An Inquiry into the Principles of Political Oeconomy (Vol. 2 of 2) / Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes

by Sir James Steuart

But the condition of the stockholder is not equal to that of the landlord, for two very plain reasons. The first is, that the income of his stock cannot increase; that of the land may. The second is, that the swelling of this great capital of stock has the effect of sinking the interest upon it, and consequently of diminishing the income of the stockholder; and in proportion to that diminution, the value of land is augmented. Now I readily allow that the augmentation upon the value of lands is no inducement to a landlord to turn them into money; because he would then lose upon his money, what he gains upon the additional price received. But it is a great advantage in this respect, that he thereby diminishes the interest he pays upon his debts, if he has any; and if he has none, it enables him to borrow at a lower rate for the future; and by improving his lands with the money borrowed, he augments his income much beyond the proportion of the interest paid.

It is therefore necessary, in imposing land taxes, rightly to combine every circumstance; that the load of all impositions may be equally distributed upon every class of a people who enjoy superfluity, and upon no other. If, after a fair deduction of principles, this shall appear a thing possible to be done, we may expect to see statesmen engaged to depart from the old maxim of grasping at what is readiest and nearest at hand, to wit, the landed property, with a view to spare a class of people, which, in a well regulated state, never can be made to feel the burden of any proportional tax whatsoever; I mean the industrious poor.

I now proceed in my inquiry into the nature and consequences of the swelling of this great branch of property, the public funds.

As to the nature of it, we have said already, that it is formed by realizing money into stock. When government borrows, the lenders must be people who have money. If the loan is made at home, the money is no sooner paid in, than it is spent; and as we may suppose that it would not have been lent, had either the lenders found it necessary for their current expence, or had they found a more profitable way of realizing it than by lending it to government, we consider it as in a state of stagnation; but being lent to government, it is thrown into a new channel of circulation.

Farther, this money stagnating in the hands of the lender, either proceeded from his income, which exceeded his expence, or from the profits of his industry. In either case, the country is neither poorer or richer, when considered in a cumulative view, than if the same sum had been lent to private people at home.

Let us next suppose the money to have been borrowed for the exigence of a foreign war. In this case, if it be borrowed at home and sent abroad, it must first be converted into the money of the world, gold and silver, and then sent off, to the diminution of this kind of property; or it must go abroad in the money of the country, credit, to the diminution of the annual income upon which the credit is established. As this last operation may not be so clear, an example will explain it.

Government borrows a million; it is paid in paper, and must be sent to Holland. If at that time a balance be due by Holland for a million, bills will readily be found for it. In this case, the balance of trade is borrowed by government, and is converted into a capital of a million in the public funds, the interest of which will remain at home, and continue to be the property of the nation. But as the value of this balance is sent to Holland and spent abroad, it is, upon the whole, to the nation, as if the balance had not been due to them. This I call a lucrum cessans to the country.

But suppose no balance due at the time the million comes to be sent off, I say the consequence will be, to alienate in favour of foreigners a part of the annual income, proportional to the whole interest paid for the loan, whether it has been subscribed for by foreigners, or by natives.

If the subscription comes from foreigners, the consequence is evident: it is equally so in the other case, upon a little reflection.

Suppose then the million subscribed for, and paid in London. Bills are sought for; none are found, I mean in the way of reciprocal compensation, does not this sum immediately become a balance against London? And as a country loses all such balances, and that the country to which they are due gains them, this million is lost to England, and forms what I call a damnum emergens; that is to say, her former property or income is so far diminished, or comes to be transferred to strangers.