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CHAPTER VII.

FINANCE AND BANKING.

Influence of Taxation on National Resources.-Sir Henry Parnell's Work.Influence of Duties on Raw Materials.-Influence of Duties on British Manufactures.-Effect of High Duties on Smuggling.-Lord Althorpe's Budget. The Wine Duties.-The Timber Duties.-The Bank of England Charter.-Report of the Committee.-Bank of England Notes Legal Tender. The London Joint Stock Banks.-The London and Westminster Bank.

It would have been useless to expect that during war, when financial exigencies put the Chancellor of the Exchequer at his wits' end to supply the necessary funds, any special attention should be bestowed on the incidence of taxation on commerce and industry. With an expenditure ever varying and uncertain, yet always excessive, with the resources of the nation but little known and undeveloped, and with the national mind preoccupied by the one great thought of securing the safety of the country, that was not the time for studying the science of finance. When, however, peace was restored and matters returned to their normal condition, the state of the revenue, its huge proportions, and its strange anomalies, pressed themselves on the consideration of the thoughtful. By this time the revenue and expenditure were brought down to a level,' several important conversions had been made of the public funds, and Dr. Hamilton's book, showing the fallacy of the sinking fund, had borne fruit in the act of 1829, which provided that thenceforth the sum to be applied to the reduction of the debt should be the actual annual surplus of revenue over the expenditure.2

'In 1814 the total expenditure was 106,832,000l. In 1820 it was reduced to 4,457,000Z.; in 1830, to 49,078,000l.

2 During the whole period, from January 5, 1793, when the French war broke out, up to 1829, there was only one year (1817) in which money was not raised by loan, in order to aid the sinking fund, besides what was required for war expenditure. After excluding the period from August 5, 1786, to January 5, 1793, during which 8,147,6317. was applied to redeem 10,241,1007. of 31. per cent. stock, bearing interest of 307,2631. per annum, there remains 321,902,8247., which was applied between 1793 and 1829 to redeem 472,942,7031. capital stock carrying 14,488,3887. annual interest, the mean rate on the sum paid being almost exactly 41. per cent. per annum. During the same period the total sum of 702,163,0757. was raised by loans, for which 1,052,536,7007. capital stock of funded debt was created, carrying 35,301,3927. annual interest, or a mean rate of 51. Os. 6d. per cent. per annum. The actual result of all these sinking fund operations, therefore, was that the total amount of 330,050,4557, was raised at 51. Os. 6d. per cent.

But other questions remained to be solved. Can industry be relieved of part, at least, of the heavy burden of taxation? Can any taxes be repealed or reduced without producing any material detriment to the revenue? Adam Smith had long before stated that, in the arithmetic of the customs, two and two instead of making four sometimes make only one-that the duties of customs might, without any loss to the public revenue, and with great advantage to foreign trade, be confined to a few articles only; that high taxes, by diminishing the consumption of the taxed commodities, or by encouraging smuggling, frequently afford a smaller revenue to Government than might be drawn from more moderate taxes; and that the temptation to smuggle can be diminished only by lowering a tax. Long experience had indeed proved the soundness of these principles, but no attempt had been made to put them into practice, and the field of enquiry and legislation was altogether untrodden when Sir Henry Parnell published his excellent work on financial reform.

The

First among the defects of the existing tariff was the imposition of heavy taxes on the raw materials of industry. It was easy to see that, by increasing the cost of manufactures, such taxes would lessen the amount of production, and render our manufactnrers less able to carry on a successful competition with foreign manufacturers. The duty on hemp greatly raised the prices of articles in universal demand, as well as the prices of sails and cordage. duties on ashes and barilla added to the prices of the materials of several manufactures. The duty on raw silk raised the price not only of silk manufactures, but of silk thrown at home. The duty on timber injuriously affected industry in a great variety of ways, in consequence of its being used in shipbuilding and machinery. The duty on bricks and tiles fell heavily on industry, in consequence of the number and size of the buildings required for mills, factories, and storehouses. The duties on hides and skins not only injured a very important manufacture, but raised the price of one of the necessaries of life. The duty on coals and culm carried coastwise, affected the business of working coal-mines, and increased the cost of machinery, building ships, bleaching and dyeing, as well as of the steam power used in many processes of trade and manufacture.

Not less injurious in their working were the taxes on British manufactures, such as glass, paper, printed calico, soap, and many other articles then subjected to excise. The extent of the market to pay off debt carrying interest at 447. per cent. The difference between these two rates is 108. 6d. per cent. per annum, amounting upon the total capital sum of 330,050,4557. to 1,627,7657. per annum, which may be set down as the increased annual charge of our funded debt, and a real loss to the public from this deceptive sinking fund system; without taking into account the expenses of the management of the sinking fund, and the increased amount of capital of debt, consequent upon the practice of borrowing on less advantageous terms for larger sums than were required to meet the actual public expenditure.-Accounts of Public Income and Expenditure, 366 of 1869, part ii. p. 718.

for these manufactures, and consequently of the employment of capital and labour in producing them depending on the cheapness, it naturally followed that those duties, by increasing their prices, had the direct effect of limiting the market for them, and diminishing the employment of capital and labour. Moreover, the severe and vexatious regulations under which those duties were collected had most injurious consequences. By prescribing the processes of fabrication, manufacturers were not allowed to manage their trade in the way their skill and experience pointed out as the best, but were compelled to conform to such methods of pursuing their art as they found laid down in acts of Parliament. And by checking activity and invention among our manufacturers, the consumers of those goods were made to pay prices increased to the extent, not only of the duties imposed, but of the additional expenses incurred in consequence of such vexatious regulations.

The taxes on luxuries were too high, and their effect was to diminish the revenue and to encourage smuggling. The taxes imposed for the protection of agriculture had the effect not only of making the public pay a higher price for all articles of food, but also by diminishing the value of annual imports, causing a corresponding diminution in the annual value of exports of British manufacture; whilst the taxes for the protection of British manufacture, by preventing the importation of foreign goods, diminished the demand for the exportation of British goods, diminished the employment of shipping and foreign commerce, enhanced the prices of a number of articles, checked invention, gave encouragement to smuggling, and otherwise weakened and paralysed the energies of the nation.

Soon after the publication of Sir Henry Parnell's work on financial reform, it devolved on Lord Althorpe, as Chancellor of the Exchequer in Earl Grey's administration, to present his budget, and in it we have the first attempt at alleviating the burden of the poorer classes by reducing those taxes which pressed more immediately on the productive resources of the country. The budget proposed the repeal of the taxes on coal, tallow candles, on printed calico, and glass; the abolition of the duties upon a vast variety of articles which produced but a trifling amount of revenue; the reduction of the duty on tobacco; the equalisation of the wine duties, and a reform in the timber duties. And in order to make up the deficiency thereby created, the budget proposed new taxes on steamboat passengers, on bona fide sales of land, and of funded property, an import duty on raw cotton, and other duties of minor importance. We cannot say that the idea of imposing an objectionable tax in order to relieve the nation of another was a very happy one, and we are not surprised that some severe criticism was indulged in at the preference shown in reducing the duty on tobacco rather than on tea. Yet, on the whole, the budget was

But other questions remained to be solved. Can industry be relieved of part, at least, of the heavy burden of taxation? Can any taxes be repealed or reduced without producing any material detriment to the revenue? Adam Smith had long before stated that, in the arithmetic of the customs, two and two instead of making four sometimes make only one-that the duties of customs might, without any loss to the public revenue, and with great advantage to foreign trade, be confined to a few articles only; that high taxes, by diminishing the consumption of the taxed commodities, or by encouraging smuggling, frequently afford a smaller revenue to Government than might be drawn from more moderate taxes; and that the temptation to smuggle can be diminished only by lowering a tax. Long experience had indeed proved the soundness of these principles, but no attempt had been made to put them into practice, and the field of enquiry and legislation was altogether untrodden when Sir Henry Parnell published his excellent work on financial reform.

First among the defects of the existing tariff was the imposition of heavy taxes on the raw materials of industry. It was easy to see that, by increasing the cost of manufactures, such taxes would lessen the amount of production, and render our manufacturers less able to carry on a successful competition with foreign manufacturers. The duty on hemp greatly raised the prices of articles in universal demand, as well as the prices of sails and cordage. The duties on ashes and barilla added to the prices of the materials of several manufactures. The duty on raw silk raised the price not only of silk manufactures, but of silk thrown at home. The duty on timber injuriously affected industry in a great variety of ways, in consequence of its being used in shipbuilding and machinery. The duty on bricks and tiles fell heavily on industry, in consequence of the number and size of the buildings required for mills, factories, and storehouses. The duties on hides and skins not only injured a very important manufacture, but raised the price of one of the necessaries of life. The duty on coals and culm carried coastwise, affected the business of working coal-mines, and increased the cost of machinery, building ships, bleaching and dyeing, as well as of the steam power used in many processes of trade and manufacture.

Not less injurious in their working were the taxes on British manufactures, such as glass, paper, printed calico, soap, and many other articles then subjected to excise. The extent of the market to pay off debt carrying interest at 447. per cent. The difference between these two rates is 108. 6d. per cent. per annum, amounting upon the total capital sum of 330,050,4557. to 1,627,7657. per annum, which may be set down as the increased annual charge of our funded debt, and a real loss to the public from this deceptive sinking fund system; without taking into account the expenses of the management of the sinking fund, and the increased amount of capital of debt, consequent upon the practice of borrowing on less advantageous terms for larger sums than were required to meet the actual public expenditure.-Accounts of Public Income and Expenditure, 366 of 1869, part ii. p. 718.

for these manufactures, and consequently of the employment of capital and labour in producing them depending on the cheapness, it naturally followed that those duties, by increasing their prices, had the direct effect of limiting the market for them, and diminishing the employment of capital and labour. Moreover, the severe and vexatious regulations under which those duties were collected had most injurious consequences. By prescribing the processes of fabrication, manufacturers were not allowed to manage their trade in the way their skill and experience pointed out as the best, but were compelled to conform to such methods of pursuing their art as they found laid down in acts of Parliament. And by checking activity and invention among our manufacturers, the consumers of those goods were made to pay prices increased to the extent, not only of the duties imposed, but of the additional expenses incurred in consequence of such vexatious regulations.

The taxes on luxuries were too high, and their effect was to diminish the revenue and to encourage smuggling. The taxes imposed for the protection of agriculture had the effect not only of making the public pay a higher price for all articles of food, but also by diminishing the value of annual imports, causing a corresponding diminution in the annual value of exports of British manufacture; whilst the taxes for the protection of British manufacture, by preventing the importation of foreign goods, diminished the demand for the exportation of British goods, diminished the employment of shipping and foreign commerce, enhanced the prices of a number of articles, checked invention, gave encouragement to smuggling, and otherwise weakened and paralysed the energies of the nation.

Soon after the publication of Sir Henry Parnell's work on financial reform, it devolved on Lord Althorpe, as Chancellor of the Exchequer in Earl Grey's administration, to present his budget, and in it we have the first attempt at alleviating the burden of the poorer classes by reducing those taxes which pressed more immediately on the productive resources of the country. The budget proposed the repeal of the taxes on coal, tallow candles, on printed calico, and glass; the abolition of the duties upon a vast variety of articles which produced but a trifling amount of revenue; the reduction of the duty on tobacco; the equalisation of the wine duties, and a reform in the timber duties. And in order to make up the deficiency thereby created, the budget proposed new taxes on steamboat passengers, on bona fide sales of land, and of funded property, an import duty on raw cotton, and other duties of minor importance. We cannot say that the idea of imposing an objectionable tax in order to relieve the nation of another was a very happy one, and we are not surprised that some severe criticism was indulged in at the preference shown in reducing the duty on tobaceo rather than on tea. Yet, on the whole, the budget was

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