derived from such sales is not invested, but "most often dissipated and given to those who have least deserved it."

1

The second, third, and fourth branches of revenue recognized by Bodin are not of great importance to the modern student of finance. Concerning the fifth, Bodin remarked that, although trade was despised by many, "it is more seemly for a prince to be a merchant than a tyrant, and for a gentleman to traffic than to steal." The kings of Portugal, he said, had for a century drawn great riches from the East; while various Italian princes had carried on gainful traffic. Yet he observed that when a prince traded with his subjects the result was often a royal monopoly, by which the subjects were virtually taxed through extortionate charges.

The sixth branch of revenue-duties on imports and exports Bodin pronounced "one of the oldest and most common resources in all states, and thoroughly just, because it is right that one who wishes to gain a profit from trade with another country than his own should pay duties to the prince." In this passage Bodin reflects the common opinion of his age that duties upon imports and exports are borne by the merchant, not by his customers; and he justifies them on the ground that it is right that a foreigner should contribute to the support of a government which permits him to come within its jurisdiction and trade with its citizens.2 In fact, he did not regard customs duties as a form of taxation, and looked upon them as a kind of revenue which could be raised without burden to a prince's subjects.3

1 Carafa, on the other hand, had opposed public trading. He said that this was undignified for a prince; that public business would not be so well managed as private; that the welfare of the subjects might be sacrificed to the profit of the prince.

2 Throughout Europe our modern customs duties were, by a more or less obscure process, evolved from mediæval tolls and charges which travelers, especially merchants, were required to pay, nominally for the service of the sovereign in protecting them or maintaining roads and bridges.

3 Yet in one place Bodin says that duties on necessities of life may be so heavy as to prove a burden.

Taxes form the last item in Bodin's classification. He considered them justified if "all other means are insufficient and there is urgent necessity of providing for the state"; but argued that no prince had the right to levy taxes on his subjects without their consent, and believed that taxation should be an extraordinary financial resource. Like his predecessors, he thought that in ordinary times the other revenues should suffice for the needs of the prince; and long after his time many writers continued to indulge in the illusion that taxation might be reserved for unusual emergencies.

12. Smith's Classification and Discussion. Modern discussions of this subject have generally started from Adam Smith's chapter on the "Sources of the General or Public Revenue of the Society." Smith said:

The revenue which must defray, not only the expense of defending the society and of supporting the dignity of the chief magistrate, but all the other necessary expenses of government, for which the constitution of the state has not provided any particular revenue, may be drawn, either, first, by some fund which peculiarly belongs to the sovereign or commonwealth, and which is independent of the revenue of the people; or, secondly, from the revenue of the people,

The funds or sources of revenue which may peculiarly belong to the sovereign or commonwealth consist either in stock 1 or in land.

The sovereign, like any other owner of stock, may derive a revenue from it, either by employing it himself, or by lending it. His revenue is in the one case profit, in the other interest.

The revenue of a Tartar or Arabian chief consists in profit. It arises principally from the milk and increase of his own herds and flocks, of which he himself superintends the management, and is the principal shepherd or herdsman of his own horde or tribe. It is, however, in this earliest and rudest state of civil

1 By "stock" Smith means capital. - ED.

government only that profit has been made to form the principal part of the public revenue of a monarchical state.

Small republics have sometimes derived a considerable revenue from the profit of mercantile projects. The republic of Hamburgh is said to do so from the profits of a public wine cellar and apothecary's shop. The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary. The profit of a public bank has been a source of revenue to more considerable states. It has been so, not only to Hamburgh, but to Venice and Amsterdam. A revenue of this kind has even, by some people, been thought not below the attention of so great an empire as that of Great Britain. Reckoning the ordinary dividend of the Bank of England at five and a half per cent, and its capital at £10,780,000, the net annual profit, after paying the expense of management, must amount, it is said, to £592,900. Government, it is pretended, could borrow this capital at three per cent interest, and by taking the management of the bank into its own hands, might make a clear profit of £269,500 a year. The orderly, vigilant, and parsimonious administration of such aristocracies as those of Venice and Amsterdam, is extremely proper, it appears from experience, for the management of a mercantile project of this kind. But whether such a government as that of England (which, whatever may be its virtues, has never been famous for good economy; which, in time of peace, has generally conducted itself with the slothful and negligent profusion that is, perhaps, natural to monarchies; and, in time of war, has constantly acted with all the thoughtless extravagance that democracies are apt to fall into) could be safely trusted with the management of such a project, must, at least, be a good deal more doubtful.

The post office is properly a mercantile project. The government advances the expense of establishing the different offices and of buying or hiring the necessary horses or carriages, and is repaid with a large profit, by the duties upon what is carried. It is, perhaps, the only mercantile project which has been successfully managed by, I believe, every sort of government. The capital to be advanced is not very considerable. There is no mystery in the business. The returns are not only certain, but immediate.

Princes, however, have frequently engaged in many other mercantile projects, and have been willing, like private persons, to mend their fortunes by becoming adventurers in the common branches of trade. They have scarce ever succeeded. The profusion with which the affairs of princes are always managed, renders it almost impossible that they should. The agents of a prince regard the wealth of their master as inexhaustible; are careless at what price they buy; are careless at what price they sell; are careless at what expense they transport his goods from one place to another. Those agents frequently live with the profusion of princes, and sometimes, too, in spite of that profusion, and by a proper method of making up their accounts, acquire the fortunes of princes. It was thus, as we are told by Machiavel, that the agents of Lorenzo of Medicis, not a prince of mean abilities, carried on his trade. The republic of Florence was several times obliged to pay the debt into which their extravagance had involved him. He found it convenient, accordingly, to give up the business of merchant, the business to which his family had originally owed their fortune, and in the latter part of his life, to employ both what remained of that fortune and the revenue of the state of which he had the disposal, in projects and expenses more suitable to his station.

No two characters seem more inconsistent than those of trader and sovereign. If the trading spirit of the English East India Company renders them very bad sovereigns, the spirit of sovereignty seems to have rendered them equally bad traders. While they were traders only, they managed their trade successfully, and were able to pay from their profits a moderate dividend to the proprietors of their stock. Since they became sovereigns, with a revenue, which, it is said, was originally more than three millions sterling, they have been obliged to beg the extraordinary`assistance of government in order to avoid immediate bankruptcy. In their former situation, their servants in India considered themselves as the clerks of merchants; in their present situation, those servants consider themselves as the ministers of sovereigns.

A state may sometimes derive some part of its public revenue from the interest of money as well as from the profits of stock. If it has amassed a treasure, it may lend a part of that treasure, either to foreign states or to its own subjects.

The canton of Berne derives a considerable revenue by lending a part of its treasure to foreign states; that is, by placing it in the public funds of the different indebted nations of Europe, chiefly in those of France and England. The security of this revenue must depend, first, upon the security of the funds in which it is placed, or upon the good faith of the government which has the management of them; and, secondly, upon the certainty or probability of the continuance of peace with the debtor nation. In the case of a war, the very first act of hostility, on the part of the debtor nation, might be the forfeiture of the funds of its creditor. This policy of lending money to foreign states is, so far as I know, peculiar to the canton of Berne.

The city of Hamburgh has established a sort of public pawnshop, which lends money to the subjects of the state, upon pledges, at six per cent interest. The pawn-shop, or Lombard, as it is called, affords a revenue, it is pretended, to the state of 150,000 crowns, which, at 4s. 6d. the crown, amounts to £33,750 sterling.

The government of Pennsylvania, without amassing any treasure, invented a method of lending, not money, indeed, but what is equivalent to money, to its subjects. By advancing to private people, at interest, and upon land security, to double the value, paper bills of credit, to be redeemed fifteen years after their date, and, in the meantime, transferable from hand to hand like bank notes, and declared by act of assembly to be a legal tender in all payments from one inhabitant of the province to another, it raised a moderate revenue, which went a considerable way toward defraying an annual expense of about £4,500, the whole ordinary expense of that frugal and orderly government. The success of an expedient of this kind must have depended upon three different circumstances: first, upon the demand for some other instrument of commerce, besides gold and silver money; or, upon the demand for such a quantity of consumable stock, as could not be had without sending abroad the greater part of their gold and silver money, in order to purchase it; secondly, upon the good credit of the government which made use of this expedient; and, thirdly, upon the moderation with which it was used, the whole value of the paper bills of credit never exceeding that of the gold and silver