Chap 3c: Capital Stock

54 Land and capital stock are the two original sources of all private and public revenue.

  • Capital stock pays the wages of productive labour, whether employed in agriculture, manufactures, or commerce.
  • The management of those two original sources of revenue belong to two sets of people:
    • the proprietors of land
    • the owners or employers of capital stock

55 The proprietor of land is interested to keep his estate in as good condition as he can, for the sake of his own revenue.

  • He does this by:
    • building and repairing his tenants’ houses
    • making and maintaining the necessary drains and enclosures and all those other expensive improvements
  • These all properly belong to the landlord to make and maintain.
    • The landlord might be unable to make or maintain expensive land improvements when:
      • land taxes very much reduce his revenue
      • sales taxes on necessities and conveniences render his reduced revenue of so little real value
  • When the landlord stops doing his part, it is impossible that the tenant should continue his.
    • As the landlord’s distress increases, the country’s agriculture must necessarily decline.

56 Merchants and manufacturers are the owners of the greatest capitals.

  • They will be disposed to remove their capitals when, by sales taxes on commodities, they find that their revenue from their commodities is less than other revenues.
  • When they are continually exposed to the mortifying and vexatious visits of the tax-gatherers to get more taxes, this will turn to an actual removal.
  • The country’s industry will necessarily fall with the removal of the capital which supported it.
  • The ruin of trade and manufactures will follow the decline of agriculture.

57 The original owners of land and capital stock are the people most interested in the good management of those two revenue sources.

  • The neglect of land and the waste of capital stock can be caused in the long run by transferring their ownership to another set of persons, such as the public creditors.
    • These people have no such interest.
      • A public creditor has a general interest in the prosperity of the agriculture, manufactures, commerce, lands, and capital stock of the country.
        • Should there be any failure in any of these things, the proceeds of the taxes might be insufficient to pay him his annuity or interest.
      • But a public creditor has no interest in the good management of any specific land or capital stock.
        • He has no knowledge of any such specifics.
        • He does not inspect it and does not care about it.
        • Its ruin might be unknown to him and cannot directly affect him.

58 The practice of funding has gradually enfeebled every state which has adopted it.

  • The Italian republics seem to have begun it.
    • Genoa and Venice are the only two remaining which can pretend to be independent.
      • They have both been enfeebled by it.
  • Spain seems to have learned perpetual funding from the Italian republics.
    • Its taxes were probably less judicious than theirs.
      • Spain has been more enfeebled, in proportion to its natural strength.
    • The debts of Spain are very old.
      • It was deeply in debt before the end of the 16th century, about 100 years before England owed a shilling.
  • France, despite its natural resources, languishes under the same kind of oppressive load.
  • The republic of the United Provinces is as much enfeebled by its debts as Genoa or Venice.
  • Is it likely that a practice which brought weakness or desolation to other countries should prove innocent in Great Britain alone?

59 I believe that the tax system established in those countries is inferior to that of England.

  • But we should remember that when the wisest government has exhausted all the proper subjects of taxation, it must resort to improper ones in cases of urgent necessity,
    • The wise republic of Holland was sometimes obliged to levy taxes as inconvenient as those of Spain.
  • If another, more expensive war begins before the public revenue could be much liberated, the British tax system would be rendered as oppressive as that of Holland or Spain.
  • To the honour of our present tax system, it has given very little embarrassment to industry.
    • During the most expensive wars, the frugality and good conduct of people were able, by saving and accumulation, to repair all the breaches which the waste and extravagance of government did to the society’s general capital.
  • The most recent war was the most expensive Great Britain ever waged.
    • At the end of it, British agriculture was as flourishing, her manufacturers as numerous and as fully employed, and her commerce as extensive as before.
      • The capital which supported all those industries must have been equal to what it was before.
    • Since the peace:
      • agriculture was still further improved
      • house rents have risen
        • It is a proof of the people’s increasing wealth and revenue.
      • the annual amount of most of the old taxes, particularly the excise and customs, has been continually increasing.
        • It is an equally clear proof of an increasing consumption.
        • It is proof of an increasing produce for that consumption.
  • Great Britain seems to easily support a burden which everyone thought she could not support 50 years ago.
    • Let us not rashly conclude that she is capable of supporting any burden.
    • Let us not be too confident that she can support, without great distress, a little more burden than what she already has.

60 When national debts have been accumulated to a certain degree, there has never been a single instance of them being fairly and completely paid.

  • The public revenue is liberated by bankruptcy or, frequently, by a pretended payment.

Money Adulteration and Augmentation

61 The raising of the coin’s denomination has been the most usual way a real public bankruptcy is disguised under the appearance of a pretended payment.

  • For example, if an Act of Parliament or Royal Proclamation doubled the denomination of a coin, the person who borrowed a coin worth four ounces of silver in the old denomination, would pay it back with a new coin worth only half that value, or two ounces of silver.
    • The capital of the funded and unfunded debt of Great Britain is about £128 million.
      • In this way, it might be paid with about £64 million of our present money.
        • It would be a pretended payment only.
        • Its creditors would really be defrauded of half of what was due to them.
        • The calamity would also extend much further beyond those creditors.
          • Every private person would suffer a proportional loss without any advantage.
        • In most cases, it would bring a great additional loss to those creditors.
    • If the creditors of the public debt were in debt, they might compensate their loss by paying their own creditors in the same coin paid to them.
      • But in most countries, most of the creditors of the public debt are wealthy people.
        • They are creditors for their fellow-citizens, more than debtors.
      • In most cases, a pretended payment of this kind aggravates the loss of those creditors instead of alleviating it.
        • It extends the calamity to many other innocent people, without any advantage to the public.
        • It causes a general and most pernicious subversion of the fortunes of private people.
      • In most cases, it enriches the idle and profuse debtor at the expence of the industrious and frugal creditor.
      • It transports much of the national capital from people likely to increase and improve it to those who are likely to dissipate and destroy it.
  • When it becomes necessary for a state to declare itself bankrupt, in the same way as that for an individual, a fair, open, and avowed bankruptcy is always least dishonourable to the debtor and least hurtful to the creditor.
    • The state’s honour is surely very poorly provided for when it must do this juggling trick to cover the disgrace of a real bankruptcy.
    • This trick is so easily seen through and so extremely pernicious.

62 Almost all ancient and modern states have sometimes played this very juggling trick when needed.

  • The As is the coin by which the Romans computed the value of all their other coins.
  • At the end of the first Punic war, they reduced the As from containing 12 ounces of copper to only 2 ounces.
    • They raised 2 ounces of copper to a denomination which before expressed the value of 12 ounces.
  • In this way, the republic was able to pay its great debts with 1/6 of what it really owed.
    • We imagine that this sudden and great bankruptcy must have caused a very violent popular clamour.
    • It does not appear to have caused any.
    • The law which enacted it was, like all other laws relating to the coin, introduced by a tribune.
      • It was probably a very popular law.
  • In Rome and all ancient republics, the poor were constantly in debt to the rich.
    • The rich used to lend money to the poor at exorbitant interest to secure their votes at the annual elections.
    • These debts were never paid and soon accumulated to be too great for the debtor or anyone else to pay.
    • The debtor was obliged, without any further gratuity, to vote for the candidate the creditor recommended, for fear of a very severe execution.
  • In spite of all the laws against bribery and corruption, the principal funds of the poor for their subsistence were:
    • the bounty of the candidates
    • the occasional distributions of corn ordered by the senate
  • To free themselves from their creditors, the poorer citizens continually called out for New Tables or to abolish debts.
    • New Tables is a law which entitles them to a complete acquittance on paying only a certain proportion of their accumulated debts.
  • The law which reduced all coins to 1/6 of their former value enabled them to pay their debts with 1/6 of what they really owed.
    • It was equivalent to the most advantageous New Tables.
  • The rich were obliged to consent to laws for abolishing debts and for introducing New Tables to satisfy the people.
    • They probably also consented to this law to liberate the public revenue partly to restore the vigour to that government, which they themselves directed.
    • This operation would immediately reduce a debt of £128 million to £21,333,333 6 shillings and 8-pence.
  • During the second Punic war, the As was still further reduced.
    1. From two ounces of copper to one ounce.
    2. Afterwards, from one ounce to half an ounce or to 1/24 of its original value.
  • By combining the three Roman operations into one, a debt of £128 millions of our present money might in this way be reduced all at once to £5,333,333 6 shillings and 8-pence.
    • Even the enormous debts of Great Britain might soon be paid in this manner.

63 Through such expedients, the coin of all nations has been gradually reduced below its original value.

  • The same nominal sum has been gradually brought to contain a fewer silver.

64 For the same purpose, nations have sometimes adulterated the standard of their coin by mixing more alloy in it.

  • For example, if 249 grams of alloy was added in every 373 grams of our silver coin, instead of the present standard of 28 grams of alloy, 240 pence of such coin would be worth little more than 80 pence of our present money. [((373-249)/373)/((373-28)/373) or 36%]
  • The value of the amount of silver in 80 pence of our present money would be raised to the denomination of 240 pence.
  • The adulteration of the standard has exactly the same effect with what the French call an augmentation, or a direct raising of the coin’s denomination.

65 An augmentation or a direct raising of the coin, always is an open and avowed operation.

  • It makes pieces of a smaller weight and bulk to be called by the same name which before were given to pieces of more weight and bulk.
  • On the contrary, the adulteration of the standard was generally a concealed operation.
    • It gives the same denomination, weight, bulk, and appearance to less valuable pieces from the mint with pieces which before were of much greater value.
    • When King John of France adulterated his coin to pay his debts, all the mint’s officers were sworn to secrecy.
  • Both operations are unjust.
    • But a simple augmentation is an injustice of open violence, whereas the adulteration is an injustice of treacherous fraud.
  • This adulteration could never be concealed very long.
    • As soon as it has been discovered, it has always excited much greater indignation than adulteration.
  • The coin after any big augmentation has very seldom been brought back to its former weight.
    • But after the greater adulterations, it has almost always been brought back to its former fineness.
    • The people’s fury and indignation could not be otherwise be appeased.

66 In the end of the reign of Henry VIII. and in the beginning of that of Edward VI, the English coin was raised in its denomination and adulterated in its standard.

  • The like frauds were practised in Scotland during the minority of James VI.
  • They have occasionally been practised in most other countries.

67 Great Britain’s public revenue can never be completely liberated while its surplus revenue is so very small.

  • That liberation can only come through:
    • some very big increase of the public revenue, or
    • some equally big reduction of the public expence

Smith’s Utopia

68 The revenue might be very much increased without increasing the burden on most of the people through:

  • a more equal land-tax
  • a more equal tax on house rents
  • alterations in the current customs and excise system, as those mentioned Chapter 2

It would only distribute the burden more equally on all.

  • This increase would not totally liberate the public revenue or even totally compensate the further accumulation of the public debt in the next war.

69 A much bigger revenue increase might be expected by extending the British tax system to all the empire’s provinces inhabited by people of British or European descent.

  • This perhaps could only be done by admitting a fair and equal representation of all those different provinces into the British Parliament, consistent with the principles of the British constitution.
    • The representation of each province would be in proportion to the proceeds of its taxes in the same way as British representation is proportional to the proceeds of the taxes levied on Great Britain.
  • So great a change is presently opposed by:
    • the private interest of many powerful individuals
    • the confirmed prejudices of the people
  • These are obstacles which may be very difficult or impossible to surmount.
  • Without pretending to determine whether such a union be practical or not, it might be proper to consider:
    • how far the British tax system might be applicable to all the provinces of the empire
    • what revenue might be expected from it if so applied
    • how this kind of general union might affect the happiness and prosperity of those provinces.
  • At worst, such a speculation can be regarded as a new Utopia.
    • It is less amusing but not more useless and chimerical than the old one.

70 The four principal branches of the British taxes are:

  1. land-tax
  2. stamp-duties
  3. customs duties
  4. excise duties

Land-Tax on the Empire

71 Ireland is certainly as able to pay a land-tax as Great Britain.

  • Our American and West Indian plantations are more able to pay a land-tax than Great Britain.
  • Where the landlord is not subject to tithe nor poor-rate, he is more able to pay the land tax.
  • The tithe, where there is no modus, and where it is levied in kind, reduces more what would otherwise be the landlord’s rent than a land-tax of really 5 shillings in the pound.
    • Such a tithe will be found in most cases to be more than 1/4 of the real rent of the land.
  • If all moduses and all impropriations were removed, the complete church tithe of Great Britain and Ireland could not be less than £6-7 million.
  • If there were no tithe in Great Britain or Ireland, the landlords could afford to pay £6-7 million additional land-tax without being more burdened than at present.
  • America pays no tithe and could therefore very well afford to pay a land-tax.
    • The lands in America and the West Indies are in general not tenanted nor leased out to farmers.
      • They could not therefore be assessed according to any rent-roll.
    • The lands of Great Britain, in the 4th of William and Mary, also could not be assessed according to any rent-roll.
      • They were assessed according to a very loose and inaccurate estimation.
    • The lands in America might be assessed according to:
      • a very inaccurate estimations
      • an equitable valuation from an accurate survey made in Milan, Austria, Prussia, and Sardinia.

Stamp and Customs Duties on the Empire

72 Stamp-duties might be levied without any variation in all countries where the following are nearly the same:

  • the forms in the law process
  • the deeds which transfer real and personal property

73 The extension of the custom-house laws of Great Britain to Ireland and the plantations would be the most advantageous to both provided it was accompanied with an extension of the freedom of trade, as in justice it should be.

  • All the invidious restraints which presently oppress the trade of Ireland and distinguish American enumerated and non-enumerated commodities would entirely end.
  • The countries north of Cape Finisterre would be as open to American produce as countries south of that Cape are to some American produce at present.
  • Because of this uniformity in the custom-house laws, the trade between all the parts of the British empire would be as free as its present coasting trade.
  • The British empire would thus afford within itself an immense internal market for the produce of all its provinces.
  • This great extension of market would soon compensate Ireland and the plantations all that they could suffer from the increase of the customs duties.

Excise Taxes on the Empire

74 Only the excise would vary in its application in the empire’s different provinces.

  • It might be applied to Ireland without any variation because the produce and consumption of Ireland is exactly of the same nature with Great Britain’s.
  • The produce and consumption of America and the West Indies is so very different from those of Great Britain.
    • The application of excise in those countries would require some modification in the same way as in its application to England’s cyder and beer counties.

75 American beer is made from molasses and is different from British beer.

  • It makes a big part of the common drink of the Americans.
  • Unlike British beer:
    • it can be kept only for a few days
    • it cannot be prepared and stored up for sale in big breweries
      • Every private family must brew it for their own use in the same way they cook their own food.
      • Subjecting every private family to the odious visits and examination of tax-gatherers, in the same way we subject alehouses and public breweries, would be inconsistent with liberty.
  • If it were necessary to tax American beer for the sake of equality, it might be taxed by:
    • taxing its raw materials at the place of manufacture, or
    • laying a duty on the importation of its raw materials into the colony where it would be consumed
  • If neither of these methods was found convenient, the following could be adopted:
    • Each family might compound for its consumption of this liquor according to:
      • the number of persons in the family, in the same way as private families compound for the malt-tax in England, or
      • according to the different ages and sexes of those persons, in the same way as taxes are levied in Holland, or
      • Sir Matthew Decker proposal, that all taxes on consumable commodities should be levied in England.
        • I have shown that this mode of taxation not very convenient when applied to goods of speedy consumption, but it is still better than nothing.
  • Besides the duty of 1 penny a gallon imposed by the British Parliament on molasses importation of into America, there is:
    • a provincial tax of 8-pence the hogshead on their importation into Massachusetts Bay in ships from any other colony
    • another tax of 5-pence the gallon on their importation from the northern colonies into South Carolina

76 Sugar, rum, and tobacco are not necessities.

  • They are therefore extremely proper subjects of taxation.
  • If a union with the colonies were to take place, those commodities might be taxed:
    • before they leave the manufacturer or grower, or
    • before they are delivered to the consumer, merchant retailer, or merchant exporter
      • Those commodities would be deposited in public warehouses at the place of manufacture and at all their ports of destination.
      • They will remain there under the joint custody of the owner and the revenue officer until they were to be sent out to the consumer, retailer, or exporter.
      • Those commodities would go duty free when sent out for exportation after proper security is given that they will really be exported.
  • These are perhaps the main commodities to require a big change in the present British tax system after a union with the colonies.

77 It is impossible to exactly ascertain what might be the revenue which this tax system on all the colonies might produce.

  • By means of this system, more than £10 million of revenue is annually levied in Great Britain on less than 8 million people.
    • Ireland has more than 2 million people.
    • The 12 American provinces contain more than 3 million people.
      • Those accounts might have been exaggerated to:
        • encourage their own people, or
        • intimidate the people of Great Britain
    • We shall suppose that our North American and West Indian colonies together have no more than 3 million people.
    • The whole British empire in Europe and America contains no more than 13 million people.
  • If this tax system raises a revenue of more than £10 million on less than 8 million people, it should raise a revenue of more than £16,250,000 on 13 million people [13 * 1.25]).
    • Supposing that this system could produce this amount, the revenue raised in Ireland and the plantations for defraying the cost of their respective civil governments must be deducted from this revenue.
  • The cost of the civil and military establishment of Ireland, together with the interest of the public debt, amounts to less than £750,000 a year.
    • This is the average of the two years which ended March 1775.
  • Before the start of the present disturbances, the revenue of the principal colonies of America and the West Indies amounted to £141,800.
    • In this account, the revenue of Maryland, North Carolina, and all our recent acquisitions is omitted.
    • We may estimate it to be between £30-40,000.
  • For the sake of even numbers, let us suppose that the revenue necessary for supporting the civil government of Ireland and the plantations was £1 million.
    • There would remain a revenue of £15,250,000 for:
      • defraying the general expence of the empire
      • paying the public debt
  • But if £1 million could spared in peacetime from Great Britain’s present revenue, £6,250,000 could very well be spared from this improved revenue to pay that debt.
    • This great sinking fund, too, might be increased every year by the interest of the debt which had been discharged the year before.
    • In this way, the sinking fund might increase very rapidly.
      • In a few years, it would be sufficient to:
        • discharge the whole debt
        • completely restore the empire’s current debilitated and languishing vigour
      • The people might be relieved from some of the most burdensome taxes.
        • The labouring poor would thus be enabled to:
          • live better
          • work cheaper
          • send their goods cheaper to market
            • The cheapness of their goods would increase the demand:
              • for them
              • consequently, for the labour that produced them
                • This increase in the demand for labour would:
                  • increase the population of the labouring poor
                  • improve their circumstances
                • Their consumption would increase and with it, the tax revenue arising from their consumption.

78 The revenue from this tax system might not immediately increase in proportion to the population size subjected to it.

  • For some time, great indulgence would be due to those provinces which were subjected to burdens they were not accustomed to.
    • Even when the same taxes were levied as exactly as possible everywhere, they would not produce a revenue proportional to the population size.
  • In a poor country, the consumption of the principal commodities subject to customs duties and excise is very small.
    • In a thinly inhabited country, smuggling opportunities are very great.
  • The consumption of malt liquors among the lower class in Scotland is very small.
    • The excise on malt, beer, and ale there produces less than in England in proportion to:
      • the population
      • the rate of the duties
        • The duty on malt is different because of a supposed difference of quality.
  • In these particular branches of the excise, there is not much more smuggling in the one country than in the other.
  • The duties on the distillery and more of the customs duties produce less in Scotland than in England, in proportion to the population, because of:
    • the smaller consumption of the taxed commodities
    • greater smuggling
  • In Ireland, the lower class is still poorer than in Scotland.
    • It is almost as thinly inhabited.
    • In Ireland, therefore, the consumption of the taxed commodities might be still less than Scotland,in proportion to its population size.
      • Smuggling is nearly the same.
  • In America and the West Indies, the lowest class of white people are in much better circumstances than the lowest class in England.
    • Their consumption of all their usual luxuries is probably much greater.
  • The blacks who make most of the southern colonies and those of the West India islands are slaves.
    • They are in a worse condition than the poorest people in Scotland or Ireland.
    • We must not on that account, imagine that:
      • they are worse fed, or
      • their consumption of articles subjected to moderate duties is less than that of the English lower class
    • In order that they may work well, their master’s interest is to feed them well and keep them in good heart in the same way as his working cattle.
    • Almost everywhere, the blacks accordingly have their allowance of rum and molasses or spruce beer in the same manner as the white servants.
      • This allowance would probably not be withdrawn though those articles should be subjected to moderate duties.
  • The consumption of the taxed commodities, relative to the population size, would probably be as great in America and the West Indies as in any part of the British empire.
    • The opportunities of smuggling would be much greater because America is much less populated than Scotland or Ireland, relative to its area.
  • Smuggling opportunities in the most important branch of the excise can be almost entirely removed if the revenue presently raised by the malt and malt liquor duties were levied by a single malt duty.
  • Smuggling opportunities would be very much reduced if:
    • the customs duties were confined to a few of the articles of the most general use and consumption, instead of being imposed on almost all the articles of importation
    • the levying of those duties were subjected to the excise laws
  • Because of those two very simple and easy alterations, the customs duties and excise might probably produce a revenue as great relative to the consumption of the least and most populated provinces, as they do at present.

Words: 4463

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