Part 20
In expectation that all difficulties will be removed, and that you will ultimately act on terms you approve, I take the liberty to submit to you some ideas, relative to the objects of your department. I pretend not to be an able financier: it is a part of administration which has been least in my way, and, of course, has least occupied my inquiries and reflections. Neither have I had leisure or materials to make accurate calculations. I have been obliged to depend on memory for important facts, for want of the authorities from which they are drawn. With all these disadvantages, my plan must necessarily be crude and defective; but if it may be a basis for something more perfect, or if it contains any hints that may be of use to you, the trouble I have taken myself, or may give you, will not be misapplied. At any rate, the confidence I have in your judgment, assures me that you will receive, with pleasure, communications of this sort: if they contain any thing useful, they will promote your views and the public benefit; if not, the only evil is the trouble of reading them; and the best informed will frequently derive lights, even from reveries of projectors and quacks. There is scarcely any plan so bad as not to have something good in it. I trust mine to your candor without further apology; you will at least do justice to my intention.
The first step towards determining what ought to be done in the finances of this country, is to estimate, in the best manner we can, its capacity for revenue; and the proportion between what it is able to afford, and what it stands in need of, for the expenses of its civil and military establishments. There occur to me two ways of doing this: 1st. By examining what proportion the revenues of other countries have borne to their stock of wealth, and applying the rule to ourselves, with proper allowance for the difference of circumstances. 2d. By comparing the result of this rule with the product of taxes in those States which have been the most in earnest in taxation. The reason for having recourse to the first method is, that our own experience of our faculties in this respect, has not been sufficiently clear, or uniform, to admit of a certain conclusion: so that it will be more satisfactory to judge of them by a general principle, drawn by the example of other nations, compared with what we have effected ourselves, than to rely entirely upon the latter.
The nations with whose wealth and revenues we are best acquainted, are France, Great Britain, and the United Provinces. The real wealth of a nation, consisting in its labor and commodities, is to be estimated by the sign of that wealth--its circulating cash. There may be times when, from particular accidents, the quantity of this may exceed or fall short of a just representative; but it will turn again to a proper level, and, in the general course of things, maintain itself in that state.
The circulation of France is almost wholly carried on in the precious metals; and its current cash is estimated at from fifteen to sixteen hundred millions of livres. The net revenue of the kingdom, the sum which actually passes into the public coffers, is somewhere between three hundred and sixty and four hundred millions, about one fourth of the whole of its currency. An estimate of the wealth of this nation is liable to less fallacy than of that of the other two, as it makes little use of paper credit, which may be artificially increased, and even supported, a long time beyond its natural bounds.
It is supposed that the gross sum extracted from the people by the collectors of the revenue, may be one-third more than that which goes into the treasury: but as their exactions are excessive, and fall too heavy on particular orders, who are by that means reduced to indigence and misery, it is to be inferred, that, with moderate and reasonable expenses of collection, the present revenue is as great as the kingdom can well afford, from its present quantity of wealth.
The circulating cash of Great Britain, in paper and specie, may be stated at about forty millions of pounds sterling. Mr. Hume supposes it to have been, at the time he wrote his Essay on the Balance of Trade, about thirty millions. Other writers have carried it to fifty, and it is probably in a medium that we shall find the truth. I do not include in this, the whole amount of Bank notes, Exchequer bills, India bonds, etc. etc.; but only such part as is really employed in common circulation, and performs the offices of current cash. In ’75, by Dr. Price’s statement, the net revenue of Great Britain was ten millions--that is, about one-fourth of its current cash, as in France.
I have never met with any calculation that might be depended upon, of the current cash of the Seven Provinces. Almost the whole of their coin, as well as large quantities of plate and bullion, are shut up in the Bank of Amsterdam. The real wealth of the Bank is believed to be about fifteen millions sterling; though, upon the strength of this fund, it has a credit almost unlimited, that answers all the purposes of cash in trade. As the Dutch, by their prudent maxims, have commonly the rate of exchange throughout Europe in their favor, and a considerable balance of trade, the use of paper credit (which, in part, also depends upon the particular nature of their Banks) has not the same tendency with them, as in England, to banish the precious metals. We may therefore suppose these to be here, as in France, the true sign of the wealth of the nation. If to the fifteen millions in Bank, we add two millions of specie for the retail circulation and various transactions of business, we shall, I imagine, have nearly the true stock of wealth of the United Provinces. Their revenues amount to something more than four millions, and bear the same proportion to the stock from which they are drawn, as those of France and England. I confess, however, the data, in their case, are not sufficiently ascertained to permit us to rely equally on the result. From these three examples we may venture to deduce this general rule,--that the proportion of revenue which a nation is capable of affording, is about one-fourth of its circulating cash, so far as this is a just representative of its labor and commodities.
This is only applicable to commercial countries, because, in those which are not so, the circulating cash is not an adequate sign. A great part of domestic commerce is carried on by barter; and the State must receive a part of its dues in the labor and commodities themselves. The proportion, however, of the revenues of such a State to the aggregate of its labor and commodities, ought to be the same as in the case of trading nations to their circulating cash; with this difference, that the difficulty of collection and transportation, the waste and embezzlement inseparable from this mode of revenue, would make the real advantage and ultimate gain to the State, infinitely less than when the public dues are paid in cash.
When I say that one-fourth part of its stock of wealth is the revenue which a nation is capable of affording to the government, I must be understood in a qualified, not in an absolute sense. It would be presumptuous to fix a precise boundary to the ingenuity of financiers, or to the patience of the people: but this we may safely say, that taxation is already carried, in the nations we have been speaking of; to an extent which does not admit of a very considerable increase without a proportionable increase of industry. This suffices for a standard to us; and we may proceed to the application.
From a comparison of the several estimates I have seen, of the quantity of current cash in this country previous to the war (specie and paper), I have settled my opinion of the amount at thirty millions of dollars, of which about eight might have been in specie: one-fourth of this, by analogy, was at that time the proper revenue of these States; that is, seven and a half millions of dollars.
As taxation, however, has, by slow gradations, been carried to an extreme in those countries which I have chosen as examples, that would not be, but in a course of time, practicable in this, where the people have been so little accustomed to taxes, it may be doubted whether it would be possible to raise the same proportion of revenue here. The object of the war, I imagine, would supply the want of habit, and reconcile the minds of the people to paying to the utmost of their abilities, provided the taxes were judiciously imposed, and the revenues wisely administered. Besides this, there is a circumstance in our favor, which puts it in the power of government to raise an equal proportion of revenue without burthening the lower classes of the people in the same degree as in Europe. This circumstance is the much greater equality of fortunes, by which means men, in this country, may be made to contribute to the public exigencies in a much juster proportion to their property; and this is in fact the case. In France the rich have gained so entire an ascendant, that there is a constant sacrifice of the ease and happiness of the people to their avarice and luxury: their burthens are in no proportion to those of the middle order, and still less to those of the poor. In England and Holland the case, though not altogether, is in a great measure the same. There are also men of very large moneyed capitals, which were either formerly exempt from taxes by being in the public funds, or, having no visible representative for taxation to operate upon, enjoy virtually the same advantages. But if, at the commencement of the war, the ability of these States for revenue may be rated at seven and a half millions of dollars, when the amount of its circulating cash was thirty millions, now that it is reduced more than one-half in real value, to what revenue are they to be supposed equal at this time? I should judge about one-fifth less, and not more.
The diminution of our circulating cash is principally artificial. It is true, our foreign commerce has declined by the war, but our domestic commerce has increased. I know of no good reason to believe, that the quantity of labor and commodities have been materially diminished. Our exports have lessened, but our internal consumption has augmented. The men employed in the army, and in the departments connected with it, consume and waste three times as much as the same number of men in civil life. A number of husbandmen have been taken from their ploughs into military service; but the progress of our natural population has, in part, supplied their place; and the demands of the war have increased individual industry. The great influx of money, at first operated upon the avarice of the people, and, for a long time, served also as a stimulus to industry, which taxation has since kept up on the principle of necessity. Notwithstanding the demands and competitions of two armies for supplies, we see that corn, which is the staple of these middle States, is cheaper than for some years before the war; a strong argument of plenty.
We may infer from all this, that we stand in need now of nearly the same quantity of medium for our circulation as before the war. The depreciation of the money below the standard, is to be attributed to a want of confidence rather than to a decay of resources. We find the people, in some of the States, distressed to pay their taxes, for want of money, with ample means otherwise; which is a proof, that our current cash is not a competent representative of the labor and commodities of the country. Another proof of the same nature is, that
## particular States who have found no small difficulty in collecting
their pecuniary taxes, have been successful in raising contributions to a large amount in kind. This country never having been a country of manufactures, the productions of the soil ever were, as they still are, the principal source of revenue. The inhabitants have abridged their wants of foreign articles, from the scarcity of them, and have, in part, supplied their place by home manufactures; which, being chiefly conducted by the women, take nothing from the labor appropriated to agriculture, while it enables the farmer to spare a larger portion of his income to the public.
Whatever diminution our means of revenue may have suffered, must be accounted for on the decay of foreign trade, and on the loss of territory. The imposts on trade in Great Britain amounted to about a fourth of its total revenue. The proportion must be less in America. But suppose it to be the same; suppose our external commerce to be reduced one-half, which I believe is an ample allowance, then, one-eighth should be deducted from our revenue on this account; which would bring it down to six millions, five hundred and sixty-two thousand, five hundred dollars. Allow for the loss of Georgia and South Carolina one-eighth of this sum: this would reduce the income of the remaining States to five millions, seven hundred and forty-two thousand, one hundred and eighty-eight, and four-eighths, dollars. But as the allowance, in both cases, is large, the diminution I have already supposed, of one-fifth of the whole, appears to be nearest the truth; which leaves these States with a net revenue of six millions of dollars.
We will now examine how far this rule agrees with experience, and with what has already been effected in these States. Massachusetts may serve as a criterion. This is one of the States where taxation has been carried furthest. Taxes were so heavy last year, that I am informed there were real marks of distress among some classes of the people. The Legislature, in their late Address, tell us that they amounted to six hundred thousand pounds lawful: and they appear to have thought the pressure of them too great, by reducing them at a time when they are obliged to have recourse to a large loan, to answer the exigencies of the current year.
The taxes they specify which seem to belong to those of the present year, with the addition of the bounties for raising men, and the beef supply, may be estimated at near five hundred thousand pounds.
This State is in a different situation from any other. Its position has made it impossible for the enemy to intercept its trade; while that of all the others has been greatly injured or totally obstructed. It has become, in consequence, the mart of the States northward of Pennsylvania; and its commerce has enlarged itself much beyond its former limits. A great part of the money expended for the support of the war, has been disbursed there. Congress, in their requisitions for money, have rated the quota of Massachusetts at of the whole; but I believe its ability, at this time, is in the proportion of one-fifth. I found this estimation on an impartial comparison of the circumstances of the several States.
Admitting the proportion to be just, and taking the taxes of the present year as a standard, the gross amount of our collective revenues would be two millions, five hundred thousand pounds lawful; or eight millions, three hundred and thirty-three thousand, three hundred and thirty-three, and one-third, dollars. The expense of collection, in England, is about the ninth of the gross amount; and considering that our revenue is to be raised in eleven different governments, each having a complete set of collectors of its own, the expense of collection, with us, will in all probability be not much less than it is in England. Supposing it to be the same, and that the taxes were to prove as productive as their nominal amount, our net revenue would then be seven millions, four hundred and seven thousand, four hundred and eight, and one-half, dollars; which considerably exceeds what it ought to be by my first calculation.
But there are considerations which may induce us to make large deductions from this sum. When the Legislature tells us, that the taxes of last year amounted to six hundred thousand pounds, it also tells us that there was _a part_ of them still to be levied; which, among other things, had occasioned them to postpone the next tax to a future session. Whatever is due on the last year, may be considered, in effect, as an anticipation on the taxes of the present; for it takes off so much from the ability of the people to pay them. The chances are, that the additional impositions projected for the current year will not be raised in their full extent. Taxes are seldom or never so productive as their estimated value; and in a case like this, must be expected to be more than commonly deficient.
It is to be observed, also, that the last year was a year of peculiar exertion. There was a general expectation of some attempt, in conjunction with our allies, decisive of the war. This made the people strain their efforts beyond their natural abilities: and yet they did not comply with the demands of the Legislature.
The money for the bounties this year, which I have calculated at sixty thousand pounds,[12] may, in like manner, be regarded as an extraordinary and special contribution, which the people may be willing to submit to, over and above what they could probably afford to pay, to get rid of the insupportable inconvenience of temporary enlistments.
Reasonable deductions on these accounts being made, will bring the two calculations to a pretty exact agreement, and make them confirm each other. But were not this the case, I should be inclined, in preference, to trust the first, as being founded on a basis better known and better ascertained by experience. I believe, however, we may safely conclude, from both, that between six and seven millions of dollars is the proper revenue of these States, after the dismemberment of South Carolina and Georgia.
Having formed an estimate of our ability for revenue, the next thing to be ascertained is, the annual expense of our civil and military establishments. With tolerable economy, I should suppose two millions and a half of dollars would amply suffice for the first, including the
## particular administration of each State. For the second, judiciously
managed, eight millions of dollars would be adequate, calculating for an army of twenty thousand men, which are as many as we shall stand in need of, or be able[13] to raise. Eleven millions of dollars will be then the amount of the annual expenses of these States. I speak on a supposition that a system were embraced, well adapted to rescuing our affairs from the chaos in which they are now involved; and which, while it continues, must baffle all calculation.
The difference between our revenues and expenses, on the preceding scale, will be from four to four and a half millions of dollars; which deficiency must of course be supplied by credit, foreign or domestic, or both.
With regard to credit abroad, I think we have little chance of obtaining a sufficiency, nearly to answer our purpose. France, by all the reforms she can make in her interior economy, by all the means she can procure in loans and lotteries, in addition to her revenue, can do little more than satisfy her own wants. The death of the Empress Queen, and the notorious hostility of the Emperor, will add to the number of these. She will, in all probability, be obliged to pay greater attention to her army, which has been neglected, for several years past, to apply all the resources of the kingdom to the improvement of the navy. Though Russia and Prussia, by the last advices, seemed disposed to control the ill-humor of the Emperor, France will hardly think it prudent to leave herself in a defenceless condition, relying on the precarious friendship and momentary interests of other powers. The increase of her army will necessarily increase her expenses, as she cannot, in the present state of things, retrench any thing from the navy; and of course she will have less money to spare to allies. It has been observed, that France has hitherto imposed none of the additional taxes usual in time of war; by doing which, it is imagined she would have it in her power, not only to supply her own wants better, but to contribute largely to ours. To this it has been answered, with great appearance of reason, that the credit of the financier very much depends on his having such a resource in reserve, which, being considered as a mean he may command, when necessary, to fulfil his engagements, disposes moneyed men to lend to him with the greater freedom and confidence. The breaking in upon that resource, therefore (it is said), would injure credit, and obstruct loans in a degree that could not be compensated by the direct value of the revenue it would furnish.
Upon the whole, however, from a variety of siftings and inquiries, I should be mistaken if France did not lend this country eight or ten millions of livres annually, during the war; provided its finances were once put upon a reasonable footing: but this is not above a third of our wants.
I find no reason to flatter ourselves that we have much to expect either from the ability or inclination of Spain. Her government is far from being so rich as is vulgarly imagined. The mines of South America, of late years, have been less liberal of their profits; and, for fear of accidents, but a small part of their product, since the war, has been imported into Europe. The extreme indolence of the Spaniards, and their neglect of agriculture, manufactures, and trade, make them tributary to their more industrious neighbors, who drain them of their precious metals as fast as they arrive.
But if they were heartily disposed to do it, they might still afford us some assistance. Their conduct, hitherto, has manifested no such disposition: it has been as cold and reserved as it could well be. The bills drawn upon them have not been rejected, but they have not been paid. Their permitting the residence of a British emissary among them, and the countenance they give him, unprecedented in a state of war, afford just room for a distrust of their intentions, though it may be nothing more than a stroke of policy, to play him off against our negotiations, and make us bid higher for their friendship. Their method of prosecuting the war is passive, to a degree that can scarcely be resolved even into Spanish supineness; but seems to have a more corrupt original. A bigoted prince, governed by a greedy confessor, is a character on which little dependence can be placed.
’Tis not on Spain, then, that we are to build our hopes of any considerable succors in money.