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

Every application of public money implies a want in the state; and every want supplied, implies an encouragement given to industry. In proportion, therefore, as taxes draw money into circulation, which otherwise would not have entered into it at that time, they encourage industry; not by taking the money from individuals, but by throwing it into the hands of the state, which spends it; and which thereby throws it directly into the hands of the industrious, or of the luxurious who employ them.

It is no objection to this representation of the matter, that the persons from whom the money is taken, would have spent it as well as the state. The answer is, that it might be so, or not: whereas when the state gets it, it will be spent undoubtedly. Besides, had it been spent by individuals, it would have been laid for the supply of private wants, which are not near so extensive as those of the public: and farther, when money is so taken from rich individuals, it obliges them to find out a way of procuring more, out of their solid property; and when this facility is not procured for them by their statesman, we see how taxes become both oppressive and ill paid. On the contrary, when it is provided, either by the returns of foreign trade, which greatly augment the coin of a country; or by banks, which melt down property into paper circulation; we see taxes augmenting constantly, without creating any impediment to consumption, or discouragement to industry. All these consequences hang in a chain, and hence the solidity of the principles upon which they depend may be gathered.

After this solution of the question proposed, let those who are versed in history combine circumstances, and examine whether facts do not prove the truth of what I have said.

During the time of the Roman empire, when the riches of Asia flowed into the coffers of Rome, and were constantly exhausted by the prodigality of the emperors, we perceive, from many circumstances, to what a degree the consumption of superfluities augmented. The price of certain commodities rose to an excessive height; industrious people, of the lowest extraction, were daily seen to amass prodigious fortunes: these are proofs of circulation. But when we consider the expences of a Lucullus, or of a Crassus, who consumed, it is said, the work of ten thousand slaves, and compare the consequence of that consumption with the expence of a modern, who should consume the industry of ten thousand freemen, we shall find a wonderful difference in the effects of the one and of the other, with respect to circulation, and the encouragement given to industry.

There was no alienation between Crassus and his ten thousand slaves, notwithstanding all the work consumed; consequently, the only circulation implied by this consumption was in proportion to the necessaries which the master was obliged to purchase for so great a multitude: and if we still suppose all those necessaries to have been produced by their own labour, then the state of Rome could not, but by an arbitrary imposition laid upon Lucullus and Crassus, draw one farthing out of their coffers; consequently, industry could not increase in proportion to the loads of wealth brought from Asia by those generals. Whereas were Lucullus now at London, or at Paris, he would not be able to spend a shilling, without giving a penny, and perhaps more, out of his treasure to the state, which would immediately throw it back into circulation.

As we are now on the subject of circulation among the ancients, let me briefly trace the progress of it in Europe, through different modifications, to our own times, and so close this chapter.

When the seat of empire was translated to Constantinople, and all the Asiatic provinces attached to the Emperors of the East, a stop was put to the augmentation of coin and bullion in the empire of the West. A considerable part of what had formerly been there returned to Constantinople, and the remainder fell a prey to the barbarous nations which overran it. This may be called the first period.

These barbarians, by enslaving all the ancient inhabitants, and by forcing them to perform every kind of service, must have had little use for coin. What they coined appears to have been broad and thin.

Let any one reflect upon the insensible waste of silver plate, and the still greater loss on coin which circulates; the vast sums carried off in the time of the Croisades; the quantities buried or thrown into rivers in times of devastation; and add to these circumstances, that from the fifth century after Christ, till the discovery of the Indies, there was, probably, little or no silver or gold brought into Europe; and it will appear very natural, that coin should have been at that time much more scarce than formerly.

How contracted circulation was during the 13th and 14th centuries, may be gathered from the anecdote concerning alienation in France, mentioned in the third chapter upon public credit.