CHAPTER NINTH. NATIONAL ECONOMY OF FINANCE AND TAXATION. 171. The differentiation of function that accompanies the progress of society renders necessary the existence of a body of paid officials to carry on the government (including police and military forces), and numerous other expenditures. In the earliest time the head of the family-the chief of the tribe-the lord of the manor-bore rule within limited areas. without receiving fee or salary. He was the lawgiver, the law-ward (lord), the executor of the law, by reason of his position as chief proprietor or as head of the kindred. But in the growth of nationalities a great step was effected when the king's judges rode circuit through the whole realm, with cognisance of all or nearly all causes, and when the king's shire-reeve (sheriff) took the place of the feudal and hereditary count at the head of the county. It was felt that there was a great gain in the increased responsibility and in the fairness of professional judges, though the new system was far more expensive. The remnants of the old system that exist to this day in England in the unpaid justices of the peace, chosen from the gentry and clergy, is felt by the common people to be a great burden. It gives the power and the interpretation of the laws into the hands of men who are swayed by the prejudices of a class. "Justices' justice" is a proverbially poor sort, and one of the chief demands of the working classes in the agricultural shires is: "Give us stipendiary magistrates!" So in Ireland, the "assistant barristers "professional judges supreme on the local bench, though bearing a very modest name-are found to be the mainstay of the poorer classes in all matters of the interpretation of the law. § 172. As in the enactment, interpretation and administration of the laws, so in the enforcement of civil order and the national defence,-every class of transactions is a source of expense. The soldier and the policeman discharge duties that were once incumbent upon every male citizen; they set the citi zen free to employ himself as he will, and he must pay for the release. And if the state interprets its vocation as extending to the sanitary and intellectual welfare of the people, the expense involved becomes still greater. It must take measures itself, or require municipalities to take measures, to keep its cities in such a state of cleanliness as shall bring up the average health of the people to a high standard. It must establish public schools and colleges, and training schools for teachers, that the rising generation may not grow up in ignorance. It must set up postoffices, to promote easy intercourse between the different parts of the nation. If it regard religious knowledge as essential to good citizenship, it may endow a clergy devoted to diffusing it. In these and a thousand other ways it comes to pass that a civilized nation is obliged to pay for the advantages of a free government, and the state must assess upon itself in some form taxes to secure a sufficient national revenue. Through fees, fines, costs of suits, &c., it can throw a part of the burden upon those who are most immediately concerned, but a large part of it must be discharged by the community as such. § 173. The problem of so imposing taxes that they may be as little burdensome as possible is one that has perplexed statesmen in all ages. Some of the methods taken to raise money for current expenses without taxation are sufficiently curious. Down to quite recent times lotteries have been thus made use of on both sides of the Atlantic,-the people greedily buying a "ticket," each acting in the hope that one of the great prizes will fall to him. This plan is now justly discredited as lowering the tone of social morality by giving a legal sanction to gambling, and fostering thriftless and reckless habits. Monopolies have been another device of state-craft. The notion that the state possessed exclusive control of certain trades, and of various branches of commerce, was general in the middle ages. Even where no fee was exacted, it was usual to require a charter from the king for every trade-guild, and this was afterward made a source of revenue to the government. James I. DIRECT AND INDIRECT TAXES. 181 of England made himself especially odious to the mercantile classes by granting monopolies of trade in great numbers to his court favorites, and to those who would pay roundly for them. This system was in some cases not without its merits as a promoter of enterprise, apart from its relation to national revenue. In some cases great undertakings would not have been begun without the grant of a temporary monopoly like that given to the East India company, and to the companies that effected the first English settlements in America. Monopolies of the tobacco trade exist in France; of salt in British India. The licenses given in England to auctioneers, pawnbrokers, pedlars, and to those who sell tea and tobacco, and the licenses required in most countries to sell spirituous liquors, are something of the same nature. The income from the royal demesnes was in early times a chief source of revenue. But these have been so largely reduced by alienation, and are so small in proportion to the revenue now required, that they play little or no part in national finance. The sale of public lands once brought a very considerable revenue to the United States, but through the preëmption and homestead laws this source of revenue is now almost closed. § 174. Taxation, direct or indirect, is now the chief source of revenue. The former is levied either (1) upon the people according to numbers, or (2) on their property, real and personal, according to its value, or (3) on articles of luxury in use and possession, or (4) on the annual income of the people. The latter is levied on articles produced, usually those that are not of prime necessity, or on imported goods, usually such as are luxuries, or can be made at home. The comparative merits of direct and indirect taxation have been much disputed. Both forms exist in this country, the former being that chiefly employed by the state and municipal governments, while since the repeal of the income tax the revenues of the United States are mostly derived from indirect taxes. § 175. Indirect taxes are so called because they are not paid into the treasury by the person who really bears the burden. The payer adds the amount of the tax to the price of the commodity taxed, and thus the taxation is concealed under the increased price of some article of luxury or convenience. The distribution of such taxation by the payer among his customers is not so easy a matter as is supposed. English economists, applying their formula, "all things find their level," have treated this distribution as a thing of course. But experience shows that the incidence of taxation is not determined by laws as rigid as those of hydraulics. A tax is often paid directly and finally by the person on whom the law imposes it, and makes no change in prices. Were it otherwise direct taxation would be impossible, and the rich man, when assessed upon land, luxuries or income, would pass the burden on to his dependent neighbors. It is claimed as a merit of indirect taxation that vast sums may be thus raised without exciting dissatisfaction, or even attracting attention; that duties which bring the government forty or fifty millions cost each consumer but a few cents a week, and are paid in almost daily instalments. As Theodore Parkerarguing against this method-puts it: "The people must pay and not know it; must be deceived a little, or they would not pay after this fashion." The expediency of the method is all the more questionable in view of this fact. In a free country, where public opinion is the force that directs and controls national policy, it is eminently desirable that the people should feel that they are taxed, and that every appropriation of the legislature comes out of their pockets. "A free people ought to know what they pay for their freedom, and pay it joyfully; and they should as truly scorn to be cheated into the support of their government as into the support of their children. In the next place, a large revenue is no blessing. A revenue rigorously proportioned to the wants of a people is as much as can safely be trusted to men in power" (Dr. Channing). Another objection is that nearly all indirect taxes are burdensome checks upon societary circulation and the interchange of services, not the less really such because their action is not sc DIRECT AND INDIRECT TAXES. 183 easily perceived. The amount of water in the channels of business may be lowered but a few inches, but that few inches turns shallow places into shoals, and impedes the whole current. The poor especially suffer under this system; these little assessments come upon them pretty much in proportion to their numbers, not at all in proportion to their means. It is said that they can exempt themselves by ceasing to use the commodities taxed, none of which are articles of prime necessity. So they would, perhaps, if they realized how much they were paying in the course of the year, but the "few cents a week" is taken so quietly that it is not felt to be the burden that it really is. It may safely be laid down that indirect taxes should be assessed only on those articles whose consumption it is desirable to discourage, and if it be possible with a view to discourage them, rather than to revenue. For this reason all internal revenue duties, except on spirits, tobacco and the like,—all taxes upon the capital or dividends of corporations who have not received a monopoly of their business, should, unless urgently required for revenue, be wiped from the Statute Book. Stamp duties are sometimes indirect and sometimes direct. The stamps put upon mercantile paper, receipts, and the like, come under the former head, and are objectionable. They resemble the alcavala, or tax upon every transfer of property that did so much to blight the industry of Spain. Taxes imposed in the same way upon inheritances and wills are not so objectionable, being direct taxes, but they are assessed upon property that is likewise subject to income or property taxes. They are not imposed in this country, although there are taxes upon "collateral inheritances" in some states; but the stamp taxes on beer-kegs and on cigar-boxes are instances of direct taxation by means of stamps. § 176. Experience shows that as a rule, lighter taxes of the indirect sort yield a larger amount of revenue than those that are heavier. In political arithmetic two and two do not always make four. Thus Sir Robert Peel and Mr. Gladstone achieved their great reputation as financiers partly through their raising a |