XXI.

THE THEORY OF MODERN TAXATION.

The financial situation in 1688 and its difficulties, contrasted with those of 1640-The two Revolutions compared-Customs and excise-The analysis of taxation-The land tax―The prevalence of smuggling-Walpole, his fortunes and his policy-The wars of the eighteenth century, of the Austrian succession, and of American Independence-The growth of debt and taxation-The taxation of inheritances-Mr. Mill's theory-The avoidance of legacy duties by the rich-The income tax and its history-An income tax intrinsically unfair-Later British finance.

THE second English Revolution, as I am accustomed to call the events of 1688, in contradistinction to the first, by which I mean the events of 1640, was from the beginning characterized by a new system of taxation. The new departure was, if you will, inchoate, clumsy, blundering, experimental. It deserves these and perhaps stronger epithets. But never were a set of men put into a more difficult position than the financiers of William's reign were. They were entirely new to the most difficult business in all finance, to the perpetual puzzle of all inventors of taxes, which is-1. What will people bear without resenting the action of government? 2. What kind of tax is least likely to cripple industry and derange trade? 3. If taxes, which satisfy people or at least do not dissatisfy them, are imposed, what machinery can be relied on for collecting them? Now at the Revolution projectors of new taxes were swarming. The pamphlets of the age are full of projects, submitted to the finance minister and the public, from which a plentiful revenue is

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promised, without loss or inconvenience to the persons who are to contribute the tax. It has been my business, for several reasons, to examine with some minuteness the vast mass of pamphlets in the Bodleian Library, and if one could argue from the multitude of suggestions, financial shrewdness was at the time a peculiar gift of the English public. When one examines the proposals, one is able to see whence Swift derived the truest and most caustic part of the comments which he makes about the occupations of the political philosophers of Laputa.

The situation was peculiar. One part of the finance of Cromwell, heavy direct taxation of land, was intolerable, though it had to come in the end. Another part of it, an octroi duty, paid under the name of excise, by every purchaser, when he bought articles of necessity and convenience, was odious in the last degree, both to dealer and consumer-to the former, because it made him a responsible tax-collector for the government; to the latter, because it made the presence of the government visible in its least attractive and conciliatory function, in every part of the business of life. It was no doubt a relief to know that arbitrary government by king and courtiers was at an end. It was still pleasanter to find that ecclesiastical tyranny was checked. But as a rule, the victims of arbitrary government are few. To the mass of men, the highhanded violation of law and order, under the pretence of maintaining law and order is rarely visible; for, in those ages at least, the government chastised those only who professed to be the leaders in the popular cause, and did not organize a system of terrorism against the whole people. I imagine that the Star Chamber and the High Commission Court were more an object of alarm and anger to the mass of those men who met in November, 1640, than they were to the peasants and shopkeepers whom the Hampdens and Pyms, the Hydes and Seldens, the Cromwells and St. Johns represented. But in all which makes taxation vexatious Cromwell's excise was more hateful than Charles' ship money. Besides, when people get angry, and call the fiscal system of a country "oppression, thraldom, and misery," it matters little to them that the charges of which they complain are imposed by constitutional authority. It is no doubt a great thing for a government to shape its policy under the apparent control of a Parliament, and with its sanction. But men

who believe that they are oppressed by a Parliament will question its authority, and even say that it has been recreant to its indisputable duty and to its admitted pledges.

Again, it was perhaps no great boon to have exchanged the control of Laud's bishops and other officials, the etcetera of the famous oath, for a prying vexatious directory, engagement, assembly, Presbytery, or whatever other engine of theological control was evolved from the Babel of sects. Men wished in some vague manner to be free, though they were far from seeing that toleration or equality in theological matters was the only true freedom. But they found that they had exchanged the free and easy parson, who did not come very willingly into Laud's schemes, for a sour and vexatious fanatic. I do not indeed believe that the Puritan movement, except locally, embraced the country folk. I cannot otherwise account for the influence which the rural clergy, poor and low born as most of them were, exercised after the Restoration, or for the general popularity of the Clarendon code. It must, I think, be plain that the Commonwealth contrived to destroy its own principal agent, the organization of the Puritans. It might have done this, and the morality of the movement have survived. The mass of the English people took no part in the hideous orgies of the Restoration. But the politics of the first Revolution and the politics of the second were equally aristocratic. You will often find in history that a leader of the people, whom his enemies or rivals have been used to call a demagogue, becomes in course of time the advocate of aristocratic reaction, perhaps has always supported it.

The first Revolution was not menaced by foreign intervention, Europe was, when the contest began, entirely exhausted by the Thirty Years' War. The French king, who was hereafter to impersonate the spectre of universal empire, was a child, and the policy of Richelieu and Mazarin was not inclined, either by interest or gratitude to make the cause of Charles its own. Few things, I should conceive, would have been more ridiculous or more offensive to Richelieu (for Louis XIII. was a nobody in French affairs), than the absurd and useless assistance which Charles and Buckingham gave to Rochelle. If he and his successor entertained, as is the custom of statesmen, no feelings of revenge, on the other hand they could not but keep alive the heartiest contempt for the silly

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dupe of the silly Villiers. The Dutch democracy, led by the family feeling of the Prince of Orange, showed some sympathy for the royal cause. They harboured the murderers of Dorislaus, certain obscure Scotch loyalists and bravos. They paid a long penalty for their superfluous hospitality. They harboured Charles, who repaid them of course with ingratitude and perfidy. After 1672, one would have thought that every Dutch Calvinist, whom predestination had not entirely divested of all forethought, must have treasured up the Divine maxim, "Put not your trust in princes.

The authors of the second Revolution had a very different state of things to contend against. The boy of the first Revolution was the terror of the second. The Peace of Nimeguen had left Louis XIV. in a position which was only second to that of Napoleon after the treaty of Tilsit, and about equal to that of his nephew after the Italian campaign and the cession of Nice. Now Louis XIV. had every reason to assist the Stuarts in their policy and their pleasures, and thought no money wasted which would secure them. in both. The expulsion of James must have been a severe disappointment to him, and the protection accorded to the royal exile a somewhat hopeless expense after the Irish campaign. In that country of long memories, Ireland, Cromwell is always named with dread, James with contempt, though I do not think that the Irish read Macaulay. Now in 1689 Louis was seen to be ruler over a kingdom which, being entirely under one man's authority, was known to be the most populous state in Europe, and believed to be by far the richest. The financial policy of Colbert had dazzled the nations; and the French, i.e. the France which lived on the peasantry, were pleased at the effect. It was then that prestige, which of course you know means a juggler's imposture, began to describe French ascendency, and to exercise a permanent influence over French action. In order to understand the finance of the Revolution, you must understand the political situation of Europe. England had one ally bound to her to be sure by the strongest of ties, the sense of mutual danger; and, though England was in this war and in the next the protector of Holland, she made that unfortunate country pay dearly in the end for her services.

You will see, then, if I have made my inferences plain, that even if England had possessed the most intelligent and venturous financiers in Europe, it would have been difficult to raise a new revenue. The old excise was utterly odious, and could not be revived. There was a new excise, a tax levied on the dealer, which experience showed to be tolerable only because it chiefly fell on the working classes. But it was doubtful as to how far it could be extended. There was a quasi-personal tax, dating from the Restoration, which was supremely odious, the hearth money. That had to go, though not without misgivings at the Exchequer. It was not possible, so it seemed, to renew a land tax on the lines, or beyond the lines of the old temporary taxes, or the projected commutation of feudal dues. I say beyond the lines, for the hereditary excise did not certainly yield a tenth part of what was soon found to be wanted. Then there were customs. But, as I have often told you, even when the English were expected to be patriotic and were warned that the supremacy of Louis would condemn them to a diet on frogs, and the substitution of wooden shoes for leathern, they applauded the sentiment and traded with the smuggler of French goods. I am not surprised. In my experience of human life I have constantly witnessed the struggle in men, otherwise pious and honest, between their conscience and their interest, and have recognized with unfeigned regret that the latter has generally had the better of it.

The metaphysicians of political economy often debate as to the grounds on which taxation is imposed. Now there is no doubt that in early days it was argued by lawyers and divines that the prince, like an Irish chieftain of the old days, should spend his subjects' money at his discretion, and defend them from wrong in consideration of their contributions. To be sure he interpreted, like the aforesaid chieftain, his own duties as well as those of his subjects, and generally to his own relief, and their disadvantage. It was ultimately found, though only after many struggles and not a few revolutions, that it was not safe to trust the ruler and his advisers with the interpretation of the situation. Then it has been alleged, by a dangerous metaphor, that the state is to be likened to a vast property, in which each of the citizens or subjects has his share, and that as the partners, or tenants in common of an industry or an estate, have received their share of the produce, they should be in