Book V, Chapter III, 6

Excise is the only part of the British tax system that would require any adjustment for application to the empire's different provinces. It could be applied to Ireland unchanged, since that kingdom's production and consumption are of precisely the same nature as Great Britain's. Applied to America and the West Indies, whose production and consumption differ so greatly from Great Britain's, it might require some modification, just as it does in England's cider and beer counties.

For example, a fermented drink called beer, though made from molasses and bearing little resemblance to our beer, forms a considerable part of the ordinary drink of Americans. Because it keeps for only a few days, it cannot, like our beer, be brewed and stored for sale in large breweries. Each household must make its own, just as it prepares its own food. To subject every household to the odious visits and inspections of tax collectors, as we do alehouse keepers and commercial brewers, would be wholly incompatible with liberty. If equality were thought to require a tax on this drink, one could tax the material from which it is made, either where it is manufactured or, if the circumstances of trade made that excise unsuitable, on its importation into the colony where it would be consumed. Besides the duty of one penny a gallon imposed by the British parliament on molasses imported into America, a provincial tax of eight-pence the hogshead is levied on molasses brought into Massachusetts Bay in ships belonging to any other colony, and another of five-pence the gallon on molasses brought from the northern colonies into South Carolina. Or, if neither method proved suitable, each family could pay an agreed assessment for its consumption of the drink: according to its number of members, as English households do for the malt tax; according to their ages and sexes, as with several taxes in Holland; or nearly in the way Sir Matthew Decker proposes that all taxes on consumable commodities be levied in England. As already observed, this form of taxation is not very convenient when applied to things quickly consumed. It might nevertheless be used where nothing better could be devised.

Sugar, rum, and tobacco are nowhere necessities of life, yet have become objects of almost universal consumption; they are therefore particularly suitable subjects of taxation. If union with the colonies took place, these commodities could be taxed before leaving the hands of their manufacturer or grower. Or, if that method did not suit those people's circumstances, the commodities could be placed in public warehouses both where they were produced and at every port of the empire to which they might subsequently be shipped. They would remain there under the joint custody of their owner and a revenue officer until released to a consumer, a merchant-retailer for domestic consumption, or a merchant-exporter; the tax would not have to be paid until that release. Goods released for export would leave duty-free, upon the provision of suitable security that they would actually be exported from the empire. These are perhaps the principal commodities for which union with the colonies would demand a substantial change in the present British tax system.

It must surely be impossible to determine with tolerable accuracy how much revenue this tax system might yield if extended to all the empire's provinces. In Great Britain it raises more than ten millions of revenue every year from fewer than eight millions of people. Ireland has more than two millions of people; according to accounts presented to the congress, the twelve associated provinces of America have more than three. Those accounts may, however, have been exaggerated, perhaps to encourage their own people or to intimidate the people of this country. Let us therefore suppose that our North American and West Indian colonies together contain no more than three millions, so that the entire British empire in Europe and America has no more than thirteen millions of inhabitants. If this tax system raises more than ten millions sterling from fewer than eight millions of inhabitants, it should raise more than sixteen millions two hundred and fifty thousand pounds sterling from thirteen millions. From this revenue, assuming the system could produce it, we must deduct the revenue usually raised in Ireland and the plantations to meet the expense of their respective civil governments. Over the two years ending March 1775, the expense of Ireland's civil and military establishment together with interest on its public debt averaged somewhat less than seven hundred and fifty thousand pounds a year. A very precise account put the revenue of the chief American and West Indian colonies, before the present disturbances began, at a hundred and forty-one thousand eight hundred pounds. That account, however, omits the revenue of Maryland, North Carolina, and all our recent acquisitions both on the continent and on the islands, which may perhaps make a difference of thirty or forty thousand pounds. For a round figure, then, let us suppose that supporting the civil government of Ireland and the plantations requires a million in revenue. There would remain fifteen millions two hundred and fifty thousand pounds for the general expenses of the empire and the payment of the public debt. But if one million can now be spared from Great Britain's revenue in peacetime to pay that debt, six millions two hundred and fifty thousand pounds could readily be spared from this increased revenue. This great sinking fund could also grow every year by the interest on the debt discharged the year before. It could thus grow rapidly enough to discharge the whole debt within a few years and completely restore the empire's presently weakened and languishing strength. Meanwhile, the people could be relieved of some of the most burdensome taxes: those on the necessities of life or on materials used in manufactures. The laboring poor could then live better, work more cheaply, and send their goods to market at lower prices. The cheapness of their goods would increase demand for them, and thus for the labor of those who made them. Greater demand for labor would both increase the number of the laboring poor and improve their circumstances. Their consumption would grow, and so would the revenue from all those articles they consume that remained subject to tax.

Revenue from this tax system might not, however, increase immediately in proportion to the number of people brought under it. Considerable indulgence would for some time be due to provinces newly subjected to unfamiliar burdens. And even when the same taxes were levied as precisely as possible everywhere, they would not everywhere yield revenue proportionate to population. In a poor country, little is consumed of the principal commodities subject to customs and excise; in a sparsely inhabited one, opportunities for smuggling abound. Among the lower ranks in Scotland, consumption of malt liquors is very low, and excise on malt, beer, and ale yields less than in England relative to population and to the rates of duty, which differ for malt because of an assumed difference in quality. In these particular branches of excise I do not think there is much more smuggling in one country than in the other. Duties on distilling, and most customs duties, yield less relative to population in Scotland than in England, not only because less of the taxed commodities is consumed but because smuggling is far easier. In Ireland, the lower ranks are poorer still than in Scotland, and many areas are almost as sparsely inhabited. Irish consumption of taxed commodities might therefore be lower relative to population even than Scottish consumption, while opportunities for smuggling might be almost as great. In America and the West Indies, white people even of the lowest rank are much better off than people of the same rank in England; they probably consume far more of the luxuries they ordinarily enjoy. Black people, it is true, make up the majority of the inhabitants of both the southern mainland colonies and the West Indian islands, and, being enslaved, are undoubtedly worse off than the poorest people in Scotland or Ireland. We should not, however, suppose on that account that they are fed worse, or consume fewer articles that might bear moderate duties, than even England's lower ranks. To make them work well, their master has an interest in feeding them well and keeping them in good condition, just as he has an interest in doing so for his working cattle. Accordingly, Black people almost everywhere receive an allowance of rum and of molasses or spruce-beer, as white servants do; that allowance would probably not be withdrawn if those articles bore moderate duties. Consumption of taxed commodities relative to population would thus probably be as high in America and the West Indies as anywhere in the British empire. Opportunities for smuggling, admittedly, would be far greater, since America is much more sparsely inhabited relative to its area than Scotland or Ireland. Yet if the revenue now raised by various duties on malt and malt liquors were raised through one duty on malt, the opportunity for smuggling in the most important branch of excise would almost entirely disappear. And if customs duties, instead of falling on nearly every kind of import, were restricted to a few of the most commonly used and consumed, and collected under the excise laws, opportunities for smuggling would be greatly reduced, though not eliminated so completely. With these two seemingly simple and easy changes, customs and excise duties could probably yield as much revenue relative to consumption in the most sparsely inhabited province as they now yield relative to consumption in the most populous.

It has been said, however, that the Americans have no gold or silver money: the country's internal trade runs on paper currency, while all the gold and silver that occasionally reaches them is sent to Great Britain in payment for the commodities we supply. Without gold or silver, the argument continues, taxes cannot be paid. We already receive all the gold and silver they possess. How can we draw from them what they do not have?

The present scarcity of gold and silver money in America results neither from the country's poverty nor from its people's inability to buy those metals. In a country where wages are so much higher and provisions so much cheaper than in England, most people must surely be able to buy more of them if doing so were necessary or convenient. The scarcity of those metals must therefore arise from choice, not necessity.

Gold or silver money is necessary or convenient for the conduct of either domestic or foreign business.

As shown in the second book of this Inquiry, any country's domestic business can, at least in peacetime, be conducted with paper currency almost as conveniently as with gold and silver money. Americans can always profitably employ more stock to improve their lands than they can readily obtain. It therefore suits them to avoid as much as possible the cost of a commercial instrument as expensive as gold and silver and to spend the part of their surplus produce that would have bought those metals instead on tools of trade, materials for clothing, parts of household furniture, and ironwork needed to build and expand their settlements and plantations: to buy not inert stock but active, productive stock. The colonial governments find it in their interest to furnish the people with enough paper money, and generally more than enough, for their domestic business. Some governments, notably Pennsylvania's, derive revenue by lending this paper money to their subjects at a specified rate of interest. Others, like Massachusetts Bay's, issue such paper money in extraordinary emergencies to pay public expenses and later, when it suits the colony, redeem it at the depreciated value to which it has gradually fallen. In 1747, [See Hutchinson’s History of Massachusetts Bay vol. ii. page 436 et seq.] that colony thus paid most of its public debts with a tenth of the money for which its bills had been issued. It suits planters to avoid the expense of using gold and silver money in their domestic dealings; it suits colonial governments to supply a medium that, although it entails some very considerable disadvantages, lets them avoid that expense. Excess paper money necessarily drives gold and silver out of domestic transactions in the colonies for the same reason it has driven those metals from most domestic transactions in Scotland. In neither country has poverty caused this excess of paper money; it is the people's enterprising and speculative spirit, their desire to employ all the stock they can obtain as active and productive stock.

Excise is the only part of the British tax system that would need any changes to suit the empire's different provinces. It could be applied to Ireland without changes, because what that kingdom produces and consumes is of exactly the same kind as in Great Britain. America and the West Indies produce and consume very different things, so some adjustment might be needed there, just as the excise is adjusted between England's cyder and beer counties.

For example, Americans commonly drink a fermented liquor called beer, though because it is made from molasses it is very unlike our beer. It lasts only a few days. Unlike our beer, it cannot be made in large breweries and stored for sale. Each family must brew its own, just as it cooks its own food. It would be entirely against liberty to make every family submit to the hated visits and inspections of tax collectors, as ale-house keepers and commercial brewers do. If fairness called for taxing this drink, its ingredients could be taxed where they are made. Or, if the nature of the trade made such an excise unsuitable, a duty could be charged when they enter the colony where the drink will be consumed. In addition to the duty of one penny a-gallon that the British parliament imposes on molasses imported into America, Massachusetts Bay charges a provincial tax of eight-pence the hogshead on molasses brought in ships belonging to another colony. South Carolina charges five-pence the gallon on molasses brought from the northern colonies. If neither approach worked well, each family could pay a fixed amount for its use of the drink. That amount could depend on the number of family members, as it does when English families pay a fixed amount for the malt tax. Or it could depend on their ages and sexes, as several taxes in Holland do. This is also roughly how Sir Matthew Decker proposes collecting all English taxes on goods people consume. As already noted, this way of taxing goods that are quickly consumed is not very convenient. It could still be used where no better way is available.

Sugar, rum, and tobacco are not necessities anywhere. Almost everyone consumes them, so they are particularly suitable for taxation. If the colonies joined in a union, these goods could be taxed before they left the hands of their makers or growers. If that did not suit the makers or growers, the goods could instead be placed in public warehouses where they were made and at every port in the empire to which they were later shipped. There they would remain in the joint custody of the owner and the revenue officer until delivered to a consumer, to a retail merchant for domestic sale, or to an exporting merchant. The tax would not have to be paid before that delivery. Goods released for export would be free of duty if adequate security was provided to ensure they actually left the empire. These are probably the main goods for which union with the colonies would require substantial changes in the current British tax system.

It is certainly impossible to say with reasonable accuracy how much revenue this system could raise if extended across every province of the empire. In Great Britain it collects more than ten millions a year from fewer than eight millions people. Ireland has more than two millions people. According to accounts presented to the congress, the twelve associated provinces of America have more than three millions. Those figures may be exaggerated, perhaps to encourage their own people or frighten ours. So let us suppose that our North American and West Indian colonies together have no more than three millions people, and the whole British empire in Europe and America no more than thirteen millions inhabitants. If the system raises more than ten millions sterling from fewer than eight millions people, it should raise more than sixteen millions two hundred and fifty thousand pounds sterling from thirteen millions. From that sum, if the system could indeed raise it, we must subtract the revenue normally collected in Ireland and the plantations to pay for their civil governments. On average over the two years ending March 1775, the civil and military establishment of Ireland and interest on its public debt cost a little less than seven hundred and fifty thousand pounds a year. According to a very precise account, the main American and West Indian colonies raised a hundred and forty-one thousand eight hundred pounds before the present troubles began. This account leaves out the revenue of Maryland, North Carolina, and all our recent acquisitions on the continent and the islands. That omission may make a difference of thirty or forty thousand pounds. For the sake of round numbers, let us say that the civil governments of Ireland and the plantations need a million in revenue. That leaves fifteen millions two hundred and fifty thousand pounds to meet the empire's general expenses and pay its public debt. If Great Britain can spare a million of its present revenue for debt repayment in peacetime, it could easily spare six millions two hundred and fifty thousand pounds from this greater revenue. This large sinking fund could grow each year by the interest saved on debts paid off the year before. It could grow so quickly that within a few years it would pay off the whole debt and fully restore the empire's present weakened and fading strength. Meanwhile, people could be relieved of some of the heaviest taxes, especially those on life's necessities and manufacturing materials. Poor laborers could then live better, work at lower cost, and bring cheaper goods to market. Cheaper goods would bring greater demand for them and for the labor that makes them. Higher demand for labor would increase both the number of poor laborers and their standard of living. They would consume more, raising the revenue from those goods they bought that remained taxed.

Revenue from this tax system might not immediately rise in proportion to the number of newly taxed people. For some time, provinces newly subjected to unfamiliar taxes would deserve generous treatment. Even once the same taxes were collected as consistently as possible everywhere, they would not yield revenue proportional to population everywhere. In a poor country, people consume very little of the main goods subject to customs and excise. In a sparsely settled country, there are many opportunities to smuggle. Scotland's poorer people drink very little malt liquor. Its excise on malt, beer, and ale raises less than England's relative to population and tax rates, though the rate on malt differs because of a supposed difference in quality. I do not think there is much more smuggling of these particular goods in either country than in the other. Excise duties on distilling and most customs duties yield less in Scotland than in England relative to population. This is due both to lower consumption of the taxed goods and to the much greater ease of smuggling. Ireland's poorer people are poorer still than Scotland's, and many parts are nearly as sparsely populated. Consumption of taxable goods per person might therefore be still lower than in Scotland, with nearly the same ease of smuggling. In America and the West Indies, white people even of the lowest rank are much better off than their English counterparts. They probably consume far more of the luxuries they commonly enjoy. Black people make up most of the inhabitants of both the southern mainland colonies and the West India islands. They are enslaved and certainly worse off than the poorest people in Scotland or Ireland. But we should not assume they are less well fed, or consume fewer goods subject to moderate duties, than even England's poorer people. To make them work well, it is in their master's interest to feed them well and keep them in good condition, just as he does his working cattle. Enslaved Black people accordingly receive an allowance of rum and of molasses or spruce-beer almost everywhere, just as white servants do. Moderate duties on these goods would probably not take that allowance away. Consumption of taxed goods per person would therefore probably be as high in America and the West Indies as anywhere else in the British empire. Smuggling would certainly be much easier, since America has far fewer people relative to its area than Scotland or Ireland. Yet if the revenue now collected from separate duties on malt and malt liquors came instead from a single duty on malt, the opportunities to smuggle goods covered by this most important part of the excise would nearly disappear. And if customs duties covered only a few widely used and consumed imports rather than almost every imported good, and were collected under the excise laws, smuggling opportunities would be greatly reduced, though not eliminated. With these two seemingly simple and easy changes, customs and excise duties would probably raise as much revenue relative to consumption in the least densely populated province as they now raise in the most densely populated one.

It has been said that Americans have no gold or silver coins. They use paper money for trade within their country and send any gold and silver that comes to them to Great Britain to pay for the goods we supply. But, the argument continues, taxes cannot be paid without gold and silver. We already receive all the gold and silver they have. How could we take from them what they do not have?

The present shortage of gold and silver coins in America does not mean the country is poor or its people cannot afford those metals. Wages are much higher there than in England, and food costs much less. Most people there must surely have enough to buy more gold and silver if they needed it or found it useful. The shortage is therefore a matter of choice, not necessity.

Gold and silver coins are needed or useful for carrying on either domestic or foreign business.

As shown in the second book of this Inquiry, every country can conduct its domestic business with paper money nearly as conveniently as with gold and silver coins, at least in peacetime. Americans can always profitably use more stock to improve their land than they can easily get. It suits them to avoid the expense of using gold and silver as tools of trade. They prefer to use the surplus produce that would buy those metals to buy tools of trade, materials for clothing, parts of household furnishings, and the ironwork needed to build and expand their settlements and plantations. They buy active, productive stock rather than stock that sits idle. Colony governments have an interest in supplying enough paper money to cover domestic business, and usually supply more than enough. Some, especially Pennsylvania's government, earn revenue by lending this paper money to their people at a stated percentage of interest. Others, such as Massachusetts Bay's government, issue paper money in emergencies to pay public expenses. Later, when it suits the colony, they redeem it at the lower value to which it has gradually fallen. In 1747, [See Hutchinson’s History of Massachusetts Bay vol. ii. page 436 et seq.] that colony used this method to pay most of its public debt with one-tenth of the money for which its bills had originally been issued. Planters find it useful to avoid the cost of gold and silver coins in domestic transactions. Colony governments find it useful to give them a means of payment that saves that cost, despite its serious drawbacks. Excess paper money necessarily drives gold and silver out of domestic transactions in the colonies, just as it has driven them out of most domestic transactions in Scotland. In both places, this excess paper money arose not from poverty but from people's enterprising spirit and ambitious plans: they want to put all the stock they can get to active and productive use.