An Inquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations Part 38

It is for this reason, that, by obliging a man to create more than he himself consumes, taxation increases the wealth of a nation; so that the flouris.h.i.+ng state of England is a very natural effect of heavy taxation. The misery and poverty of those people who have little or nothing to pay, is equally natural, though it does not astonish one quite so much.

As there is nothing in the world without a bound, and a limit, it is clear, that, in laying it down as a principle, that rent and taxes occasion wealth instead of poverty, it is only to be understood, to a certain extent; that is to say, to the length to which the nature of things will admit of the exertion of man augmenting his industry, but not a step farther.

To ascertain this point would be to solve a most curious problem; observing, that the solution would, in every case, depend on a great variety of particular circ.u.mstances.

Something like a general investigation, however, is possible. It will not be accurate, nor is that wanted, but it may lay the foundation for understanding the matter better at a future period.

In London, rent and taxes are heavier than in any other part of the kingdom, and in Scotland they are less than in any other; yet, the working people, from all parts of the kingdom, come to London, and from the poorest places, in the greatest numbers. Ireland, Scotland, and Wales, are the poor countries, _lightly taxed_, and from them

{189} Acc.u.mulation is sometimes not a pa.s.sion, but arises from necessity; by acc.u.mulation, is meant the increasing the value of the stock you possess, whether it consists of land, cattle, money, or merchandize.

Thus, for example, the Americans are increasing in wealth, from necessity, because their country is becoming better, by being cultivated, in order to produce what is necessary. They cannot have what they want, in the way they wish, without increasing or bettering the property of which they have taken possession.

If they had no more rent and taxes than they have, and if this were not the case, they would remain a poor people. Thus, the inhabitants of Syria, of Egypt, of Arabia Felix, formerly the finest countries in the world, having a property that does not better in their possession, and having scarcely either rent or taxes to pay, remain, from generation to generation, creating little, and consuming what they create.

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people come, perpetually, to pay _heavy taxes_ in London. Yes, but it will be said, in answer, these are poor countries. They are, however, richer than England was in the days of Queen Elizabeth; and, if the nature of things could have admitted of people _changing centuries_, as they _change countries_, the people of the seventeenth century, with light taxes, would have emigrated to the nineteenth century, with all its heavy taxes, just as those Irish and Scotch come to London.

This proves that, even in London, the excess of taxes is not yet such as to create a retrograde effect, and it proves it in a very striking manner.

Though there may, at first sight, appear something ludicrous in the idea of emigrating from the seventeenth to the nineteenth, from the reign of Queen Elizabeth to that of his present majesty, it is a perfectly fair comparison, and will hold good, examine it as much as one will.

The common expression, (and a very significant one it is,) that one part of the country is a century behind another, or twenty years, or fifty years, is exactly the same idea, expressed in other words, for it is a comparison between the changes which a lapse of time makes in one case, and a removal of place in the other. The present times are then better to live in than those of Elizabeth, as London is better than any distant part of the country.

That the ability of the nation to sustain a given burthen, for a certain number of years, is no proof of a permanent ability to support it, must be admitted, even if the same annual resources were to continue; but, that permanent ability becomes much less certain, when we consider that the annual resources are perpetually varying, that, therefore, they have so many uncertain quant.i.ties, that it is impossible to resolve the problem.

As to the effect, with respect to the increasing the burthens of the people, that has been treated under the general head of taxation.

Whether the money goes to pay for a s.h.i.+p of war, a regiment of soldiers, or the interest of loans, makes no difference to him who pays the tax; and, indeed, makes little to the general system of national economy, as, in every case, what is paid to the state is employed on unproductive labourers or idle people. That is to say, it is consumed, and never appears again.

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National debt, then, so far as it increases the taxes of a country, is like any other national expenditure; and, in maintaining unproductive and idle people, it is also the same; but it has, in another point of view, a different effect, and that effect is an advantageous one.

In every nation, the greatest part of the capital is employed, or, as it is called, sunk. Land, houses, machines, merchandize, &c. are the princ.i.p.al employments of capital. As those are transferred from one to another, or as the use or produce of them is paid for, by one to another, money is wanted occasionally; and, if there were no other employments, money must either be lying idle in some persons =sic= hands, till an employment could be found for it, or the possessor of it must begin some enterprise, and sink it himself.

But, when money is thus employed, it is no longer in the power of the proprietor; and, though money may be borrowed on such sort of security, it is slowly, and with difficulty. The expense, the inconveniency =sic=, and time necessary, prevent the lenders of money from lending any for occasional purposes on such sort of security; but when a nation borrows, and the stock is divisible and transferable at will, money can always be realized when it is wanted for any purpose that affords a greater advantage than the stock affords.

{190}

Without this had been one of the effects of national debt, how could the facility of borrowing have increased, {191} as it has done? or how could merchants and individuals raise the sums they now do? {192}

{190} In 1793, 5,000,000 L. was lent to merchants on exchequer-bills.

The property, on which the money was secured, was really merchandize, but the lenders would have nothing to do with the goods; government stepped in, and took the goods as a security, creating a stock transferrable, that represented the same goods, and, as if by magic, the money was found in a moment. I know of no operation so fit for elucidating the advantage of national debt as this.

{191} Borrowing on life rents is bad, for this reason; where there is no employment of this sort, all money is constantly employed in some sort of trade or enterprise that will produce profit, but cannot be realised. Example, Paris, &c.

{192} When money was wanted, in Queen Anne's time, the Chancellor of the Exchequer, (Mr. Montague,) attended by the Lord Mayor and Sheriffs, went about, from shop to shop, to borrow it, much in the way that is occasionally practised by the beadles for a public charity!! Yet England's credit was good, it owed little, the war was popular, and the country rich.

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It must be allowed that one hundred millions, or at least a much smaller sum than our debts amount to now, would have produced this effect, and might answer every purpose of this sort, but there is still a consideration arising from the fluctuations in a stock, when it is small, and also from the number of persons possessed of it. People buy in and sell out with total indifference when the quant.i.ty is great, and the fluctuations small; but, the moment the funds are agitated, whether in rising or falling, money becomes scarce for those who want it for other purposes.

That the number of persons ready to buy and sell must be proportioned, in some degree, to the quant.i.ty of stock, is of itself so evident, that it would be useless to enlarge upon it; but it must be granted that the national debt has long ago pa.s.sed the sum that was necessary to produce this advantage.

We find, then, that the evils attending the increase of debt are greatly counteracted by the debt itself, and that, to a certain amount, it is productive of a very considerable advantage to a trading nation. As those who calculated its ill effects, and foretold the ruin it would bring upon the state, did not take into account those circ.u.mstances, the result of their enquiries was necessarily wrong, in point of time, though the effect of which they spoke is perfectly certain to take place, if the debt continues to increase. Their reasoning may be compared to that of an astronomer, who observed the position of a planet, but, in his calculations, made no allowance for the refraction of the atmosphere, who would therefore err as to the place of the star, but not as to its existence.

Let us now consider the natural consequence, supposing that future increase is prevented by means of the sinking fund established for that purpose. As to the probability of this, it depends on so many circ.u.mstances that are concealed in the womb of time, that it would be madness to give any other than a hypothetical solution of the question.

If the war continues, and expenses increase nearly as they have hitherto done, great as is the operation of a sinking fund, it will not have time to counteract the evil. If the war stops soon, it will dim- [end of page #240] inish the debt with a most prodigious rapidity, {193} if it continues; the question, whether taxes can be found to pay the interest or not? can only be answered as a matter of opinion, which is, in a case of this sort, equivalent to no answer at all.

With respect to the supposed case of the debt augmenting, the observations that apply to that have been made already; they now only remain to be made with respect to the debt being paid off.

It has been observed already, in the chapter on Taxation, that the case of taxes being taken off to a great amount would be a new one of sudden and hurtful operation. Wages of labour would be diminished, as well as the burthens on those who live on settled income; it would therefore render people of fixed income more affluent, without giving ease to those who want it; in short, as the augmentation of taxes falls most on people with fixed incomes, so the advantages of this would princ.i.p.ally be felt by them; and, as the baneful operation carries a sort of counteracting antidote with it, so, likewise, this beneficial operation would be attended with some drawback and inconveniency =sic=.

The diminution of taxes, though the ultimate is not, however, the immediate consequence of the operation of the sinking fund, the efficacy of which depends on the taxes being kept up to their full extent for a considerable time. =sic= The first effect of the fund is, that a large sum, annually expended, as revenue drawn from the subject, is reimbursed to the stockholders, and becomes capital.

This would immediately raise the funds, and thereby would counteract the sinking fund itself in a very material degree. Money would become abundant for all the purposes of trade, and it would be difficult

{193} A sort of ridicule has been thrown on the operation of compound interest, because its effects are so amazing as not to be capable of being realized; but, on this subject, two things are to be said,--first of all, it has never been to the operation during the first hundred years that either incredulity or ridicule have applied, and the sinking fund was never meant to continue to operate so long.

Secondly, though there are many drawbacks on the employment of large sums laid out at interest, that diminish, and would at last destroy, the result of the calculation in acc.u.mulating; it is not so in paying off debt, where the effect calculated is produced with the greatest certainty.

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to find employment for it; and, if the progress continued, part of it would most undoubtedly be sent to other countries, and so be the means of impoveris.h.i.+ng this.

If, then, we could suppose fifty years of peace, and that the national debt could be paid off, (as it might be in that time,) the situation of productive labourers would be worse; of unproductive, better; and, finally, capital would leave the country, which would be deprived of that transferable stock, the beneficial effects of which have been mentioned.

The necessity that creates industry would be diminished, so that nothing could tend more effectually to bring on the decline of the nation than if all the debt were to be paid off; an operation which, though possible in calculation, never certainly would take place; the evils attending it would be so manifest, so clear, and so palpably felt before that was accomplished.

To let the national debt continue to increase is, then, certain ruin, at some period unknown, but perhaps not very distant; to pay it off would be equally dangerous: what then are we to do?

We must try to raise the resources necessary for war within the year, by which means we may avoid augmenting the debt. That is not, however, to be done while the present heavy interest remains, and that cannot be got rid of, according to any method yet publicly known, without bankruptcy, breaking faith with creditors, or paying off the debt; a resource in itself dangerous, and one that, after all, would bring relief at a very distant day.

Since the debt has been contracted, let it be kept up; but let a mode be taken of reducing the interest, without breaking faith with the creditors of the state, so that we may never be obliged to borrow any more.

At present, the sum that goes annually for interest, and for the sinking fund, (that is for paying off capital,) amounts to twenty-four millions, and the expenses of a year of war do not exceed that sum. Twelve millions of this may be found by war-taxes, and twelve millions diminution of the interest would just leave a residue sufficient to pay for a constant state of war; and, if peace came, the war-taxes would be taken off. The enemies of England would then not be able to make notches [end of page #242] in a stick, and say, "When we come to such a notch England will be ruined."

If this could be done it would be a solid and permanent system of revenue, arising out of an unsolid and transitory one.

Any thing like want of faith with the creditors would, however, not only be disgraceful and dishonourable, but would reduce such numbers to beggary, and ruin credit so completely, that the nation would be lost for ever; and, certainly, if we are to be ruined, there is no balancing between ruin with honour and ruin with disgrace.

There is a mode that would be fair and practicable, and the present is the most favourable moment for executing it; indeed, it is perhaps the only one when it has been practicable or would be just. By practicability and justice, two words very well understood, we mean, in this instance, that it is a moment when those who would have to pay the difference would be willing to do it, would see their interest in doing it, and would feel that they ought to do it.

We mean not to propose any of those imaginary means, by which debts will be paid off without burthens laid on. We have no talent for schemes, where all is produced from nothing, and no faith in their practicability.