SELECTED READINGS IN PUBLIC FINANCE CHAPTER I THE LITERATURE OF PUBLIC FINANCE1 1. Mediæval Finance. Some of the subjects treated by public finance have never escaped entirely the attention of historians and writers upon statecraft or political philosophy.3 Until the close of the Middle Ages, however, the financial transactions of European states were not sufficiently important to invite anything approaching systematic study. Kings were supported chiefly by the revenues derived from their private domains or various fiscal prerogatives, while taxation was in theory and generally in practice—an extraordinary resource, reserved, as Thomas Aquinas held it should be, for unusual emergencies.* The finances of a feudal state were hardly more than the finances of a royal household; and, in fact, savored rather of private than public housekeeping. In the eleventh and twelfth centuries, with the revival of industry and commerce, numerous 1 For an extended bibliography see Stammhammer, Bibliographie der Finanzwissenschaft (1903). 2 A work entitled The Revenues of Athens, commonly attributed to Xenophon, discusses methods of improving the wealth and revenues of that city. Roman historians occasionally mentioned the subject of taxation; Tacitus and Suetonius are examples. 3 In the thirteenth and fourteenth centuries some of the Schoolmen touched upon certain financial questions. Thomas Aquinas, for instance, considered the rights of the sovereign in respect to taxation. In ordinary times, he taught, the King should live upon the income from his domains; but in time of extraordinary emergencies, his subjects should submit to taxation, which, however, ought to be moderate and just. Similar maxims were expressed by Petrarch (De republica optime administranda), and by other Humanists. Aquinas wrote: “Unde constituti sunt reditus terrarum Principibus, ut ex illis viventes a spoliatione subditorum abstineant." 5 One of the laws of Charlemagne, the capitulary de villis, lays down the following rules for the management of the Emperor's estates: "We desire that each steward towns began to grow rapidly in various parts of Europe and to gain a large measure of independence in internal affairs. With them, problems of finance soon engaged attention, and financial institutions early assumed something like a modern character. Poll and property taxes were introduced, duties laid upon arti cles of consumption, and municipal debts created. Yet, so far as we know, these interesting developments did not, outside of Italy, call forth any noteworthy discussion of financial problems. 2. The Formative Period. In Italy, however, the quickening of intellectual life and the growing importance of commercial and financial transactions led to interesting developments in the fifteenth century. At Florence various financial problems came to the forefront, and the question of progressive taxation aroused the keenest interest. In the Kingdom of Naples, moreover, Diomede Carafa, a soldier and statesman, produced a most interesting treatise upon statecraft (De regis et boni principis officio), in which financial questions received more serious treatment than ever before, perhaps, had been accorded to them. Carafa devoted one of the four parts of his work to the administration of the revenues of the prince. In general, he stood upon the ground of his predecessors, such as Aquinas and Petrarch, holding that income from domains should be the basis of state finance, and taxes a subordinate form of revenue. But he pro shall make an annual statement of all our income, giving an account of our lands cultivated by the oxen which our own plowmen drive and of our lands which the tenants of farms ought to plow; of the pigs, of the rents, of the obligations and fines; of the game taken in our forests without our permission; of the various compositions; of the mills, of the forest, of the fields, of the bridges and ships; of the free men and the districts under obligations to our treasury; of markets, vineyards, and those who owe wine to us; of the hay, firewood, torches, planks, and other kinds of lumber; of the waste lands; of the vegetables, millet, panic; of the wool, flax, and hemp; of the fruits of the trees; of the nut trees, larger and smaller; of the grafted trees of all kinds; of the gardens; of the turnips; of the fish ponds; of the hides, skins, and horns; of the honey and wax; of the fat, tallow, and soap ; of the mulberry wine, cooked wine, mead, vinegar, beer, and wine, new and old; of the new grain and the old; of the hens and eggs; of the geese; of the number of fishermen, workers in metal, sword makers, and shoemakers; of the bins and boxes; of the turners and saddlers; of the forges and mines, - that is, of iron, lead, or other substances; of the colts and fillies." 1 Palmieri (1405-1475) and Guicciardini (1483-1540) are the most important writers to be mentioned in this connection. For an account, in English, of progressive taxation in Florence, see Seligman, Progressive Taxation, 22-26, 70. ceeded to divide public expenditures into three classes: (1) those for the defense of the state; (2) those for the support of the prince; and (3) those for contingencies. Expenses, he said, should be moderate, so that a balance may remain which will be available for emergencies; then, too, economy makes it possible to dispense with bad taxes and to use only the best. Taxes, he argued, should be stable, and should be certain, so that citizens may know precisely what they are expected to pay. All revenues, finally, should be strictly accounted for, and the accounts should be frequently examined by the proper officers. In all things the prince should remember that the wealth of his subjects is the real foundation of a prosperous condition of his finances.1 By the close of the sixteenth century the growth of vigorous monarchies upon the ruins of the feudal system had proceeded far enough to compel more serious consideration of politics and finance.2 In 1576 Jean Bodin published a celebrated work upon political philosophy (Les six livres de la republique), which for many years exercised a wide influence upon writers in all the countries of Europe. Bodin devoted the sixth book of his treatise to "several political questions," one of which was the proper management of the finances, "the nerves of the state." For such management, he said, three things are necessary: "The first is honest means of raising revenues; the second is to employ them for the profit and honor of the state; and the third, to save some portion of them for time of need." Concerning the first point, he argued that domains are "the most honest and assured" form of revenue; but he approved of customs duties "upon merchants who bring in or take out commodities, which are one of the oldest, most common, and most equitable " of financial devices; and admitted the propriety of direct taxes 3 1 Carafa said: “Subditorum quippe facultates potentiae regiae fundamentum existimari opporteret." 2 Financial problems became important on account of the growth of public expenses, the increasing frequency and weight of taxes, and the many evil expedients, such as forced loans or debasements of the currency, employed in order to raise money. 3 Bodin contended, however, that in Spain, England, Germany, and France it was established, by long custom, that "no prince has power to levy a tax upon his subjects, or to require this duty, without their consent." upon the subjects of the prince when "all other means are insufficient and there is urgent necessity of providing for the state." Under the second topic, the employment of the revenues, Bodin mentions the various branches of outlay, condemns extravagance, urges the need for economy, and advises that an annual account be prepared, showing the condition of the finances. And, finally, upon the third topic, Bodin urged that out of the revenues a reserve, or treasure, should be accumulated in order that the state "may not be obliged to begin a war by borrowing or levying a subsidy." Borrowing at interest he believed to be the ruin of princes and their finances. During the seventeenth and eighteenth centuries public finance was increasingly studied in Germany, where not a few professors in the universities and officials in the service of various German states were occupied with the subject. Regarding finance as an important branch of public business, they generally approached it from the point of view of the prudent administrator, anxious to husband and develop the resources of his estate.2 While, at the start, many of them were greatly influenced by Bodin, they investigated assiduously the conditions existing in the German states, and in time gave their studies an independent basis. In the writings of J. H. von Justi3 German financial science of the eighteenth century reached its ripest development. Justi divided finance, as Bodin had done, into three parts: the study of revenues, of expenditures, and of methods of meeting extraordinary emergencies. Like other cameralists, he considered the income from domains the real foundation of public housekeeping, and taxes a subordinate 1 He gives the following résumé: "With the King's household maintained, the troops and their officers paid, and just wages given to those who have earned them, it is right that the poor should be remembered. And if any funds remain, they should be employed in rebuilding towns, fortifying strongholds, building forts on the frontier, improving the roads, repairing bridges, equipping ships, constructing public edifices, and establishing colleges of honor, virtue, and learning." 2 Finance became, in this way, a part of what was known as "cameral science," which included all branches of knowledge needed for the proper administration of the possessions of the prince. Sometimes" cameral science" was used in a narrower sense, as equivalent to financial science, and thus was contrasted with the cameralistic sciences in the broader sense. 3 Staatswirthschaft, oder systematische Abhandlung aller oekonom. und Kameralwissenschaften (1755). form of revenue. Yet this did not prevent him from studying the various kinds of taxes, in their economic and political bearings, more carefully than most other writers had done. Public expenditures he treats in some detail, assigning to military outlay at least one half of the total. In order to finance serious emergencies he favored, like nearly all his forbears, the accumulation of a state treasure; yet he considers also the other expedient, public debts. Although Bodin's work was translated into English (1606), financial topics received less attention in England than in Germany during the greater part of the seventeenth century. Sir William Petty's Treatise of Taxes and Contributions (1662) was probably the first English work which professed to deal primarily with public finance. In this, with numerous digressions, the author treats of public expenditures and revenues. The former he divides into: (1) outlay for "Defence by Land and Sea"; (2) outlay for the "Maintenance of the Governours, Chief and Subordinate"; (3) outlay for the support of religion; (4) outlay for education; (5) outlay for the relief of orphans, the impotent, and the destitute; and (6) outlay for various public works, such as highways and bridges. Petty then considers the various branches of revenue, holding that a tax upon the land of a kingdom is better than the reservation of "Crown Lands." He favored excise taxes, also, believing that they tended to distribute burdens in a fair manner, viz. in proportion to what every man "taketh to himself, and actually enjoyeth"; and discussed the advantages and disadvantages of other forms of taxation. After 1690 the growth of national expenditures and taxes, together with the rapid increase of the national debt, stimulated the discussion of such subjects as taxation and public debts; so that a large number of tracts and treatises, often of a fugitive character, made their appearance. Methods of dealing with the debt were warmly debated, and the best methods of raising the large revenues now required by the government formed another engrossing topic. Some writers advocated a general excise upon articles of consumption, and others 1 Other works had dealt incidentally and briefly with financial topics. Thomas Mun's England's Treasure by Forraign Trade (written prior to 1641 and published 1664) devotes three short chapters to public revenues and treasures. |