An Inquiry into the Nature and Causes of the Wealth of Nations
Adam Smith

Part 18 out of 19

parsimonious less, than their proper proportion. During the minority
of a man of great fortune, he contributes commonly very little, by his
consumption, towards the support of that state from whose protection
he derives a great revenue. Those who live in another country,
contribute nothing by their consumption towards the support of the
government of that country, in which is situated the source of their
revenue. If in this latter country there should be no land tax, nor
any considerable duty upon the transference either of moveable or
immoveable property, as is the case in Ireland, such absentees may
derive a great revenue from the protection of a government, to the
support of which they do not contribute a single shilling. This
inequality is likely to be greatest in a country of which the
government is, in some respects, subordinate and dependant upon that
of some other. The people who possess the most extensive property in
the dependant, will, in this case, generally chuse to live in the
governing country. Ireland is precisely in this situation; and we
cannot therefore wonder, that the proposal of a tax upon absentees
should be so very popular in that country. It might, perhaps, be a
little difficult to ascertain either what sort, or what degree of
absence, would subject a man to be taxed as an absentee, or at what
precise time the tax should either begin or end. If you except,
however, this very peculiar situation, any inequality in the
contribution of individuals which can arise from such taxes, is much
more than compensated by the very circumstance which occasions that
inequality; the circumstance that every man's contribution is
altogether voluntary; it being altogether in his power, either to
consume, or not to consume, the commodity taxed. Where such taxes,
therefore, are properly assessed, and upon proper commodities, they
are paid with less grumbling than any other. When they are advanced by
the merchant or manufacturer, the consumer, who finally pays them,
soon comes to confound them with the price of the commodities, and
almost forgets that he pays any tax.

Such taxes are, or may be, perfectly certain; or may be assessed, so
as to leave no doubt concerning either what ought to be paid, or when
it ought to be paid; concerning either the quantity or the time of
payment. What ever uncertainty there may sometimes be, either in the
duties of customs in Great Britain, or in other duties of the same
kind in other countries, it cannot arise from the nature of those
duties, but from the inaccurate or unskilful manner in which the law
that imposes them is expressed.

Taxes upon luxuries generally are, and always may be, paid piece-meal,
or in proportion as the contributors have occasion to purchase the
goods upon which they are imposed. In the time and mode of payment,
they are, or may be, of all taxes the most convenient. Upon the whole,
such taxes, therefore, are perhaps as agreeable to the three first of
the four general maxims concerning taxation, as any other. They offend
in every respect against the fourth.

Such taxes, in proportion to what they bring into the public treasury
of the state, always take out, or keep out, of the pockets of the
people, more than almost any other taxes. They seem to do this in all
the four different ways in which it is possible to do it.

First, the levying of such taxes, even when imposed in the most
judicious manner, requires a great number of custom-house and excise
officers, whose salaries and perquisites are a real tax upon the
people, which brings nothing into the treasury of the state. This
expense, however, it must be acknowledged, is more moderate in Great
Britain than in most other countries. In the year which ended on the
5th of July, 1775, the gross produce of the different duties, under
the management of the commissioners of excise in England, amounted to
5,507,308:18:8, which was levied at an expense of little more than
five and a-half per cent. From this gross produce, however, there must
be deducted what was paid away in bounties and drawbacks upon the
exportation of exciseable goods, which will reduce the neat produce
below five millions. {The neat produce of that year, after deducting
all expenses and allowances, amounted to 4,975,652:19:6.} The levying
of the salt duty, and excise duty, but under a different management,
is much more expensive. The neat revenue of the customs does not
amount to two millions and a-half, which is levied at an expense of
more than ten per cent., in the salaries of officers and other
incidents. But the perquisites of custom-house officers are everywhere
much greater than their salaries; at some ports more than double or
triple those salaries. If the salaries of officers, and other
incidents, therefore, amount to more than ten per cent. upon the neat
revenue of the customs, the whole expense of levying that revenue may
amount, in salaries and perquisites together, to more than twenty or
thirty per cent. The officers of excise receive few or no perquisites;
and the administration of that branch of the revenue being of more
recent establishment, is in general less corrupted than that of the
customs, into which length of time has introduced and authorised many
abuses. By charging upon malt the whole revenue which is at present
levied by the different duties upon malt and malt liquors, a saving,
it is supposed, of more than 50,000, might be made in the annual
expense of the excise. By confining the duties of customs to a few
sorts of goods, and by levying those duties according to the excise
laws, a much greater saving might probably be made in the annual
expense of the customs.

Secondly, such taxes necessarily occasion some obstruction or
discouragement to certain branches of industry. As they always raise
the price of the commodity taxed, they so far discourage its
consumption, and consequently its production. If it is a commodity of
home growth or manufacture, less labour comes to be employed in
raising and producing it. If it is a foreign commodity of which the
tax increases in this manner the price, the commodities of the same
kind which are made at home may thereby, indeed, gain some advantage
in the home market, and a greater quantity of domestic industry may
thereby be turned toward preparing them. But though this rise of price
in a foreign commodity, may encourage domestic industry in one
particular branch, it necessarily discourages that industry in almost
every other. The dearer the Birmingham manufacturer buys his foreign
wine, the cheaper he necessarily sells that part of his hardware with
which, or, what comes to the same thing, with the price of which, he
buys it. That part of his hardware, therefore, becomes of less value
to him, and he has less encouragement to work at it. The dearer the
consumers in one country pay for the surplus produce of another, the
cheaper they necessarily sell that part of their own surplus produce
with which, or, what comes to the same thing, with the price of which,
they buy it. That part of their own surplus produce becomes of less
value to them, and they have less encouragement to increase its
quantity. All taxes upon consumable commodities, therefore, tend to
reduce the quantity of productive labour below what it otherwise would
be, either in preparing the commodities taxed, if they are home
commodities, or in preparing those with which they are purchased, if
they are foreign commodities. Such taxes, too, always alter, more or
less, the natural direction of national industry, and turn it into a
channel always different from, and generally less advantageous, than
that in which it would have run of its own accord.

Thirdly, the hope of evading such taxes by smuggling, gives frequent
occasion to forfeitures and other penalties, which entirely ruin the
smuggler; a person who, though no doubt highly blameable for violating
the laws of his country, is frequently incapable of violating those of
natural justice, and would have been, in every respect, an excellent
citizen, had not the laws of his country made that a crime which
nature never meant to be so. In those corrupted governments, where
there is at least a general suspicion of much unnecessary expense, and
great misapplication of the public revenue, the laws which guard it
are little respected. Not many people are scrupulous about smuggling,
when, without perjury, they can find an easy and safe opportunity of
doing so. To pretend to have any scruple about buying smuggled goods,
though a manifest encouragement to the violation of the revenue laws,
and to the perjury which almost always attends it, would, in most
countries, be regarded as one of those pedantic pieces of hypocrisy
which, instead of gaining credit with anybody, serve only to expose
the person who affects to practise them to the suspicion of being a
greater knave than most of his neighbours. By this indulgence of the
public, the smuggler is often encouraged to continue a trade, which he
is thus taught to consider as in some measure innocent; and when the
severity of the revenue laws is ready to fall upon him, he is
frequently disposed to defend with violence, what he has been
accustomed to regard as his just property. From being at first,
perhaps, rather imprudent than criminal, he at last too often becomes
one of the hardiest and most determined violators of the laws of
society. By the ruin of the smuggler, his capital, which had before
been employed in maintaining productive labour, is absorbed either in
the revenue of the state, or in that of the revenue officer; and is
employed in maintaining unproductive, to the diminution of the general
capital of the society, and of the useful industry which it might
otherwise have maintained.

Fourthly, such taxes, by subjecting at least the dealers in the taxed
commodities, to the frequent visits and odious examination of the
tax-gatherers, expose them sometimes, no doubt, to some degree of
oppression, and always to much trouble and vexation; and though
vexation, as has already been said, is not strictly speaking expense,
it is certainly equivalent to the expense at which every man would be
willing to redeem himself from it. The laws of excise, though more
effectual for the purpose for which they were instituted, are, in this
respect, more vexatious than those of the customs. When a merchant has
imported goods subject to certain duties of customs; when he has paid
those duties, and lodged the goods in his warehouse; he is not, in
most cases, liable to any further trouble or vexation from the
custom-house officer. It is otherwise with goods subject to duties of
excise. The dealers have no respite from the continual visits and
examination of the excise officers. The duties of excise are, upon
this account, more unpopular than those of the customs; and so are the
officers who levy them. Those officers, it is pretended, though in
general, perhaps, they do their duty fully as well as those of the
customs; yet, as that duty obliges them to be frequently very
troublesome to some of their neighbours, commonly contract a certain
hardness of character, which the others frequently have not. This
observation, however, may very probably be the mere suggestion of
fraudulent dealers, whose smuggling is either prevented or detected by
their diligence.

The inconveniencies, however, which are, perhaps, in some degree
inseparable from taxes upon consumable communities, fall as light upon
the people of Great Britain as upon those of any other country of
which the government is nearly as expensive. Our state is not perfect,
and might be mended; but it is as good, or better, than that of most
of our neighbours.

In consequence of the notion, that duties upon consumable goods were
taxes upon the profits of merchants, those duties have, in some
countries, been repeated upon every successive sale of the goods. If
the profits of the merchant-importer or merchant-manufacturer were
taxed, equality seemed to require that those of all the middle buyers,
who intervened between either of them and the consumer, should
likewise be taxed. The famous alcavala of Spain seems to have been
established upon this principle. It was at first a tax of ten per
cent. afterwards of fourteen per cent. and it is at present only six
per cent. upon the sale of every sort of property whether moveable or
immoveable; and it is repeated every time the property is
sold. {Memoires concernant les Droits, etc. tom. i, p. 15} The levying
of this tax requires a multitude of revenue officers, sufficient to
guard the transportation of goods, not only from one province to
another, but from one shop to another. It subjects, not only the
dealers in some sorts of goods, but those in all sorts, every farmer,
every manufacturer, every merchant and shopkeeper, to the continual
visit and examination of the tax-gatherers. Through the greater part
of the country in which a tax of this kind is established, nothing can
be produced for distant sale. The produce of every part of the country
must be proportioned to the consumption of the neighbourhood. It is to
the alcavala, accordingly, that Ustaritz imputes the ruin of the
manufactures of Spain. He might have imputed to it, likewise, the
declension of agriculture, it being imposed not only upon
manufactures, but upon the rude produce of the land.

In the kingdom of Naples, there is a similar tax of three per cent.
upon the value of all contracts, and consequently upon that of all
contracts of sale. It is both lighter than the Spanish tax, and the
greater part of towns and parishes are allowed to pay a composition in
lieu of it. They levy this composition in what manner they please,
generally in a way that gives no interruption to the interior commerce
of the place. The Neapolitan tax, therefore, is not near so ruinous as
the Spanish one.

The uniform system of taxation, which, with a few exception of no
great consequence, takes place in all the different parts of the
united kingdom of Great Britain, leaves the interior commerce of the
country, the inland and coasting trade, almost entirely free. The
inland trade is almost perfectly free; and the greater part of goods
may be carried from one end of the kingdom to the other, without
requiring any permit or let-pass, without being subject to question,
visit or examination, from the revenue officers. There are a few
exceptions, but they are such as can give no interruption to any
important branch of inland commerce of the country. Goods carried
coastwise, indeed, require certificates or coast-cockets. If you
except coals, however, the rest are almost all duty-free. This freedom
of interior commerce, the effect of the uniformity of the system of
taxation, is perhaps one of the principal causes of the prosperity of
Great Britain; every great country being necessarily the best and most
extensive market for the greater part of the productions of its own
industry. If the same freedom in consequence of the same uniformity,
could be extended to Ireland and the plantations, both the grandeur of
the state, and the prosperity of every part of the empire, would
probably be still greater than at present.

In France, the different revenue laws which take place in the
different provinces, require a multitude of revenue officers to
surround, not only the frontiers of the kingdom, but those of almost
each particular province, in order either to prevent the importation
of certain goods, or to subject it to the payment of certain duties,
to the no small interruption of the interior commerce of the country.
Some provinces are allowed to compound for the gabelle, or salt tax;
others are exempted from it altogether. Some provinces are exempted
from the exclusive sale of tobacco, which the farmers-general enjoy
through the greater part of the kingdom. The aides, which correspond
to the excise in England, are very different in different provinces.
Some provinces are exempted from them, and pay a composition or
equivalent. In those in which they take place, and are in farm, there
are many local duties which do not extend beyond a particular town or
district. The traites, which correspond to our customs, divide the
kingdom into three great parts; first, the provinces subject to the
tariff of 1664, which are called the provinces of the five great
farms, and under which are comprehended Picardy, Normandy, and the
greater part of the interior provinces of the kingdom; secondly, the
provinces subject to the tariff of 1667, which are called the
provinces reckoned foreign, and under which are comprehended the
greater part of the frontier provinces; and, thirdly, those provinces
which are said to be treated as foreign, or which, because they are
allowed a free commerce with foreign countries, are, in their commerce
with the other provinces of France, subjected to the same duties as
other foreign countries. These are Alsace, the three bishoprics of
Mentz, Toul, and Verdun, and the three cities of Dunkirk, Bayonne, and
Marseilles. Both in the provinces of the five great farms (called so
on account of an ancient division of the duties of customs into five
great branches, each of which was originally the subject of a
particular farm, though they are now all united into one), and in
those which are said to be reckoned foreign, there are many local
duties which do not extend beyond a particular town or district. There
are some such even in the provinces which are said to be treated as
foreign, particularly in the city of Marseilles. It is unnecessary to
observe how much both the restraints upon the interior commerce of the
country, and the number of the revenue officers, must be multiplied,
in order to guard the frontiers of those different provinces and
districts which are subject to such different systems of taxation.

Over and above the general restraints arising from this complicated
system of revenue laws, the commerce of wine (after corn, perhaps, the
most important production of France) is, in the greater part of the
provinces, subject to particular restraints arising from the favour
which has been shown to the vineyards of particular provinces and
districts above those of others. The provinces most famous for their
wines, it will be found, I believe, are those in which the trade in
that article is subject to the fewest restraints of this kind. The
extensive market which such provinces enjoy, encourages good
management both in the cultivation of their vineyards, and in the
subsequent preparation of their wines.

Such various and complicated revenue laws are not peculiar to France.
The little duchy of Milan is divided into six provinces, in each of
which there is a different system of taxation, with regard to several
different sorts of consumable goods. The still smaller territories of
the duke of Parma are divided into three or four, each of which has,
in the same manner, a system of its own. Under such absurd management,
nothing but the great fertility of the soil, and happiness of the
climate, could preserve such countries from soon relapsing into the
lowest state of poverty and barbarism.

Taxes upon consumable commodities may either he levied by an
administration, of which the officers are appointed by govermnent, and
are immediately accountable to government, of which the revenue must,
in this case, vary from year to year, according to the occasional
variations in the produce of the tax; or they may be let in farm for a
rent certain, the farmer being allowed to appoint his own officers,
who, though obliged to levy the tax in the manner directed by the law,
are under his immediate inspection, and are immediately accountable to
him. The best and most frugal way of levying a tax can never be by
farm. Over and above what is necessary for paying the stipulated rent,
the salaries of the officers, and the whole expense of administration,
the farmer must always draw from the produce of the tax a certain
profit, proportioned at least to the advance which he makes, to the
risk which he runs, to the trouble which he is at, and to the
knowledge and skill which it requires to manage so very complicated a
concern. Government, by establishing an administration under their own
immediate inspection, of the same kind with that which the farmer
establishes, might at least save this profit, which is almost always
exorbitant. To farm any considerable branch of the public revenue
requires either a great capital, or a great credit; circumstances
which would alone restrain the competition for such an undertaking to
a very small number of people. Of the few who have this capital or
credit, a still smaller number have the necessary knowledge or
experience; another circumstance which restrains the competition still
further. The very few who are in condition to become competitors, find
it more for their interest to combine together; to become copartners,
instead of competitors; and, when the farm is set up to auction, to
offer no rent but what is much below the real value. In countries
where the public revenues are in farm, the farmers are generally the
most opulent people. Their wealth would alone excite the public
indignation; and the vanity which almost always accompanies such
upstart fortunes, the foolish ostentation with which they commonly
display that wealth, excite that indignation still more.

The farmers of the public revenue never find the laws too severe,
which punish any attempt to evade the payment of a tax. They have no
bowels for the contributors, who are not their subjects, and whose
universal bankruptcy, if it should happen the day after the farm is
expired, would not much affect their interest. In the greatest
exigencies of the state, when the anxiety of the sovereign for the
exact payment of his revenue is necessarily the greatest, they seldom
fail to complain, that without laws more rigorous than those which
actually took place, it will be impossible for them to pay even the
usual rent. In those moments of public distress, their commands cannot
be disputed. The revenue laws, therefore, become gradually more and
more severe. The most sanguinary are always to be found in countries
where the greater part of the public revenue is in farm; the mildest,
in countries where it is levied under the immediate inspection of the
sovereign. Even a bad sovereign feels more compassion for his people
than can ever be expected from the farmers of his revenue. He knows
that the permanent grandeur of his family depends upon the prosperity
of his people, and he will never knowingly ruin that prosperity for
the sake of any momentary interest of his own. It is otherwise with
the farmers of his revenue, whose grandeur may frequently be the
effect of the ruin, and not of the prosperity, of his people.

A tax is sometimes not only farmed for a certain rent, but the farmer
has, besides, the monopoly of the commodity taxed. In France, the
duties upon tobacco and salt are levied in this manner. In such cases,
the farmer, instead of one, levies two exorbitant profits upon the
people; the profit of the farmer, and the still more exorbitant one of
the monopolist. Tobacco being a luxury, every man is allowed to buy or
not to buy as he chuses; but salt being a necessary, every man is
obliged to buy of the farmer a certain quantity of it; because, if he
did not buy this quantity of the farmer, he would, it is presumed, buy
it of some smuggler. The taxes upon both commodities are exorbitant.
The temptation to smuggle, consequently, is to many people
irresistible; while, at the same time, the rigour of the law, and the
vigilance of the farmer's officers, render the yielding to the
temptation almost certainly ruinous. The smuggling of salt and tobacco
sends every year several hundred people to the galleys, besides a very
considerable number whom it sends to the gibbet. Those taxes, levied
in this manner, yield a very considerable revenue to government. In
1767, the farm of tobacco was let for twenty-two millions five hundred
and forty-one thousand two hundred and seventy-eight livres a-year;
that of salt for thirty-six millions four hundred and ninety-two
thousand four hundred and four livres. The farm, in both cases, was to
commence in 1768, and to last for six years. Those who consider the
blood of the people as nothing, in comparison with the revenue of the
prince, may, perhaps, approve of this method of levying taxes. Similar
taxes and monopolies of salt and tobacco have been established in many
other countries, particularly in the Austrian and Prussian dominions,
and in the greater part of the states of Italy.

In France, the greater part of the actual revenue of the crown is
derived from eight different sources; the taille, the capitation, the
two vingtiemes, the gabelles, the aides, the traites, the domaine, and
the farm of tobacco. The live last are, in the greater part of the
provinces, under farm. The three first are everywhere levied by an
administration, under the immediate inspection and direction of
government; and it is universally acknowledged, that in proportion to
what they take out of the pockets of the people, they bring more into
the treasury of the prince than the other five, of which the
administration is much more wasteful and expensive.

The finances of France seem, in their present state, to admit of three
very obvious reformations. First, by abolishing the taille and the
capitation, and by increasing the number of the vingtiemes, so as to
produce an additional revenue equal to the amount of those other
taxes, the revenue of the crown might be preserved; the expense of
collection might be much diminished; the vexation of the inferior
ranks of people, which the taille and capitation occasion, might be
entirely prevented; and the superior ranks might not be more burdened
than the greater part of them are at present. The vingtieme, I have
already observed, is a tax very nearly of the same kind with what is
called the land tax of England. The burden of the taille, it is
acknowledged, falls finally upon the proprietors of land; and as the
greater part of the capitation is assessed upon those who are subject
to the taille, at so much a-pound of that other tax, the final payment
of the greater part of it must likewise fall upon the same order of
people. Though the number of the vingtiemes, therefore, was increased,
so as to produce an additional revenue equal to the amount of both
those taxes, the superior ranks of people might not be more burdened
than they are at present; many individuals, no doubt, would, on
account of the great inequalities with which the taille is commonly
assessed upon the estates and tenants of different individuals. The
interest and opposition of such favoured subjects, are the obstacles
most likely to prevent this, or any other reformation of the same
kind. Secondly, by rendering the gabelle, the aides, the traites, the
taxes upon tobacco, all the different customs and excises, uniform in
all the different parts of the kingdom, those taxes might be levied at
much less expense, and the interior commerce of the kingdom might be
rendered as free as that of England. Thirdly, and lastly, by
subjecting all those taxes to an administration under the immediate
inspection and direction or government, the exorbitant profits of the
farmers-general might be added to the revenue of the state. The
opposition arising from the private interest of individuals, is
likely to be as effectual for preventing the two last as the
first-mentioned scheme of reformation.

The French system of taxation seems, in every respect, inferior to the
British. In Great Britain, ten millions sterling are annually levied
upon less than eight millions of people, without its being possible to
say that any particular order is oppressed. From the Collections of
the Abb Expilly, and the observations of the author of the Essay upon
the Legislation and Commerce of Corn, it appears probable that France,
including the provinces of Lorraine and Bar, contains about
twenty-three or twenty-four millions of people; three times the
number, perhaps, contained in Great Britain. The soil and climate of
France are better than those of Great Britain. The country has been
much longer in a state of improvement and cultivation, and is, upon
that account, better stocked with all those things which it requires a
long time to raise up and accumulate; such as great towns, and
convenient and well-built houses, both in town and country. With these
advantages, it might be expected, that in France a revenue of thirty
millions might be levied for the support of the state, with as little
inconvenience as a revenue of ten millions is in Great Britain. In
1765 and 1766, the whole revenue paid into the treasury of France,
according to the best, though, I acknowledge, very imperfect accounts
which I could get of it, usually run between 308 and 325 millions of
livres; that is, it did not amount to fifteen millions sterling; not
the half of what might have been expected, had the people contributed
in the same proportion to their numbers as the people of Great
Britain. The people of France, however, it is generally acknowledged,
are much more oppressed by taxes than the people of Great Britain.
France, however, is certainly the great empire in Europe, which, after
that of Great Britain, enjoys the mildest and most indulgent

In Holland, the heavy taxes upon the necessaries of life have ruined,
it is said, their principal manufacturers, and are likely to
discourage, gradually, even their fisheries and their trade in
ship-building. The taxes upon the necessaries of life are
inconsiderable in Great Britain, and no manufacture has hitherto been
ruined by them. The British taxes which bear hardest on manufactures,
are some duties upon the importation of raw materials, particularly
upon that of raw silk. The revenue of the States-General and of the
different cities, however, is said to amount to more than five
millions two hundred and fifty thousand pounds sterling; and as the
inhabitants of the United Provinces cannot well be supposed to amount
to more than a third part of those of Great Britain, they must, in
proportion to their number, be much more heavily taxed.

After all the proper subjects of taxation have been exhausted, if the
exigencies of the state still continue to require new taxes, they must
be imposed upon improper ones. The taxes upon the necessaries of life,
therefore, may be no impeachment of the wisdom of that republic,
which, in order to acquire and to maintain its independency, has, in
spite of its meat frugality, been involved in such expensive wars as
have obliged it to contract great debts. The singular countries of
Holland and Zealand, besides, require a considerable expense even to
preserve their existence, or to prevent their being swallowed up by
the sea, which must have contributed to increase considerably the load
of taxes in those two provinces. The republican form of government
seems to be the principal support of the present grandeur of Holland.
The owners of great capitals, the great mercantile families, have
generally either some direct share, or some indirect influence, in the
administration of that government. For the sake of the respect and
authority which they derive from this situation, they are willing to
live in a country where their capital, if they employ it themselves,
will bring them less profit, and if they lend it to another, less
interest; and where the very moderate revenue which they can draw from
it will purchase less of the necessaries and conveniencies of life
than in any other part of Europe. The residence of such wealthy people
necessarily keeps alive, in spite of all disadvantages, a certain
degree of industry in the country. Any public calamity which should
destroy the republican form of government, which should throw the
whole administration into the hands of nobles and of soldiers, which
should annihilate altogether the importance of those wealthy
merchants, would soon render it disagreeable to them to live in a
country where they were no longer likely to be much respected. They
would remove both their residence and their capital to some other
country, and the industry and commerce of Holland would soon follow
the capitals which supported them.



In that rude state of society which precedes the extension of commerce
and the improvement of manufactures; when those expensive luxuries,
which commerce and manufactures can alone introduce, are altogether
unknown; the person who possesses a large revenue, I have endeavoured
to show in the third book of this Inquiry, can spend or enjoy that
revenue in no other way than by maintaining nearly as many people as
it can maintain. A large revenue may at all times be said to consist
in the command of a large quantity of the necessaries of life. In that
rude state of things, it is commonly paid in a large quantity of those
necessaries, in the materials of plain food and coarse clothing, in
corn and cattle, in wool and raw hides. When neither commerce nor
manufactures furnish any thing for which the owner can exchange the
greater part of those materials which are over and above his own
consumption, he can do nothing with the surplus, but feed and clothe
nearly as many people as it will feed and clothe. A hospitality in
which there is no luxury, and a liberality in which there is no
ostentation, occasion, in this situation of things, the principal
expenses of the rich and the great. But these I have likewise
endeavoured to show, in the same book, are expenses by which people
are not very apt to ruin themselves. There is not, perhaps, any
selfish pleasure so frivolous, of which the pursuit has not sometimes
ruined even sensible men. A passion for cock-fighting has ruined many.
But the instances, I believe, are not very numerous, of people who
have been ruined by a hospitality or liberality of this kind; though
the hospitality of luxury, and the liberality of ostentation have
ruined many. Among our feudal ancestors, the long time during which
estates used to continue in the same family, sufficiently demonstrates
the general disposition of people to live within their income. Though
the rustic hospitality, constantly exercised by the great landholders,
may not, to us in the present times, seem consistent with that order
which we are apt to consider as inseparably connected with good
economy; yet we must certainly allow them to have been at least so far
frugal, as not commonly to have spent their whole income. A part of
their wool and raw hides, they had generally an opportunity of selling
for money. Some part of this money, perhaps, they spent in purchasing
the few objects of vanity and luxury, with which the circumstances of
the times could furnish them; but some part of it they seem commonly
to have hoarded. They could not well, indeed, do any thing else but
hoard whatever money they saved. To trade, was disgraceful to a
gentleman; and to lend money at interest, which at that time was
considered as usury, and prohibited bylaw, would have been still more
so. In those times of violence and disorder, besides, it was
convenient to have a hoard of money at hand, that in case they should
be driven from their own home, they might have something of known
value to carry with them to some place of safety. The same violence
which made it convenient to hoard, made it equally convenient to
conceal the hoard. The frequency of treasure-trove, or of treasure
found, of which no owner was known, sufficiently demonstrates the
frequency, in those times, both of hoarding and of concealing the
hoard. Treasure-trove was then considered as an important branch of
the revenue of the sovereign. All the treasure-trove of the kingdom
would scarce, perhaps, in the present times, make an important branch
of the revenue of a private gentleman of a good estate.

The same disposition, to save and to hoard, prevailed in the
sovereign, as well as in the subjects. Among nations, to whom commerce
and manufacture are little known, the sovereign, it has already been
observed in the Fourth book, is in a situation which naturally
disposes him to the parsimony requisite for accumulation. In that
situation, the expense, even of a sovereign, cannot be directed by
that vanity which delights in the gaudy finery of a court. The
ignorance of the times affords but few of the trinkets in which that
finery consists. Standing armies are not then necessary; so that the
expense, even of a sovereign, like that of any other great lord can be
employed in scarce any thing but bounty to his tenants, and
hospitality to his retainers. But bounty and hospitality very seldom
lead to extravagance; though vanity almost always does. All the
ancient sovereigns of Europe, accordingly, it has already been
observed, had treasures. Every Tartar chief, in the present times, is
said to have one.

In a commercial country, abounding with every sort of expensive
luxury, the sovereign, in the same manner as almost all the great
proprietors in his dominions, naturally spends a great part of his
revenue in purchasing those luxuries. His own and the neighbouring
countries supply him abundantly with all the costly trinkets which
compose the splendid, but insignificant, pageantry of a court. For the
sake of an inferior pageantry of the same kind, his nobles dismiss
their retainers, make their tenants independent, and become gradually
themselves as insignificant as the greater part of the wealthy
burghers in his dominions. The same frivolous passions, which
influence their conduct, influence his. How can it be supposed that he
should be the only rich man in his dominions who is insensible to
pleasures of this kind? If he does not, what he is very likely to do,
spend upon those pleasures so great a part of his revenue as to
debilitate very much the defensive power of the state, it cannot well
be expected that he should not spend upon them all that part of it
which is over and above what is necessary for supporting that
defensive power. His ordinary expense becomes equal to his ordinary
revenue, and it is well if it does not frequently exceed it. The
amassing of treasure can no longer be expected; and when extraordinary
exigencies require extraordinary expenses, he must necessarily call
upon his subjects for an extraordinary aid. The present and the late
king of Prussia are the only great princes of Europe, who, since the
death of Henry IV. of France, in 1610, are supposed to have amassed
any considerable treasure. The parsimony which leads to accumulation
has become almost as rare in republican as in monarchical governments.
The Italian republics, the United Provinces of the Netherlands, are
all in debt. The canton of Berne is the single republic in Europe
which has amassed any considerable treasure. The other Swiss republics
have not. The taste for some sort of pageantry, for splendid
buildings, at least, and other public ornaments, frequently prevails
as much in the apparently sober senate-house of a little republic, as
in the dissipated court of the greatest king.

The want of parsimony, in time of peace, imposes the necessity of
contracting debt in time of war. When war comes, there is no money in
the treasury, but what is necessary for carrying on the ordinary
expense of the peace establishment. In war, an establishment of three
or four times that expense becomes necessary for the defence of the
state; and consequently, a revenue three or four times greater than
the peace revenue. Supposing that the sovereign should have, what he
scarce ever has, the immediate means of augmenting his revenue in
proportion to the augmentation of his expense; yet still the produce
of the taxes, from which this increase of revenue must be drawn, will
not begin to come into the treasury, till perhaps ten or twelve months
after they are imposed. But the moment in which war begins, or rather
the moment in which it appears likely to begin, the army must be
augmented, the fleet must be fitted out, the garrisoned towns must be
put into a posture of defence; that army, that fleet, those garrisoned
towns, must be furnished with arms, ammunition, and provisions. An
immediate and great expense must be incurred in that moment of
immediate danger, which will not wait for the gradual and slow returns
of the new taxes. In this exigency, government can have no other
resource but in borrowing.

The same commercial state of society which, by the operation of moral
causes, brings government in this manner into the necessity of
borrowing, produces in the subjects both an ability and an inclination
to lend. If it commonly brings along with it the necessity of
borrowing, it likewise brings with it the facility of doing so.

A country abounding with merchants and manufacturers, necessarily
abounds with a set of people through whose hands, not only their own
capitals, but the capitals of all those who either lend them money, or
trust them with goods, pass as frequently, or more frequently, than
the revenue of a private man, who, without trade or business, lives
upon his income, passes through his hands. The revenue of such a man
can regularly pass through his hands only once in a year. But the
whole amount of the capital and credit of a merchant, who deals in a
trade of which the returns are very quick, may sometimes pass through
his hands two, three, or four times in a year. A country abounding
with merchants and manufacturers, therefore, necessarily abounds with
a set of people, who have it at all times in their power to advance,
if they chuse to do so, a very large sum of money to government. Hence
the ability in the subjects of a commercial state to lend.

Commerce and manufactures can seldom flourish long in any state which
does not enjoy a regular administration of justice; in which the
people do not feel themselves secure in the possession of their
property; in which the faith of contracts is not supported by law; and
in which the authority of the state is not supposed to be regularly
employed in enforcing the payment of debts from all those who are able
to pay. Commerce and manufactures, in short, can seldom flourish in
any state, in which there is not a certain degree of confidence in the
justice of government. The same confidence which disposes great
merchants and manufacturers upon ordinary occasions, to trust their
property to the protection of a particular government, disposes them,
upon extraordinary occasions, to trust that government with the use of
their property. By lending money to government, they do not even for a
moment diminish their ability to carry on their trade and
manufactures; on the contrary, they commonly augment it. The
necessities of the state render government, upon most occasions
willing to borrow upon terms extremely advantageous to the lender. The
security which it grants to the original creditor, is made
transferable to any other creditor; and from the universal confidence
in the justice of the state, generally sells in the market for more
than was originally paid for it. The merchant or monied man makes
money by lending money to government, and instead of diminishing.
increases his trading capital. He generally considers it as a favour,
therefore, when the administration admits him to a share in the first
subscription for a new loan. Hence the inclination or willingness in
the subjects of a commercial state to lend.

The government of such a state is very apt to repose itself upon this
ability and willingness of its subjects to lend it their money on
extraordinary occasions. It foresees the facility of borrowing, and
therefore dispenses itself from the duty of saving.

In a rude state of society, there are no great mercantile or
manufacturing capitals. The individuals, who hoard whatever money they
can save, and who conceal their hoard, do so from a distrust of the
justice of government; from a fear, that if it was known that they had
a hoard, and where that hoard was to be found, they would quickly be
plundered. In such a state of things, few people would be able, and
nobody would be willing to lend their money to government on
extraordinary exigencies. The sovereign feels that he must provide for
such exigencies by saving, because he foresees the absolute
impossibility of borrowing. This foresight increases still further his
natural disposition to save.

The progress of the enormous debts which at present oppress, and will
in the long-run probably ruin, all the great nations of Europe, has
been pretty uniform. Nations, like private men, have generally begun
to borrow upon what may be called personal credit, without assigning
or mortgaging any particular fund for the payment of the debt; and
when this resource has failed them, they have gone on to borrow upon
assignments or mortgages of particular funds.

What is called the unfunded debt of Great Britain, is contracted in
the former of those two ways. It consists partly in a debt which
bears, or is supposed to bear, no interest, and which resembles the
debts that a private man contracts upon account; and partly in a debt
which bears interest, and which resembles what a private man contracts
upon his bill or promissory-note. The debts which are due, either for
extraordinary services, or for services either not provided for, or
not paid at the time when they are performed; part of the
extraordinaries of the army, navy, and ordnance, the arrears of
subsidies to foreign princes, those of seamen's wages, etc. usually
constitute a debt of the first kind. Navy and exchequer bills, which
are issued sometimes in payment of a part of such debts, and sometimes
for other purposes, constitute a debt of the second kind; exchequer
bills bearing interest from the day on which they are issued, and navy
bills six months after they are issued. The bank of England, either by
voluntarily discounting those bills at their current value, or by
agreeing with government for certain considerations to circulate
exchequer bills, that is, to receive them at par, paying the interest
which happens to be due upon them, keeps up their value, and
facilitates their circulation, and thereby frequently enables
government to contract a very large debt of this kind. In France,
where there is no bank, the state bills (billets d'etat {See Examen
des Reflections Politiques sur les Finances.}) have sometimes sold at
sixty and seventy per cent. discount. During the great recoinage in
king William's time, when the bank of England thought proper to put a
stop to its usual transactions, exchequer bills and tallies are said
to have sold from twenty-five to sixty per cent. discount; owing
partly, no doubt, to the supposed instability of the new government
established by the Revolution, but partly, too, to the want of the
support of the bank of England.

When this resource is exhausted, and it becomes necessary, in order to
raise money, to assign or mortgage some particular branch of the
public revenue for the payment of the debt, government has, upon
different occasions, done this in two different ways. Sometimes it has
made this assignment or mortgage for a short period of time only, a
year, or a few years, for example; and sometimes for perpetuity. In
the one case, the fund was supposed sufficient to pay, within the
limited time, both principal and interest of the money borrowed. In
the other, it was supposed sufficient to pay the interest only, or a
perpetual annuity equivalent to the interest, government being at
liberty to redeem, at any time, this annuity, upon paying back the
principal sum borrowed. When money was raised in the one way, it was
said to be raised by anticipation; when in the other, by perpetual
funding, or, more shortly, by funding.

In Great Britain, the annual land and malt taxes are regularly
anticipated every year, by virtue of a borrowing clause constantly
inserted into the acts which impose them. The bank of England
generally advances at an interest, which, since the Revolution, has
varied from eight to three per cent., the sums of which those taxes
are granted, and receives payment as their produce gradually comes in.
If there is a deficiency, which there always is, it is provided for in
the supplies of the ensuing year. The only considerable branch of the
public revenue which yet remains unmortgaged, is thus regularly spent
before it comes in. Like an improvident spendthrift, whose pressing
occasions will not allow him to wait for the regular payment of his
revenue, the state is in the constant practice of borrowing of its own
factors and agents, and of paying interest for the use of its own

In the reign of king William, and during a great part of that of queen
Anne, before we had become so familiar as we are now with the practice
of perpetual funding, the greater part of the new taxes were imposed
but for a short period of time (for four, five, six, or seven years
only), and a great part of the grants of every year consisted in loans
upon anticipations of the produce of those taxes. The produce being
frequently insufficient for paying, within the limited term, the
principal and interest of the money borrowed, deficiencies arose; to
make good which, it became necessary to prolong the term.

In 1697, by the 8th of William III., c. 20, the deficiencies of
several taxes were charged upon what was then called the first general
mortgage or fund, consisting of a prolongation to the first of August
1706, of several different taxes, which would have expired within a
shorter term, and of which the produce was accumulated into one
general fund. The deficiencies charged upon this prolonged term
amounted to 5,160,459: 14: 9.

In 1701, those duties, with some others, were still further prolonged,
for the like purposes, till the first of August 1710, and were called
the second general mortgage or fund. The deficiencies charged upon it
amounted to 2,055,999: 7: 11.

In 1707, those duties were still further prolonged, as a fund for new
loans, to the first of August 1712, and were called the third general
mortgage or fund. The sum borrowed upon it was 983,254:11:9.

In 1708, those duties were all (except the old subsidy of tonnage and
poundage, of which one moiety only was made a part of this fund, and a
duty upon the importation of Scotch linen, which had been taken off by
the articles of union) still further continued, as a fund for new
loans, to the first of August 1714, and were called the fourth general
mortgage or fund. The sum borrowed upon it was 925,176:9:2.

In 1709, those duties were all ( except the old subsidy of tonnage and
poundage, which was now left out of this fund altogether ) still
further continued, for the same purpose, to the first of August 1716,
and were called the fifth general mortgage or fund. The sum borrowed
upon it was 922,029:6s.

In 1710, those duties were again prolonged to the first of August
1720, and were called the sixth general mortgage or fund. The sum
borrowed upon it was 1,296,552:9:11.

In 1711, the same duties (which at this time were thus subject to four
different anticipations), together with several others, were continued
for ever, and made a fund for paying the interest of the capital of
the South-sea company, which had that year advanced to government, for
paying debts, and making good deficiencies, the sum of
9,177,967:15:4d, the greatest loan which at that time had ever been

Before this period, the principal, so far as I have been able to
observe, the only taxes, which, in order to pay the interest of a
debt, had been imposed for perpetuity, were those for paying the
interest of the money which had been advanced to government by the
bank and East-India company, and of what it was expected would be
advanced, but which was never advanced, by a projected land bank. The
bank fund at this time amounted to 3,375,027:17:10, for which was
paid an annuity or interest of 206,501:15:5d. The East-India fund
amounted to 3,200,000, for which was paid an annuity or interest of
160,000; the bank fund being at six per cent., the East-India fund at
five per cent. interest.

In 1715, by the first of George I., c. 12, the different taxes which
had been mortgaged for paying the bank annuity, together with several
others, which, by this act, were likewise rendered perpetual, were
accumulated into one common fund, called the aggregate fund, which was
charged not only with the payment of the bank annuity, but with
several other annuities and burdens of different kinds. This fund was
afterwards augmented by the third of George I., c.8., and by the fifth
of George I., c. 3, and the different duties which were then added to
it were likewise rendered perpetual.

In 1717, by the third of George I., c. 7, several other taxes were
rendered perpetual, and accumulated into another common fund, called
the general fund, for the payment of certain annuities, amounting in
the whole to 724,849:6:10.

In consequence of those different acts, the greater part of the taxes,
which before had been anticipated only for a short term of years were
rendered perpetual, as a fund for paying, not the capital, but the
interest only, of the money which had been borrowed upon them by
different successive anticipations.

Had money never been raised but by anticipation, the course of a few
years would have liberated the public revenue, without any other
attention of government besides that of not overloading the fund, by
charging it with more debt than it could pay within the limited term,
and not of anticipating a second time before the expiration of the
first anticipation. But the greater part of European governments have
been incapable of those attentions. They have frequently overloaded
the fund, even upon the first anticipation; and when this happened not
to be the case, they have generally taken care to overload it, by
anticipating a second and a third time, before the expiration of the
first anticipation. The fund becoming in this manner altogether
insufficient for paying both principal and interest of the money
borrowed upon it, it became necessary to charge it with the interest
only, or a perpetual annuity equal to the interest; and such
improvident anticipations necessarily gave birth to the more ruinous
practice of perpetual funding. But though this practice necessarily
puts off the liberation of the public revenue from a fixed period, to
one so indefinite that it is not very likely ever to arrive; yet, as a
greater sum can, in all cases, be raised by this new practice than by
the old one of anticipation, the former, when men have once become
familiar with it, has, in the great exigencies of the state, been
universally preferred to the latter. To relieve the present exigency,
is always the object which principally interests those immediately
concerned in the administration of public affairs. The future
liberation of the public revenue they leave to the care of posterity.

During the reign of queen Anne, the market rate of interest had fallen
from six to five per cent.; and, in the twelfth year of her reign,
five per cent. was declared to be the highest rate which could
lawfully be taken for money borrowed upon private security. Soon after
the greater part of the temporary taxes of Great Britain had been
rendered perpetual, and distributed into the aggregate, South-sea, and
general funds, the creditors of the public, like those of private
persons, were induced to accept of five per cent. for the interest of
their money, which occasioned a saving of one per cent. upon the
capital of the greater part or the debts which had been thus funded
for perpetuity, or of one-sixth of the greater part of the annuities
which were paid out of the three great funds above mentioned. This
saving left a considerable surplus in the produce of the different
taxes which had been accumulated into those funds, over and above what
was necessary for paying the annuities which were now charged upon
them, and laid the foundation of what has since been called the
sinking fund. In 1717, it amounted to 523,454:7:7. In 1727, the
interest of the greater part of the public debts was still further
reduced to four per cent.; and, in 1753 and 1757, to three and a-half,
and three per cent., which reductions still further augmented the
sinking fund.

A sinking fund, though instituted for the payment of old, facilitates
very much the contracting of new debts. It is a subsidiary fund,
always at hand, to be mortgaged in aid of any other doubtful fund,
upon which money is proposed to be raised in any exigency of the
state. Whether the sinking fund of Great Britain has been more
frequently applied to the one or to other of those two purposes, will
sufficiently appear by and by.

Besides those two methods of borrowing, by anticipations and by a
perpetual funding, there are two other methods, which hold a sort of
middle place between them; these are, that of borrowing upon annuities
for terms of years, and that of borrowing upon annuities for lives.

During the reigns of king William and queen Anne, large sums were
frequently borrowed upon annuities for terms of years, which were
sometimes longer and sometimes shorter. In 1695, an act was passed for
borrowing one million upon an annuity of fourteen per cent., or
140,000 a-year, for sixteen years. In 1691, an act was passed for
borrowing a million upon annuities for lives, upon terms which, in the
present times, would appear very advantageous; but the subscription
was not filled up. In the following year, the deficiency was made
good, by borrowing upon annuities for lives, at fourteen per cent. or
a little more than seven years purchase. In 1695, the persons who had
purchased those annuities were allowed to exchange them for others of
ninety-six years, upon paying into the exchequer sixty-three pounds in
the hundred; that is, the difference between fourteen per cent. for
life, and fourteen per cent. for ninety-six years, was sold for
sixty-three pounds, or for four and a-half years purchase. Such was
the supposed instability of government, that even these terms procured
few purchasers. In the reign of queen Anne, money was, upon different
occasions, borrowed both upon annuities for lives, and upon annuities
for terms of thirty-two, of eighty-nine, of ninety-eight, and of
ninety-nine years. In 1719, the proprietors of the annuities for
thirty-two years were induced to accept, in lieu of them, South-sea
stock to the amount of eleven and a-half years purchase of the
annuities, together with an additional quantity of stock, equal to the
arrears which happened then to be due upon them. In 1720, the greater
part of the other annuities for terms of years, both long and short,
were subscribed into the same fund. The long annuities, at that time,
amounted to 666,821: 8:3 a-year. On the 5th of January 1775, the
remainder of them, or what was not subscribed at that time, amounted
only to 136,453:12:8d.

During the two wars which began in 1739 and in 1755, little money was
borrowed, either upon annuities for terms of years, or upon those for
lives. An annuity for ninety-eight or ninety-nine years, however, is
worth nearly as much as a perpetuity, and should therefore, one might
think, be a fund for borrowing nearly as much. But those who, in order
to make family settlements, and to provide for remote futurity, buy
into the public stocks, would not care to purchase into one of which
the value was continually diminishing; and such people make a very
considerable proportion, both of the proprietors and purchasers of
stock. An annuity for a long term of years, therefore, though its
intrinsic value may be very nearly the same with that of a perpetual
annuity, will not find nearly the same number of purchasers. The
subscribers to a new loan, who mean generally to sell their
subscription as soon as possible, prefer greatly a perpetual annuity,
redeemable by parliament, to an irredeemable annuity, for a long term
of years, of only equal amount. The value of the former may be
supposed always the same, or very nearly the same; and it makes,
therefore, a more convenient transferable stock than the latter.

During the two last-mentioned wars, annuities, either for terms of
years or for lives, were seldom granted, but as premiums to the
subscribers of a new loan, over and above the redeemable annuity or
interest, upon the credit of which the loan was supposed to be made.
They were granted, not as the proper fund upon which the money was
borrowed, but as an additional encouragement to the lender.

Annuities for lives have occasionally been granted in two different
ways; either upon separate lives, or upon lots of lives, which, in
French, are called tontines, from the name of their inventor. When
annuities are granted upon separate lives, the death of every
individual annuitant disburdens the public revenue, so far as it was
affected by his annuity. When annuities are granted upon tontines, the
liberation of the public revenue does not commence till the death of
all the annuitants comprehended in one lot, which may sometimes
consist of twenty or thirty persons, of whom the survivors succeed to
the annuities of all those who die before them; the last survivor
succeeding to the annuities of the whole lot. Upon the same revenue,
more money can always be raised by tontines than by annuities for
separate lives. An annuity, with a right of survivorship, is really
worth more than an equal annuity for a separate life; and, from the
confidence which every man naturally has in his own good fortune, the
principle upon which is founded the success of all lotteries, such an
annuity generally sells for something more than it is worth. In
countries where it is usual for government to raise money by granting
annuities, tontines are, upon this account, generally preferred to
annuities for separate lives. The expedient which will raise most
money, is almost always preferred to that which is likely to bring
about, in the speediest manner, the liberation of the public revenue.

In France, a much greater proportion of the public debts consists in
annuities for lives than in England. According to a memoir presented
by the parliament of Bourdeaux to the king, in 1764, the whole public
debt of France is estimated at twenty-four hundred millions of livres;
of which the capital, for which annuities for lives had been granted,
is supposed to amount to three hundred millions, the eighth part of
the whole public debt. The annuities themselves are computed to amount
to thirty millions a-year, the fourth part of one hundred and twenty
millions, the supposed interest of that whole debt. These estimations,
I know very well, are not exact; but having been presented by so very
respectable a body as approximations to the truth, they may, I
apprehend, be considered as such. It is not the different degrees of
anxiety in the two governments of France and England for the
liberation of the public revenue, which occasions this difference in
their respective modes of borrowing; it arises altogether from the
different views and interests of the lenders.

In England, the seat of government being in the greatest mercantile
city in the world, the merchants are generally the people who advance
money to government. By advancing it, they do not mean to diminish,
but, on the contrary, to increase their mercantile capitals; and
unless they expected to sell, with some profit, their share in the
subscription for a new loan, they never would subscribe. But if, by
advancing their money, they were to purchase, instead of perpetual
annuities, annuities for lives only, whether their own or those of
other people, they would not always be so likely to sell them with a
profit. Annuities upon their own lives they would always sell with
loss; because no man will give for an annuity upon the life of
another, whose age and state of health are nearly the same with his
own, the same price which he would give for one upon his own. An
annuity upon the life of a third person, indeed, is, no doubt, of
equal value to the buyer and the seller; but its real value begins to
diminish from the moment it is granted, and continues to do so, more
and more, as long as it subsists. It can never, therefore, make so
convenient a transferable stock as a perpetual annuity, of which the
real value may be supposed always the same, or very nearly the same.

In France, the seat of government not being in a great mercantile
city, merchants do not make so great a proportion of the people who
advance money to government. The people concerned in the finances, the
farmers-general, the receivers of the taxes which are not in farm, the
court-bankers, etc. make the greater part of those who advance their
money in all public exigencies. Such people are commonly men of mean
birth, but of great wealth, and frequently of great pride. They are
too proud to marry their equals, and women of quality disdain to marry
them. They frequently resolve, therefore, to live bachelors; and
having neither any families of their own, nor much regard for those of
their relations, whom they are not always very fond of acknowledging,
they desire only to live in splendour during their own time, and are
not unwilling that their fortune should end with themselves. The
number of rich people, besides, who are either averse to marry, or
whose condition of life renders it either improper or inconvenient for
them to do so, is much greater in France than in England. To such
people, who have little or no care for posterity, nothing can be more
convenient than to exchange their capital for a revenue, which is to
last just as long, and no longer, than they wish it to do.

The ordinary expense of the greater part of modern governments, in
time of peace, being equal, or nearly equal, to their ordinary
revenue, when war comes, they are both unwilling and unable to
increase their revenue in proportion to the increase of their expense.
They are unwilling, for fear of offending the people, who, by so great
and so sudden an increase of taxes, would soon be disgusted with the
war; and they are unable, from not well knowing what taxes would be
sufficient to produce the revenue wanted. The facility of borrowing
delivers them from the embarrassment which this fear and inability
would otherwise occasion. By means of borrowing, they are enabled,
with a very moderate increase of taxes, to raise, from year to year,
money sufficient for carrying on the war; and by the practice of
perpetual funding, they are enabled, with the smallest possible
increase of taxes, to raise annually the largest possible sum of
money. In great empires, the people who live in the capital, and in
the provinces remote from the scene of action, feel, many of them,
scarce any inconveniency from the war, but enjoy, at their ease, the
amusement of reading in the newspapers the exploits of their own
fleets and armies. To them this amusement compensates the small
difference between the taxes which they pay on account of the war, and
those which they had been accustomed to pay in time of peace. They are
commonly dissatisfied with the return of peace, which puts an end to
their amusement, and to a thousand visionary hopes of conquest and
national glory, from a longer continuance of the war.

The return of peace, indeed, seldom relieves them from the greater
part of the taxes imposed during the war. These are mortgaged for the
interest of the debt contracted, in order to carry it on. If, over and
above paying the interest of this debt, and defraying the ordinary
expense of government, the old revenue, together with the new taxes,
produce some surplus revenue, it may, perhaps, be converted into a
sinking fund for paying off the debt. But, in the first place, this
sinking fund, even supposing it should be applied to no other purpose,
is generally altogether inadequate for paying, in the course of any
period during which it can reasonably be expected that peace should
continue, the whole debt contracted during the war; and, in the second
place, this fund is almost always applied to other purposes.

The new taxes were imposed for the sole purpose of paying the interest
of the money borrowed upon them. If they produce more, it is generally
something which was neither intended nor expected, and is, therefore,
seldom very considerable. Sinking funds have generally arisen, not so
much from any surplus of the taxes which was over and above what was
necessary for paying the interest or annuity originally charged upon
them, as from a subsequent reduction of that interest; that of Holland
in 1655, and that of the ecclesiastical state in 1685, were both
formed in this manner. Hence the usual insufficiency of such funds.

During the most profound peace, various events occur, which require an
extraordinary expense; and government finds it always more convenient
to defray this expense by misapplying the sinking fund, than by
imposing a new tax. Every new tax is immediately felt more or less by
the people. It occasions always some murmur, and meets with some
opposition. The more taxes may have been multiplied, the higher they
may have been raised upon every different subject of taxation; the
more loudly the people complain of every new tax, the more difficult
it becomes, too, either to find out new subjects of taxation, or to
raise much higher the taxes already imposed upon the old. A momentary
suspension of the payment of debt is not immediately felt by the
people, and occasions neither murmur nor complaint. To borrow of the
sinking fund is always an obvious and easy expedient for getting out
of the present difficulty. The more the public debts may have been
accumulated, the more necessary it may have become to study to reduce
them; the more dangerous, the more ruinous it may be to misapply any
part of the sinking fund; the less likely is the public debt to be
reduced to any considerable degree, the more likely, the more
certainly, is the sinking fund to be misapplied towards defraying all
the extraordinary expenses which occur in time of peace. When a nation
is already overburdened with taxes, nothing but the necessities of a
new war, nothing but either the animosity of national vengeance, or
the anxiety for national security, can induce the people to submit,
with tolerable patience, to a new tax. Hence the usual misapplication
of the sinking fund.

In Great Britain, from the time that we had first recourse to the
ruinous expedient of perpetual funding, the reduction of the public
debt, in time of peace, has never borne any proportion to its
accumulation in time of war. It was in the war which began in 1668,
and was concluded by the treaty of Ryswick, in 1697, that the
foundation of the present enormous debt of Great Britain was first

On the 31st of December 1697, the public debts of Great Britain,
funded and unfunded, amounted to 21,515,742:13:8. A great part of
those debts had been contracted upon short anticipations, and some
part upon annuities for lives; so that, before the 31st of December
1701, in less than four years, there had partly been paid off; and
partly reverted to the public, the sum of 5,121,041:12:0d; a greater
reduction of the public debt than has ever since been brought about in
so short a period of time. The remaining debt, therefore, amounted
only to 16,394,701:1:7d.

In the war which began in 1702, and which was concluded by the treaty
of Utrecht, the public debts were still more accumulated. On the 31st
of December 1714, they amounted to 53,681,076:5:6. The subscription
into the South-sea fund, of the short and long annuities, increased
the capital of the public debt; so that, on the 31st of December 1722,
it amounted to 55,282,978:1:3 5/6. The reduction of the debt began in
1723, and went on so slowly, that, on the 31st of December 1739,
during seventeen years-of profound peace, the whole sum paid off was
no more than 8,328,554:17:11 3/12, the capital of the public debt, at
that time, amounting to 46,954,623:3:4 7/12.

The Spanish war, which began in 1739, and the French war which soon
followed it, occasioned a further increase of the debt, which, on the
31st of December 1748, after the war had been concluded by the treaty
of Aix-la-Chapelle, amounted to 78,293,313:1:10. The most profound
peace, of 17 years continuance, had taken no more than 8,328,354,
17:11 from it. A war, of less than nine years continuance, added
31,338,689:18: 6 1/6 to it. {See James Postlethwaite's History of the
Public Revenue.}

During the administration of Mr. Pelham, the interest of the public
debt was reduced, or at least measures were taken for reducing it,
from four to three per cent.; the sinking fund was increased, and some
part of the public debt was paid off. In 1755, before the breaking out
of the late war, the funded debt of Great Britain amounted to
72,289,675. On the 5th of January 1763, at the conclusion of the
peace, the funded debt amounted debt to 122,603,336:8:2. The
unfunded debt has been stated at 13,927,589:2:2. But the expense
occasioned by the war did not end with the conclusion of the peace; so
that, though on the 5th of January 1764, the funded debt was increased
(partly by a new loan, and partly by funding a part of the unfunded
debt) to 129,586,789:10:1, there still remained (according to the
very well informed author of Considerations on the Trade and Finances
of Great Britain) an unfunded debt, which was brought to account in
that and the following year, of 9,975,017: 12:2 15/44d. In 1764,
therefore, the public debt of Great Britain, funded and unfunded
together, amounted, according to this author, to 139,561,807:2:4. The
annuities for lives, too, which had been granted as premiums to the
subscribers to the new loans in 1757, estimated at fourteen years
purchase, were valued at 472,500; and the annuities for long terms of
years, granted as premiums likewise, in 1761 and 1762, estimated at
twenty-seven and a-half years purchase, were valued at 6,826,875.
During a peace of about seven years continuance, the prudent and truly
patriotic administration of Mr. Pelham was not able to pay off an old
debt of six millions. During a war of nearly the same continuance, a
new debt of more than seventy-five millions was contracted.

On the 5th of January 1775, the funded debt of Great Britain amounted
to 124,996,086, 1:6d. The unfunded, exclusive of a large civil-list
debt, to 4,150,236:3:11 7/8. Both together, to 129,146,322:5:6.
According to this account, the whole debt paid off, during eleven
years of profound peace, amounted only to 10,415,476:16:9 7/8. Even
this small reduction of debt, however, has not been all made from the
savings out of the ordinary revenue of the state. Several extraneous
sums, altogether independent of that ordinary revenue, have
contributed towards it. Amongst these we may reckon an additional
shilling in the pound land tax, for three years; the two millions
received from the East-India company, as indemnification for their
territorial acquisitions; and the one hundred and ten thousand pounds
received from the bank for the renewal of their charter. To these must
be added several other sums, which, as they arose out of the late war,
ought perhaps to be considered as deductions from the expenses of it.
The principal are,

The produce of French prizes .............. 690,449: 18: 9
Composition for French prisoners ......... 670,000: 0: 0

What has been received from the sale
of the ceded islands ......................... 95,500: 0: 0

Total, .....................................1,455,949: 18: 9

If we add to this sum the balance of the earl of Chatham's and Mr.
Calcraft's accounts, and other army savings of the same kind, together
with what has been received from the bank, the East-India company, and
the additional shilling in the pound land tax, the whole must be a
good deal more than five millions. The debt, therefore, which, since
the peace, has been paid out of the savings from the ordinary revenue
of the state, has not, one year with another, amounted to half a
million a-year. The sinking fund has, no doubt, been considerably
augmented since the peace, by the debt which had been paid off, by the
reduction of the redeemable four per cents to three per cents, and by
the annuities for lives which have fallen in; and, if peace were to
continue, a million, perhaps, might now be annually spared out of it
towards the discharge of the debt. Another million, accordingly, was
paid in the course of last year; but at the same time, a large
civil-list debt was left unpaid, and we are now involved in a new war,
which, in its progress, may prove as expensive as any of our former
wars. {It has proved more expensive than any one of our former wars,
and has involved us in an additional debt of more than one hundred
millions. During a profound peace of eleven years, little more than
ten millions of debt was paid; during a war of seven years, more than
one hundred millions was contracted.} The new debt which will probably
be contracted before the end of the next campaign, may, perhaps, be
nearly equal to all the old debt which has been paid off from the
savings out of the ordinary revenue of the state. It would be
altogether chimerical, therefore, to expect that the public debt
should ever be completely discharged, by any savings which are likely
to be made from that ordinary revenue as it stands at present.

The public funds of the different indebted nations of Europe,
particularly those of England, have, by one author, been represented
as the accumulation of a great capital, superadded to the other
capital of the country, by means of which its trade is extended, its
manufactures are multiplied, and its lands cultivated and improved,
much beyond what they could have been by means of that other capital
only. He does not consider that the capital which the first creditors
of the public advanced to government, was, from the moment in which he
advanced it, a certain portion of the annual produce, turned away from
serving in the function of a capital, to serve in that of a revenue;
from maintaining productive labourers, to maintain unproductive ones,
and to be spent and wasted, generally in the course of the year,
without even the hope of any future reproduction. In return for the
capital which they advanced, they obtained, indeed, an annuity of the
public funds, in most cases, of more than equal value. This annuity,
no doubt, replaced to them their capital, and enabled them to carry on
their trade and business to the same, or, perhaps, to a greater extent
than before; that is, they were enabled, either to borrow of other
people a new capital, upon the credit of this annuity or, by selling
it, to get from other people a new capital of their own, equal, or
superior, to that which they had advanced to government. This new
capital, however, which they in this manner either bought or borrowed
of other people, must have existed in the country before, and must
have been employed, as all capitals are, in maintaining productive
labour. When it came into the hands of those who had advanced their
money to government, though it was, in some respects, a new capital to
them, it was not so to the country, but was only a capital withdrawn
from certain employments, in order to be turned towards others. Though
it replaced to them what they had advanced to government, it did not
replace it to the country. Had they not advanced this capital to
government, there would have been in the country two capitals, two
portions of the annual produce, instead of one, employed in
maintaining productive labour.

When, for defraying the expense of government, a revenue is raised
within the year, from the produce of free or unmortgaged taxes, a
certain portion of the revenue of private people is only turned away
from maintaining one species of unproductive labour, towards
maintaining another. Some part of what they pay in those taxes, might,
no doubt, have been accumulated into capital, and consequently
employed in maintaining productive labour; but the greater part would
probably have been spent, and consequently employed in maintaining
unproductive labour. The public expense, however, when defrayed in
this manner, no doubt hinders, more or less, the further accumulation
of new capital; but it does not necessarily occasion the destruction
of any actually-existing capital.

When the public expense is defrayed by funding, it is defrayed by the
annual destruction of some capital which had before existed in the
country; by the perversion of some portion of the annual produce which
had before been destined for the maintenance of productive labour,
towards that of unproductive labour. As in this case, however, the
taxes are lighter than they would have been, had a revenue sufficient
for defraying the same expense been raised within the year; the
private revenue of individuals is necessarily less burdened, and
consequently their ability to save and accumulate some part of that
revenue into capital, is a good deal less impaired. If the method of
funding destroys more old capital, it, at the same time, hinders less
the accumulation or acquisition of new capital, than that of defraying
the public expense by a revenue raised within the year. Under the
system of funding, the frugality and industry of private people can
more easily repair the breaches which the waste and extravagance of
government may occasionally make in the general capital of the

It is only during the continuance of war, however, that the system of
funding has this advantage over the other system. Were the expense of
war to be defrayed always by a revenue raised within the year, the
taxes from which that extraordinary revenue was drawn would last no
longer than the war. The ability of private people to accumulate,
though less during the war, would have been greater during the peace,
than under the system of funding. War would not necessarily have
occasioned the destruction of any old capitals, and peace would have
occasioned the accumulation of many more new. Wars would, in general,
be more speedily concluded, and less wantonly undertaken. The people
feeling, during continuance of war, the complete burden of it, would
soon grow weary of it; and government, in order to humour them, would
not be under the necessity of carrying it on longer than it was
necessary to do so. The foresight of the heavy and unavoidable burdens
of war would hinder the people from wantonly calling for it when there
was no real or solid interest to fight for. The seasons during which
the ability of private people to accumulate was somewhat impaired,
would occur more rarely, and be of shorter continuance. Those, on the
contrary, during which that ability was in the highest vigour would be
of much longer duration than they can well be under the system of

When funding, besides, has made a certain progress, the multiplication
of taxes which it brings along with it, sometimes impairs as much the
ability of private people to accumulate, even in time of peace, as the
other system would in time of war. The peace revenue of Great Britain
amounts at present to more than ten millions a-year. If free and
unmortgaged, it might be sufficient, with proper management, and
without contracting a shilling of new debt, to carry on the most
vigorous war. The private revenue of the inhabitants of Great Britain
is at present as much incumbered in time of peace, their ability to
accumulate is as much impaired, as it would have been in the time of
the most expensive war, had the pernicious system of funding never
been adopted.

In the payment of the interest of the public debt, it has been said,
it is the right hand which pays the left. The money does not go out of
the country. It is only a part of the revenue of one set of the
inhabitants which is transferred to another; and the nation is not a
farthing the poorer. This apology is founded altogether in the
sophistry of the mercantile system; and, after the long examination
which I have already bestowed upon that system, it may, perhaps, be
unnecessary to say anything further about it. It supposes, besides,
that the whole public debt is owing to the inhabitants of the country,
which happens not to be true; the Dutch, as well as several other
foreign nations, having a very considerable share in our public funds.
But though the whole debt were owing to the inhabitants of the
country, it would not, upon that account, be less pernicious.

Land and capital stock are the two original sources of all revenue,
both private and public. Capital stock pays the wages of productive
labour, whether employed in agriculture, manufactures, or commerce.
The management of those two original sources of revenue belongs to two
different sets of people; the proprietors of land, and the owners or
employers of capital stock.

The proprietor of land is interested, for the sake of his own revenue,
to keep his estate in as good condition as he can, by building and
repairing his tenants houses, by making and maintaining the necessary
drains and inclosures, and all those other expensive improvements
which it properly belongs to the landlord to make and maintain. But,
by different land taxes, the revenue of the landlord may be so much
diminished, and, by different duties upon the necessaries and
conveniencies of life, that diminished revenue may be rendered of so
little real value, that he may find himself altogether unable to make
or maintain those expensive improvements. When the landlord, however,
ceases to do his part, it is altogether impossible that the tenant
should continue to do his. As the distress of the landlord increases,
the agriculture of the country must necessarily decline.

When, by different taxes upon the necessaries and conveniencies of
life, the owners and employers of capital stock find, that whatever
revenue they derive from it, will not, in a particular country,
purchase the same quantity of those necessaries and conveniencies
which an equal revenue would in almost any other, they will be
disposed to remove to some other. And when, in order to raise those
taxes, all or the greater part of merchants and manufacturers, that
is, all or the greater part of the employers of great capitals, come
to be continually exposed to the mortifying and vexatious visits of
the tax-gatherers, this disposition to remove will soon be changed
into an actual removing. The industry of the country will necessarily
fall with the removal of the capital which supported it, and the ruin
of trade and manufactures will follow the declension of agriculture.

To transfer from the owners of those two great sources of revenue,
land, and capital stock, from the persons immediately interested in
the good condition of every particular portion of land, and in the
good management of every particular portion of capital stock, to
another set of persons (the creditors of the public, who have no such
particular interest ), the greater part of the revenue arising from
either, must, in the long-run, occasion both the neglect of land, and
the waste or removal of capital stock. A creditor of the public has,
no doubt, a general interest in the prosperity of the agriculture,
manufactures, and commerce of the country; and consequently in the
good condition of its land, and in the good management of its capital
stock. Should there be any general failure or declension in any of
these things, the produce of the different taxes might no longer be
sufficient to pay him the annuity or interest which is due to him. But
a creditor of the public, considered merely as such, has no interest
in the good condition of any particular portion of land, or in the
good management of any particular portion of capital stock. As a
creditor of the public, he has no knowledge of any such particular
portion. He has no inspection of it. He can have no care about it. Its
ruin may in some cases be unknown to him, and cannot directly affect

The practice of funding has gradually enfeebled every state which has
adopted it. The Italian republics seem to have begun it. Genoa and
Venice, the only two remaining which can pretend to an independent
existence, have both been enfeebled by it. Spain seems to have learned
the practice from the Italian republics, and (its taxes being probably
less judicious than theirs) it has, in proportion to its natural
strength, been-still more enfeebled. The debts of Spain are of very
old standing. It was deeply in debt before the end of the sixteenth
century, about a hundred years before England owed a shilling. France,
notwithstanding all its natural resources, languishes under an
oppressive load of the same kind. The republic of the United Provinces
is as much enfeebled by its debts as either Genoa or Venice. Is it
likely that, in Great Britain alone, a practice, which has brought
either weakness or dissolution into every other country, should prove
altogether innocent?

The system of taxation established in those different countries, it
may be said, is inferior to that of England. I believe it is so. But
it ought to be remembered, that when the wisest government has
exhausted all the proper subjects of taxation, it must, in cases of
urgent necessity, have recourse to improper ones. The wise republic of
Holland has, upon some occasions, been obliged to have recourse to
taxes as inconvenient as the greater part of those of Spain. Another
war, begun before any considerable liberation of the public revenue
had been brought about, and growing in its progress as expensive as
the last war, may, from irresistible necessity, render the British
system of taxation as oppressive as that of Holland, or even as that
of Spain. To the honour of our present system of taxation, indeed, it
has hitherto given so little embarrassment to industry, that, during
the course even of the most expensive wars, the frugality and good
conduct of individuals seem to have been able, by saving and
accumulation, to repair all the breaches which the waste and
extravagance of government had made in the general capital of the
society. At the conclusion of the late war, the most expensive that
Great Britain ever waged, her agriculture was as flourishing, her
manufacturers as numerous and as fully employed, and her commerce as
extensive, as they had ever been before. The capital, therefore, which
supported all those different branches of industry, must have been
equal to what it had ever been before. Since the peace, agriculture
has been still further improved; the rents of houses have risen in
every town and village of the country, a proof of the increasing
wealth and revenue of the people; and the annual amount of the greater
part of the old taxes, of the principal branches of the excise and
customs, in particular, has been continually increasing, an equally
clear proof of an increasing consumption, and consequently of an
increasing produce, which could alone support that consumption. Great
Britain seems to support with ease, a burden which, half a century
ago, nobody believed her capable of supporting, Let us not, however,
upon this account, rashly conclude that she is capable of supporting
any burden; nor even be too confident that she could support, without
great distress, a burden a little greater than what has already been
laid upon her.

When national debts have once been accumulated to a certain degree,
there is scarce, I believe, a single instance of their having been
fairly and completely paid. The liberation of the public revenue, if
it has ever been brought about at all, has always been brought about
by a bankruptcy; sometimes by an avowed one, though frequently by a
pretended payment.

The raising of the denomination of the coin has been the most usual
expedient by which a real public bankruptcy has been disguised under
the appearance of a pretended payment. If a sixpence, for example,
should, either by act of parliament or royal proclamation, be raised
to the denomination of a shilling, and twenty sixpences to that of a
pound sterling; the person who, under the old denomination, had
borrowed twenty shillings, or near four ounces of silver, would, under
the new, pay with twenty sixpences, or with something less than two
ounces. A national debt of about a hundred and twenty-eight millions,
near the capital of the funded and unfunded debt of Great Britain,
might, in this manner, be paid with about sixty-four millions of our
present money. It would, indeed, be a pretended payment only, and the
creditors of the public would really be defrauded of ten shillings in
the pound of what was due to them. The calamity, too, would extend
much further than to the creditors of the public, and those of every
private person would suffer a proportionable loss; and this without
any advantage, but in most cases with a great additional loss, to the
creditors of the public. If the creditors of the public, indeed, were
generally much in debt to other people, they might in some measure
compensate their loss by paying their creditors in the same coin in
which the public had paid them. But in most countries, the creditors
of the public are, the greater part of them, wealthy people, who stand
more in the relation of creditors than in that of debtors, towards the
rest of their fellow citizens. A pretended payment of this kind,
therefore, instead of alleviating, aggravates, in most cases, the loss
of the creditors of the public; and, without any advantage to the
public, extends the calamity to a great number of other innocent
people. It occasions a general and most pernicious subversion of the
fortunes of private people; enriching, in most cases, the idle and
profuse debtor, at the expense of the industrious and frugal creditor;
and transporting a great part of the national capital from the hands
which were 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 manner as when it becomes
necessary for an individual to do so, a fair, open, and avowed
bankruptcy, is always the measure which is both least dishonourable to
the debtor, and least hurtful to the creditor. The honour of a state
is surely very poorly provided for, when, in order to cover the
disgrace of a real bankruptcy, it has recourse to a juggling trick of
this kind, so easily seen through, and at the same time so extremely

Almost all states, however, ancient as well as modern, when reduced to
this necessity, have, upon some occasions, played this very juggling
trick. The Romans, at the end of the first Punic war, reduced the As,
the coin or denomination by which they computed the value of all their
other coins, from containing twelve ounces of copper, to contain only
two ounces; that is, they raised two ounces of copper to a
denomination which had always before expressed the value of twelve
ounces. The republic was, in this manner, enabled to pay the great
debts which it had contracted with the sixth part of what it really
owed. So sudden and so great a bankruptcy, we should in the present
times be apt to imagine, must have occasioned a very violent popular
clamour. It does not appear to have occasioned any. The law which
enacted it was, like all other laws relating to the coin, introduced
and carried through the assembly of the people by a tribune, and was
probably a very popular law. In Rome, as in all other ancient
republics, the poor people were constantly in debt to the rich and the
great, who, in order to secure their votes at the annual elections,
used to lend them money at exorbitant interest, which, being never
paid, soon accumulated into a sum too great either for the debtor to
pay, or for any body else to pay for him. The debtor, for fear of a
very severe execution, was obliged, without any further gratuity, to
vote for the candidate whom the creditor recommended. In spite of all
the laws against bribery and corruption, the bounty of the candidates,
together with the occasional distributions of coin which were ordered
by the senate, were the principal funds from which, during the latter
times of the Roman republic, the poorer citizens derived their
subsistence. To deliver themselves from this subjection to their
creditors, the poorer citizens were continually calling out, either
for an entire abolition of debts, or for what they called new tables;
that is, for a law which should entitle them to a complete
acquittance, upon paying only a certain proportion of their
accumulated debts. The law which reduced the coin of all denominations
to a sixth part of its former value, as it enabled them to pay their
debts with a sixth part of what they really owed, was equivalent to
the most advantageous new tables. In order to satisfy the people, the
rich and the great were, upon several different occasions, obliged to
consent to laws, both for abolishing debts, and for introducing new
tables; and they probably were induced to consent to this law, partly
for the same reason, and partly that, by liberating the public
revenue, they might restore vigour to that government, of which they
themselves had the principal direction. An operation of this kind
would at once reduce a debt of 128,000,000 to 21,333,333:6:8. In the
course of the second Punic war, the As was still further reduced,
first, from two ounces of copper to one ounce, and afterwards from one
ounce to half an ounce; that is, to the twenty-fourth part of its
original value. By combining the three Roman operations into one, a
debt of a hundred and twenty-eight millions of our present money,
might in this manner be reduced all at once to a debt of
5,333,333:6:8. Even the enormous debt of Great Britain might in this
manner soon be paid.

By means of such expedients, the coin of, I believe, all nations, has
been gradually reduced more and more below its original value, and the
same nominal sum has been gradually brought to contain a smaller and a
smaller quantity of silver.

Nations have sometimes, for the same purpose, adulterated the standard
of their coin; that is, have mixed a greater quantity of alloy in it.
If in the pound weight of our silver coin, for example, instead of
eighteen penny-weight, according to the present standard, there were
mixed eight ounces of alloy; a pound sterling, or twenty shillings of
such coin, would be worth little more than six shillings and
eightpence of our present money. The quantity of silver contained in
six shillings and eightpence of our present money, would thus be
raised very nearly to the denomination of a pound sterling. The
adulteration of the standard has exactly the same effect with what the
French call an augmentation, or a direct raising of the denomination
of the coin.

An augmentation, or a direct raising of the denomination of the coin,
always is, and from its nature must be, an open and avowed operation.
By means of it, pieces of a smaller weight and bulk are called by the
same name, which had before been given to pieces of a greater weight
and bulk. The adulteration of the standard, on the contrary, has
generally been a concealed operation. By means of it, pieces are
issued from the mint, of the same denomination, and, as nearly as
could be contrived, of the same weight, bulk, and appearance, with
pieces which had been current before of much greater value. When king
John of France, {See Du Cange Glossary, voce Moneta; the Benedictine
Edition.} in order to pay his debts, adulterated his coin, all the
officers of his mint were sworn to secrecy. Both operations are
unjust. But a simple augmentation is an injustice of open violence;
whereas an adulteration is an injustice of treacherous fraud. This
latter operation, therefore, as soon as it has been discovered, and it
could never be concealed very long, has always excited much greater
indignation than the former. The coin, after any considerable
augmentation, has very seldom been brought back to its former weight;
but after the greatest adulterations, it has almost always been
brought back to its former fineness. It has scarce ever happened, that
the fury and indignation of the people could otherwise be appeased.

In the end of the reign of Henry VIII., and in the beginning of that
of Edward VI., the English coin was not only raised in its
denomination, but 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.

That the public revenue of Great Britain can never be completely
liberated, or even that any considerable progress can ever be made
towards that liberation, while the surplus of that revenue, or what is
over and above defraying the annual expense of the peace
establishment, is so very small, it seems altogether in vain to
expect. That liberation, it is evident, can never be brought about,
without either some very considerable augmentation of the public
revenue, or some equally considerable reduction of the public expense.

A more equal land tax, a more equal tax upon the rent of houses, and
such alterations in the present system of customs and excise as those
which have been mentioned in the foregoing chapter, might, perhaps,
without increasing the burden of the greater part of the people, but
only distributing the weight of it more equally upon the whole,
produce a considerable augmentation of revenue. The most sanguine
projector, however, could scarce flatter himself, that any
augmentation of this kind would be such as could give any reasonable
hopes, either of liberating the public revenue altogether, or even of
making such progress towards that liberation in time of peace, as
either to prevent or to compensate the further accumulation of the
public debt in the next war.

By extending the British system of taxation to all the different
provinces of the empire, inhabited by people either of British or
European extraction, a much greater augmentation of revenue might be
expected. This, however, could scarce, perhaps, be done, consistently
with the principles of the British constitution, without admitting
into the British parliament, or, if you will, into the states-general
of the British empire, a fair and equal representation of all those
different provinces; that of each province bearing the same proportion
to the produce of its taxes, as the representation of Great Britain
might bear to the produce of the taxes levied upon Great Britain. The
private interest of many powerful individuals, the confirmed
prejudices of great bodies of people, seem, indeed, at present, to
oppose to so great a change, such obstacles as it may be very
difficult, perhaps altogether impossible, to surmount. Without,
however, pretending to determine whether such a union be practicable
or impracticable, it may not, perhaps, be improper, in a speculative
work of this kind, to consider how far the British system of taxation
might be applicable to all the different provinces of the empire; what
revenue might be expected from it, if so applied; and in what manner a
general union of this kind might be likely to affect the happiness and
prosperity of the differrent provinces comprehended within it. Such a
speculation, can, at worst, be regarded but as a new Utopia, less
amusing, certainly, but no more useless and chimerical than the old

The land-tax, the stamp duties, and the different duties of customs
and excise, constitute the four principal branches of the British

Ireland is certainly as able, and our American and West India
plantations more able, to pay a land tax, than Great Britain. Where
the landlord is subject neither to tythe nor poor's rate, he must
certainly be more able to pay such a tax, than where he is subject to
both those other burdens. The tythe, where there is no modus, and
where it is levied in kind, diminishes more what would otherwise be
the rent of the landlord, than a land tax which really amounted to
five shillings in the pound. Such a tythe will be found, in most
cases, to amount to more than a fourth part of the real rent of the
land, or of what remains after replacing completely the capital of the
farmer, together with his reasonable profit. If all moduses and all
impropriations were taken away, the complete church tythe of Great
Britain and Ireland could not well be estimated at less than six or
seven millions. If there was no tythe either in Great Britain or
Ireland, the landlords could afford to pay six or seven millions
additional land tax, without being more burdened than a very great
part of them are at present. America pays no tythe, and could,
therefore, very well afford to pay a land tax. The lands in America
and the West Indies, indeed, are, in general, not tenanted nor leased
out to farmers. They could not, therefore, be assessed according to
any rent roll. But neither were the lands of Great Britain, in the 4th
of William and Mary, assessed according to any rent roll, but
according to a very loose and inaccurate estimation. The lands in
America might be assessed either in the same manner, or according to an
equitable valuation, in consequence of an accurate survey, like that
which was lately made in the Milanese, and in the dominions of
Austria, Prussia, and Sardinia.

Stamp duties, it is evident, might be levied without any variation, in
all countries where the forms of law process, and the deeds by which
property, both real and personal, is transferred, are the same, or
nearly the same.

The extension of the custom-house laws of Great Britain to Ireland and
the plantations, provided it was accompanied, as in justice it ought
to be, with an extension of the freedom of trade, would be in the
highest degree advantageous to both. All the invidious restraints
which at present oppress the trade of Ireland, the distinction between
the enumerated and non-enumerated commodities of America, would be
entirely at an end. The countries north of Cape Finisterre would be as
open to every part of the produce of America, as those south of that
cape are to some parts of that produce at present. The trade between
all the different parts of the British empire would, in consequence of
this uniformity in the custom-house laws, be as free as the coasting
trade of Great Britain is at present. The British empire would thus
afford, within itself, an immense internal market for every part of
the produce of all its different provinces. So great an extension of
market would soon compensate, both to Ireland and the plantations, all
that they could suffer from the increase of the duties of customs.

The excise is the only part of the British system of taxation, which
would require to be varied in any respect, according as it was applied
to the different provinces of the empire. It might be applied to
Ireland without any variation; the produce and consumption of that
kingdom being exactly of tho same nature with those of Great Britain.
In its application to America and the West Indies, of which the
produce and consumption are so very different from those of Great
Britain, some modification might be necessary, in the same manner as
in its application to the cyder and beer counties of England.

A fermented liquor, for example, which is called beer, but which, as
it is made of molasses, bears very little resemblance to our beer,
makes a considerable part of the common drink of the people in
America. This liquor, as it can be kept only for a few days, cannot,
like our beer, be prepared and stored up for sale in great breweries;
but every private family must brew it for their own use, in the same
manner as they cook their victuals. But to subject every private
family to the odious visits and examination of the tax-gatherers, in
the same manner as we subject the keepers of ale-houses and the
brewers for public sale, would be altogether inconsistent with
liberty. If, for the sake of equality, it was thought necessary to lay
a tax upon this liquor, it might be taxed by taxing the material of
which it is made, either at the place of manufacture, or, if the
circumstances of the trade rendered such an excise improper, by laying
a duty upon its importation into the colony in which it was to be
consumed. Besides the duty of one penny a-gallon imposed by the
British parliament upon the importation of molasses into America,
there is a provincial tax of this kind upon their importation into
Massachusetts Bay, in ships belonging to any other colony, of
eight-pence the hogshead; and another upon their importation from the
northern colonies into South Carolina, of five-pence the gallon. Or,
if neither of these methods was found convenient, each family might
compound for its consumption of this liquor, either according to the
number of persons of which it consisted, in the same manner as private
families compound for the malt tax in England; or according to the
different ages and sexes of those persons, in the same manner as
several different taxes are levied in Holland; or, nearly as Sir
Matthew Decker proposes, that all taxes upon consumable commodities
should be levied in England. This mode of taxation, it has already
been observed, when applied to objects of a speedy consumption, is not
a very convenient one. It might be adopted, however, in cases where no
better could be done.

Sugar, rum, and tobacco, are commodities which are nowhere necessaries
of life, which are become objects of almost universal consumption, and
which are, therefore, extremely proper subjects of taxation. If a
union with the colonies were to take place, those commodities might be
taxed, either before they go out of the hands of the manufacturer or
grower; or, if this mode of taxation did not suit the circumstances of
those persons, they might be deposited in public warehouses, both at
the place of manufacture, and at all the different ports of the
empire, to which they might afterwards be transported, to remain
there, under the joint custody of the owner and the revenue officer,
till such time as they should be delivered out, either to the
consumer, to the merchant-retailer for home consumption, or to the
merchant-exporter; the tax not to be advanced till such delivery. When
delivered out for exportation, to go duty-free, upon proper security
being given, that they should really be exported out of the empire.
These are, perhaps, the principal commodities, with regard to which
the union with the colonies might require some considerable change in
the present system of British taxation.

What might be the amount of the revenue which this system of taxation,
extended to all the different provinces of the empire, might produce,
it must, no doubt, be altogether impossible to ascertain with
tolerable exactness. By means of this system, there is annually levied
in Great Britain, upon less than eight millions of people, more than
ten millions of revenue. Ireland contains more than two millions of
people, and, according to the accounts laid before the congress, the
twelve associated provinces of America contain more than three. Those
accounts, however, may have been exaggerated, in order, perhaps,
either to encourage their own people, or to intimidate those of this
country; and we shall suppose, therefore, that our North American and
West Indian colonies, taken together, contain no more than three
millions; or that the whole British empire, in Europe and America,
contains no more than thirteen millions of inhabitants. If, upon less
than eight millions of inhabitants, this system of taxation raises a
revenue of more than ten millions sterling; it ought, upon thirteen
millions of inhabitants, to raise a revenue of more than sixteen
millions two hundred and fifty thousand pounds sterling. From this
revenue, supposing that this system could produce it, must be deducted
the revenue usually raised in Ireland and the plantations, for
defraying the expense of the respective civil governments. The expense
of the civil and military establishment of Ireland, together with the
interest of the public debt, amounts, at a medium of the two years
which ended March 1775, to something less than seven hundred and fifty
thousand pounds a year. By a very exact account of the revenue of the
principal colonies of America and the West Indies, it amounted, before
the commencement of the present disturbances, to a hundred and
forty-one thousand eight hundred pounds. In this account, however, the
revenue of Maryland, of North Carolina, and of all our late
acquisitions, both upon the continent, and in the islands, is omitted;
which may, perhaps, make a difference of thirty or forty thousand
pounds. For the sake of even numbers, therefore, let us suppose that
the revenue necessary for supporting the civil government of Ireland
and the plantations may amount to a million. There would remain,
consequently, a revenue of fifteen millions two hundred and fifty
thousand pounds, to be applied towards defraying the general expense
of the empire, and towards paying the public debt. But if, from the
present revenue of Great Britain, a million could, in peaceable times,
be spared towards the payment of that debt, six millions two hundred
and fifty thousand pounds could very well be spared from this improved
revenue. This great sinking fund, too, might be augmented every year
by the interest of the debt which had been discharged the year before;
and might, in this manner, increase so very rapidly, as to be
sufficient in a few years to discharge the whole debt, and thus to
restore completely the at-present debilitated and languishing vigour
of the empire. In the meantime, the people might be relieved from some
of the most burdensome taxes; from those which are imposed either upon
the necessaries of life, or upon the materials of manufacture. The
labouring poor would thus be enabled to live better, to work cheaper,
and to send their goods cheaper to market. The cheapness of their
goods would increase the demand for them, and consequently for the
labour of those who produced them. This increase in the demand for
labour would both increase the numbers, and improve the circumstances
of the labouring poor. Their consumption would increase, and, together
with it, the revenue arising from all those articles of their
consumption upon which the taxes might be allowed to remain.

The revenue arising from this system of taxation, however, might not
immediately increase in proportion to the number of people who were
subjected to it. Great indulgence would for some time be due to those
provinces of the empire which were thus subjected to burdens to which
they had not before been accustomed; and even when the same taxes came
to be levied everywhere as exactly as possible, they would not
everywhere produce a revenue proportioned to the numbers of the
people. In a poor country, the consumption of the principal
commodities subject to the duties of customs and excise, is very
small; and in a thinly inhabited country, the opportunities of
smuggling are very great. The consumption of malt liquors among the
inferior ranks of people in Scotland is very small; and the excise
upon malt, beer, and ale, produces less there than in England, in
proportion to the numbers of the people and the rate of the duties,
which upon malt is different, on account of a supposed difference of
quality. In these particular branches of the excise, there is not, I
apprehend, much more smuggling in the one country than in the other.
The duties upon the distillery, and the greater part of the duties of
customs, in proportion to the numbers of people in the respective
countries, produce less in Scotland than in England, not only on
account of the smaller consumption of the taxed commodities, but of
the much greater facility of smuggling. In Ireland, the inferior ranks
of people are still poorer than in Scotland, and many parts of the
country are almost as thinly inhabited. In Ireland, therefore, the
consumption of the taxed commodities might, in proportion to the
number of the people, be still less than in Scotland, and the facility
of smuggling nearly the same. In America and the West Indies, the
white people, even of the lowest rank, are in much better
circumstances than those of the same rank in England; and their
consumption of all the luxuries in which they usually indulge
themselves, is probably much greater. The blacks, indeed, who make the
greater part of the inhabitants, both of the southern colonies upon
the continent and of the West India islands, as they are in a state of
slavery, are, no doubt, in a worse condition than the poorest people
either in Scotland or Ireland. We must not, however, upon that
account, imagine that they are worse fed, or that their consumption of
articles which might be subjected to moderate duties, is less than
that even of the lower ranks of people in England. In order that they
may work well, it is the interest of their master that they should be
fed well, and kept in good heart, in the same manner as it is his
interest that his working cattle should be so. The blacks,
accordingly, have almost everywhere their allowance of rum, and of
molasses or spruce-beer, in the same manner as the white servants; and
this allowance would not probably be withdrawn, though those articles
should be subjected to moderate duties. The consumption of the taxed
commodities, therefore, in proportion to the number of inhabitants,
would probably be as great in America and the West Indies as in any
part of the British empire. The opportunities of smuggling, indeed,
would be much greater; America, in proportion to the extent of the
country, being much more thinly inhabited than either Scotland or
Ireland. If the revenue, however, which is at present raised by the
different duties upon malt and malt liquors, were to be levied by a
single duty upon malt, the opportunity of smuggling in the most
important branch of the excise would be almost entirely taken away;
and if the duties of customs, instead of being imposed upon almost all
the different articles of importation, were confined to a few of the
most general use and consumption, and if the levying of those duties
were subjected to the excise laws, the opportunity of smuggling,
though not so entirely taken away, would be very much diminished. In
consequence of those two apparently very simple and easy alterations,
the duties of customs and excise might probably produce a revenue as
great, in proportion to the consumption of the most thinly inhabited
province, as they do at present, in proportion to that of the most

The Americans, it has been said, indeed, have no gold or silver money,
the interior commerce of the country being carried on by a paper
currency; and the gold and silver, which occasionally come among them,
being all sent to Great Britain, in return for the commodities which
they receive from us. But without gold and silver, it is added, there
is no possibility of paying taxes. We already get all the gold and
silver which they have. How is it possible to draw from them what they
have not?

The present scarcity of gold and silver money in America, is not the
effect of the poverty of that country, or of the inability of the
people there to purchase those metals. In a country where the wages of
labour are so much higher, and the price of provisions so much lower
than in England, the greater part of the people must surely have
wherewithal to purchase a greater quantity, if it were either
necessary or convenient for them to do so. The scarcity of those
metals, therefore, must be the effect of choice, and not of necessity.

It is for transacting either domestic or foreign business, that gold
or silver money is either necessary or convenient.

The domestic business of every country, it has been shewn in the
second book of this Inquiry, may, at least in peaceable times, be
transacted by means of a paper currency, with nearly the same degree
of conveniency as by gold and silver money. It is convenient for the
Americans, who could always employ with profit, in the improvement of
their lands, a greater stock than they can easily get, to save as much
as possible the expense of so costly an instrument of commerce as gold
and silver; and rather to employ that part of their surplus produce
which would be necessary for purchasing those metals, in purchasing
the instruments of trade, the materials of clothing, several parts of
household furniture, and the iron work necessary for building and
extending their settlements and plantations; in purchasing not dead
stock, but active and productive stock. The colony governments find it
for their interest to supply the people with such a quantity of paper
money as is fully sufficient, and generally more than sufficient, for
transacting their domestic business. Some of those governments, that
of Pennsylvania, particularly, derive a revenue from lending this
paper money to their subjects, at an interest of so much per cent.
Others, like that of Massachusetts Bay, advance, upon extraordinary
emergencies, a paper money of this kind for defraying the public
expense; and afterwards, when it suits the conveniency of the colony,
redeem it at the depreciated value to which it gradually falls. In
1747, {See Hutchinson's History of Massachusetts Bay vol. ii. page 436
et seq.} that colony paid in this manner the greater part of its
public debts, with the tenth part of the money for which its bills had
been granted. It suits the conveniency of the planters, to save the
expense of employing gold and silver money in their domestic
transactions; and it suits the conveniency of the colony governments,
to supply them with a medium, which, though attended with some very
considerable disadvantages, enables them to save that expense. The
redundancy of paper money necessarily banishes gold and silver from
the domestic transactions of the colonies, for the same reason that it
has banished those metals from the greater part of the domestic
transactions in Scotland; and in both countries, it is not the
poverty, but the enterprizing and projecting spirit of the people,
their desire of employing all the stock which they can get, as active
and productive stock, which has occasioned this redundancy of paper

In the exterior commerce which the different colonies carry on with
Great Britain, gold and silver are more or less employed, exactly in
proportion as they are more or less necessary. Where those metals are
not necessary, they seldom appear. Where they are necessary, they are
generally found.

In the commerce between Great Britain and the tobacco colonies, the
British goods are generally advanced to the colonists at a pretty long
credit, and are afterwards paid for in tobacco, rated at a certain
price. It is more convenient for the colonists to pay in tobacco than
in gold and silver. It would be more convenient for any merchant to
pay for the goods which his correspondents had sold to him, in some
other sort of goods which he might happen to deal in, than in money.
Such a merchant would have no occasion to keep any part of his stock
by him unemployed, and in ready money, for answering occasional
demands. He could have, at all times, a larger quantity of goods in
his shop or warehouse, and he could deal to a greater extent. But it
seldom happens to be convenient for all the correspondents of a
merchant to receive payment for the goods which they sell to him, in
goods of some other kind which he happens to deal in. The British
merchants who trade to Virginia and Maryland, happen to be a
particular set of correspondents, to whom it is more convenient to
receive payment for the goods which they sell to those colonies in
tobacco, than in gold and silver. They expect to make a profit by the
sale of the tobacco; they could make none by that of the gold and
silver. Gold and silver, therefore, very seldom appear in the commerce
between Great Britain and the tobacco colonies. Maryland and Virginia
have as little occasion for those metals in their foreign, as in their
domestic commerce. They are said, accordingly, to have less gold and
silver money than any other colonies in America. They are reckoned,
however, as thriving, and consequently as rich, as any of their

In the northern colonies, Pennsylvania, New York, New Jersey, the four
governments of New England, etc. the value of their own produce which


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