The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 3: Bad Effects of Funding
Chapter 3d: Bad effects of funding
54 Land and capital stock are the two original sources of all private and public revenue.
Capital stock pays the wages of productive labour, whether employed in agriculture, manufactures, or commerce.
The management of those two original sources of revenue belong to two sets of people:
the proprietors of land
the owners or employers of capital stock
55 The proprietor of land is interested to keep his estate in as good condition as he can, for the sake of his own revenue.
He does this by:
building and repairing his tenants' houses
making and maintaining the necessary drains and enclosures and all those other expensive improvements
These all properly belong to the landlord to make and maintain.
The landlord might be unable to make or maintain expensive land improvements when:
land taxes very much reduce his revenue
sales taxes on necessities and conveniences render his reduced revenue of so little real value
When the landlord stops doing his part, it is impossible that the tenant should continue his.
As the landlord's distress increases, the country's agriculture must necessarily decline.
56 Merchants and manufacturers are the owners of the greatest capitals.
They will be disposed to remove their capitals when, by sales taxes on commodities, they find that their revenue from their commodities is less than other revenues.
When they are continually exposed to the mortifying and vexatious visits of the tax-gatherers to get more taxes, this will turn to an actual removal.
The country's industry will necessarily fall with the removal of the capital which supported it.
The ruin of trade and manufactures will follow the decline of agriculture.
57 The original owners of land and capital stock are the people most interested in the good management of those two revenue sources.
The neglect of land and the waste of capital stock can be caused in the long run by transferring their ownership to another set of persons, such as the public creditors.
These people have no such interest.
A public creditor has a general interest in the prosperity of the agriculture, manufactures, commerce, lands, and capital stock of the country.
Should there be any failure in any of these things, the proceeds of the taxes might be insufficient to pay him his annuity or interest.
But a public creditor has no interest in the good management of any specific land or capital stock.
He has no knowledge of any such specifics.
He does not inspect it and does not care about it.
Its ruin might be unknown to him and cannot directly affect him.
58The practice of funding has gradually enfeebled every state which has adopted it.
The Italian republics seem to have begun it.
Genoa and Venice are the only two remaining which can pretend to be independent.
They have both been enfeebled by it.
Spain seems to have learned perpetual funding from the Italian republics.
Its taxes were probably less judicious than theirs.
Spain has been more enfeebled, in proportion to its natural strength.
The debts of Spain are very old.
It was deeply in debt before the end of the 16th century, about 100 years before England owed a shilling.
France, despite its natural resources, languishes under the same kind of oppressive load.
The republic of the United Provinces is as much enfeebled by its debts as Genoa or Venice.
Is it likely that a practice which brought weakness or desolation to other countries should prove innocent in Great Britain alone?
59 I believe that the tax system established in those countries is inferior to that of England.
But we should remember that when the wisest government has exhausted all the proper subjects of taxation, it must resort to improper ones in cases of urgent necessity,
The wise republic of Holland was sometimes obliged to levy taxes as inconvenient as those of Spain.
If another, more expensive war begins before the public revenue could be much liberated, the British tax system would be rendered as oppressive as that of Holland or Spain.
To the honour of our present tax system, it has given very little embarrassment to industry.
During the most expensive wars, the frugality and good conduct of people were able, by saving and accumulation, to repair all the breaches which the waste and extravagance of government did to the society's general capital.
The most recent war was the most expensive Great Britain ever waged.
At the end of it, British agriculture was as flourishing, her manufacturers as numerous and as fully employed, and her commerce as extensive as before.
The capital which supported all those industries must have been equal to what it was before.
Since the peace:
agriculture was still further improved
house rents have risen
It is a proof of the people's increasing wealth and revenue.
the annual amount of most of the old taxes, particularly the excise and customs, has been continually increasing.
It is an equally clear proof of an increasing consumption.
It is proof of an increasing produce for that consumption.
Great Britain seems to easily support a burden which everyone thought she could not support 50 years ago.
Let us not rashly conclude that she is capable of supporting any burden.
Let us not be too confident that she can support, without great distress, a little more burden than what she already has.
60When national debts have been accumulated to a certain degree, there has never been a single instance of them being fairly and completely paid.
The public revenue is liberated by bankruptcy or, frequently, by a pretended payment.