Book V, Chapter III, 5

Raising the denomination of coins has been the usual device for disguising a genuine public bankruptcy as a supposed payment. If, for example, an act of parliament or a royal proclamation made a sixpence count as a shilling, and twenty sixpences as a pound sterling, someone who had borrowed twenty shillings, or nearly four ounces of silver, under the old denomination would pay under the new one with twenty sixpences, or somewhat less than two ounces. In this way, a national debt of about a hundred and twenty-eight millions—close to the principal of Great Britain's funded and unfunded debt—could be paid with about sixty-four millions in our present money. The payment would, of course, be nominal only: public creditors would in reality be defrauded of ten shillings in the pound of what they were owed. Nor would the calamity end with public creditors. The creditors of every private person would suffer a proportionate loss, bringing public creditors no advantage and, in most cases, inflicting a great additional loss on them. If public creditors were themselves generally heavily indebted to others, they could to some extent offset their loss by paying their own creditors in the same coin the public had paid them. But in most countries, most public creditors are wealthy people who are more often creditors than debtors in relation to their fellow citizens. A nominal payment of this sort therefore generally aggravates rather than relieves their loss and, without benefiting the public, spreads the calamity to many other innocent people. It brings about a general and deeply harmful upheaval in private fortunes, enriching in most cases the idle and extravagant debtor at the expense of the industrious and thrifty creditor, and transferring a great part of the nation's capital from hands likely to enlarge and improve it to hands likely to squander and destroy it. When a state must declare bankruptcy, as when an individual must, an honest, open, declared bankruptcy is always the course least dishonorable to the debtor and least harmful to the creditor. A state's honor is surely poorly served if, to conceal the disgrace of actual bankruptcy, it resorts to so transparent and so exceedingly harmful a trick.

Yet nearly all states, ancient and modern, have resorted to precisely this trick when pressed by necessity. At the end of the first Punic war the Romans reduced the As, the coin or denomination in which they reckoned the value of all their other coins, from twelve ounces of copper to only two ounces. They thus gave two ounces of copper a denomination that had previously expressed the value of twelve ounces. The republic could thereby pay the great debts it had incurred with one-sixth of what it really owed. We might expect so sudden and extensive a bankruptcy to have provoked a violent popular outcry. Apparently it did not. Like all other coinage laws, the law enacting it was introduced and carried through the people's assembly by a tribune, and it was probably very popular. In Rome, as in every other ancient republic, the poor were continually indebted to the rich and powerful. To secure their votes at annual elections, the latter lent them money at exorbitant interest; never repaid, these loans soon grew into sums too large for the debtor, or anyone else on his behalf, to pay. Fearing severe legal enforcement, the debtor had to vote, without any further gift, for the candidate his creditor recommended. Despite every law against bribery and corruption, candidates' generosity and occasional distributions of coin ordered by the senate were the chief sources of support for poorer citizens in the latter days of the Roman republic. To free themselves from this dependence on their creditors, poorer citizens continually demanded either the complete abolition of debts or what they called new tables: a law entitling them to full discharge upon paying only a specified proportion of their accumulated debts. The law reducing coins of every denomination to one-sixth of their former value let them discharge their debts with one-sixth of what they actually owed and was equivalent to the most favorable new tables. On several occasions the rich and powerful had to consent, to satisfy the people, to laws abolishing debts and introducing new tables. They probably agreed to this law partly for the same reason, and partly because freeing the public revenue could restore strength to a government they themselves principally directed. Such an operation would immediately reduce a debt of £128,000,000 to £21,333,333:6:8. During the second Punic war the As was reduced further, first from two ounces of copper to one, then from one ounce to half an ounce: to one twenty-fourth of its original value. Combining all three Roman operations into one would reduce a debt of a hundred and twenty-eight millions in our present money, all at once, to £5,333,333:6:8. Even Great Britain's enormous debt could soon be paid in this fashion.

Through such devices the coinage of, I believe, every nation has gradually been reduced further and further below its original value; the same nominal sum has come to contain ever less silver.

For the same purpose nations have sometimes debased the standard of their coinage by mixing in more alloy. If, for example, a pound weight of our silver coin contained eight ounces of alloy instead of eighteen penny-weight, as under the present standard, a pound sterling, or twenty shillings of such coin, would be worth little more than six shillings and eightpence in our present money. The silver now contained in six shillings and eightpence would thus be raised to nearly the denomination of a pound sterling. Debasing the standard has exactly the same effect as what the French call an augmentation, or a direct increase in a coin's denomination.

An augmentation, a direct increase in the coin's denomination, is always, and by its nature must be, an open and declared operation. Coins of lesser weight and bulk receive the name formerly given to coins of greater weight and bulk. Debasing the standard, by contrast, has generally been done in secret. The mint issues coins of the same denomination and, as nearly as it can contrive, the same weight, bulk, and appearance as coins previously in circulation that were worth much more. When king John of France [See Du Cange Glossary, voce Moneta; the Benedictine Edition.] debased his coinage to pay his debts, every officer of his mint was sworn to secrecy. Both operations are unjust. But a simple augmentation is an injustice done by open force, whereas debasement is an injustice done by treacherous fraud. Consequently, when the latter has been discovered—and it could never remain hidden for long—it has always aroused far greater indignation than the former. Coins have seldom been restored to their former weight after a substantial augmentation; after even the greatest debasements, they have almost always been restored to their former fineness. The people's fury and indignation could scarcely be appeased otherwise.

At the end of Henry VIII.'s reign and the beginning of Edward VI.'s, English coins were not only raised in denomination but debased in standard. Similar frauds were practiced in Scotland during James VI.'s minority. They have also been practiced occasionally in most other countries.

It seems wholly futile to expect Great Britain's public revenue ever to be completely freed, or even substantial progress made toward freeing it, while the surplus beyond the annual expense of the peacetime establishment remains so small. Plainly, it cannot be freed without either a very substantial increase in public revenue or an equally substantial reduction in public expenditure.

A more equitable land tax, a more equitable tax on house rents, and the changes to the present customs and excise system mentioned in the preceding chapter might perhaps bring a substantial increase in revenue without increasing the burden on most people, merely distributing it more equitably among all. Yet even the most optimistic planner could scarcely imagine an increase of this kind sufficient to offer reasonable hope of freeing the public revenue altogether, or even of making enough progress toward that end in peacetime to prevent or offset the further accumulation of public debt in the next war.

Extending the British tax system to all the empire's provinces inhabited by people of British or European descent might yield a much greater increase in revenue. Consistently with the principles of the British constitution, however, this could perhaps scarcely be done without granting all those provinces fair and equal representation in the British parliament—or, if you prefer, the states-general of the British empire. Each province's representation would bear the same proportion to the yield of its taxes as Great Britain's representation bore to the yield of taxes levied on Great Britain. The private interests of many powerful individuals and the settled prejudices of large groups of people do now seem to raise obstacles to so great a change that might prove very difficult, perhaps altogether impossible, to overcome. Without presuming to decide whether such a union is practicable, it may nevertheless be fitting, in a speculative work of this kind, to consider how far the British tax system could be applied to all the empire's provinces; what revenue it might produce if so applied; and how a general union of this kind might affect the happiness and prosperity of the provinces it embraced. At worst, such speculation can be considered only a new Utopia—less entertaining, certainly, but no more useless or fanciful than the old one.

The land tax, stamp duties, and the various customs and excise duties are the four principal branches of British taxation.

Ireland is certainly as able to pay a land tax as Great Britain, and our American and West India plantations are more able. A landlord subject to neither tithe nor poor rate must surely be better able to pay such a tax than one bearing both those burdens. Where there is no modus and the tithe is levied in kind, it reduces what would otherwise be the landlord's rent more than a land tax actually amounting to five shillings in the pound. In most cases such a tithe will exceed a fourth of the land's real rent, what remains after fully replacing the farmer's capital together with his reasonable profit. If all moduses and impropriations were abolished, the complete church tithe of Great Britain and Ireland could hardly be reckoned at less than six or seven millions. Without tithes in Great Britain or Ireland, landlords could afford an additional six or seven millions in land tax without being more burdened than a very large proportion of them are now. America pays no tithe and could therefore readily afford a land tax. Lands in America and the West Indies, it is true, are not generally let or leased to farmers and so could not be assessed from rent rolls. But in the 4th of William and Mary the lands of Great Britain were not assessed from rent rolls either: they were assessed by a very loose and inaccurate estimate. American lands could be assessed in the same way, or by an equitable valuation based on an accurate survey, such as those recently made in the Milanese and in the dominions of Austria, Prussia, and Sardinia.

Stamp duties could plainly be levied without alteration in every country where legal procedures and the deeds transferring real and personal property are the same, or nearly the same.

Extending Great Britain's customs laws to Ireland and the plantations would benefit both immensely, provided that it was accompanied, as justice requires, by an extension of freedom of trade. All the invidious restraints now burdening Ireland's trade, and the distinction between America's enumerated and non-enumerated commodities, would come to an end. Countries north of Cape Finisterre would be as open to every part of America's produce as countries south of that cape now are to some of it. As a result of uniform customs laws, trade among all parts of the British empire would be as free as Great Britain's coastal trade is now. The empire would thereby provide within itself an immense domestic market for every part of the produce of its various provinces. So great an expansion of their market would soon compensate both Ireland and the plantations for any harm they might suffer from increased customs duties.

Increasing the stated value of coins has been the most common way to disguise a real government bankruptcy as a supposed repayment. Suppose, for example, that an act of parliament or a royal proclamation made a sixpence count as a shilling, and twenty sixpences count as a pound sterling. Someone who had borrowed twenty shillings, or nearly four ounces of silver, under the old values could then repay the loan with twenty sixpences, containing less than two ounces. A national debt of about a hundred and twenty-eight millions, close to the principal of Great Britain's funded and unfunded debt, could thus be paid with about sixty-four millions of our present money. But this would only look like payment. Public creditors would actually be cheated of ten shillings in every pound owed to them. The damage would reach much further than public creditors: every private creditor would suffer a proportionate loss. The public creditors would gain nothing from this, and in most cases would suffer an additional large loss. If public creditors generally owed a lot of money to others, they could offset some of their loss by repaying those creditors in the same coins the government had given them. But in most countries, most public creditors are wealthy people who are more often creditors than debtors in their dealings with fellow citizens. This false payment therefore usually makes public creditors' losses worse instead of easing them. Without benefiting the public, it spreads the damage to many other innocent people. It causes a widespread and very harmful upheaval in private fortunes. Usually it enriches idle, wasteful debtors at the expense of hardworking, thrifty creditors. It moves much of the nation's capital from people likely to increase and improve it to people likely to squander and destroy it. When a state must declare bankruptcy, just as when a person must do so, an honest, open declaration is always the least dishonorable course for the debtor and the least harmful one for the creditor. The honor of a state is poorly served if it tries to hide the shame of a real bankruptcy with a trick so easy to see through and so harmful.

Yet almost every state, ancient or modern, has sometimes used this very trick when faced with such a need. At the end of the first Punic war, the Romans reduced the As, the coin or unit in which they measured the value of all their other coins, from twelve ounces of copper to just two ounces. In other words, they gave two ounces of copper the value formerly assigned to twelve ounces. The republic could then pay the great debts it had incurred with one-sixth of what it actually owed. We might expect so sudden and large a bankruptcy to have provoked a great public outcry today, but it apparently provoked none. A tribune introduced the law and brought it through the people's assembly, as with every other coinage law. It was probably very popular. In Rome, as in all the other ancient republics, poor people were constantly in debt to rich and powerful people. To secure votes in the yearly elections, the rich lent them money at exorbitant interest. The interest was never paid and soon grew into an amount neither the debtor nor anyone else could pay for him. Fearing harsh enforcement of the debt, the debtor had to vote for the creditor's favored candidate without any further reward. Despite every law against bribery and corruption, gifts from candidates and occasional distributions of money ordered by the senate were the chief means of support for poorer citizens in the later Roman republic. To escape their dependence on creditors, poor citizens constantly demanded either the complete cancellation of debts or what they called new tables. By new tables they meant a law allowing them to settle accumulated debts completely by paying only part of what they owed. The law that reduced all coins to one-sixth of their previous value let them pay their debts with one-sixth of what they really owed. It was as favorable to them as the best possible new tables. To satisfy the people, the rich and powerful had several times been forced to accept laws canceling debts or introducing new tables. They probably agreed to this law partly for that reason. They also hoped that freeing public revenue from debt payments would restore strength to the government they themselves largely controlled. A change of this kind would instantly reduce a debt of £128,000,000 to £21,333,333:6:8. During the second Punic war, the As was further reduced from two ounces of copper to one ounce and then from one ounce to half an ounce. It was thus worth one twenty-fourth of its original value. Combining all three Roman changes into one would reduce a debt of a hundred and twenty-eight millions in our present money, all at once, to £5,333,333:6:8. Even Great Britain's enormous debt could soon be paid that way.

Through measures like these, I believe the coins of every nation have gradually fallen further and further below their original value. The same nominal sum has gradually come to contain less and less silver.

Nations have sometimes debased their coins for the same purpose by mixing in more alloy. For example, our current standard permits eighteen penny-weight of alloy in a pound weight of silver coin. If there were instead eight ounces of alloy in that pound, a pound sterling, or twenty shillings in those coins, would be worth little more than six shillings and eightpence in our present money. The silver now found in six shillings and eightpence would then be given a value of nearly a pound sterling. Debasing the standard has exactly the same effect as what the French call an augmentation, a direct increase in the stated value of the coin.

An augmentation, or direct increase in a coin's stated value, is always open and must by its nature be openly acknowledged. It gives smaller and lighter pieces the name formerly given to larger and heavier ones. Debasing the standard, by contrast, has generally been done secretly. The mint issues coins with the same stated value and, as nearly as possible, the same weight, size, and appearance as the earlier, much more valuable coins. When king John of France [See Du Cange Glossary, voce Moneta; the Benedictine Edition.] debased his coins to pay his debts, he made every mint officer swear to keep it secret. Both practices are unjust. But a simple augmentation is an open act of force, while debasement is a dishonest fraud. As soon as debasement was discovered—and it could never be hidden for long—it always caused much greater outrage. After a substantial augmentation, coins have rarely returned to their earlier weight. But after even the greatest debasements, they have almost always returned to their former purity. Usually nothing less could quiet the people's anger.

At the end of Henry VIII.'s reign and the beginning of Edward VI.'s, English coins were both given a higher stated value and debased. Similar frauds were committed in Scotland while James VI. was a minor. They have also sometimes been committed in most other countries.

It seems pointless to expect Great Britain's public revenue ever to be completely freed from debt payments, or even to make much progress toward that goal, while so little revenue remains after paying the yearly expenses of the peacetime government. Clearly, this cannot happen without either a very large rise in public revenue or an equally large cut in public spending.

A fairer land tax, a fairer tax on house rents, and the changes to customs and excise described in the previous chapter might substantially increase revenue. They might do so without raising the burden on most people, simply by sharing it more fairly among everyone. Yet even the most optimistic planner could hardly expect such an increase to give reasonable hope of freeing the entire public revenue. It could hardly even achieve enough in peacetime to prevent or offset the further growth of public debt during the next war.

Much more revenue might be raised by extending Britain's tax system to every province of the empire inhabited by people of British or European descent. But under the principles of the British constitution, this could hardly be done without giving all those provinces fair and equal representation in the British parliament, or, if you prefer, in an assembly of the whole British empire. Each province's share of representatives would have to bear the same relation to its tax payments as Great Britain's share bears to the taxes collected there. The private interests of many powerful people and the deeply held prejudices of large groups now seem to place very difficult, perhaps impossible, obstacles in the way of such a major change. Without deciding whether such a union is possible, a speculative work like this can consider how far the British tax system could be applied to every province of the empire, how much revenue it could then raise, and how such a general union might affect the happiness and prosperity of its provinces. At worst, such speculation is a new Utopia, certainly less entertaining than the old one but no more useless or fanciful.

The land-tax, stamp duties, customs duties, and excise duties make up the four main branches of British taxation.

Ireland is certainly as able to pay a land tax as Great Britain, and our American and West India plantations are more able. A landlord who pays neither a tythe nor a poor’s rate must be better able to pay such a tax than one who pays both. Where there is no fixed substitute payment, or modus, and the tythe is collected in produce, it reduces what would otherwise be the landlord's rent by more than a land tax of five shillings in the pound would. In most cases such a tythe amounts to more than one-fourth of the land's true rent: what is left after the farmer's capital is fully replaced and he earns a reasonable profit. If every modus and every impropriation were removed, the full church tythe in Great Britain and Ireland could hardly be valued at less than six or seven millions. If neither country had a tythe, landlords could pay six or seven millions more in land tax without being more heavily burdened than very many of them are now. America pays no tythe and could easily pay a land tax. Land in America and the West Indies is generally not occupied by tenant farmers or leased to them, so it could not be assessed from rent rolls. But land in Great Britain was not assessed from rent rolls in the 4th of William and Mary either. It was assessed by very rough and inaccurate estimates. American land could be assessed in that way or by a fair valuation based on a careful survey, like the recent surveys in the Milanese and the dominions of Austria, Prussia, and Sardinia.

Stamp duties could plainly be imposed without any changes wherever the procedures of the courts and the documents transferring ownership of real and personal property are the same, or nearly the same.

Extending Great Britain's customs laws to Ireland and the plantations would greatly benefit both, provided that, as fairness requires, it also extended freedom of trade. All the resented restrictions now weighing on Irish trade, and the distinction between America's enumerated and non-enumerated goods, would end. Countries north of Cape Finisterre would be open to every kind of American produce, just as countries south of the cape are now open to some of it. With uniform customs laws, trade between all parts of the British empire would be as free as Britain's domestic coastal trade is now. The empire would offer an immense internal market for every product of its many provinces. Such a great expansion of the market would soon make up for everything Ireland and the plantations might lose through higher customs duties.