Great changes had taken place in Great Britain since the time of the introduction of a regular system of taxation in 1688. Land was no longer the most important source of income to the citizen. Profits from other sources had sprung up. Commerce had discovered the riches of the Eastern trade, and manufactures, stimulated by new inventions, had begun to assume an importance and exert an influence which already threatened to revolutionize the whole condition of society. Unconsciously to itself, the nation had reached a point where any large increase in the demands of the state must produce a new species of taxation. The war with France supplied the impulse required. In 1797, Government attempted to meet the extraordinary expenses of the year by tripling the tax on houses and windows, etc. The experiment failed. It was found that these taxes, which had been the 'towers of strength' of a preceding generation, could no longer be relied on in the changed circumstances that had been brought about by time.
It was in many respects one of the darkest periods in English history. The Austrian armies, exhausted by repeated defeats, hoped only to be able to defend themselves if attacked. Spain and the Netherlands had joined themselves to France. Against the power of Napoleon England stood up alone. At this critical juncture, a mutiny broke out in the English navy. The whole fleet in the channel refused to do duty. The fleet at the Nore, catching the spirit of revolt, also raised the red flag. The doctrines of the French Revolution were sedulously scattered throughout the kingdom, and in several counties of Ireland actual uprisings had taken place. Added to these were financial difficulties. The enormous outlays demanded for the prosecution of the war were very naturally weakening the public confidence in the final ability of the Government to pay the extravagant sums it was obliged to borrow. Under the influence of the distrust thus engendered stocks fell. Three per cents., which had sold at 98, went down to 53. Many of the loans effected by the Government at this time and during the war were made with a discount of forty per cent. on the nominal value of the stock. Gold was scarce, and rapidly rising. The pressure on the Bank for redemption was greater than it had been since the rebellion of 1745, and threatened, unless corrective measures were at once adopted, to bring that institution to actual bankruptcy.
The undaunted courage and resolution of the Government, in the midst of this accumulation of difficulties, saved the country. The writ of habeas corpus was suspended. By an admirable mingling of firmness and conciliation the mutiny was quelled in the navy without serious consequences resulting to the state. To meet the financial difficulties, an act was passed by Parliament permitting the Bank to suspend specie payment—thus delivering the country, for a period of more than twenty years, over to a wholly inconvertible paper currency. From these strong measures the enemies of the country anticipated the most disastrous results. They were, however, doomed to disappointment. Even Napoleon at length grew weary of prophesying the bankruptcy of a nation which every year, from this time, gave more and more effective proofs of the stability of its finances. It was the singular fortune of Great Britain to have at the head of its finances, at this juncture, a man, who in a different sphere, exhibited a spirit scarcely less bold, indomitable, and comprehensive than that of the First Consul himself. This man was Mr. Pitt. The finances of Great Britain, even at the present day, bear witness to the extraordinary changes instituted by this statesman. The tax on houses, windows, etc., had failed. In 1798, Mr. Pitt, with a characteristic fertility of invention, brought forward a bill laying a tax on incomes. By this bill, which is the foundation of all those that have since followed, no tax was imposed on incomes that were less than $300; on incomes above this sum a small tax was laid, which gradually increased until it became one tenth of all incomes over $1,000. The income tax was designed by Mr. Pitt to be simply a war tax. According to his plan the interest upon the national debt, which he kept funded as far as possible, was to be provided for solely from the indirect taxes, leaving the direct tax to meet the extraordinary expenses of the war. The most original feature of the financial system instituted by this statesman, however, was the sinking fund. To prevent the rapid accumulation of the national debt, Mr. Pitt, even before the breaking out of the war with France, had obtained from Parliament permission to set aside six million dollars, with an addition, afterward made, of one per cent. of all the loans made by Government, as a fund to be expended in the purchase of Government stock. The rapid growth of this fund from the constant compounding of interest would, he declared, be sufficient, ultimately, to consume the entire debt of the state. The result seemed to justify his prediction. Constantly in the market, the sinking fund saved the state, by its timely purchases many times during the war, from the disastrous depreciation to which the public stock was liable at every unfavorable turn of the conflict. In 1815, so enormous had been the financial transactions of the state that this fund amounted to about $75,000,000.
In 1802 the income tax was discontinued; and, in the following year, was renewed under the name of the property tax. The expenses of the state continued to rise, and it became necessary that this tax should be largely increased. During the last ten years of the war the property tax required ten per cent. of all the incomes of the kingdom—with a few exceptions—to be paid into the national treasury every year. Never before had such a burden been laid on Englishmen. All classes groaned under the exactions of a tax every penny of which they were made conscious of by direct collection. In comparison with the property tax all other burdens seemed easy. It is now clear, however, that the nation could never have passed successfully through the great struggle in which it was engaged without the assistance of the tax upon incomes. It stood next in order of productiveness to the excise. In the year 1815 the property tax produced seventy-five millions of dollars. Still the people remembered with pleasure that the word of Parliament had been given that it should not continue longer than the return of peace. The time was eagerly looked forward to when that promise should be redeemed. Early in 1816 the question of the continuance of the tax came up before Parliament. A strong party, impressed with the importance of diminishing the national debt, advocated its continuance. Every night, for two months, the subject was anxiously discussed. The motion for its abolition was at last carried. The vast crowd which had assembled without the Parliament House to await the result, caught the sound of cheering in the chamber, and, receiving it as a signal of success, rent the air with shouts of joy. The enthusiasm spread with the news. Bells were rung as for a great victory, and bonfires in all parts of the kingdom proclaimed the joy of the nation at its release from what was regarded the moat oppressive burden of the war. Twenty-five years later the income tax was again revived.
The national debt at the close of the war with France amounted to a little more than $424,000,000,000. Of this, $300,000,000,000 had been added by the war. During the last years of the contest the annual expenditures of the state were $585,000,000. The population of the island was at this time 13,400,000, from which $360,000,000 was annually collected in taxes. It is important to notice the condition of the people during this epoch. For nearly twenty years the country had been under the uncontrolled influence of a paper currency. It had been a period of remarkable prosperity, coupled with unparalleled changes. And here we find many points of resemblance with the present condition of our own country. The rapidly expanding currency, the enormous demands of the war, and the spirit of speculation engendered by the sharp alternations of hope and fear, and the extraordinary fluctuations of the markets had stimulated in every branch of business a preternatural activity. Manufactures, which the beginning of the war had found just rising into prominence, rapidly developed in an age of financial profusion. No such progress had ever been made in a corresponding period. Exports were doubled. The shipping rose from one to two and a half million tons. The whole nation exhibited the singular spectacle of a country constantly advancing in wealth and prosperity in the midst of one of the most exhaustive wars that the world has ever seen.
To this, however, there was apparently, at least, one exception. Prices rose steadily from the beginning of the war. This was true not merely of unimportant articles, or those which, by the exercise of a more severe economy, could be in part dispensed with. The cost of the necessaries of life doubled. Wheat rose from forty-nine shillings per quarter in 1797 to one hundred and forty shillings in 1813; while the beef which was sold in Smithfield market, at the beginning of the war, at three shillings per stone, constantly advanced in price, until the same quantity in 1814 could only be bought for six shillings. Malt, coal, wages—everything rose proportionately. Few questions have been the subject of more discussion than the cause of this remarkable rise of prices. Two diverse explanations have been given, each put forth by men whose habits of thought and opportunities for observation qualify them to speak on the subject with authority. One large party attribute the rise of prices that took place at this period, entirely to the influence of the suspension of specie payment by the Bank, which, as they say, flooded the country with an inflated and depreciated paper currency, and thus necessitated a corresponding rise in the price of the articles given in exchange for it. So strongly does this reasoning commend itself to the minds of those familiar with the first principles of political economy, that it has been very generally accepted. And it is worthy of notice that these are almost the only arguments which can be heard in explanation of the similar rise of prices now going on in this country. A more subtile but very important class of influences were brought to notice by another party, under the able leadership of Mr. Tooke. By these the rise of prices is, to a large degree, attributed to the excited spirit of speculation produced by the war, which, as they show, twice during this period brought the country to the brink of ruin. In favor of this explanation it may be further said that the fall of prices began immediately on the close of the war, and at no time was greater than in 1817, two years before the resumption of specie payment by the Bank. In 1819 the Bank of England resumed the payment of specie. Gold, which had been at one time at a premium of twenty-five per cent., now fell rapidly, and in 1821 was again at par.
It is difficult to say which has exerted the largest influence on the finances of Great Britain—the Revolution of 1688, or the wars with France in the beginning of this century. The first gave to England its system of taxation, but the last developed the capabilities of that system, and adapted it to the wants of a growing and commercial people.
The nation came out of its long conflict with taxes pressing upon nearly every important branch of industry. In the sixteen years that followed the war with France, taxes to the amount of nearly $200,000,000, were taken off from the country. These changes gave opportunities for many important reforms. While the national debt was slowly reduced, the tax system underwent great changes. Many taxes which had checked the growth of important branches of business were entirely removed. Efforts were made to reduce the excise, which was always an unpopular form of taxation. In carrying forward these changes, it was found that one really productive tax might be made to take the place of a large number of small duties which pressed with peculiar severity upon the people. Government now turned longingly to that 'splendid source of revenue,' as it was aptly called, which it had so reluctantly relinquished in 1816. In 1842, Sir Robert Peel suddenly brought forward a plan for a new tax upon incomes. It was at once adopted. This income tax differed, however, in many important particulars, from the one which the Government had been compelled to make use of in the wars with France. By it incomes under $750 were exempt. A discrimination of very great importance was also made, which has been the occasion since for much refined discussion, and is founded in sound reason, but which has hitherto been wholly overlooked in the legislation in this country. A discrimination was made between salaries and the incomes divided from realized capital. Taxable incomes, partaking of the nature of a salary, and upon which a tax would have the character of a duty on capital, were required by the provisions of this new act to pay only one half as much as those incomes which arose from, and would be therefore added to, wealth already acquired.
The income, or property tax, as it is now called, completes the system of taxation which is now relied upon to supply the varying but always enormous wants of Great Britain. Through these various sources during the past year the English Government has collected an income of three hundred and fifty million dollars—about the same it obtained through the same channels from a population of thirteen million inhabitants in the closing years of the war with Napoleon. With the same system of taxation, our own Government has, during the past year, obtained an income of one hundred and eleven million dollars. If we examine particularly the sources of the English revenue at these two epochs, and compare them with the corresponding branches of taxation with us, we find that in the year closing in 1815, the receipts from customs amounted to about fifty-six million dollars—a sum, it will be noticed, considerably less than that drawn from the same source in this country for the past year, but only about half the amount derived from customs in Great Britain in the year ending September, 1863. From the property tax was obtained about seventy-five million dollars—the modified form of this tax now in use in Great Britain produces about fifty million dollars per annum. Either of these sums is probably much larger than it would be advisable to attempt to produce by a direct tax in this country. Stamps, in 1815, yielded an income of thirty million dollars. During the past year this simple and productive source of revenue produced in Great Britain forty-five million dollars. It seems probable that this species of tax might be extended in this country much farther than it now is, without oppression to the people, and with a handsome increase of the revenue.
But the excise has ever been the most productive fountain of revenue in Great Britain. The income from this tax in that country, during the year ending September, 1863, was eighty-four million dollars. In the year 1815, when, on account of the smaller population, the other sources of revenue were less productive than at the present day, the excise yielded an income of not less than a hundred and thirty-five million dollars. It is worthy of notice that, of this income, the tax upon the various forms of spirituous liquors supplied a large element. English spirits, which, in the experiment of 1736, it had been found could not carry a tax of five dollars per gallon, it was now found easily bore the more moderate but still large tax of ten shillings sixpence sterling. Aside from this tax was the duty on beer, cider, and malt, the last of which alone yielded an income of thirteen million dollars annually.