Public Credit

In ancient times, the common practice was to hoard up treasures during peacetime for paying conquest or defence during wartime. They did not resort to taxation or borrowing in times of disorder and confusion.

• The Athenians, Ptolemies, and the other successors of Alexander amassed immense large sums.
• Plato says that the frugal Spartans had also collected a great treasure.
• Arrian and Plutarch took notice of Alexander’s riches from the conquest of Susa and Ecbatana, which came from the time of Cyrus.
• The Bible also mentions the treasure of Hezekiah and the Jewish princes.
• Profane history mentions that of Philip and Perseus, kings of Macedon.
• The ancient republics of Gaul had commonly large sums in reserve.
• Julius Cæsar seized treasure in Rome during the civil wars.
• The wiser emperors, Augustus, Tiberius, Vespasian, Severus, etc. always saved great sums against any public exigency.

On the contrary, our modern way is to mortgage the public revenues and to trust that posterity will pay off the debts contracted by their ancestors. That posterity then also rely on their own posterity out of necessity instead of choice.

The ancient maxims are more prudent than our modern ruinous practice. It has been possible to practice peacetime frugality as to discharge the debts from an expensive war.

A society’s public debt is not so different from that of an individual.

• If the public funds are greater, its expences are also greater.

• The lifetime of a society is much longer than a person’s lifetime – it should embrace maxims, large, durable, and generous, agreeably to the supposed extent of its existence.

The necessity of human affairs makes resort to chances and temporary expedients. But whoever voluntarily depends on debt does it not out of necessity, but out of their own folly.

The abuses of treasures are dangerous by:

• engaging the state in rash enterprizes, or
• making it neglect military discipline, in confidence of its riches.

The abuses of borrowing inevitably leads to poverty, impotence, and subjection to foreign powers.

According to ancient maxims, the public spending and incurring debt temporarily encouraged industry and made up for the calamities of war. Ministers tend to do it as it gives them glory without burdening the people with taxes.

This practice of contracting debt is almost abused in every government. It is imprudent to give a prodigal son a credit in every banker’s shop in London, just as it is to empower a statesman to contract debt to be paid by future generations.

The paradox is that debt gives us riches, but it also ruins us.

Why do creditors lend to government?

Securities are with us become a kind of money, and pass as readily as gold or silver. Wherever any profitable undertaking offers itself, there are always people available to embrace it no matter how expensive it is. A trader who invests in the public stocks is afraid to enter into the most extensive trade since he must have his funds ready to answer the most sudden demand made upon him. No merchant thinks it necessary to keep any considerable cash by him as he puts them in stocks.

Bank-stock, or India-bonds, serve the same purposes as public stock. The trader can sell them or pledge them to a banker in 15 minutes. They are not idle even when in his scritoire. These bring him in a constant revenue.

In short, our national debts furnish merchants with a species of money, that is continually multiplying in their hands. It produces sure gain, besides the profits of their commerce. This enables them to trade on less profit. The small profit of the merchant renders the commodity cheaper. This causes a greater consumption and quickens the labour of the common people. It helps to spread arts and industry throughout the whole society.

In England and in all states which have both commerce and public debts, there are men who are half merchants, half stock-holders. They are willing to trade for small profits because commerce is not their principal support. Their revenues in the funds are a sure resource for themselves and their families.

Were there no funds, great merchants can only invest in land which has many disadvantages compared to funds. Land requires more care, time, and inspection of the merchant. It is not easily converted into money. It soon converts the citizen into the country gentleman.

Men with large stocks and incomes can naturally continue in commerce if there are public debts. This reduces its profits, promotes circulation, and encourages industry.

These advantages are offset by the disadvantage of bringing people and riches to the capital, by the great sums, levied in the provinces to pay the interest. It gives an advantage to the merchants in the capital above the rest of the kingdom.

Is it for the public interest, that so many privileges should be conferred on London, which has already arrived at such an enormous size, and seems still encreasing?

I think that the head is too large for the body. But London is so happily situated that its excessive bulk causes less inconvenience than a smaller capital to a larger kingdom.

There is more difference between the prices of provisions in Paris and Languedoc, than between those in London and Yorkshire. The immense greatness of London, under a government which admits not of discretionary power, renders the people factious, mutinous, seditious, and even perhaps rebellious. But the national debts themselves tend to remedy this evil.

The first visible eruption of public disorders alarms all the stockholders for their property. It will make them fly to the support of government, whether menaced by Jacobitish violence or democratical frenzy.

Public stocks are a kind of paper-credit. They have all the disadvantages that money has.

They banish gold and silver from the considerable commerce of the state and reduce them to common circulation. This makes all provisions and labour dearer. The taxes, which are levied to pay the interests of these debts either raise the price of labour or oppress the poor.

Foreigners possess a great share of our national funds. They render the public, in a manner, tributary to them. They can, in time, bring our people and our industry.

Most of the public stock is always in the hands of idle people who live on the revenue of the industrious. Our funds, in that view, greatly encourage a useless and unactive life.

though the injury, that arises to commerce and industry from our public funds, will appear, upon balancing the whole, not inconsiderable,

But it is trivial relative to the prejudice in politics which is essential in nations who have transactions with other states in wars and negotiations.

The ill, there, is pure and unmixed, without any favourable circumstance to atone for it. It is an ill too of a nature the highest and most important.have, indeed, been told, that the public is no weaker upon account of its debts.

Since they are mostly due among ourselves, and bring as much property to one as they take from another.

It is like transferring money from the right hand to the left. This leaves the person neither richer nor poorer than before. Such loose reasonings and specious comparisons will always pass, where we judge not upon principles.

Is it possible to overburden a nation with taxes?

The very doubt seems extravagant; since it is requisite, in every community, that there be a certain proportion observed between the laborious and the idle part of it.

But if all our present taxes are mortgaged, must we not invent new ones?

And may not this matter be carried to a length that is ruinous and destructive?

every nation, there are always some methods of levying money more easy than others, agreeably to the way of living of the people, and the commodities they make use of.

In Great Britain, the excises on malt and beer afford a large revenue because the operations of malting and brewing are tedious and impossible to be concealed. At the same time, these commodities are not so absolutely necessary to life. Raising their price would very much affect the poor.

After the excises are exhausted, we must levy taxes!

It is clear that national debt must be limited and that taxes should not be so high.

There is something, therefore, in the case, beside the mere transferring of property from the one hand to another.

Suppose that:

• land is taxed at 18 shillings in the pound. The maximum acceptable tax is 20 shillings before commerce and industry is negatively affected.
• those funds are mortgaged to perpetuity

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The seeds of ruin are here scattered so well to show an unnatural state of society. The tax revenue from land rent and customs and excise will only go to the stockholders. These are men, who have no connexions with the state, can enjoy their revenue anywhere in the world. They will live in the capital or in great cities in stupid and pampered luxury without spirit, ambition, or enjoyment.

The stocks can be transferred instantly. It will seldom be transmitted three generations from father to son because these are in such a fluctuating state. If they belonged so long in one family, they convey no hereditary authority to the possessor.

In this way, the nobility is entirely lost, together with their military. Every man in authority will derive his influence from the sovereign himself.

Only mercenary armies will be able to suppress insurrections. Tyranny will no longer be resisted. Elections will be swayed by bribery and corruption alone. The middle power between king and people will be totally removed. A grievous despotism must infallibly prevail.

The landholders are:

• despised for their poverty, and
• hated for their oppressions.

They will be unable to oppose any law that imposes taxes which hurts commerce and discourages industry. The continual fluctuations in commerce require continual changes in the nature of the taxes. This exposes the legislature to the danger both of willful and involuntary error.

The whole system of government will be thrown into confusion by any great blow to trade, whether by injudicious taxes or by other accidents.

What can the public do to support its foreign wars and enterprizes and defend its own honour and interests or those of its allies?

I do not ask how the public is to exert such a prodigious power as it has maintained during our late wars; where we have so much exceeded, not only our own natural strength, but even that of the greatest empires.

This extravagance is the abuse complained of, as the source of all the dangers, to which we are at present exposed.

If we still suppose that great commerce and opulence remains even after every fund is mortgaged, how can the public support it?

It can only be done by a poll tax. But this policy will depend on whether the king has absolute master or is controlled by national councils, in which the annuitants bears the principal sway.

• If the prince is absolute, he can tax the annuitants. No oriental monarchy has yet attained this kind of despotism.

• If, on the contrary, the consent of the annuitants are needed for every taxation, they will never be persuaded to support the government. In some republics, of a 100th penny, and sometimes of the 50th is given to the support of the state. But this is always an extraordinary exertion of power, and can never become the foundation of a constant national defence.

British debt trap

Great Britain is visibly tending towards a state of languor, inactivity, and impotence from its debts. We cannot expect that our current or future ministry will be frugal, or that our foreign affairs will be long peaceful, as to reduce our debts.

Our national debt has two possibilities:

• the nation must destroy public credit, or
• public credit will destroy the nation.

Mr. Hutchinson over 30 years ago proposed the following to pay off our debts.

He asserted that it was false to think that the public owed this debt. He says that it must be paid by each person according to his property because levying excise is costly.

But he did not consider that the laborious poor pay a considerable part of the taxes by their annual consumptions, even if they individually pay small amounts. Property in money and stock in trade might easily be concealed or disguised. Visible property in lands and houses would really be the final resort to pay the debt. It would be an inequality and oppression, which never would be submitted to.

This might seem improbable, but when the nation becomes heartily sick of their debts, some daring projector might push for this.

I am reminded of a match of cudgel-playing fought in a China shop when I see princes and states fighting amidst their debts.

How can it be expected, that sovereigns will spare a species of property, which is pernicious to themselves and to the public, when they have so little compassion on lives and properties, that are useful to both?

The time will come when new public debt can no longer be repaid due to our nation’s cash or our faith being exhausted. If we are threatened with an invasion, a rebellion will break out at home. A squadron cannot be equipped for lack of money.

What will a prince or minister do?

The whole fabric, already tottering, falls to the ground, and buries thousands in its ruins. This is the ’natural death of public credit’ similar to a body that decomposes and dissolves.

Most of mankind are great dupes. Such a voluntary bankruptcy in England would create a violent shock to public credit.

It would be better for the nation to borrow again instead of declaring bankruptcy. An opulent knave, even though one could not force him to pay, is a preferable debtor to an honest bankrupt who has no power to pay.

The public is a debtor, whom no man can oblige to pay. Creditors will still lend because they are creditors.

A present necessity often forces states into measures which are against their interest. The two events above, poll taxes and bankruptcy, are calamitous, but not the most calamitous.

Thousands are thereby sacrificed to the safety of millions. But we are not without danger, that the contrary event may take place, and that millions may be sacrificed for ever to the temporary safety of thousands.

Our popular government will render it difficult for a minister to declare a voluntary bankruptcy. The house of Lords is composed of proprietors of land. They and the house of Commons have no great property in the funds.

Invasion from Debt

Our foreign enemies may be so politic as to discover that our safety is gone.

The balance of power in Europe historically has been maintained by our attention and assistance. But our children, weary of the struggle, might give up and see themselves and their creditors at the mercy of the conqueror.

This is the violent death of our public credit.