interest in times of public distress.

In England, the limited power of the crown, and the responsibility of ministers for their exercise of it, is a great security to those who lend money to the state; and consequently, proves a very great advantage in contracting debts upon reasonable terms.

The longer the two states subsist, the greater will the advantage be found in favour of that which adheres the most strictly to the faith of its public engagements.

When the credit of France and England are compared together, the difference between them is most remarkable. The strict adherence to the faith of public engagements has established, in England, so nice and scrupulous a credit, that the smallest deviation from its principles may prove fatal to the whole system. The credit of France, on the other hand, has been accustomed to a rougher usage; and the frequent acts of power, to the prejudice of creditors, rather occasion a temporary damp than a total destruction of their credit for the future. Such acts of power, however, in critical circumstances, prove extremely hurtful; and the advantage of a well established credit will, in all probability, either open the eyes of that nation to their own interest, or bring calamities upon them, which now appear little to be feared, in their present situation.

Chap. V. This chapter contains a short sketch of the plan of public credit, as carried on in Great Britain, from the end of the last century, to the conclusion of the peace in 1763. I here enumerate the principal operations, calculated for enlarging the fund of British circulation, by engaging the bank of England to turn into money the discredited bills and tallies of the exchequer. I have pointed out the principle which circumscribes this power in the bank within certain limits. I have traced the progress and fluctuations of the interest of money; which have constantly been in proportion to the demand for borrowing or lending in the market at the time. I have mentioned the rise of the sinking fund, and the use which has been made of it. I have endeavoured to explain the methods of borrowing by premium, and have pointed out the inconvenience attending that plan, as long as the principal view of diminishing a nation’s debt is confined to expedients for lowering the interest of the capital. I have given a progressive state of the augmentation of the debts of Great Britain at the end of every war; to which I have subjoined a short state of the nation at the last peace.

I conclude my chapter, by assigning reasons for the present low state of public credit in Great Britain; which has been principally owing to the large sums of borrowed money invested in the funds before the peace, upon the prospect of a sudden rise in their price, on the return of public tranquillity. This rise would, undoubtedly, have happened, had it not been obstructed by the necessity which the nominal stockholders were put to, of bringing their funds to market, in order to answer the demands of those from whom they had borrowed what they had invested in stock: and until this operation be compleated, that is, until the funds of Great Britain become vested in the real proprietors of them, the state of public credit will constantly be undetermined.

Chap. VI. Having given a short sketch of the present state of public credit in England, I endeavour, in this chapter, to extract, from the best private authorities to which I could have access, a parallel view of the affairs of France, so far as relates to its revenues, taxes, and debts, at the peace 1763.

By the revenue of France, I here understand, not only what comes clear and nett into the King’s coffers, but also what is farther levied upon his people. The parallel therefore will not hold between the revenue of France and that of England, as represented in the preceeding chapter, without attending to this difference.

The nett revenue of England charged with all its debts and expence of government, we have said to amount to 10 213 000l. The gross revenue of France, on the other hand, appears to amount to 24 740 834l. sterling.

But if from this be deducted that part which never enters the royal treasure, and which is expended in levying the revenue, and in appropriations for particular perpetual expences, to the amount of 6 815 111l. sterling, there will remain of net income, paid into the King’s coffers, and charged with all the debts and expence of government, only 17 925 723l. sterling.

If from this sum we deduct the total amount of the net revenue of Great Britain, (10 213 000l. sterling) the remaining sum of 7 712 723l. sterling, will shew the excess of the French revenue above that of England.

The foregoing sum of 17 925 723l. sterling, arises from the following branches:

1mo, Those which compose the King’s ordinary revenue; which, at the peace 1763, amounted to 12 546 666l. sterling, burdened with the payment of 2 022 222l. sterling of interest of the debts charged upon it.

2do, The extraordinary taxes established for a limited time, after the peace of Aix-la-Chapelle. These amount to 2 326 133l. and are totally appropriated for the payment of capitals, and interest upon them, incurred during the late wars, according to the principles of public credit in practice in England, during the reign of K. William and Q. Anne: and so soon as this fund has cleared the charges upon it, it is to cease, being no permanent branch of revenue.

3tio, The extraordinary revenue raised on account of the last war. This amounts to 3 052 923l. sterling, and consists of the second and third twentieth penny, granted for a very limited time, and appropriated, as the former branch, for discharging the debts lately contracted. The sum of these three branches made the total of the 17 925 723l. paid in to the King’s treasury, and burdened with all the public debts.

If we therefore suppose the two last branches of French revenue to be continued until all the debts charged upon them are paid, then we shall find the state of that kingdom reduced to the King’s ordinary revenue of 12 546 666l.; from which however must be deduced at least one half of the capitation. This half amounts to 1 182 222l. sterling, and is so burdensome, that its continuance will be impossible. The revenue therefore will be reduced to 11 364 444l. sterling, charged with 2 022 454l. sterling, interest of debts; of which indeed 711 111l. are annuities upon lives, and must therefore be extinguished in time.

According to this view, the revenue of France will be 11 364 444l. sterling, charged with the annual payment of 2 022 222l. interest of debts: and the revenue of Great Britain is 10 213 000l. charged with the annual sum of 4 860 000l. interest of debts.

What remains free for France is 9 342 222l. sterling; and for England, 5 353 000l.

But out of this free revenue of France must be deducted the permanent articles of expence charged upon the ordinary revenue, exclusive of the interest of debts already deducted. These articles amount to the sum of 8 468 889l. which being deducted from 9 342 222l. leaves a free balance of no more than 873 333l.

On the other hand, if we suppose the net amount of the revenue of Great Britain, after paying the interest of its debts, to be, as above, 5 353 000l.; and if the expence of the current service of the year, including the civil list, be supposed to amount to 4 800 000l. sterling, as it nearly did, before the commencement of last war, there will remain of free balance 533 000l.^[54]

From all which we may conclude, that, abstracting from extraordinary supplies for extraordinary exigencies, the revenue of both nations is pretty nearly in proportion to their current expence; and, therefore, their respective powers, when engaged in war, will be in proportion to their credit at the time.

Chap. VII. In comparing the credit of the two nations, two things enter into consideration. First, the confidence of the world, in the solidity of their respective public faith. This I take to be totally in favour of the British nation. The second is, the solidity and extent of the funds, which are to be provided in security of the sums to be borrowed upon future emergencies. These resources, in France, we have seen to consist in their dixiemes, vingtiemes, double capitation, and extraordinary impositions upon the clergy, and other bodies politic; taxes so burdensome in their nature, and so contrary to the spirit of the French nation, that it is hardly possible they ever can be made so permanent as to answer any other purpose than a short temporary appropriation.

The true resources of France are confined to those taxes upon consumption above enumerated, which do not enter into the ordinary revenue, and which are now imposed and appropriated only for a time. When these taxes become free, they may no doubt be rendered perpetual, and appropriated for a future fund of credit.

On the side of Great Britain, the case is different. The greatest part of her revenue is already perpetual; and the only two branches of annual grants, the land-tax and malt-duty, are not so excessively burdensome, nor so repugnant to the genius of the people, as to render the raising of them at all precarious. And were this nation once to adopt the system of raising money, in time of peace, sufficient to defray the charges of government, the sinking fund would prove a resource for the future, far above any thing that France can boast of.

Chap. VIII. Having by this short sketch of the state of credit in Great Britain and France, prepared a sort of canvass for our farther reasoning, I proceed to apply principles to some combinations, which might be formed concerning the consequences of an over-stretched credit.

In proportion as credit is used for borrowing money to be sent abroad, either a supply of currency must be provided for filling up the void, or alienation, trade, industry, &c. must suffer a check.

And even if money should be borrowed to be spent at home, an additional quantity of it must be added to circulation; because this new expence of the state will require it.

Every fund of property may be converted into money, with the assistance of credit, providing the statesman lends his hand to the operation: and the fundamental principle for supporting credit of all kinds, is, to provide every one with money who has property to pledge for it.

When money is borrowed by a state, to be spent abroad, the loan must either be made in coin, or in paper. If in the first, it is exported; because coin is the money of the world: if in paper, it must either be converted into coin, and exported, or it must be remitted by bills, drawn upon countries, debtors to England, for example; or, in the last place, it must be paid in the way of credit, by constituting England debtor to the Continent for it. When it is paid by bills drawn upon countries, debtors to England, then the consequence of such a loan is to convert the balance of trade into a capital in the public funds.

In whatever way money is borrowed by a state, whether from natives, or foreigners, the consequences are the same. The operation of a favourable balance of trade will transfer what is owing to foreigners in favour of natives; and a wrong balance of trade will transfer the property of natives to foreigners.

If no check be put to the augmentation of public debts, if they be allowed constantly to accumulate, and if the spirit of a nation can patiently submit to the natural consequences of such a plan, it must end in this, that all property, that is income, will be swallowed up by taxes; and these will be transferred to the creditors, the state retaining the administration of the revenue.

The state, in that case, will always consider those who enjoy the national income as the body of proprietors. This income will continue the same, and the real proprietors will pay the taxes imposed; which may be mortgaged again to a new set of men, who will retain the denomination of creditors; until by swallowing up the former, they slip into their places, and become the body of proprietors in their turn, and thus perpetuate the circle.

Chap. IX. But as a thousand accidents may put an end to public credit, before such intricate revolutions can be accomplished, the consequence must be a bankruptcy. This may either happen by a deliberate act of government, or from the natural consequences proceeding from an over-stretched credit.

I here endeavour to shew, that it is impossible to form a supposition of circumstances, in which a deliberate act of bankruptcy can be a prudent measure. The only end that could be proposed to be attained thereby, would be, to relieve those who are oppressed by taxes. But a sudden abolition of taxes would have the effect of ruining the landed interest, as well as all the manufacturing classes. Sudden revolutions are constantly pernicious; and no revolution can be so sudden as that of a bankruptcy. If such a revolution should happen, from circumstances which can neither be foreseen or prevented, the best expedient would still be, to adhere, as much as possible, to the faith of public engagements; because no expedient would be so productive of good consequences, in such a calamitous situation.

While the debts of a nation are due to its subjects, and while there remains any balance due in favour of the nation, no increase of debts can necessarily bring on a bankruptcy. It is a contradiction to suppose that a nation can become bankrupt to itself. But when, on the general state of payments between a nation and the world, there is found an annual balance due, which cannot be compensated either in the way of payment, or in the way of credit, then indeed a bankruptcy becomes unavoidable.

From this reasoning we may conclude, that the method of determining the exact extent of public credit, is to keep a watchful eye upon the increase of debts due to foreigners, and to compare these with the favourable balance upon the trade of the nation. When those debts and this balance begin to draw near to an equality, if part of the capital of the public debts be not immediately paid off, by an augmentation upon public contributions, the infallible consequence will be a state-bankruptcy.

Chap. X. The first requisite for contracting public debts, is to establish a fund for fulfilling public engagements. This procures the confidence of the lender. The next is, to establish an extensive plan of credit at home, which may be sufficient at all times to keep circulation full.

When, from the effects of borrowing, too great sums are, from time to time, drawn out of circulation, the void must speedily be filled up. If this be neglected, taxes will not be paid, as has been often observed: besides, if money be allowed to become too scarce, in proportion to the demand for it, interest will rise, and borrowing will become proportionally more burdensome to the state in general.

Foreign expence frequently drains the fund of circulation at home: hence a multitude of inconveniences arise. To prevent these, I suggest a new scheme of borrowing, by opening subscriptions in foreign countries where the interest is annually to be paid. This being to be remitted by the country borrowing, a statesman may, with the greater ease, obviate the inconveniences which might arise to circulation from such remittances.

In this chapter, I endeavour to prove by new arguments and illustrations, that national distress is more owing to a scanty circulation, than to circumscribed property; and a statesman who neglects to employ every method for keeping up the circulating equivalent within the state he governs, to the full proportion of all the uses found for it, fails in the most essential requisite for promoting the prosperity of his people, and the establishment of his own credit.

Having pointed out the methods of contracting debts, I proceed to the method of paying them. This may be accomplished in six different ways, by the help of a sinking fund; which,

1mo, May be applied annually, to the discharge of certain capitals, at the option of the state. Or,

2do, According to a certain rule, to determine the preference.

3tio, By appropriating the fund, for the payment of a proportional part of the whole outstanding capital. Or,

4to, By reducing the interest of the capitals. Or,

5to, By converting the whole of the capitals into determinate annuities, proportionate to the extent of the sinking fund. Or,

6to, By the means of lotteries, where the state may gain what gamesters are willing to lose.

I point out the advantages and inconveniences of every plan. The first five expedients are too plain to require a recapitulation. The sixth amounts briefly to a supposition, that the interest of the public debts is brought, by a proper chain of administration, to a lower rate than in any other part of Europe. In this situation, accidental circumstances will occasion (as at present) fluctuations in the price of the stocks. When they fall below par, let government open subscriptions for lotteries, to be paid in stock at the market price. Subscriptions also might be opened, and the old capitals might be received at the market price, and constituted a-new at the current interest, with a small premium above the rate at the time. By such means, the sum of the old capitals would be reduced, and a small benefit would accrue to the subscribers. Then, upon the rise of the stocks, the interest on these subscriptions might be reduced again; from which a double benefit would result; the price of stocks would be supported on one hand, and the capitals of the public debts would be reduced on the other.

Introd. Having already explained the effect of taxes upon domestic circulation; it now remains to investigate the principles by which they are to be imposed on their proper objects.

Chap. I. I divide taxes into proportional, which affect consumption, or, more properly, what may be called expence; cumulative, which affect property; and personal, which consist in personal service. These I explain by giving examples of each.

Chap. II. Proportional taxes may be so imposed as to affect almost every expence of living; and as all expence should arise from income, not from stock, the first principle of taxation, is, to confine all impositions to income only: whatever affects a capital is oppressive and unjust. But as in all expence there is alienation, although in all alienation expence is not implied, the best method to avoid the mistake of taxing stock instead of income, is, to impose the tax in such a manner as to affect the consumers only; in which case, whoever buys to sell again will draw the tax completely back.

Chap. III. In this chapter, I fully explain the operation of drawing back proportional taxes.

When the commodities charged with such taxes are either not consumed by purchasers, or by the industrious classes, they are constantly drawn back, except so far as the consumption made by the latter is an article of superfluity.

Hence I conclude, that the price of labour is raised by proportional taxes, in proportion to industry only, though the price of the commodity taxed be raised in proportion to the tax. Consequently, the more taxes are found to increase the price of labour, the more we may conclude in favour of the industry of the manufacturing classes: and the more they bring into the exchequer, the more we may conclude in favour of the ease and opulence of those who consume the objects of such taxes.

Chap. IV. The proper object of cumulative taxes, is the large possessions of the higher classes of a people, which can bear a diminution in favour of the state, without danger of encroaching upon their necessary or easy subsistence. It is not so when they are laid upon the lower classes; because these are either composed of the industrious, or of beggars. The first should be enabled to draw back from the rich, what they advance for the public service. The latter have nothing to give; to tax them is but adding to their misery, without relieving the wants of the state.

The great advantages of proportional taxes over the cumulative, may be reduced to three.

1mo, The proportion between the tax and the object taxed is determinate.

2do, The proportion may be known to every body.

3tio, The time of paying the tax is regular and gradual; because in paying for the commodity you pay for the tax, and your liberty in buying such commodities is unrestrained; consequently, the expence is supposed to be in proportion to what your income can afford. Whereas in the cumulative taxes, it is, first, hardly possible to preserve the proportion between the tax and the ease of a person’s circumstances. In the second place, it is impossible for the state to ascertain exactly that proportion. And in the last place, the demand for the tax is made at a time when people are often unprepared.

Chap. V. The principal inconveniences alleged against proportional taxes, are, 1. That they raise prices: 2. Discourage consumption: and 3. That they are oppressive and expensive in the collection. These inconveniences are more apparent than real, as will appear from what follows.

1mo, A proportional tax, rightly imposed, and properly levied, will undoubtedly raise the price of the objects taxed; but it will only consequentially raise the price of the labour of the industrious man who pays it; because he will draw it back in proportion only to his diligence and frugality.

The price of labour is regulated by demand, and is influenced only by proportional taxes.

2do, As to discouraging consumption, if taxes raise prices, this circumstance proves the increase of consumption; because if consumption were to diminish, taxes would not be paid, and prices would fall of course, even to the detriment of the industrious. These are always the consequences of proportional taxes, when wrong imposed.

3tio, As to the expence and oppression in levying them, these inconveniences are, in a great measure, in proportion to the disposition of the people to defraud the public: for when they are fairly paid, and honestly collected, proportional taxes are little more expensive, and infinitely less oppressive than any other. I conclude my chapter by some observations drawn from the practice of different countries, which point out a method of avoiding both the oppression and the expence of levying proportional taxes.

Chap. VI. All taxes are paid out of the circulating money of a country; consequently, they cannot exceed a certain proportion of that sum. It is not, therefore, from the value of the property, or the quantity of consumption, that any one can form a guess of the probable amount of taxes, so much as from the easy and expeditious circulation, which facilitates alienation and sale.

Were taxes, indeed, paid in kind, they might bear a proportion to fruits and labour; but then they would diminish the fund of subsistence: whereas they now draw a share of that quantity of money which circulates through the hands of every individual.

The great difference between cumulative and proportional taxes, consists in this. That in the first, he who pays them cannot draw them back in proportion to his industry; in the last, he may: but so far as any one of an industrious class proves idle or extravagant, every proportional tax will affect his daily profits, as every cumulative tax will affect the income of a fund already acquired. This deduction of principles is of great use in imposing taxes; because it points out the method of giving to many cumulative taxes usually imposed on the lower classes, all the advantages of those of the proportional kind.

Chap. VII. Taxes ought to be imposed for the benefit of the public, not of private people: and while that object is fulfilled, taxes are beneficial in every respect. When they are properly levied, they only abridge unnecessary private expence: when they are properly applied by the state, they advance improvement every where; and those who have fortunes already acquired, will be brought to contribute to the ease of the lower classes.

Thus by the help of cumulative and proportional taxes, rightly imposed, and rightly expended, circulation is greatly increased; industry is advanced; the public good is augmented, not diminished; and the burden of payments becomes so equally proportioned, as not to be felt in any degree sufficient to overbalance the advantages resulting from the general system.

Chap. VIII. Having said that cumulative taxes affect the income of funds already acquired, I observe, that this income proceeds from moveable or immoveable property. The first of which will constantly avoid the grasp of every statesman who attempts to lay a tax upon it. Cumulative taxes, therefore, if carried to their utmost extent, may absorb the whole income of immoveable property; but of that only.

Proportional taxes, again, have been said to affect the superfluity of those who consume the objects of them; consequently, if every thing which is consumed were first to suffer an alienation for money, a proportional tax might be imposed upon it.

The method, therefore, of carrying proportional taxes to their utmost extent, is, to draw to market every thing consumable; and insensibly to raise the tax upon it, so high as to absorb, as much as possible, the whole superfluity of the consumers.

Taxes being carried to that height, the state will become proprietors of the whole income of the immoveable funds, and the industrious classes alone will augment their wealth, in proportion to their frugality.

From this general principle it appears, that for the establishment of proportional taxes, consumption is requisite, together with alienation; consequently, where alienation takes place without consumption, as in the sale of lands, and other immoveable subjects, a proportional tax cannot be, properly, imposed. And also where consumption takes place without alienation, as when the fruits of the earth are consumed by those who raise them, proportional taxes cannot, with any propriety, be levied. Farther,

As taxes do not bear a proportion to effects, but to circulation, it follows, that they can only be raised, properly, upon alienation by sale. Many examples however may be found of proportional taxes, imposed in different countries, where neither sale or even alienation takes place. These I observe to be the worst kind of proportional taxes, and the most oppressive to those who pay them.

From the principle that taxes are in proportion to circulation, and not in proportion to consumption, we discover the reason why of old they were so difficult to be raised. Consumption then went on as now, in many respects, in proportion to the number of inhabitants; but circulation, that is, alienation by sale, bore no proportion to it.

The effect of every increase in circulation is to swell the amount of taxes; and when they are extensively imposed in a country of industry, the whole currency is thereby made to flow through the coffers of the public, as the blood of the human body flows through the heart, and is by that diffused through every member.

Chap. IX. I next examine the consequences of a total abolition of taxes, the better to discover the effects which such an alteration would produce, first, upon the prosperity of the whole community; and next, upon that of the principal classes of inhabitants, which compose it. These I reduce to three.

1mo, Those who administer government, and who are maintained from the amount of taxes.

An abolition of them, with respect to this numerous class, would draw consequences along with it, directly destructive to their interest; and, consequently, prejudicial to that of all the industrious classes who supply their consumption.

2do, With respect to the second class, which I suppose to be composed of the industrious part of the people, I observe, that an abolition of taxes must proportionally imply a diminution of circulation; this would produce a proportional diminution upon alienation; consequently, would interrupt the industry of many, and thereby throw them into a hurtful competition among themselves for subsistence. And as it has been proved, that the industrious classes pay no taxes, as matters stand, providing they be diligent and frugal, they consequently would gain nothing, and must lose a great deal by the abolition of them.

3tio, In the third class I comprehend those whom we have hitherto considered as the opulent and idle consumers. Of this category the proprietors of land form a considerable branch. They, we have said, draw back no part, either of the cumulative or proportional taxes, which affect them; but although they be deprived of that immediate indemnification, competent to the industrious, they reap, in another way, advantages which more than compensate all the burden laid upon them. These proceed from the consequences of that spirit of industry which is diffused over the whole people; in consequence of which, their lands are improved, the produce of them is readily disposed of, and what proves superfluous for domestic consumption meets with a ready market abroad, and thereby supports the value of all productions within the country.

It may be asked, then, where the burden of taxes falls, since every class of inhabitants seems to gain some advantage by them?

I answer, that they imply no burden when rightly imposed. The augmentation of industry, in consequence of the increase of circulation, provides a fund of well employed time, which, converted into money, is more than sufficient to pay all the taxes not immediately affecting the income of solid property; and the constant improvement of this, in consequence of the former, is more than sufficient to indemnify the land-proprietors.

Taxes, in this light, resemble the expence laid out upon new establishments for improvement; because in their consequences they augment the prosperity and ease of the whole people, not by being levied, but by being properly applied, as is farther explained in the next chapter.

Chap. X. Here I examine whether taxes be a spur to industry, as some pretend.

The doubt concerning this point has arisen from what daily experience has shewn, that nations become industrious in proportion to the taxes they pay. It is not very evident, that the payment of a tax by any person should enable him to discharge it with more facility, unless it be from the profit he reaps in drawing it back from others, with an additional profit to himself. But it is palpable that the amount of taxes being properly expended by a state, will increase circulation, and give fresh encouragements to industry of every kind.

I close this chapter with a short representation of the nature of ancient and modern circulation, accompanied with observations upon their respective effects in rendring mankind industrious.

Chap. XI. Of all cumulative taxes, that laid upon land-property produces the greatest amount, with the least oppression to the contributors. This leads me into a particular inquiry into the nature of the land-tax, as it is established in Great Britain, and in France.

To render a land-tax equal and easily born, the imposition ought to be preceeded by a fair valuation of every article of revenue intended to be taxed, and no other income but that proceeding from an immoveable fund of property, ought to be affected by it. From this I am led to disapprove of the method of assessment established in England by the land-tax; and also of blending a tax upon solid property, with an equal imposition upon personal estates, which we have shewn to be of a nature incompatible with cumulative taxation.

The defects of this kind of imposition in France (where it is called the taille) are different. There the rents of lands, which are the proper object of every land-tax, are frequently withdrawn from under the influence of it, in consequence of the privileges enjoyed by the higher classes, which are exempted from the taille. The consequence is, that the French land-tax falls upon that part of the lower classes who are employed in the cultivation of the soil. From this proceeds a double inconvenience.

If those who cultivate are proprietors, their portions are, commonly, very small, and a land-tax which would be light to a considerable proprietor, is quite intolerable to those who draw little more from their portion than what is necessary for their own subsistence. If those who cultivate are lessees to the more considerable proprietors, the burden falls upon them independently of the land-rent, which ought naturally to bear it.

As a proof that this is a true representation of the matter, I review the Marechal de Vauban’s scheme for new modelling the system of French taxation: and from the intolerable oppression which would follow the execution of it, we may judge of the present state of taxes in a nation where that scheme was intended as a considerable alleviation of their burden.

Nothing but the establishment of industry and extensive credit, with a substitution of proportional taxes, instead of the many cumulative ones, imposed on the lower classes in France, can ever produce a facility in paying the considerable impositions laid upon that nation.

Chap. XII. The most proper method of imposing a land-tax is, without doubt, to confine the imposition to the rent of lands only, and to lay it on in proportion to them. But how is it to be expected that ever such a plan can take place in a nation where the proprietors of land govern the state? In France, the power of the King has never been able to establish a tax upon the rent of lands, for any longer duration than that of a foreign war. In a neighbouring nation, it has now been established for the greatest part of a century. Were it there to become perpetual, it might be converted into a new domain, or it might prove a fund for discharging, at once, a very great part of the national debt.

When taxes are imposed, it is of great consequence to establish a right administration of them. The easiest method for a state, is to give them in farm; and this was the general practice every where, on the first establishment of taxes. But here no general rule can be laid down.

Cumulative taxes are better administred by commissioners, than let out in farm. The operation of levying them is simple; but when they are farmed, the lower classes of the people are apt to be oppressed. When farms are properly established, an open management of them is absolutely requisite: from this new improvements naturally arise, which give to the farm almost every advantage of the management by commissioners. This improvement is, to divide the profits upon the farm between the state and the farmers: a plan put in execution in France not many years ago.

No question whatever appears more difficult to resolve, than that of ascertaining the fund out of which taxes ought to be paid. Through the whole course of this inquiry, I have endeavoured to shew, that the real fund of taxes is the money circulating among the inhabitants, either in consequence of sale, or of payments. In order to expose this question in a new light, I have commented upon two passages of Davenant, where he estimates this fund from the quantity of national consumption.

From this he is led to compute the yearly taxable expence of every man in England at 8l. sterling; when perhaps the circulation of money through the hands of many may not be twenty shillings: whereas, according to my theory, it is these twenty shillings only that can be laid under any taxation whatever.

I thought this method of comparing the result of Davenant’s reasoning with mine, might better serve to support the latter than any other I could contrive.

The last question proposed in this chapter is no more than a hint to shew, that a proportional tax, laid upon meat and drink, is the most proper equivalent for a land-tax; because those who purchase their subsistence with money are, according to the principles of the first book, those who consume that part of the fruits of the earth which is equivalent to the land rent. If this be arbitrarily laid under an imposition, by a pound rate, or otherwise, the proper drawback, if any be allowed, should be from a tax laid upon those who consume that part of the earth’s produce which belongs to the landlords.

I have now concluded this inquiry, according to the plan I at first proposed. It is the fruit of eighteen years close, though agreeable application; interrupted only by many intervals of bad health, and many strokes of adverse fortune.

It never was, till lately, my intention to offer to the public, during my life, what I had composed purely for my own instruction and amusement. But upon comparing my sentiments in several points with those of the generality of my friends, they have been found so widely different, that I was thought in duty bound to my country, to submit them to the criticism of the public.

To this I have the more willingly submitted, as I thereby shall pursue my first intention in taking my pen; which was, to clear up my ideas on this subject. And since I can now draw no farther knowledgeknowledge from my own inquiries, I must expect it from the criticisms of those who may think it worth their while to animadvert upon my notions.