Chap. 2: Revenue Sources

Chapter 2a: The Sources of the Public Revenue of Society

1 The revenue which pays for national defense and supporting the dignity of the chief magistrate may be drawn:

  1. from some fund of the commonwealth, independent of the revenue of the people; or
  2. from the revenue of the people


PART 1 The Funds Which Belong to the Sovereign or Commonwealth

2 The funds which belong to the sovereign must consist in stock or land.

3 The sovereign, like any other owner of stock, may derive a revenue from it:

  • by employing it himself as his profit or
  • by lending it as his interest

4 The revenue of a Mongol or Arab chief consists in profit.

  • It arises from the milk and increase of his own herds which he manages as the principal herdsman of his tribe.
  • Profit makes the principal part of the public revenue of a monarchial state only in this earliest state of civil government.

5 Small republics sometimes derived a big revenue from the profit of mercantile projects.

  • The republic of Hamburgh derived revenue from the profits of a public wine cellar and pharmacy.
    • The state cannot be very great if the sovereign has leisure to be a wine merchant or pharmacist.
  • The profit of a public bank was a source of revenue for bigger countries, as in Hamburg, Venice, and Amsterdam.
    • This kind of revenue was even thought to be not below the attention of a great empire as Great Britain.
  • The ordinary dividend of the Bank of England was 5.5%.
    • Its capital was £10,780,000.
    • Its net annual profit after paying management expences was £592,900.
  • It is pretended that government could borrow this capital at 3% interest.
    • It could make a clear profit of £269,500 a year by taking over the bank’s management.
  • Government management of mercantile projects like this requires orderly, vigilant, and parsimonious administration, like those in Venice and Amsterdam.
    • But the government of England was never famous for good economy.
  • In peacetime, she has been slothful and negligently profuse.
    • This is perhaps natural to monarchies.
  • In wartime, she has been thoughtlessly extravagant.
    • This is common in democracies.
  • It is doubtful that the English government could be safely trusted with bank management.

6 “The post office is properly a mercantile project.”

  • The government pays:
    • to establish the different offices
    • to buy or hire the necessary horses or carriages
  • It is repaid with a large profit by its tax duties.
  • It is perhaps the only mercantile project successfully managed by every government.
  • Its capital is not very big.
  • “There is no mystery in the business.”
  • The returns are certain and immediate.

7 Princes have frequently engaged in many other mercantile projects.

  • Like private persons, they were willing to mend their fortunes by becoming adventurers in common trades.
  • They have rarely succeeded because of the profusion in the affairs of princes.
  • The agents of a prince regard his wealth as inexhaustible.
    • They are careless at:
      • what price they buy and sell
      • the cost of transportation
    • They frequently live with the profusion of princes and sometimes acquire the fortunes of princes.
  • Machiavelli tells us that the agents of Lorenzo of Medicis carried on his trade.
    • Florence was several times obliged to pay the debt caused by their extravagance.
    • He found it convenient to give up being a merchant.
      • It was the business in which his family originally made their fortune.
    • He used what remained of his fortune and the state revenue in projects more suitable to his station.

8 The character of the trader is very incompatible with the character of a sovereign.

  • “If the trading spirit of the English East India Company renders them very bad sovereigns, the spirit of sovereignty seems to have rendered them equally bad traders.”
  • They managed their trade successfully only when they were traders with an original revenue of more than £3 million.
  • Since they became sovereigns, they became bankrupt.
  • As traders, their servants in India considered themselves as the clerks of merchants.
  • As sovereigns, those servants considered themselves as ministers.

9 A state may sometimes derive some of its public revenue from interest and profits.

  • If it has amassed a treasure, it may lend some of that treasure to foreign states or to its own subjects.

10 Berne derives a big revenue by lending some of its treasure to foreign states.

  • It places it in the public funds of the indebted European nations, chiefly of France and England.
  • The security of this revenue must depend on:
    1. The security of those funds and the good faith of the government which manages them
    2. The certainty of peace with the debtor nation
      • In the case of a war, the very first act of a hostile debtor nation might be to forfeit its creditor’s funds.
  • This policy of lending money to foreign states is peculiar to Berne.

11 Hamburgh established a public pawnshop which lends money on pledges at 6% interest.

  • This pawnshop is called Lombard.
  • It affords a revenue to the state, which is pretended at 150,000 crowns.
  • At 54 pence the crown, it amounts to £33,750 sterling.

12 The government of Pennsylvania, without amassing any treasure, invented a method of lending something equivalent to money to its citizens.

  • It advanced paper bills of credit to private people at interest on land security worth double the value.
    • These bills were to be redeemed 15 years after their date.
    • It was transferable like bank notes and declared legal tender within Pennsylvania.
    • It raised a moderate revenue which could defray an annual expence of about £4,500.
      • This was the whole ordinary expence of that frugal and orderly government.
    • Its success depended on three circumstances:
      1. The demand for some other instrument of commerce besides gold and silver money or
        • The demand for such consumable stock which did not require sending out gold and silver money in exchange.
      2. The good credit of the government of Pennsylvania
      3. The moderation of how this method was used
  • The whole value of the paper bills of credit never exceeded the value of gold and silver money necessary for circulation had there been no paper bills of credit.
  • The same method was adopted by other American colonies.
    • But those other colonies were not as moderate.
    • It created much more disorder than convenience.

13 Stock and credit are naturally unstable and perishable.

  • They are unfit to be trusted to bring sure, steady, and permanent revenue to government.
  • No government beyond the shepherd state ever derived most of its public revenue from stock and credit.

Land Tax

14 Land is a fund more naturally stable and permanent.

  • The rent of public lands was the main source of the public revenue of many great nations above the shepherd state.
    • The ancient Greek and Italian republics derived most of the government revenue from the rent of public lands.
    • The ancient European sovereigns for a long time derived their revenue from the rent of the crown lands.

15 War and the preparation for war create most of the expence of all great modern states.

  • But in the ancient Greek and Italian republics, every citizen was a soldier.
  • Each served and prepared himself for service at his own expence.
  • War could not create any big state expence.
  • The rent of a very moderate landed estate might be fully sufficient to defray all the other necessary government expences.

16 In the ancient European monarchies, the manners and customs of the times sufficiently prepared the people for war.

  • When they went to battle, they were maintained at their own expence or at the expence of their immediate lords, without bringing any new charge on the sovereign.
    • Most of the other government expences were very moderate.
    • The administration of justice was a source of revenue.
    • The labour of country people, for three days before and for three days after harvest, was a fund sufficient for building and maintaining all the bridges, highways, and other public works required by the national commerce.
  • In those days, the main expence of the sovereign was in maintaining his own family and household.
    • The officers of his household were then the great officers of state.
    • The lord treasurer received his rents.
    • The lord steward and lord chamberlain looked after the expence of his family.
    • The care of his stables was committed to the lord constable and the lord marshal.
    • His houses were all built as castles.
      • The keepers of those castles were a sort of military governors.
      • They were the only military officers maintained in peacetime.
  • In these circumstances, the rent of a great landed estate might ordinarily defray all the necessary expences of government.

17 In the present state of most civilized European monarchies, the rent of all the lands in the country, managed as if they all belonged to one proprietor, would scarce perhaps amount to the ordinary revenue which they levy on the people even in peacetime.

  • For example, the ordinary revenue of Great Britain is more than £10 million a year which includes what is necessary for:
    • defraying the current year’s expence
    • the interest of the public debts
    • sinking a part of the capital of those debts
  • But the land-tax, at 4 shillings the pound, falls short of £2 million a year.
    • This land-tax is supposed to be 1/5 of the rent of all the land, houses, and the interest of all the capital stock of Great Britain
      • It excludes the part let to the public or employed as farming stock in land cultivation.
  • A very big part of the proceed of this tax comes from house rents and interest.
  • The land-tax of:
    • the city of London at 4 shillings in the pound, amounts to £123,399 6s. 7d.
    • the city of Westminster amounts to £63,092 1s. 5d.
    • the palaces of Whitehall and St. James’s amounts to £30,754 6s. 3d.
  • A certain proportion of the land-tax is in the same manner assessed on all the other cities and towns corporate in the kingdom.
    • It almost all comes from house rents or from the interest of stock.
  • Based on the land tax, the whole revenue from all land and house rents and interest of all capital stock in Great Britain, excluding that part let to the public or employed in land cultivation, does not exceed £10 million a year.
    • This is the ordinary revenue which government levies even in peacetime.
    • This estimate is very much below the real value.
      • Though in several particular counties, it is nearly equal to that average value.
  • The land rent alone, without the house rents and the interest of stock, was estimated at £20 million.
    • I think this estimate was made at random and is inaccurate.
  • If the lands of Great Britain, in the present state of their cultivation, do not generate a rent of more than £20 million a year, they could not afford 1/2 nor 1/4 of that rent if they all belonged to a single proprietor and were managed negligently, expensively, and oppressively by his agents.
  • The crown lands of Great Britain at present do not afford 1/4 of the rent which could be drawn from them if they were private property.
    • If the crown lands were more extensive, they probably would be worse managed.

18 The revenue which the people derive from land is in proportion to the produce of the land, not to the rent.

  • The whole annual produce of the land of every country, except what is reserved for seed, is:
    • annually consumed by the people or
    • exchanged for something consumed by them
  • Whatever keeps down the produce of the land below natural keeps down the people’s revenue more than it keeps down the revenue of the proprietors of land.
  • Land rent is the portion of the produce which belongs to the proprietors.
    • It is scarce anywhere in Great Britain supposed to be more than 1/3 of the whole produce.
  • Assuming the land in a state of cultivation ‘A’ generates a rent of £10 million a year while in another state of cultivation ‘B’ it would generate a rent of £20 million:
    • If the rent was 1/3 of the produce, the proprietor’s revenue in ‘A’ would be less by £10 million a year only.
    • But the people’s revenue in ‘A’ would be less by £30 million a year [the value of the produce], deducting only what would be necessary for seed.
    • The population would be less by what £30 million a year, deducting always the seed, could maintain.

19 Presently, no civilized European state derives most of its public revenue from the rent of state lands.

  • Yet there are still many large tracts of land which belong to the crown of all the great European monarchies.
    • They are generally forest.
    • Such lands are a mere waste and loss in terms of produce and population.
  • In every great European monarchy, the sale of the crown lands would produce a very large sum of money.
    • If this money is used to pay the public debts, it would deliver from mortgage a bigger revenue than what those lands could have have ever afforded to the crown.
  • In countries where highly cultivated lands earn a great rent and commonly sell at 30 years purchase, the uncultivated and low-rented crown lands can be expected to sell at 40-60 years purchase.
    • The crown might immediately enjoy this great revenue redeemed from mortgage.
  • In a few years, it would probably enjoy another revenue.
    • When the crown lands became private property, they became well improved and cultivated after a few years.
    • The increase of their produce would increase the country’s population.
    • It would increase the people’s revenue and consumption.
  • The revenue which the crown derives from the duties and excise would increase with the revenue and consumption of the people.

20 The crown’s revenue from the crown lands appears to cost nothing to individuals.

  • In reality, it costs more to society than any other revenue of the crown.
  • In all cases, it is society’s interest to replace this revenue to the crown with some other equal revenue.
  • Selling those lands to the public is the best way to do this.

21 Lands for pleasure and magnificence such as parks, gardens, public walks, etc. are everywhere causes of expence, not as revenue sources.

  • These are the only lands which should belong to the crown.

22 Public stock and public lands are the two revenue sources belonging to the sovereign.

  • They are improper and insufficient funds for defraying the necessary expence of any great state.
  • What remains of this expence must be defrayed by taxes.
  • The people contribute a part of their own private revenue to make up a public revenue to the sovereign.

Words: 2373

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