A Ruler doing Commercial Activity is Ruinous to the Tax Revenue

A dynasty may find itself in financial trouble because of its:

• luxury and high expenditures and
• the insufficiency of the tax revenue to pay them.

So it imposes customs duties on the commercial activities of its subjects.

Sometimes, it tortures its officials and tax collectors and sucks their bones dry (of a part of their fortune).

• This happens when officials and tax collectors have appropriated a good deal of tax money, which their accounts do not show.

Sometimes, the ruler himself may engage in commerce and agriculture, from a desire to increase his revenues. He sees that:

• merchants and farmers make great profits.

• their gains correspond to the capital they invest.

So he starts to acquire livestock and fields in order to cultivate them for profit, purchase goods, and expose himself to the fluctuations of the market.

He thinks that this will improve his revenues and increase his profits.

However, this is a great error. It harms the subjects in many ways.

1. Farmers and merchants will find it difficult:

• to buy livestock and merchandise
• to procure cheaply the things for farming and commerce.

The subjects have the same amount of wealth.

• Competition between them already exhausts their financial resources.

The ruler has so much more money than they.

• When he competes with them, they will not be able to obtain the things he wants.
• Everybody will become worried and unhappy.

2. The ruler can appropriate much of the agricultural products and merchandise:

• by force
• by buying things up at the cheapest price.

No one would dare bid against him.

• Thus, he will be able to force the seller to lower his price.

3. When agricultural products such as corn, silk, honey, sugar, etc or goods of any kind, become available, the ruler cannot wait for a favorable market and a boom, because he has to take care of government needs.

• Therefore, he forces the merchants or farmers to buy from him at the highest prices.

The merchants and farmers, on the other hand, will exhaust their liquid capital in such transactions.

• The merchandise that they acquire will remain useless on their hands.

• Then, they have to sell the goods that they were forced to buy from the ruler at the lowest prices during a slump in the market.

The merchant or farmer thus exhausts his capital and has to go out of business.

• This becomes an often repeated process.

The trouble and financial difficulties and the loss of profit which it causes the subjects, takes away from them all incentives to effort, thus ruining the fiscal structure.

Most of the tax revenues come from farmers and merchants, especially once customs duties have been introduced.

Thus, tax revenues vanish or become dangerously low when:

• the farmer gives up agriculture
• the merchant goes out of business

The ruler will realize that the tax revenue was bigger than the small profits that he reaps from trading himself.

Even if his trading were profitable, it would still deprive him of much of his commercial tax revenue.

• It is unlikely that customs duties would be levied on the ruler’s commercial activities.

Furthermore, the trading of the ruler may cause the destruction of civilization.

• This then would disintegrate the dynasty.

When the subjects can no longer make their capital larger through agriculture and commerce, it will decrease and disappear as the result of expenditures.

• This will ruin their situation.

The Persian kings only came from members of the royal house.

• They chose the king who possessed virtue, religion, education, liberality, bravery, and nobility.
• Then, they stipulated that he should be just.
• He was not to take a farm, as this would harm his neighbors.
• He was not to engage in trade, as this would of necessity raise the prices of all goods.
• He was not to use slaves as servants, since they would not give good and beneficial advice.

The finances of a ruler can be increased, and his financial resources improved, only through tax revenues.

• Tax revenues can be improved only through the equitable treatment of people with property and regard for them.
• This makes their hopes rise
  • They have the incentive to start making their capital bear fruit and grow.
• This, in turn, increases the ruler’s revenues in taxes.

The ruler engaging in commerce or agriculture, soon turn out:

• to be harmful to the subjects
• to be ruinous to the revenues
• to decrease cultural activity.

Amirs and other men in power who engage in commerce and agriculture eventually buy agricultural products and goods from suppliers at prices fixed by those amirs.

• Then, they resell these things to their subjects at prices fixed by themselves.
• This is even more ruinous for the subjects than the afore-mentioned procedure.

The ruler is often influenced to choose such a course by merchants and farmers.

• They work with him, but for their own profit, to garner a lot of money quickly through profits reaped from doing business without having to pay taxes and customs duties.

Exemption from taxes and customs duties is most likely to cause one’s capital to grow and bring quick profits.

• These people do not understand how much damage is caused the ruler by each decrease in tax revenue.
• The ruler, therefore, must guard against such persons.