Chapter XXI: Part IV: Of Public Credit (1)

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CHAP. I.
_Of the various Consequences of Public Debts._

The principles which influence the doctrine of public credit are so few, and so plain, that it is surprising to see how circumstances could possibly involve them in the obscurity into which we find them plunged on many occasions.

For the better clearing the way towards the main object, I shall shew, from experience, and from the progress of public credit in some nations, that the true principles have been overlooked, and confounded so with extraneous objects, as to be entirely lost.

The true method of decyphering, as it were, the complicated operations of statesmen with respect to this branch, is to bring back to their native simplicity such plans of administration, as, from the infinite perplexity of them, make people believe, that the principles which influence this district of science lie so involved, as to require a peculiar force of genius even to comprehend them.

By proceeding in this plain track, and by keeping the principles constantly in view, the most perplexed systems of borrowing, funding, stock-jobbing, coining and re-coining of money, changing the weight, fineness, and denominations of specie, circulating paper in conjunction with it, imposing upon mankind with bubbles and bankruptcies, and calling them operations of public credit, may be rendred intelligible to the most slender capacity.

Many of these topics have been already explained, and dismissed. This will enable us to contract the plan of what remains in proportion to the objects it is to comprehend.

Public credit we have defined to be, the confidence reposed in a state, or body politic, borrowing money, on condition that the capital shall not be demandable, but that a certain proportional part of the sum shall be annually paid, either in lieu of interest, or in extinction of part of the capital; for the security of which payment, a permanent annual fund is appropriated, with a liberty, however, to the state to set itself free, by repaying the whole, when nothing to the contrary is stipulated.

In this definition I have put in an alternative, of paying a perpetual interest for the money borrowed, or of paying annually a sum exceeding the interest; which excess is intended to extinguish the capital in a certain number of years. In both cases, the annual payment is called an annuity. When it is exactly equal to the interest agreed on, it is called perpetual; and determinate, when granted either for life, or for a certain number of years.

The solidity of this security is essential to the borrowing upon the cheapest terms: let me suppose it to be as solid as land-property, and as permanent as government itself: what will the consequence be?

If we suppose government to go on in increasing, every year, the sum of their debts upon perpetual annuities, and appropriating, in proportion, every branch of revenue for the payment of them; the consequence will be, in the first place, to transport, in favour of the creditors, the whole income of the state, of which government will retain the administration. The farther consequences of this revolution will furnish matter for a chapter by itself.

If the borrowings of a state be only in proportion to the extinction of the old capitals, or of what I have called determinate annuities, then the debts will not increase.

When a statesman, therefore, establishes a system of public credit, the first object which should fix his attention is to calculate how far the constitution of the state, and its internal circumstances, render it expedient to throw the revenue of it into the hands of a money’d interest. I say, this is the most important object of his deliberation; because the solidity of his credit depends upon it.

If, all the interests of the state duly considered, that of trade be found to predominate, less inconvenience will be found in allowing the money’d interest to swell: but in monarchies, where the landed interest is the most powerful, it would be dangerous to erect so formidable a rival to it. In political bodies every separate interest will consult its own; and in the contest between those who pay, and those who receive the taxes, under the denomination of creditors, the security of public credit becomes precarious.

From this we may conclude, 1_mo_, That in governments where the swelling of a money’d interest is found to threaten the tranquillity of the state, care should be taken either to establish a sinking fund, for paying off, in times of peace, what may have been borrowed in times of war, or the plan of borrowing upon determinate annuities must be established.

2_do_, If natural causes be left to work their own effects, without a systematical plan of borrowing, the consequence will be a bankruptcy, and a total failure of public credit, at least for some time.

3_tio_, If a state should find the mass of their debts to amount to so great a sum as to be insupportable, they might have recourse to a total, or partial abolition of them by an act of power.

4_to_, If they allow their debts to swell without limitation, and adhere to the faith of their engagements, the whole property of the state will be in constant circulation, from one class of men to another.

5_to_, If the debts contracted be the property of foreigners, these will either remove into the country, where their funds arise, or the property, that is, the _dominium utile_ of the country, will be transferred from the natives.

These and many other combinations will arise from the extension of public credit; and an examination of the most natural consequences upon every supposition, will be the best way to acquire a distinct idea of the subject in general. To pretend to foretell any one certain chain of consequences, which may, in fact, result from any combination, is, I apprehend, impossible; because every one of them will depend upon circumstances totally unknown. These, in our way of examining matters of this kind, are all to be founded upon supposition. To supply therefore, in some measure, this defect, I shall first have recourse to examples of what has happened in the hitherto infant state of public credit; and as to cases which have not as yet taken place, we must have recourse to ingenuity, and endeavour to form the most rational combinations we can.

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CHAP. II.
_Of the Rise and Progress of Public Credit._

While the policy of Princes directed them to form treasures, there was no occasion for public credit. This policy prevailed until the rise of the Roman empire. Then all the treasures of the world were plundered, and nations were inslaved. On this revolution, the exigencies of that great empire were supplied from the annual tributes paid by conquered nations. Under good reigns, this annual supply swelled the public treasure, until a prodigal Emperor squandered it away; and took to rapine and extortion, to fill up the void.

Upon the total dissolution of that great empire, Europe was overrun by barbarous nations, who, with as little industry as ever, supported their power by the military services of the whole people.

After the establishment of the feudal kingdoms under their chiefs who first laid the foundation of them, arose the Barons, or principal vassals, who, in imitation of their chief, erected small principalities, which by degrees grew independent.

This distribution of power into many hands had the effect of destroying all systematic plans of government. Princes were obliged to act according to the perpetual fluctuation of circumstances, until by a revolution in their favour, the power of the vassals was swallowed up, and confined within the limits of a more regular authority.

In proportion as this revolution took place among the nations of Europe, the system of their government resumed a more permanent form. Justice was administred with more uniformity; and from this arose a body of laws, which, in some countries, were called customs: in others, as in England, common law. Wars then became less frequent; and the military services not being necessary on all occasions, insensibly became converted into taxes, proportioned to the exigencies of the time.

During this period, the coin and precious metals of Europe were lodged, in a great measure, in private coffers. If wars brought them forth for a short time, they soon found their way back again. Princes were generally extravagant, and spent money as fast as they got it. In proportion as industry and alienation increased, the coin came abroad; the inhabitants became easy in their circumstances; the state flourished, and acquired reputation. The riches and power of a state began then to be estimated, as they ought to be, not by their treasures locked up, but by what was found in circulation; that is, by their industry. Venice, Genoa, and the Hans-towns, set the example. The Jews, banished from France, on account of their extortions in the time of the holy wars, fled, as it is said, into Lombardy, and there invented the use of bills of exchange, for drawing their riches from countries to which they durst not resort to bring them off. Interest for money began to be considered as lawful in many cases: merchants were protected by Princes, for the sake of the consequences of trade and industry: and from such small beginnings has that mighty engine of public credit sprung.

While Princes mortgaged their lands and principalities, in order to obtain a sum of money, they acted upon the principles of private credit. This was the case in the more early times, before government acquired that liability which is necessary to establish a firm confidence. In proportion as it drew towards a regular system, the dawn of credit put on appearances analogous to the solidity of the fund upon which it was established.

The second step was to raise money upon a branch of taxes assigned to the lender, for the reimbursement of his capital and interest. We shall shew the consequences of this plan of credit from some examples, which will fully point out all its inconveniencies.

This plan of administration was attended with so much abuse, and so much oppression, that statesmen began to despair of carrying on public affairs by such expedients; and therefore concluded that the only way to obtain money at the least expence, was to raise it on the subject within the year, or upon what they called short funds.

At length public credit assumed its present form. Money was borrowed upon determinate or perpetual annuities: a fund was provided for that purpose: and the refunding of the capital was, in many cases, left in the option of government, but was never to be demandable by the creditor.

This is a short view of the progress of public credit. The principles upon which it is built are so few, that were I to confine myself to a bare deduction of them, little new or interesting could be said. I shall therefore steer another course: I shall collect the sentiments of some eminent politicians, who have either writ upon, or acted in the administration of this branch of government; and by applying principles as we go along, I shall be enabled to point out the extraneous circumstances which are so apt to involve this subject in obscurity. Had we not before our eyes the numberless examples of this kind, it would hardly be possible to conceive how so great a confusion, and so many calamities, could have followed upon the operations of public credit.

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CHAP. III.
_Of Anticipations, or borrowing Money upon Assignments to Taxes for the
Discharge of Principal and Interest._

I have already observed, that by the cessation of the constant wars, in which all Europe was engaged during the feudal government of the barons, nations began to enjoy some sort of tranquillity. Upon this the military services became insensibly converted into taxes; and as Princes extended their jurisdictions over the cities, which had been formerly more under the protection of the bishops who resided in them, taxes were augmented. These impositions were very inconsiderable, with respect to what they brought into the King’s coffers. The policy in raising them was bad; the frauds in collecting them were great.

These considerations engaged Princes to begin by contracting debts, and to pay afterwards by temporary assignments to the taxes imposed.

From this again ensued the most terrible extortions on the side of the tax-gatherers, so often complained of by those who have writ on the affairs of France, as we shall see in the following chapter.

Philip _le bel_, King of France, was the first who, in 1301, admitted, with great policy, the inhabitants of cities to have a seat in the states of the kingdom. He formed them into a distinct body, and called them _tiers etat_, or the third estate, after the clergy and the nobility. His view was to facilitate thereby the jurisdiction he wanted to establish over those cities, and to engage them to consent to the imposition of taxes for carrying on his wars in Flanders, and for opposing the ambitious views of Boniface VIII. Accordingly, the people began to pay willingly, when once they found that they had a vote in what concerned them.

I take it for granted, that every tax, about that time, was imposed for a particular purpose, and assigned either to creditors, or to people who advanced money upon it: because we are told that the first imposition granted by the states to a King of France as a permanent branch of revenue, was an excise upon spirituous liquors granted to Philip de Valois, in the year 1345; at which time, however, according to Mr. d’Eon’s _Memoires pour servir à l’Histoire generale des Finances_, there were not less than twenty two different taxes known in France, which he enumerates as follows:

_Tailles_, _complaintes_, _charges_, _redevances_, _coutumes_, _peages_, _travers_, _passages_, _centiemes_, _cinquantiemes_, _ôtes_, _chevaucheês_, _subventions_, _exactions_, _chevaleries_, _aides_, _mariages_, _toultes_, _impositions_, _prisons_, _servitudes_, and _nouvellettes_.

That all these impositions must have been mere trifles, I gather from a circumstance in the Political History of France, mentioned by the author just cited, which being itself exceedingly curious and tending greatly to confirm many things which I have advanced concerning the small circulation in former times, I shall here briefly mention it.

In 1356, John, King of France, applied to the States for 50,000 livres, about 9165_l._ sterling, to pay his army. The States, besides several other taxes imposed to pay this sum, granted him 8 deniers on the livre, or 3⅓ _per cent._ upon all meat, drink, and merchandize, sold in France within the year; that is to say, upon the whole alienations of France. The tax was levied, but fell so far short of the sum required, that it was made up by a poll-tax.

Can any example be better calculated for forming a notion of the circulation of France at that time?

It may be here alleged that the prices of every thing were then so very low, that no judgment can be formed concerning the _quantity_ of alienation from the smallness of the sum. This objection is of no force, as I shall presently shew.

We know from the records of the selling price of grain in France, which was then remarkably cheap in proportion to the years which followed and which had preceeded, that in 1356, the septier of wheat, or 4 Winchester bushels, sold for 17 sols 8 deniers of the then currency, which was 12 livres to the marc fine silver, and a French soldier’s allowance for bread, to this day, is 3 septiers, or 12 Winchester bushels a year. Now let me suppose, that the whole 50,000 livres had been raised by this imposition of 3⅓ _per cent._ or 1⁄30 of the total value of the single article of corn sold at market, which was far from being the case, and then compare that with the number of men who could have been subsisted with all the corn sold in France at that time.

If 1⁄30 of the price was the tax, then by multiplying 50,000 livres by 30, we have the value of the corn sold; to wit, 1 500 000 livres: divide this sum by the value of what a man consumes in a year, to wit, 3 septiers at 17 sols 8 deniers, which make 2 livres 13 sols, and the quotient will be the number of portions for a man, to wit, 566 037. So the whole alienation of France, at that time, fell far below the value of as much wheat as would have fed 566 037 men.

What a poor idea does this communicate of the state of Europe only 400 years ago! It would be in vain to seek for examples to illustrate any principle of our complicated modern oeconomy in the histories of those times: their taxes, their credit, and their debts, resembled ours in nothing but the name.

I now come nearer home, and give an account of the ideas of public credit formed by Davenant, who flourished about the time of the revolution in 1688, which I may take to be the æra of public credit in England.

No person at that time, whose writings I have seen, appears to have so thoroughly understood those matters as Davenant. He was a man of theory, as well as knowledge of facts: he had an opportunity which few people have, to be well instructed in the one and the other; and he turned his talents to the best advantage for promoting the interest of his country. He has writ many tracts on political subjects, which, when carefully read and compared with what experience has since taught us, cast great light upon many questions relative to the subject of this inquiry.

Davenant, like other great men of his time, was of opinion that borrowing money upon what he calls short funds, was much preferable to that upon perpetual interest; and he thought the most adviseable plan of all, could it be accomplished, was to raise the money wanted within the year.

Men, at that time, had a terror upon them in contracting debts for the public: they considered the nation as they would a private man, whose interest is one, uncompounded, and relative to himself alone: in this light, creditors appeared as formidable as enemies; they were looked upon by ministers as such; and this general opinion on one side, contributed, no doubt, to make the monied people less interested in the distress of government, and more ready to lay hold of every opportunity of improving such occasions, for their own advantage.

Government was in constant war with creditors: when ready money failed in England, it had nothing to pay with but exchequer tallies, upon the taxes imposed; these were much more easily issued than acquitted. When the first year’s amount of a tax was engaged, people considered the security of what was to follow as very precarious; consequently, the value of it diminished.

This method, however, succeeded far better in paying off debts already contracted, than in contracting new ones; and the hardships put upon those who had advanced money to government, and who were paid by assignments upon taxes previously engaged, made people afterwards very diffident, except upon proper security. The limited form of the English government, prevented the violent proceedings between ministers and public creditors, which were common in France; and this circumstance contributed, no doubt, to establish the credit of the former upon the better footing. But still the long expectation of payment of the capital and interest, upon a distant fund, made Davenant acknowledge that 700,000_l._ in ready money, would at any time go farther than a million in tallies; and yet he thought it was better for the state to borrow the million upon a plan of discharging the debt in three or four years, than to obtain the 700,000_l._ at the expence of a perpetual interest of 8 _per cent._

There were many more considerations which moved Davenant to prefer what he calls short funds to perpetual interest.

It was the general opinion in his time (not his own indeed, for he endeavoured to shew the fallacy of it) that money borrowed upon the anticipation of a fund, _raised and appropriated for the discharge of it_, was not a debt upon the state; because it did not diminish the former revenue. We have a remarkable instance of the prevalence of this opinion, in the famous memorial presented by M. Desmaretz to Philip Duke of Orleans, after the death of the late King of France; wherein he advances, that during seven campaigns, from 1708 to the peace of Rastad, while he had been at the head of the King’s finances, he had not increased the public debts by more than nine millions of livres capital: and yet when he came into the administration, in 1708, the King’s debts did not amount to 700 millions; and we have seen, that at the time of his death, they were upwards of 2000 millions. But Desmaretz did not reckon the difference of about 1300 millions; because he had settled them upon funds of his own creation. This was so much the language of the times, that no criticism was made upon it.

It is remarkable, that Davenant, in giving an account of the debts of England, during the period of which he writes, that is, from the revolution down to the peace of Ryswick, hardly ever takes notice of the sums paid for interest upon them. The minds of men at that time were totally taken up with the payment of capitals; and providing these could be discharged in a few years, it was no matter, they thought, what they cost in the mean time.

As long as nations at war observe the same policy in their methods of raising money, the ways in which they proceed are of the less importance: but when any one state makes an alteration, by which more money is thrown into their hands than they could formerly obtain; this circumstance obliges every other state to adopt the same method. Thus while Princes made war with the amount of their treasures and annual income, the balance of their power depended on the balance of such resources: when they anticipated their income on both sides, for a few years, the balance was in proportion still: when, afterwards, they adopted long funds and perpetual interest, the supplies increased; but still the balance was determined as formerly.

The usefulness, therefore, of an inquiry into the principles of public credit, has not so much for its object to discover the interest of states in adopting one mode of credit preferably to another, as to discover the consequences of every one; and to point out the methods of making them severally turn out to the best account for the state, considered as a body politic by itself, and for the individuals which compose it.

When so many different relations are taken in, the subject becomes much more complex, and therefore the consequences _which can only be guessed at_ must be less determinate: but on the other hand, it opens the mind, and suggests many hints which with time may be improved for the good of society.

People who barely relate political facts, only afford an exercise to the memory: those who deduce principles, and trace a chain of reasoning from them, give exercise to the understanding; and as a small spark may raise a mighty flame, so a hint thrown out by a slender genius may set all the great men of a nation on a plan of general reformation and improvement.

Let us now take a view of the state of public credit in England, at the peace of Ryswick; in order to shew how Davenant came to be so great an enemy to long funds, and more especially to perpetual interest. We shall at the same time point out from what causes the great change of sentiments at present proceeds.

At the peace of Ryswick, the debts of England, according to Davenant, in his fifth discourse upon the public revenues and trade of England, stood at 17 552 544_l._ sterling; call it 17 millions and a half, as we have no occasion to calculate with exactness.

Of this debt the capital of 3½ millions was sunk, as he calls it; because 1 300 000_l._ was on lives at 14 _per cent._ and what was over to make up the 3½ millions, was intended to remain a perpetual burthen on the nation.

For paying the interest of this sum, no less than 400 000_l._ a year was necessary, which makes on the whole above 11 _per cent._

But then it must be observed, that more than one third of the sum was upon lives at 14 _per cent._: the debt due to the bank, of which we have spoken in another place, was 1 200 000_l._ for which was paid 100 000_l._ a year, including 4000_l._ allowed for the charge of management: the remaining million was upon lottery tickets, bearing about 8 _per cent._ the price at which the bank had lent.

The second branch of debts was near 11 millions, which, he says, were in course of payment; because they were secured upon branches of revenue engaged for discharging them. A part of this class of debts was to be extinguished in the year 1700: and whenever that was done, then a proportion of the appropriated taxes, amounting yearly to above a million sterling, was immediately to be taken off.

The third class of debts were those not provided for at all; which in the place referred to, he makes to amount to no more than 3 200 000_l._ but he afterwards finds his mistake, and that they in fact amounted to above 5 millions and a half, which makes the debts of England at the peace of Ryswick, to have been near 20 millions.

Was it then any wonder, that a man who wished well to his country, should prefer borrowing upon short funds at any expence whatever in the mean time, rather than at perpetual interest, when he found that parliaments could not be prevailed upon to allow any tax to subsist one instant after the discharge of the debts for the payment of which it had been appropriated?

Besides, there was very little to be gained by borrowing upon long funds and perpetual interest, as long as the lenders considered their advantage to consist principally in getting their capitals refunded.

The plain matter of fact was, that trade at that time was only beginning to take root in England, and demanded funds to carry it on. The use of banks had not then been discovered, for turning property into money. Circulation, consequently, was confined to the coin; and profits on trade were very great. All these circumstances rendred capitals of essential use; and the consequence was, to raise interest to an excessive height.

Compare this situation with the present. Were the capital of 140 millions sterling thrown by Great Britain, in a few years, into the hands of the present creditors; were France, on the other hand, to throw in as much, what trade could absorb it? Capitals now are only of value in proportion to the interest they bring; and so long as the interest paid on public debts is sufficient to keep circulation full, and no more, interest will stand as it is: when that ceases to be the case, as in time of war, we see interest begins to rise; and when, on the other hand, the interest paid, proves more than sufficient for the uses of circulation, as upon a return of peace, then, from the same principles, interest must diminish.

Davenant, like an able politician, who had the state of facts before him, reasoned according to actual circumstances. Whatever was borrowed on long funds, was charged on the standing revenue of the state, which parliament was very unwilling to increase in proportion to the charges laid upon it. This, of itself, was argument sufficient with him to cast his view upon short appropriations, or upon his favourite object, of raising money within the year, to supply the exigencies of the state.

But in this operation he found great difficulties. In his treatise of ways and means, article _excises_, where he is searching for expedients to provide money for the war, he plainly shews a thorough knowledge of that imposition. It had taken place in England as far back as the great civil war, and formed at the revolution about ⅓ of all the revenue: but what is very extraordinary, and which at present will hardly be credited, the excise had at that time the effect of sinking the price of the subject excised, instead of raising the price of what was produced from it. Thus the excise upon malt, after the revolution, had the effect of lowering the price of barley, instead of raising the price of beer.

This effect of excises Davenant saw; from which he, and since him many more have concluded, that all excises fall ultimately upon the land.

This circumstance, together with a feeling for the interest of the great number of _idle_ poor at that time, who must constantly suffer by excises, engaged Davenant to propose having recourse to the land-property and poll-taxes, for raising, within the year, the sums required for carrying on the war.

According to his proposal, there was to be no less than 3 millions raised by a land tax, besides half a million by a quarterly poll, which was, at that time, above 100,000_l._ more than all the permanent taxes of England put together.

A proposal of this kind coming from Davenant, shews the difference of situation between those times and the present. On this subject more is to be learned by comparing facts, than by all the reasoning in the world.

We have seen how credit stood in England during the reign of William III. It was then in its infancy, and was set upon the principles of a free and limited authority, exercised by ministers of state at all times responsible to parliament at the risk of their heads, in case of any open violation of the public faith. This is the best of all securities against the bad exercise of power.

Whoever reads the admirable writings of Davenant, and compares his ideas with what experience has since taught us, concerning the nature of taxes and public credit, will plainly discover that the great distress of England at that time, proceeded from the following causes.

The enterprize they were engaged in, was far beyond their power to support, although they had the greatest part of Europe to assist them.

The bravery of the British nation was ill supported with money, the sinews of war.

The coin soon after the revolution fell into the greatest disorder, which sent it away; and no expedient was found to supply its place for the uses of domestic circulation; and, consequently, the fixed revenue could not be paid, nor industry carried on.

The people were unaccustomed to taxes: tunnage and poundage, the branch with which they were best acquainted, and which they bore with the least murmuring, because it was little felt by individuals, together with the excise upon beer and ale, the hearth money, the post-house, and wine-licences, composed the whole of the permanent revenue of the state, and amounted to about one million and a half sterling: besides which, the parliament had granted new customs (all to cease before 1690) to the amount of about half a million more, upon wines, tobacco, sugar, and French linnen. This was the state of the revenue at the revolution.

One would imagine that England, under so small a burthen, might have been able to make the greatest efforts.

Were we now to grapple with France, under such circumstances, what sanguine hopes would we not form of success! The case turned out widely different: the first benefit the nation expected in consequence of their liberty restored, was an abolition of the hearth money; a tax which raised over the whole kingdom, 245,000_l._ and was considered as an insupportable burthen.

Such sentiments and dispositions in the English nation, might have been a sufficient indication of what was to be expected from the war; the consequences of which had, before 1695, produced the following changes in the revenue.

The tunnage and poundage, which at the revolution produced 600,000_l._ was by this time reduced to 286,687_l._

The excise upon beer and ale, from 666,383_l._ was reduced to 391,275_l._

The hearth money was abolished.

The post-house, from 65,000_l._ was reduced to 63,517_l._

The wine-licences, from 10,000_l._ to 5000_l._

The temporary customs which subsisted at the revolution, were now expired, and had been either continued by new grants, or by others of the same nature introduced in their stead. The former had produced 415,472_l._ the new produced 373,839_l._

The last and most important grant of all, was an additional excise upon beer and ale, which produced 450,000_l._

The revenue at the revolution produced, clear of all charges, 2 001 855_l._ sterling. A revenue established at pretty much the same rate, and nearly on the same objects, with an addition of a new excise, which produced 450,000_l._ produced net in 1694, no more than 1 570 318_l._ so that, deducting the new excise, the old revenue was diminished in its produce, no less than 1 081 527_l._ or above one half, in five years time.

In a country like England, at that time, taxes were of little use to the state, and were an excessive burthen on the people.

What could they be paid out of? Not out of the value in the hands of the people; because there was no way provided for turning that value into money. The whole of the money coined before the end of the war in 1697, did not amount to 8½ millions. It was not to be expected that during the war, foreign coin was to come in, except in consequence of borrowing; and we may be very certain, that all that was borrowed, and a great part of what had been coined at home, had gone out from the year 1695 to 1697. Under these circumstances, the exchequer issued tallies of wood, a notable expedient for facilitating circulation! And the bank of England lent not one farthing upon mortgage: all that was possible to be raised on the land and on the people, by pound-rate, assessment, and poll-tax, was imposed.

Now let us recall our principles concerning circulation, alienation, and banking upon mortgage, and combine these with what we have so frequently repeated, and I think demonstrated, viz. that in proportion to the extent of alienation, and the demands for money, a circulating equivalent should be provided, so as to be ready at the hand of every person who has property to pledge for it; and then decide whether it was any wonder that credit in England should have been at so low an ebb at the peace of Ryswick; that taxes should have diminished in their produce; that interest should have risen to such an extravagant height; that the people should have groaned under a load from which they could not relieve themselves.

Under such circumstances, England appears to me in the light of a dumb man put to the torture in order to extort a confession.

Were eight or nine millions sterling in coin, and a few wooden sticks, the tallies, constantly sold at a great discount, a circulating value sufficient to supply the exigencies of a state which was spending annually at the rate of five or six millions?

The consequence of this total drain of money, was, that people could neither consume exciseable commodities, or pay the taxes laid upon their persons and solid property.

The excises failed, because the body of the people, who paid them, were interrupted in their industry, for want of money to carry on alienation. Those who were liable to the arbitrary impositions, such as the landlords, could not pay; because what they had, their land, could not be given in payment.

From what I have here laid together, we may determine, that as alienations among individuals cannot exceed the proportion of the circulating equivalent of a country, so a statesman when he intends _suddenly_ to augment the taxes of his people, without interrupting their industry, which then becomes still more necessary than ever, should augment the circulating equivalent in proportion to the additional demand for it.

This, according to my notions, cannot be so well compassed as, 1. by establishing banks of circulation upon mortgage: 2. by relieving those companies of the load of paying foreign balances by giving bills at par, or at a small exchange: and 3. by providing funds abroad for the payment of them, according to the principles above deduced.

Such expedients will work their effect, in a nation where the public faith stands upon the solid security of an honest parliament, and upon that responsibility which is fixed upon those who are trusted with the exertions of the royal authority.

I think I may illustrate this operation by a simile.

A gentleman chooses to form a cascade of the water which serves to turn his corn-mill; consequently, the mill stops: but in its stead, he immediately erects another which turns with the wind. Coin is the water, bank paper is the wind, and both are equally well calculated for the use they are put to.

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CHAP. IV.
_Of the State of public Credit in France before the reign of Louis XIV.
and of the Sentiment of the great Richlieu upon that Subject._

Having laid before my reader the sentiments of Davenant on the subject of public credit, which were analogous to the then state of England, it may be instructive to compare them with those of another very great man, in a rival nation; I mean the Cardinal de Richlieu.

The constitution of Great Britain at present, is pretty much what it was in Davenant’s time: and that of France does not differ widely from what it was at the death of Louis XIII.

Britain and France are two nations, rivals in every thing worthy of emulation, and similar in those distresses which are the inseparable concomitants of modern ambition, debts and taxes.

As long as the constitution of the two governments shall stand as at present, Britain will constantly have the advantage in borrowing: France will have it in paying off her debts. It is this contrast which engages me to enter into the following detail. I consider it not only as a piece of historical curiosity, but as a subject of profound reflection, from which much instruction may be gathered.

The fate of kingly power was decided, both in Britain and in France, much about the same time. In France, it was supported by Cardinal de Richlieu; in Britain, it was broken to pieces under Charles I.

Before that time there was no fixed form of government established in either country; nor can ever a regular constitution take place any where, until the mechanism of a state becomes so complex as to render changes extremely difficult. This is becoming the case more and more every day; and upon this and nothing else will depend the stability of our present forms.

Let us now take a view of the sentiments of a great minister, delivered in writing by himself, in his political testament; the authority of which would never have been called in question, had the matter it contains been properly attended to, and well understood.

It is in the 7th paragraph of the 9th chapter of the testament, where the Cardinal shews his ability in paying off the debts of France: and in going through the subject, he casually has thrown out several things, which enable us to form a judgment of the state of taxes, and of the effects they were found to produce in his time.

“It is pedantry,” says he, “to maintain that a prince has no right to draw money from his subjects, and that he ought to content himself with the possession of their hearts. None, however, but flatterers, the pest of society, can maintain, that he may draw from them, justly, whatever he thinks fit; and that his right extends, in this particular, as far as his will.”

The taxes of France at this time had been augmented far beyond heir due proportion; and this had produced many strange and contradictory phænomena; which, as we shall now see, misled the Cardinal in many respects; because his experience was not sufficient to discover the causes of them.

“The augmentation of impositions on the people,” says he, “does the King _so much_ hurt by raising prices, as to compensate all he can gain.” If we suppose that the King gained by the augmentation; that is to say, that the tax, when increased, really produced more than before, and raised prices proportionally; then the King could only lose his proportional part, but never the whole. If the tax, by being augmented, produced less than before, which was the case often, then he lost by a diminution upon his income, not by the rise of prices. But this was not the case; because deficiencies of that kind could not fall upon the King, but upon his farmers.

The true reason was, that the King paid most of his expences by assignments upon the taxes; and then, no doubt, the higher they were raised, and the more difficult to recover, the dearer every undertaking would cost the King.

This reasoning upon the effect of taxes shews, that at that time the doctrine of them was not well understood. No wonder: theory is not sufficient to lay open political consequences, even to the greatest genius. All our information as to these matters arises from experience, and all our instruction from our attention and reflection.

As a proof of this, he mentions, almost in the same place, an effect of the increase of taxes, which is quite contrary to the former.

“Consumption,” says he, “diminishes, as taxes augment.”

This is a contingent, but not a necessary consequence, as we have seen, and has the effect of lowering prices.

I mention these particulars, only to shew how little this great man had studied the principles of taxation, or combined the causes of those phænomena which he saw arising from them.

Such contrary effects could not fail to be felt, when taxes were raised in the manner usual at that time, and when no method was contrived for augmenting the currency.

In Richlieu’s time the custom was to treat with the _partisans_, as they were called, or undertakers for the farm of taxes; and for a sum of money, valued at a certain interest, to give them a right to levy certain impositions on the people, esteemed equivalent to the rate agreed upon; some in one province, some in another, as the parties could agree. Then the partisans fell to work with the people, and committed the most horrid extortions. In the 4th §. of his 4th chapter, he says, “The abuse is carried such a length, as to be quite insupportable, and must end in the ruin of the state; the people are plundered, not taxed; fortunes are made by rapine, not industry: using the partisans like spunges is very just; but liable, on the other hand, to great abuse, when not conducted with moderation and justice.” This is a very different system of taxation from that carried on in England in Davenant’s time, and must have produced effects very dissimilar.

But it may be asked, if these partisans in France had found out means of raising money, far beyond the King’s intention; what prevented the Cardinal from examining into such means, and using them in a gentle and equitable manner, to the extent only of satisfying the creditors for the money borrowed from them?

In those days several difficulties occurred, which rendered this expedient impracticable.

1_mo_, The partisans would lend in no other way; they would have nothing to do with the King as a debtor: his credit was not well established; and by having the direct administration of a tax, they considered themselves as more secure.

2_do_, Had the King levied the money on the people, and been paymaster to the creditors himself, there would have been no gains to the partisans but what were stipulated: had they exacted more than legal interest, they exposed themselves to great danger; and consequently would not lend. So, by delivering up the people to be plundered, the King made a better bargain, he thought, than any other way; and if the partisans plundered the people, the Cardinal plundered them in his turn.

3_tio_, At this time there were not, as now, merchants of extensive credit, and fair character, who serve as interposed persons for the whole money’d interest in Europe, and who can fill a subscription for millions with a single name.

The partisans themselves, as the Cardinal observes, had often neither money or credit at setting out: but by parcelling their undertaking into many hands, they got together what was necessary. Thus the subaltern associates were in a moment, like locusts, spread over the whole face of the country, and plundering went on in every quarter.

This represents a quite different system of credit from what we see established, even in France, at present; where the tax-gatherers are still loudly complained of, though much more than they deserve. The mode of raising the taxes is now most exactly specified by the King; and nothing more can be exacted than according to the plan laid down; but in every case severe penalties are imposed upon frauds, and when levied, are accounted for to the farmers; but when compounded for under-hand, sink into private men’s pockets.

In a country where taxes are rightly established, industrious people have no occasion to indemnify themselves by fraud for the taxes they pay; they have a more certain method of being refunded. This shall be explained in its proper place.

By this method of oppression in the Cardinal’s time, a great part of the odium was removed from the King, and cast upon the partisans. The people resembled a dog who bites the stick with which he has been struck, instead of biting him who holds it[21].

Footnote 21:

Thus were taxes established in France, in spight of the great aversion
of that nation to them. The exigencies of the state were apparent;
Princes were considered as under an absolute necessity to find money
at any rate; they appeared to be in the hands of unrelenting usurers,
who became the execration of the people, to whose fury they were
sometimes delivered over, when stripped of their wealth: the people
were now and then relieved of a part of their burthen; the tax
remained under milder management; formed an addition to the King’s
revenue, and served as a fund for future emergencies.

But the nature of man is such, that the more he grows in wealth, the
more the desire of spending it increases. Thus the fund provided for
unforeseen emergencies, is insensibly incorporated with that which is
appropriated for the current service of the state.

Nothing however is more certain than that in time of war, far greater
sums are required than any people can pay, without contracting debts.

Is it not then indispensibly necessary, either, 1_mo_, To have a sum
locked up in treasure? Or, 2_do_, A fund appropriated, to borrow upon
in time of war, which may serve to pay off the debts in time of peace?
Or, 3_tio_, To borrow upon the stipulation of an annual payment, which
may, in a certain number of years, acquit both interest and principal?
The first is the plan of the King of Prussia; the second that of
England; the third is, in a good measure, that of France: Holland
borrows no more, and pays as she can what she owes; Spain lives on her
income; and Austria remained in the old way till very lately, without
credit, and consequently without much debt.

I have now said enough to point out the method of borrowing money in France at this time, from which the nature of the security may easily be gathered.

The Cardinal, upon the supposition of an approaching peace, enters into the plan of paying off what had been contracted. He was resolved to preserve credit; for even at that time, the consequence of that great engine was sufficiently felt by this great man, to relieve the people, and to get rid of the debts.

After a long detail of all the branches of the revenue, and after shewing how they might be improved, he draws out a general state of them, and of the debts affecting them; and then adds, “The total revenue of the kingdom amounts to near 80 millions;” (the silver was then at 27 livres 10 sols the marc fine, which, valued at 2_l._ 4_s._ sterling, makes the 80 millions worth above 6 millions sterling) “of which there is above 45 millions engaged for the debts. By good management I pretend that this immense load of debts, which seems to be the ruin of the King, shall turn out to his ease and opulence. Some imagine it would be a right measure to free the state entirely of her burthen, (a general spunge) but as she cannot, certainly, support all the burthen, so neither does reason dictate that she should be entirely set free.” No modern statesman could form a better judgment of things. The Cardinal’s ideas are just and profound; and it is astonishing how a man uninstructed by our experience should see so far into remote consequences.

He next lays down different schemes for paying the debts, upon the return of peace and tranquillity. They are all arbitrary, more or less, according to the standard of English ideas of credit. But if we abstract from one expedient lately discovered, to wit, the diminishing the interest, and allowing the capitals to remain, I doubt if any modern statesman could discover any other than those which the Cardinal has proposed.

A preliminary step to all his schemes was, _by an act of power_, to reduce the debts which bore a higher interest, to that of the 16 penny, or to a little more than 6 _per cent._ This method of reduction has constantly been and is still practised in France.

Then he proposes to enter into an account with the creditors for the sums they had received; and to consider whatever they had obtained above the legal interest, as payments in part of the capital.

This scheme however he rejects, upon examination. He says it is agreeable to equity; but that it would have the effect of totally destroying all credit for the future.

The second expedient was, to reimburse the creditors the sums which they really paid for the annuities assigned to them: but that he found impossible to verify; because they had had the address to specify, in their contracts, sums far exceeding what they really paid. For this reason he rejects the second expedient also; and adopts a third, as the best plan of any for paying off the debts. This was, to value the capitals at what they then sold for in the market, before the peace was concluded.

This method appeared to the Cardinal the most equitable, at least he says so, and the only one practicable; but in my opinion it was the most arbitrary of the three; the most liable to abuse, and the most opposite to the principles of public credit, as at present established: and yet it is a thought, which, when conducted with justice, may upon some occasions answer excellent purposes, as I shall observe in a proper place.

Had he adopted the first expedient, of ascertaining the value of the real advance, there was an appearance of justice; because the creditors were thereby represented as usurers; and by repaying them what they had advanced, by the enjoyment of an income above the legal interest, he treated them with more indulgence than the laws allow between private persons: but when money was borrowed in time of war, a higher interest should have been allowed for it than in time of peace, when it was to be paid off; and therefore to take the standard of peace, in reckoning with the creditors who had lent in time of war, was an evident injustice.

Could he, according to the second scheme, have discovered exactly the sums which had been paid for the annuities given, and offered reimbursements upon that footing, less could have been said against it; because the mentioning more in the contract than what had been paid, was a palpable fraud against the King.

The third method, which the Cardinal approves of, contains this piece of great injustice, that the antient creditors of the state who had paid 12 years purchase for their contracts, that is, those who had lent at about 8 _per cent._ might by this scheme be paid off with one half of what they originally paid. If it be answered, that nothing is worth more than what it can bring; I answer, that it may be worth more than what it can bring _at a particular time_. During a war, an annuity which had been bought at 12 years purchase in time of peace, will fall to five, providing annuities can then be bought at that rate. The new loans constantly regulate the value of the old capitals; but upon a return of peace, they will rise to the original value.