When the state possesses property, in land or otherwise, which there are not strong reasons of public utility for its retaining at its disposal, this should be employed, as far as it will go, in extinguishing debt. Any casual gain, or god-send, is naturally devoted to the same purpose. Beyond this, the only mode which is both just and feasible, of extinguishing or reducing a national debt, is by means of a surplus revenue.
§ 3. In what cases desirable to maintain a surplus revenue for the redemption of Debt.
The desirableness, per se, of maintaining a surplus for this purpose does not, I think, admit of a doubt.
It is not, however, advisable in all cases to maintain a surplus revenue for the extinction of debt. The advantage of paying off the national debt is, that it would enable us to get rid of the worst half of our taxation. But of this worst half some portions must be worse than others, and to get rid of those would be a greater benefit proportionally than to get rid of the rest. If renouncing a surplus revenue would enable us to dispense with a tax, we ought to consider the very worst of all our taxes as precisely the one which we are keeping up for the sake of ultimately abolishing taxes not so bad as itself. In a country advancing in wealth, whose increasing revenue gives it the power of ridding itself from time to time of the most inconvenient portions of its taxation, I conceive that the increase of revenue should rather be disposed of by taking off taxes, than by liquidating debt, as long as any very objectionable imposts remain. In the present state of England, therefore, I hold it to be good policy in the Government, when it has a surplus of an apparently permanent character, to take off taxes, provided these are rightly selected. Even when no taxes remain but such as are not unfit to form part of a permanent [pg 602] system, it is wise to continue the same policy by experimental reductions of those taxes, until the point is discovered at which a given amount of revenue can be raised with the smallest pressure on the contributors. After this, such surplus revenue as might arise from any further increase of the produce of the taxes should not, I conceive, be remitted, but applied to the redemption of debt. Eventually, it might be expedient to appropriate the entire produce of particular taxes to this purpose; since there would be more assurance that the liquidation would be persisted in, if the fund destined to it were kept apart, and not blended with the general revenues of the state. The succession duties would be peculiarly suited to such a purpose, since taxes paid as they are, out of capital, would be better employed in reimbursing capital than in defraying current expenditure. If this separate appropriation were made, any surplus afterward arising from the increasing produce of the other taxes, and from the saving of interest on the successive portions of debt paid off, might form a ground for a remission of taxation.
The relative amount of the United States public debt may be seen, by Chart [No. XXII], from an early date down to 1880. Since the war, the surplus revenue of the United States has been constantly appropriated for the payment of the public debt incurred during the late war, until, what with the reduction of debt and the fall in the interest charge, our income is now so much greater than expenditure that we are (1884) actually in difficulties owing to the surplus. To the present time the Treasury has been able to use its excess of receipts in redeeming matured debt; but the rapidity of the payment has been such that in two years or more no matured debt will exist to be redeemed: $250,000,000 of 4-½ per cent bonds remain, but they do not fall due until 1891; and the 4 per cent bonds to the amount of $737,620,700 do not mature until 1907. Having once raised a large revenue under war pressure, it seems very difficult for people to understand now why heavy duties were originally levied, and the extraordinary suggestion is often made that the surplus should remain, and new channels of expenditure should be made (such as enormous pensions), simply in order to keep up the heavy taxation. The difficulty is, however, that the unnecessary surplus exists because of customs [pg 603] duties levied for war purposes. But the heavy burden of war taxation ought not to be continued, adding to the cost of production in all industries, without doing a greater wrong than would be done by the passing—and only possible—trouble of a redistribution of capital in a few cases; especially since that distribution of capital will be one from less productive to more productive industries; otherwise, no change would be made.
The condition of foreign debts, and the progress made in their reduction, may be studied in Chart [No. XXIII]. That of the United States is exceptional. The interest-bearing debt, as given by the last report of the Secretary of the Treasury, 1883, has been reduced to $1,312,446,050, and the reduction is more striking than is indicated in the chart for the year 1880.
Chart XXIII. Reduction of National Debts in Various Countries.