tax and other direct taxes, which alone are susceptible of affording a rapid increase, affect comparatively but a small number of people, the question between raising the supplies within the year and adopting the loan system is really narrowed to this are the expenses of the war to fall entirely, or almost so, on the few who pay income-tax, or should they not, on the contrary, be borne by the people at large? There can be no hesitation, I imagine, as to how this question should be answered; and accordingly we are justified in concluding, that while our present mixed system of direct and indirect taxation is continued, and the necessities of the state require that the revenue on ordinary occasions should press so heavily as it does on the national resources, the cost of an expensive war must be met, at least partially, by raising loans.

SHALL WE CONTINUE A MIXED SYSTEM OF DIRECT AND INDIRECT TAXATION, OR ENDEAVOUR TO RAISE ALL THE REVENUE BY MEANS OF

AN INCOME TAX ?—This question suggests the consideration as to whether our financial system might not be thoroughly altered, all existing taxes abolished except the income-tax, and the latter so extended and modified as to embrace every kind of property, and reach every individual who at present contributes to the support of the state. Of late years, many have recommended a plan of such a nature, and among those who do so are several for whose opinion I entertain the highest respect. But the more I reflect on the subject, the stronger the difficulties appear to me of devising a general income tax which should be fair, and of collecting it afterwards from all classes of the community. The practice of nations, from the most democratic to the most despotic, affords no precedent for such a system of taxation, and the standard writers on political economy are also found opposed to it. Adam Smith* condemns it generally and unequivocally, under the name of a capitation tax proportional to the means of each contributor; and Mr. M'Culloch,† and Mr. J. S. Mill, who treat of the subject of direct taxation at pretty considerable length, arrive at the conclusion that an incometax should not be adopted as the sole instrument of finance.

A few years ago the question of financial reform was very much agitated, and of those who wrote or spoke on the subject very few were to be found agreed as to the mere conception of a fair income tax.§ This raises a formidable obstacle in the way of the proposed change in our financial system, as while the advocates of direct taxation are divided into so many sections, it can hardly be expected the public will defer to any one of the various theories they propound. And even supposing no such diversity of opinion existed, and that reasonable people were agreed as to what constitutes a fair

* Wealth of Nations, b. 5, chap. ii. art. iv.

† Taxation and the Funding System, part 1, chap. iv.

Principles of Political Economy, b. 5, chap. vi. s. 1, 2nd edition.

SA great number of the plans proposed for a perfect income or property tax are to be found in the Report of the House of Commons on the subject which appeared the year before last. To that of the actuaries, Mr. Gladstone assigns pre-eminence in impracticability. See pamphlet containing his financial statement of April 18th, 1853, (Parker and Son, London.) It is also exposed to grave objections on the score of justice; but in this respect it has many rivals.

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income-tax, I contend, nevertheless, it should not be made to serve as the sole instrument of finance, since it would be found impracticable to collect it from persons of small means, such as are the majority of the population. But the aggregate amount of these small incomes is, as it is well known, very considerable; so that were they to be exempted, a great portion of the national wealth would be withdrawn from taxation, and the remainder over-taxed in a corresponding degree.

In order to make an income-tax reach the labouring classes generally, it has been proposed that employers should deduct it when paying them. Now any one on reflection can hardly fail to perceive how very inexpedient it would be to introduce this additional element of discord into the relations, not always of the most friendly or confidential character, which actually subsist between masters and men. Neither could this plan be adopted with respect to persons such as cottier tenants and tradesmen of various classes, who work principally on their own account and not for any master, receiving at once in the price of what they produce the wages of labour and profits of capital.

But to levy the tax immediately from the poorer and more numerous members of the labouring classes, in the same way as we now do from persons whose incomes exceed £100 per annum, would not answer either. Very many of these live, as the expression is, from hand to mouth, spending a little more or less according to the fluctuations in their income, and living in general quite up to it. Weekly earnings and weekly expenditure are the rule among the working classes; and to seek to subject them to half-yearly, or even quarterly bulk payments, to meet the calls of the Chancellor of the Exchequer, would be an invasion of their fixed habits such as they would not patiently submit to. Indirect taxes, falling on them as they do in the shape of the enhanced prices of some of the articles they consume, are not exposed to this objection. They are levied pari passu with expenditure, and enter, as it were, unconsciously into the weekly or even daily calculations of the labouring classes. This difficulty it might be attempted to get over by calling on the workman for the income-tax weekly and not half-yearly. But this would increase enormously the cost of collection, and so remove one of the principal arguments in favour of direct taxation. Besides, these weekly payments would involve the necessity of weekly investigations into the pecuniary affairs of the contributors, which could hardly fail to generate feelings of irritation on the part of those subjected to them, extremely dangerous to the peace of the country.

The difficulty of ascertaining a workman's income, should he not wish to disclose it, is another circumstance not to be lost sight of. The rate of wages in any particular locality may be known pretty accurately, but who is to tell how long each labourer has been at work, and how long out of employment? The person or persons with whom he has worked might be applied to for information if he chose to name them; but they might not be able to give it, and certainly in cases where the same man has been employed by several, no one of them could tell how long his labourer had been

working for others, and how long on his own account without having any employer over him but the public at large. In case of collusion between masters and men, it would, of course, be all but impossible to discover the rate and amount of wages. And it is to be feared there are many employers who would collude for such a purpose, rather than increase the difficulty of dealing with their labourers by placing themselves in the obnoxious position of rigid

assistants of the tax collector.

Again, the roving habits of many of the working classes, and the want of publicity attending their movements, are also to be taken into account when deciding the feasibility of reaching them by an income-tax. There are some who might be assessed at one place to-day, and when the time of payment arrived, might be far enough off, without leaving the collector any clue to discover the railway, canal, harbour, drainage works or buildings, at whose construction they might then happen to be engaged.

From these considerations it is manifest that an income-tax is ill adapted to serve as an exclusive instrument of finance. If it be extended to all, it must prove extremely expensive to collect, and besides be so very vexatious to the majority of the working classes as to endanger the peace of the country, or at least accelerate fearfully the rate of emigration, which already, without any such incentive, is proceeding so fast as to excite considerable alarm. But if it be not extended to all, and still the entire revenue be raised by it, the incomes exposed to it will be greatly over-taxed, in violation alike of justice and expediency; and the danger of driving labour from the country be exchanged for the equally formidable evil of making capitalists and capital depart for other lands, where a less oppressive system of finance may be in operation. There are instances in history of states having gone to decay, or, at least, been fearfully injured, owing to the removal of the most intelligent and wealthy of the inhabitants, driven from the country by political injustice. A similar effect would doubtless be produced by financial injustice if carried to a great extent; and it behoves us, therefore, to take care not to introduce a system of taxation which might lead to so disastrous a consequence.

COMMON OBJECTIONS AGAINST CONTRACTING NATIONAL DEBTS.- -We have next to consider if the loan-system be so objectionable as it is usually represented. One of the faults most commonly found with the practice of contracting national debts is, that by so doing we take from the capital of the country what we want for the war, and thereby check production, and lessen the means of paying wages. In other words, that by raising loans we do not really avert in the slightest degree the inconvenience which would be felt were the supplies obtained at once by increase of taxation, but merely shift the burthen on those least able to bear it-the men who live by the sweat of their brow. But in this there are two errors. In so far as the objection applies to the loan system, it is not peculiar to it, but extends likewise to every mode of providing for government expenditure on a large scale.' If a man lends £100 to Government,

* "That taxation should not encroach upon the amount of the national capital, is

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or pays it in the shape of increased taxes, in either case he is equally less able, by the amount of £100, to employ labourers himself, or furnish others with the means of doing so. It is said, however, that as the contributor to taxes loses for ever what he advances, he will exert himself to make up the deficiency by saving what otherwise he would have expended unproductively, rather than suffer his capital to be diminished or its accumulation checked; whereas the subscriber to a loan, being in a position to get back at any moment by a transfer of stock the amount he furnished to Government, has no such inducement to undergo the sacrifice of practising extra economy. But it does not follow that the contributor to taxes will be able to follow his inclination; and if the subscriber to a loan has not so great an inducement to save in place of what he advances, yet the very fact of his coming forward voluntarily to lend to the state, shows that he is better able than his neighbours to save if he pleases. It should not be forgotten that the desire to avoid lessening his capital is only one of the motives which lead an individual to accumulate. The desire to increase it so as to be enabled to profit by any advantageous field of investment that offers, is another, very powerful, and which is called strongly into operation by the attractive terms usually offered by the state when contracting a new loan.

The second error, to be found in the opinion that Government by borrowing diminishes, pro tanto, the means of carrying on production and employing labourers, appears when it is attempted to apply the objection to the case of a country whose industrial condition is like that of Great Britain. There are some who would seem to imagine that when Government seeks a loan, merchants and manufacturers dismiss those they employ, and shut up their countinghouses and factories, delighted to exchange the trouble of business for the ease and luxury of an extensive fundholder. This is simply absurd, and I mention it merely as an instance of the extravagant views occasionally entertained on the subject. But the objection, when rationally put, amounts to this: by borrowing, Government becomes a competitor in the money market with those who seek capital to be employed in production, and according to what it thence carries away, the less will remain for the support of industry. In so far as this applies at all, it also, as was shewn before, applies to the case of taxes; but from the peculiar industrial condition of England, it may be proved that this objection to contracting a national debt is entitled in her instance to little consideration. England saves capital enough not only to support her own industry, but also to advance the means of carrying on production in foreign lands, to make loans to foreign states, and to furnish wherewithal to promote the most extravagant industrial speculations both at home and abroad. It is the very abundance of riches that leads rational beings to make such foolish invest

indeed of the greatest importance; but this encroachment, when it occurs, is not so much a consequence of any particular mode of taxation, as of its excessive amount. Principles of Political Economy, by Mr. J. S. Mill, b. v. chap. 11, sec. 7, second edition. This applies, as will readily be perceived, to loans as well as taxes.

ments, and we may be sure that when Government comes forward to raise a loan, men will not turn capital from employment in the work of production at home, but rather discontinue advancing the means of supporting unwise speculations and enterprises they never would have embarked in but for the want of a satisfactory field of investment, or else become less extensive holders of foreign stocks and shares.

It

The great difference between the effects on wages of employing wealth as capital, and expending it unproductively, results from this; that in the former case the labourers, in return for their remuneration, produce what will enable the capitalist to resume the work of production, and pay wages over again; while in the latter nothing remains to renew the fund for the maintenance of labour. is all the same whether the expenditure be intentionally unproductive in an economic point of view, or become so from the failure of the industrial enterprise in which it was embarked. What is expended in the payment of soldiers, and in the purchase of warlike stores will not, it is true, produce any return to keep up the means of advancing wages to labourers; but had it been devoted to the opening of worthless mines, for example, or to any other profitless enterprise; or, finally, had it not been saved but merely employed as income, the consequence would be precisely similar. And it is also to be remembered that even when loans absorb what would otherwise have been employed as capital, it is not the poorer labouring classes alone who suffer by the transaction; but every one, be he rich or indigent, who would have taken part in the business; with the sole exception of the individual who furnishes to Government the capital diverted from the work of production.*

The objection against the loan system entitled to most weight i that, when once a national debt is contracted, it is rarely paid off; and thus the state goes on, from loan to loan, until at length its finances become hopelessly disordered. During the last century and a-half, a debt of about £862,000,000 has been funded in England, and of this, up to the year 1849, but £71,000,000 have been paid off; viz. £2,000,000 within thirteen years of peace, when

Most persons cannot but be fully aware of this fact, but it is found convenient to overlook it, and rest their opposition to the loan system on the grounds of humanity. To those with whom philanthropy is a principle, and not a pretext, it must be very revolting and discouraging to see how frequently alleged sympathy for the poor is dragged forward by the political adventurer or the sophist, to support the most untenable propositions, and cry down all opposed to them. Protectionists talked as if engaged in defending the wages of labour from foreign competition, when in reality the greater portion of them were far more solicitous about the effects of free-trade on profits and rent. Those who have committed themselves to a project involving a disturbance of perplexing magnitude in the pecuniary accounts of the nation, by the substitution of tenpence for the pound as the unit of value, put themselves forward ostentatiously as the guardians of the poor man's penny against the attacks of the advocates of the only practicable system of decimal currency; and keep out of sight, as well as they can, the rather important circumstance that for those, like the poor, who make their bargains from day to day, and are not bound by contracts to endure for many years, a change in the money they employ produces but trifling and temporary inconvenience. And perhaps there is no question whose discussion is more frequently and unscrupulously embarrassed by reference to the supposed interests of the humbler classes, than the very one which forms the subject of the present essay.