Money is defined as the uniform measure and rule for the value of all commodities (346). This is only a definition, for he expresses a doubt whether there has ever been such a measure (30). The world measures commodities by gold and silver, but these measures do not fulfil the conditions of a real measure of value. In the first place they are not natural measures. The proportion between corn and silver gives an artificial value, because the comparison is between a thing naturally useful, and a thing in itself unnecessary (81). Again, it is not a constant measure, for the value of silver fluctuates. It is worth more at one place than at another, not only from being further from the mines, but from other purely accidental causes (345). It may be worth more at present than a month or other small time hence, or it may be converted into a commodity. Vessels will be made of it if more commodities can be exchanged for it in this way than by employing the same silver by way of trade. Only one of the two precious metals is "a fit matter for money;" the other metal is only a commodity (347). The proportional value of gold and silver fluctuates as the earth and the industry of man produce more of one than of the other. The only way of pitching upon the true proportion between them is by reducing each to the amount of labor required in the mining and refining of each. The man who has the ability to hire the most labor is the richest (38). This helps us to understand the difficulty of comparing the money in a country at the present time with what it was in any past century. We must know first of all the difference in our denominations now and then. Sixty-two shillings are now coined from the same quantity of silver as were thirty-seven then. We should know besides what were the regulations regarding weight, fineness, and seignorage. Even if we knew all these facts, we must have besides its power of purchasing labor, before we can attain to accuracy (38).
"Money," he says, "is the best rule of commerce" (Quantulumcunque). It is an imperishable commodity, and it is exposed to smaller fluctuations in value than other commodities. It is, however, absurd to give too much importance to its possession, for the money of a nation is only perhaps a hundredth part of its wealth (20). The rest consists in lands, housing, shipping, furniture, goods, and so on. Remembering this, there ought to be some way of determining what should be the amount of coin in circulation. The general rule to be followed is that it should only be increased when the general wealth of a country increases. In order to measure it exactly he uses one of his favorite methods of computation. We must know the number of people, the amount of their expense annually, and the customary time of settling their accounts. For example, if the rents of lands are eight millions per annum, and they are paid half yearly, there must be four millions of coin to pay them (279).
Although Petty is careful to tell us that money "is but the fat of the body politick," of which there can be too much as too little (481), yet when he considers practical questions of state policy, he assumes the political point of view. As the great need of the newly developing modern state was a well filled treasury, he advises that the importation of gold and silver should be encouraged (235). Again, in the same spirit, he makes the following remarkable recommendation: "That selling of lands to foreigners for gold and silver would enlarge the stock of the kingdom" (282). On the other hand, he looks upon the prohibition of exporting money as impracticable and nugatory. If it has any effect it acts as a kind of insurance premium, heightening the price of the goods purchased with the money exported in defiance of the law (45). The advantage of permitting the export is to be seen, when we remember that the trader can make much stiffer bargains if he has ready money than if he had commodity alone (46). On practical questions of currency Petty is very full and complete. "If the coinage is of specie of unequal weight and fineness," it is no longer a rule (Quantulumcunque). He gives a detailed account of the damage resulting from these inequalities. The money, if full weight and fineness, is sorted out by exchangers, and exported to some place where its real value is recognized (348). He has carefully examined the familiar fiscal expedient of tampering with the coinage, either raising or debasing it. The idea of such a proceeding is "to multiply it and make it pass for more than it did before" (75). This means to purchase more commodities or labor with it. What such a policy amounts to is simply a tax upon the people to whom the state is indebted, or, in plain words, a defalcation. An open bankruptcy is to be preferred. It is a sign of a sinking state "which catcheth hold on such weeds as are accompanied with the dishonour of impressing a prince's effigies to justify adulterate commodities and the breach of public faith, such as is the calling a thing what it really is not" (82). Any coin is debased that has more alloy in it than serves to correct its too great natural softness and flexibility (76). Coin so treated is bad, because it is easily counterfeited. In the case of small coins there is a chance of a great loss if they are depressed in value. A depression of ten or twelve per cent, may equal in this way a depression of twenty-five per cent (77).
Raising money is dividing a pound troy of standard silver into more pieces than formerly, but retaining the same name, or else calling money already made by higher names (78). Supposing then one shilling be called worth two, what would happen? All commodities would be twice as dear. If it were proclaimed that laborers' wages should be the same, or not rise, it would act as a tax upon laborers (78). The only good excuse for raising money is to discourage hoarding.
He then proceeds to discuss a scheme to procure money from abroad by raising the value of foreign coinage in England as an encouragement for foreigners to purchase English goods. The result of the plan would be, that our good money would be drained away. "Raising of money may indeed change the species, but with so much loss as the foreign pieces were raised unto, above their intrinsick value" (79). Even if the export of money could be prohibited, it would be better to lower the price of our own goods. From the political point of view it might be more judicious to raise the value of foreign coins. We gain in the last case foreign specie, in the other foreign commodities.
Copper and tin money made "ad valorem" is not debased. Money to be good need not be exclusively made of gold and silver (76). The number of copper coins ought, however, to be limited to actual necessity of making small change. The tokens used in exchange for retail by particular men are not base, if the credit of those who issue them is good, and if they can be changed for silver.
Finally he takes up the whole question of money exports, and treats it by a new method (Quant.). The laws against export of money are not natural. Countries which abound in money have no such laws. Countries that forbid export are alike destitute of money and merchandise. Besides, as we have already seen, it does not follow that a country is poor because it has little money. We know that private individuals thrive without hoarding. They turn their money into merchandise.
Interest is a "reward for forbearing the use of your own money" for a term of time agreed upon (Quant.). In another place he calls it a compensation for the inconvenience of not having one's money back "until a certain time to come" (34). There is no reason why the laws should prohibit usury. If exchange is allowed, why should interest be restricted? The two are closely related in principle. Exchange is the reward given for the convenience of having money in the place you wish, and interest is the reward for having it for the time you wish (35). The reason for allowing interest lies in the natural order of things, against which civil positive laws are fruitless. The rate of interest is determined by the rent of land which the same amount of money will buy, where the security is undoubted. Below this the rate of interest can not fall. When the security of investments is doubtful, it is natural for the rate to be high. This is the case in Ireland. A low rate of interest, which many of Petty's contemporaries looked upon as a cause of wealth, he regarded as an effect of general industrial prosperity. Holland, where the rate was low, had an abundance of money, and this it had secured by an enlightened commercial policy (226).
Exchange he defines as local interest. Its rate is governed by the height of the premium on the risk, and by cost of transport from one place to another (35). Local differences of profit will also modify it. Exchange can never naturally be more than the cost of land and water carriage between the two respective places, and the insurance. Ireland is an apparent exception for the rate of exchange between that country and England is much higher than this principle would allow. This abnormally high rate is the result of the restrictions placed upon Irish trade with England. Goods going out of Ireland to pay bills in England must be taken to the Barbadoes and there sold for sugar. This sugar must be brought to England and sold there. It is easy to see why the rate of exchange has risen to fifteen per cent. (349).
Petty's residence in Holland had made him familiar with the banking system of that country. "The trade of banks," he explains, "is the buying and selling of interest and exchange." (Quant.) Their honesty is enforced by the peril of losing their business. The great advantage of the banking system is that it enables a country to diminish the amount of precious metals in circulation as currency. Supposing that £100,000 will drive the trade of a nation, and there is but £60,000 in the country. If £20,000 is sufficient for all payments under £50 then the £40,000 can be placed in a bank and under proper security may be freely used. In this way, with a credit of £40,000, the sum of £100,000 is made up (230). The credit system can be further extended. The security in the bank need not be metallic; why should not money be issued on the basis of landed property (280)? He is convinced of the soundness of such a scheme, and he wishes to see land banks established both in England and in Ireland (351).
Petty's most systematic work is his "Treatise on taxes and contributions." When we remember the desultory character of the English writings on finance in his time, we must be surprised at his firm grasp of the subject. It was a matter in which he was thoroughly at home. As a public servant he had experience in financial administration, and he was a witness of the serious effects that could be brought about by a short-sighted system of taxation. The work opens with an enumeration of the public charges of a State. These are charges of defense, external and internal; administration of government, of justice, of religion; education, the poor, and internal improvements. What are the causes that increase these charges? The origin of foreign and domestic wars is traced and analyzed. The costs of governmental administration may be increased by a general unwillingness to pay taxes. This unwillingness may be due to a suspicion that there is an over-imposition of taxation, or that there is extravagance, or that the levies are unjust. Again, it may be due to enforced money payments at inconvenient times, or to legal difficulties as to right of imposition, or to scarcity of money, or to small number of industrial class, or to the want of proper trade statistics. The charges of religion, education, justice, the poor, internal improvements, are considered in the same thorough way and remedies are proposed for lessening these several burdens.
The road to all reform is the possession of accurate statistics. All unprofitable labor should be limited by an effective State control of education and religion. The labor of every man should be directed to those channels where it will be most productive. The subject of "unwillingness to pay" is more carefully examined—each of the headings previously given is minutely analyzed. As an illustration (18), under the heading extravagance, it is noticed that money spent on entertainments is not really lost, because it descends finally into the hands of those who are engaged in useful trades. The same principle holds with regard to money spent by princes on favorites. No one should object to such extravagance, for there is a chance for every one to become a favorite, no matter how low his station of life may be. Then comes the main subject of the work—the best methods of raising taxes (chapter iv). The most simple method, as well as the most natural, would seem to be to support the government by reserving a certain proportion of the land as royal domain, or to raise the same amount of income by taking a fixed proportion from the rent of all lands. This last is rejected, because, owing to the uncertain length of leases, the incidence of the tax may be thrown ultimately on the consumer, and in the end it amounts to the same thing as an irregular excise (26). In a new state this objection does not hold good. This is the case in Ireland; there the payment of the royal quit rents is not at all burdensome. "That country is happy in which by original accord such a rent is reserved. * * * * Not only the landlord pays, but every man who eats but an egg, or an onion of the growth of his lands" (25). The introduction of such a tax into England would be unjust. For suppose A and B had each of them a parcel of land of equal goodness and value. Suppose A has let his land for twenty-one years for £20, and B's land is free. Let a tax of a fifth part be laid; hereupon B will not let under £25, that his remainder may be £20. A must be contented with £16 net; nevertheless, the tenant of A will sell the proceeds of the land at the same rate that the tenants of B will. It is easy to see from this that only those landlords will lose whose rents are already predetermined; the rest will gain by raising their revenues and by enhancing the prices of provisions (25-26).
The first method proposed, namely, the system of Royal Domain, is not so good as the second, because in the latter case the king has more security and more obligees (24).
An assessment on housing is open to the objection of inequality. A house may be regarded in two ways, either as a means of expense, or as an instrument of gain. Which of these standpoints will be selected as the subject of taxation (26)? Assessments on rentals, in order that they may be just, should be levied only when the exact value of the rent is known. This involves a very careful examination, and the whole nature of rent must be analyzed. This leads to a long digression on natural rent, which has already been discussed under that heading.
"Custom (ch. vi) is a contribution or excisium out of goods sent out or imported into the prince's dominions (41)." Export duties are only advisable in exceptional cases; i. e., when the country has a natural monopoly, as England has in tin. The duty should be regulated to leave a reasonable profit to the exporter, and to make the price of the commodity lower than it could be had from elsewhere. Customs on imported goods should be governed by the following considerations: All goods ready for consumption are to be made somewhat dearer than the same things grown or made at home. Articles of luxury should be highly taxed. Goods not fully wrought and manufactured, tools and materials used in manufacture, should be gently dealt with (43). The objections to the tax are the cost of collection, the incentive to smuggling and to bribery. The amount so raised can of itself never suffice to bear the expense of the kingdom (44). A substitute for customs might be found in tonnage duties. These are easily collected, and the object on which they are laid is visible to everyone. The state might also undertake a general marine insurance. The profits would be great, and there would be no inducement to evade payment (45). Even if such changes were made, it may be said that the officials of customs must be still employed in the same numbers, to prevent the importation of commodities that are wholly prohibited.
This brings us to an important question of commercial policy. We have already seen how he condemns the prohibition on money export. In his "Quantulumcunque," a much later publication, he says: A merchant will carry goods or money according as the one or the other will purchase more commodities. The effect of prohibition on the wool trade he thinks of small use. The Hollanders have "gotten away our manufacture of cloth by becoming able to work with more art, to labour and fare harder, to take less freight, duties and insurance" (47). Fierce retaliation will do us more harm than good. We often buy corn from abroad. Why should we not turn our hands to tillage? By doing this we should increase the price of meat and encourage the fisheries; Less money would be spent on corn; there would be no gluts of wool; our idle hands would be employed in tillage and fishing; or why not draw over workmen from Holland, if their way be better, or send our men there to learn? Two general principles of great importance are in place here. As wise physicians do not tamper with their patients, but rather observe and comply with the motions of nature than contradict it with vehement administrations, the same care should be used in economics and politics (48). Imported goods need not be prohibited until they much exceed our exportations. In the "Anatomy of Ireland" (356), he makes a more explicit statement of his views. "Why should we forbid the use of any foreign commodity which our own hands and country cannot produce, when we can employ our spare hands upon such exportable commodities as will purchase the same, and more?"
We have seen the position he took on the prohibition of the Irish cattle trade. He saw in the prohibition a direct loss to England, for Irish trade was diverted into other channels. She was obliged to import from Spain and France the goods which otherwise she would have taken from England. That the theory of foreign trade was not unknown to him is evident from the following passage taken from the "Quantulumcunque". In it he gives his reasons for preferring copper to tin for fractional currency. The ordinary argument for using tin was, that that metal was a domestic commodity, while copper had to be procured from abroad. To buy copper would drain the kingdom of its store of money. This reasoning Petty meets in the following way: If a hundred weight of tin be exported to Turkey it will purchase there enough silk to buy about a hundred weight of copper in Sweden.
We now pass on to the poll-tax (ch. vii). The tax as imposed in England is unjust. It is a tax on position or title, and takes no account of the riches of the individual taxed. Single rich persons are taxed at the lowest rates, while poor knights are rated at £20. A real poll-tax taxes every individual alike. The objection to this form of tax is that it is only apparently equal, men who are of unequal abilities being rated at the same amount. The conveniences are, ease of collection, certainty of amount raised by it, incentive to setting children to work early. The plan of state lotteries (ch. viii) as a fiscal expedient he aptly describes. It is, he says, "a tax upon unfortunate self-conceited fools; men that have good opinion of their own luckiness." It should be under direct state control, and ought to beused sparingly. Its inconvenience is the small amount that can be raised in this way.
Benevolences (chapter ix) are money raised by forced loan from special classes. Such loans are justified when the classes so taxed have been benefited especially by the State (54). The inconveniences are, dangers arising to the State from factions, increase of bankruptcy, the liability to abuse, because some pay in order to secure personal favor to those in power. Legal penalties (chapter x) are treated under the head of taxation, because if fines were extended to all forms of crime the State's income would be considerably augmented. Every man has a labor-producing power. The State should regard this factor in the administration of the criminal law. Serious crimes should be punished by slavery, minor offenses should be fined. Religious heterodoxy ought to be tolerated, but its adherents must be made to pay for their conscientiousness. Infidels are to be kept at hard labor. The responsibility of defections among the laity from the established form of religion should rest upon the clergy, and their salaries should be taxed heavily by the State in case their flocks show signs of heterodoxy.
Monopoly (chap. xi) is the exclusive right of sale of any article without regard to its real value. A conspicuous example of a monopoly is the gabelle, or salt duty. As salt is universally used, the monopoly seems to have the same effect as a capitation tax (64). The pretext for a monopoly is the right of invention. Original inventors, however, rarely profit by their inventions, as generally they fall into the hands of projectors who gain all the profits. All offices instituted by the State with the right of arranging their scale of fees, where the duties performed are out of all proportion to the charges made, are monopolies. The sale of such offices should be made a source of public revenue.
Tithes (chapter xii) are properly an excise for the support of the clergy paid in naturalibus. They are the pattern for a just tax, and seem most equal to defray public charges. So far as raw products are concerned there is no difficulty. But in regard to housing, cloth, drink and manufactured goods, the system cannot be equally applied. The inconveniences are the uncertainty of the amount that can be raised, owing to the variations in the market price of goods; the liability to fraud when the tax is farmed out for collection; the necessity of an additional tax on manufactured articles, that have already paid the tax in a raw state.
Several smaller ways of raising money are then mentioned (chapter xiii). These are: The establishment of state banks, or of monts-de-piété; state monopoly of such articles as salt and tobacco; state poor control and guardianship of minors, lunatics and idiots; the maintenance of theatres and places of amusement; birth and death taxes; taxes on Jews and aliens. In under-peopled countries it is not advisable to lay a tax on aliens. On Jews such a special tax can be justified. They deal in lucrative trades and manage frequently to elude taxation. The assessment of an aliquot part on estates, real and personal, is entirely bad. An opening is given to fraud, collusion and oppression. It is impossible to check its fairness or correctness.
The method of raising money by tampering with the currency has been already discussed. The next tax dealt with is the excise (chapter xv). The principle of equable taxation is, that men should contribute to the public charge according to the share they have in the public peace, i. e., according to their estates or riches. Now, as there are two sorts of riches, actual and potential, which is to be taken as the object of taxation? "Every man ought to contribute according to what he taketh to himself, and actually enjoyeth" (83). The first step is to estimate the total wealth of the kingdom. Its annual yield from all sources that are known must be deducted from the whole known expense. The remainder is the product of the annual labor power of the whole people. The amount to be raised is levied according to the ratio each source of wealth bears to the total wealth. To use an example in the "Verbum Sapienti," if the annual proceed of the stock of a nation yield fifteen millions and the labor of the people yield twenty-five millions, then three-eighths of the tax is to be laid on the stock, including land, cattle, personal estates and housing, and five-eighths must be levied on the people by an equal poll-tax (477).
Properly, every article should be taxed when ready for consumption. For example, on corn should be accumulated the charges of grinding, bolting and yeast, unless these particulars can be best rated apart. Domestic commodities should, if exported, pay no excise. Imported foreign goods should pay.
A different form of this tax is called an accumulative excise (85). By this tax many things together are taxed as one commodity; for example, in the tax on cloth, the wool, tools, and workmanship may well enough be included. This principle has been carried so far as to have all taxable goods accumulated upon some single commodity for ease of collection. Beer has been proposed as the object of this accumulated excise, on the supposition that, as men drink, in the same proportion they make all other expenses. This supposition is, however, notoriously untrue, for observation shows that the poorer classes of laborers sometimes drink twice as much as gentlemen. All things proposed in place of beer, such as salt, fuel, and bread, are open to the same objection. Of all excises, hearth or smoke money seems the best. It is "the easiest, and clearest, and fittest to ground a certain revenue upon." The tax must be small or it may become unbearable. If the incidence of the tax is shifted from the tenant to the landlord, the tax becomes a tax on housing.
The advantages of a proper excise are: "The natural justice that every man should pay according to what he actually enjoyeth." If it be not farmed, but regularly collected, it encourages thrift. "No man pays double or twice for the same thing, forasmuch as nothing can be spent but once." It gives an opportunity for getting an accurate account of the wealth, growth, trade and strength of the nation at all times. The tax should be collected by special officers, whose time will be taken up entirely in this employment. Holland's experience confirms this last recommendation, and in the manner of collecting the tax, her practice should be followed.