Popular Science Monthly/Volume 48/November 1895/Principles of Taxation: Introduction I
|PRINCIPLES OF TAXATION.|
By DAVID A. WELLS.
"The principles of good government are far from easy to learn accurately; and very much harder to put in practice."—F. B. Sanborn.
IT is the purpose of the writer in the chapters which follow, to discuss the principles of taxation from a broader basis and by different methods than have heretofore been attempted, special consideration being given to the experience of the United States.
Such a discussion primarily involves the inquiry, of how far the varied and curious experience of nations leads up through what may be regarded as a process of evolution, to a recognition of the underlying and essential principles of a just and at the same time an efficient system of taxation. And it also necessitates, for the attainment of correct conclusions in the prosecution of such inquiry, that illustrations drawn from the world's great record of experience should take precedence of theory, especially in the way of example and exhibit of the many abuses of the power of taxation which the ignorance of legislators and the cupidity of designing men have inflicted upon nations.
The subject is one of transcendent importance, perhaps more universally important than any other that can invite public attention. Its discussion opens questions of the widest possible range. There can be no civilization without government and no government without an adequate supply of revenue obtained from the persons and property of the people governed. There can be no health in the body politic without sound finance, and no sound finance without a sound system of taxation. In fact,
VOL. XLVII.- 1 taxation is to our body politic what blood is to the body physical: if healthy, infusing life and warmth; but if unhealthy, the agent for producing discontent, decrepitude, and paralysis.
The absence or existence of limitations on the power of a government to make compulsory levies on the property or persons of its people for its use or support, constitutes the dividing line between a despotism and a free government—a fact most pertinent to legal, economic, and societary studies which has attracted little attention.
The methods and scope of what is called taxation regulate more than all other agencies the distribution of wealth, which is really the great question of the future to all nations. Ever since Adam Smith wrote his paramount work on the Wealth of Nations the political economists and students of social science have concerned themselves mainly with the production of wealth. That problem has been practically solved. Wealth is now produced with a rapidity that the world had never before supposed possible, and the laws governing its production have become well understood by those who have made a special study of the subject. An inevitable result of this condition of affairs has been, that wealth produced under the greater control that man in general has obtained over the forces of Nature has aggregated itself, as it always will, in the hands of those whose faculties especially qualify them to obtain and manage it, and who, in common parlance, have received the name of "money-getters." These have become enormously rich, while the masses, whose material condition is also absolutely much better than at any former period of the world's history, are, however, relatively poorer. Improved facilities for transportation have greatly facilitated intercommunication, and the opportunity thus afforded for the observation of extreme contrasts in individual conditions has operated as a very great factor in occasioning discontent among the masses, who by reason of the never as yet fully tested experiment of universal suffrage, have become, at least theoretically in the United States, the sole arbiters of the policy of their Government and of the selection of the legislators who are to enact laws in conformity with such policy.
The problem of the acquisition of wealth having thus been solved, that of the proper distribution of wealth logically and necessarily follows, and the character of the measures which directly or indirectly involve what is called taxation for the attainment of such result, which seem to commend themselves to the people of the United States, are especially worthy of attention. They are indicated in part by the adoption of a pension system unlike anything of the kind ever known in history, and which necessitates an annual expenditure of money (raised by taxation) to meet the military expenses of the country—army, navy, and pensions—in excess of that entailed by the immense military establishment of any of the countries of Europe, and the enactment of an income-tax statute whose primary object was not to raise revenue for the support of the Government, but an unmistakably political and socialistic measure, which threatened to annul the most important and exceptional feature of the Federal Constitution.
That the diminishing rate of returns, in way of interest or profits, by the force of laws which no combination of capital can resist, is seriously impairing the relative value of wealth, and may eventually reach a minimum which will greatly diminish the inducement to individuals to economize or save it, although not generally recognized or appreciated, can not be denied. And neither is it recognized that the current rate of taxation on capital in all civilized countries even now approximates, and to an extent actually exceeds, the current rates of interest or profit on its use. Thus, for example, the rate of discount at the Bank of England during the greater portion of the years 1894 and 1895 has not been in excess of two per cent, and the discount (borrowing) rate for three months during this period was not infrequently less than a rate of three quarters per cent per annum. If taxes, according to popular theory, do not diffuse themselves, but remain a burden on the person, business, and property subject to their
first incidence, there is a problem likely to come at no distant day before tax legislators, which up to the present time they have hardly thought of, and which is certain under a free government to be solved by human nature rather than by statute.
The scope and methods of raising revenue for the support of a State are also some of the greatest, if not the very greatest, determining factors of the morality of a people. "I insist," said an eminent lawyer and member of the Constitutional Convention of the State of New York in 1868, "that a people can not prosper whose officers work and tell lies. There is not an assessment roll now made out in this State that does not both tell and work lies." And no member of the convention, or any representative of the press, either then or subsequently, has challenged the assertion. The extent also to which the existing system of taxation in the United States has obliterated the sense of honesty in its people in their individual dealings with the Government, removed all repugnance to the act of perjury, and caused each one to justify himself to his conscience for making a false return in the matter of taxes, by the supposition that every one is doing the same, is also strikingly illustrated by the circumstance, that a high court in one of the States of the Federal Union has recently decided that "perjury in connection with a man's tax lists does not affect his general credibility under oath."
The idea that the proper relation of a State to its people is essentially of a paternal nature finds much of popular approval, and is without doubt popularly desired. Accepting this idea as correct, let us exemplify it in its application to the State. Suppose a father in dealing with his family, placed, so far as his children are concerned, a premium on lying and concealment, and vested with a heavy penalty all truthfulness and straightforward dealing, he would be regarded as a worthy inmate for the States prison. But this is exactly what the Government of the United States does, or proposed to do, in the case of many of its so-called tax statutes. Thus in the recent income-tax statute it offered to its citizens considerations in money if they would forswear themselves, or practice deception; and it imposed a direct and heavy fine on those who were conscientious and truthful. Again, when the Government imposes a tax of more than a thousand per cent in excess of the prime cost of the article taxed, as it did in 1864 in the case of distilled spirits (whiskey), it offered a premium for the perpetration of fraud that human nature as ordinarily constituted could not resist. Could any course of action, if deliberately intended, be more demoralizing to a people? Do not these experiences go far in support of the theory that if a people desire to have a paternal government it would be wise to choose a despotic form, inasmuch as all experience has shown that a republican or popular form of government is least fitted for such work? Give democracy a firm hold of the reins of government, and it is no easy matter, as the French Revolution of 1789 and the present fiscal condition of France exemplify, to restrain its excesses.
It should not furthermore be overlooked that that class of the community to whom the questions of morality and religion, are especially intrusted, rarely, if ever, give this subject of taxation any attention. If any sermon has ever been preached in this country by any clergyman of any denomination on the moral and religious results of a defective system of taxation, the writer has never heard of it. One reason and apology for such conduct may be found in the circumstance that intelligent and reliable expositions of this subject are not readily accessible. Indifference or antagonism to the study of taxation is not, however, confined to the clergy. Minds trained in the law are not necessarily, and indeed rarely, trained thereby to esteem or intelligently discuss economic subjects. One of the most eminent members of the American bar recently remarked to the writer that, grant whatever measure of importance we may to economic principles and interests, they have no place in the legal profession, the business of which was, not to make or amend laws as expressed in enactments, but to interpret and determine their application. Hence the popularity at the American bar of the legal maxim stare decisis, which may be interpreted to mean, follow precedents, and do not attempt to invalidate the reasons and conclusions of the lawmakers. Such a theory and rule of practice would, however, close the door on reason and truth, and constitute an almost insuperable barrier to all social progress. If Lord Mansfield, when the negro slave Somerset came before him with a demand that lie be given his freedom, had followed precedents, he would have denied the application, for such precedents were opposed to it. But recognizing the change which an advanced civilization had effected in the government of the English people, and that the slave was held, to quote his language, "in virtue of positive law" (precedent), "which preserves its force long after the reasons and occasions from whence it was created are erased from memory," he granted the application; and incorporated into the policy of the English Government the 'principle of which the British people have ever since been proud—that no person can continue to be a slave after he has planted his foot on English soil.
Other obstacles, at present almost insuperable, in the way of establishing a correct system of taxation, are that the subject is not properly taught, if taught at all, in the higher institutions of learning of the United States and Great Britain; that up to the present time there is rarely if ever given a correct and scientific definition of the terms "tax" and "taxation," which makes it somewhat doubtful if those who talk about their meaning and incidents know what they are talking about; that there are no text-books on the subject generally accepted as authoritative; that there is no clear and settled understanding even as to what constitutes the main subject of taxation—namely, property; that the meaning of terms which have formed the basis of statutes and legal practice is entirely different in the United States and other leading civilized nations; and that, as a rule, professors of economic science in the United States have failed to recognize in their reasoning and teachings of this whole subject, that the Government of the United States, both Federal and State, differs in many respects, both in theory and practice, from any other government that has heretofore existed; and that therefore ideas and experiences which are regarded as the basis of sound policy in respect to taxation in the former are not accepted as such in the latter. Thus the United States, alone of the great nations of the world, regards debts and credits as property rightfully subject to taxation. The United States is also the only nation in which the taxation of exports is forbidden both to Federal and State governments under any circumstances. To no other government, furthermore, than that of the United States is applicable the following principle enunciated by the United States Supreme Court (116 United States Reports, p. 631) respecting the assessment and collection of taxes: "Any compulsory discovery, by extorting the party's oath, or compelling the production of his private books and papers to convict him of a crime or to forfeit his property, is contrary to the principles of a free government. It is abhorrent to the instincts of an American. It may suit the purposes of despotic power, but it can not abide the pure atmosphere of political liberty and personal freedom." If this principle was recognized as the higher law in European states, it would be safe to say that the revenue collected from their income taxes would be exceedingly small.
It is also a very curious circumstance that an existing system of municipal or local taxation, which has proved itself to be most intelligent, satisfactory, and efficient for revenue, and most worthy of being studied as a model for adoption, has as yet almost entirely failed of recognition or consideration by any of the recent writers on taxation or authorities on general economic subjects on either side of the Atlantic.
Again, ignorance or willful disregard of the true principles of taxation in the United States has powerfully contributed to foster the idea among its people that they should look to Government for their support, rather than that the people should support the Government, The practical incorporation of this idea into the fiscal policy of the Government has enabled a comparatively few persons to accumulate vast fortunes, has built up class distinctions, promoted popular discontent, and established a precedent for state socialism. Figs, however, can no more be gathered from thistles than class legislation, whether it be the rich against the poor or the poor against the rich, can be looked to for the perpetuation of popular government or the spread of democratic virtues. The evil of bad taxation is not merely economic, it is moral, and no argument can change its character.
To defective elementary education, in respect to the principles of taxation, may also be attributed the almost universal disassociation in the minds of the masses between the payment of taxes and the benefit, or profitable return consequent upon such payment. The youth of the United States, and doubtless of all other countries, as he grows up, finds roads and bridges, schools, courts and churches, commercial regulation and police—in short, all national. State, or municipal machinery—provided for him almost as freely as air, sunshine, or water. He has but to live to experience their benefits or discomforts. At home these subjects, regarded as dry and abstruse, are rarely if ever selected as topics for social conversation, and, if casually brought up, are discussed merely in reference to their bearing upon the interests of this or that political party. The sons, therefore, of even refined and intelligent American families, so far as home education and influences are concerned, enter upon their duties as citizens, with votes and voices for determining the policy of their government, with not merely an entire ignorance of the principles or methods by which the cost of the benefits accruing from such policy are defrayed, but with a disinclination to receive instruction on the subject. Each one, indeed, seems to argue to himself that "as government and society went on very well without thought or care of mine during the first twenty years of my life, they will undoubtedly so continue during my manhood." And if they eventually become public functionaries, their tendencies, conjoined with not having inherited or acquired the value-perceiving faculty, are toward extravagance and waste in governmental matters. What would have been saved to the people of the United States since the beginning of the civil war through wise methods of taxation is almost beyond conception. The loss to the Federal Government during the single year 1864, when revenue was most needed on account of the war, through a needless imperfection of the law imposing taxes on the single item of distilled spirits, was proved to have been in excess of $50,000,000.
In short, it is a most singular idiosyncrasy of the American people, and perhaps the people of all other countries, that they will defer or neglect the study of the most vital question which can concern a citizen. Probably not more than one citizen out of a hundred, even among those who pay taxes, can be induced, as a rule, either to talk about, think about, or study how much national Government costs him per annum, or how much his State or local government costs. And as long as this is the situation, and until the American citizen does become a student of taxation, it is difficult to see how the national and State governments can be wisely and justly managed.
Of the utter lack of comprehension of the results of what may be termed everyday experiences of taxation, coupled with a general indifference to the subject, which often characterizes American legislators, even such as are popularly regarded and spoken of as statesmen, the following incidents will abundantly illustrate: Pending a recent presidential election, a distinguished member of the Senate of the United States, and also of the American bar, assured a popular audience that the people of the single State of Illinois paid a larger amount in taxes to the Federal Government than were paid by all the people of the former Confederate States. Such a statement was obviously made on the assumption that because the State of Illinois annually manufactured a very large amount of distilled spirits, the burden of a very heavy tax on the same rested upon its people; when a very little thought would have shown that the manufacturers of. the spirits incorporated the tax in the market price of their product, and that the payment of the same fell entirely upon the people who consumed them, who were not in the main the people of Illinois. If this was not the case, the manufacturers of Illinois paid and assumed a tax obligation of ninety cents a gallon for the privilege of making whiskey costing and worth an average of but thirteen cents per gallon. The average annual consumption by the people of Illinois at the time, supposing that they actually paid the tax on their product of whiskey, must have also been at the rate of over six gallons per head for every man, woman, and child of its population.
When "an act to reduce taxation to provide revenue for the Government and for other purposes"—passed August 28, 1894—was under consideration by the Senate of the United States; and pending a proposition to increase the revenue by increasing an existing tax of about seven hundred per cent on the average prime cost of distilled spirits to a rate of near nine hundred per cent, a Senator of long experience, apparently utterly oblivious that the subject involved had years before been thoroughly considered by the United States Treasury Department and declared to be impracticable, submitted a motion, permitting the use of alcohol in the arts, or in any medicinal or other like compound, without the payment of any internal revenue tax. The motion in question, after very brief consideration, was accepted and incorporated in the statute and now forms a part of the fiscal obligations and laws of the United States. The result was that the Secretary of the Treasury reported, that in default of any appropriation to defray the expenses of the administration of the act and the repayment of taxes, and "after full consideration of the subject, and an unsuccessful attempt to frame regulations which would protect the Government and the manufacturers, the department was constrained to abandon the effort." It was also estimated that the expense to the Government of attempting to administer the act would probably be not less than one million dollars per annum; that the legitimate loss of revenue contingent on its enforcement would be about ten million dollars yearly, or "more than one half of the estimated increase of revenue" that it was expected to accrue from the increase of the tax, and that the loss of revenue from the opportunity for illicit and fraudulent practice, which the act would facilitate would be unquestionably very considerable—probably an equal amount. The inference from all of which is, that when a State sends a representative to the United States Senate who, through indifference or gross ignorance of the most common principles and domestic experiences of taxation prospectively, entails a loss to the Government of some twenty million dollars per annum, it pays a very great price for such a privilege.
During another comparatively recent fiscal debate in the United States Senate, a Senator, who is popularly and justly accredited with statesmanship, advocated certain proposed appropriations of the public money, which were opposed on the ground that they were in the nature of extravagances, by saying that they could not be grievous to the people "since they would not amount to more than three cents per day per capita." But three cents per day assessed on sixty-five millions of people would amount to nearly eleven dollars per head per annum, or over seven million dollars for the entire country.
Finally, there has been one most serious and unfortunate mistake, which nearly all who have undertaken to discuss the principles and practice of taxation have been prone to make—a mistake, moreover, which more than all else is responsible for the opinion which has come so generally to prevail, that the subject of taxation, through lack of any fixed principles or axioms, does not as yet rise to the dignity of a science; and that its practice at the best can be but a sort of empiricism, to be varied in proportion to the strength which a Government possesses to enforce its enactments, or in proportion to the prejudices of the people who are to be called on for a contribution. The mistake consists in taking up the subject for investigation and discussion, if we may so express it, wrong end foremost; or in devoting time and effort to warring against abuses; or in attempting to show how certain forms of taxation commend themselves in respect to productiveness, freedom from personal inquisition, and economy in collection, and how others are to be avoided for contrary reasons; and in not attempting to inquire whether the whole subject was underlaid by any general laws in accordance with which the contributions which the State is compelled as a condition of its existence to exact of its citizens diffuse themselves; and which laws, being once determined, will constitute a certain and sure foundation on which practical administration can be based and conducted.
The fact that such laws exist and only await discovery may be predicated, as it were, from surface indications, in the form of a great variety of disconnected economic facts, with just as much of certainty as the miner who, picking up here and there in the beds of streams fragments of coal or ore which the elements have scattered, predicates that somewhere there must be a larger vein or deposit from which the fragments have been derived.
The aggregates of the sums required by the governments of the world for their support are annually increasing, but probably in no greater ratio than the increase in their wealth, or property rightfully subject to taxation; and in those states in which there is a marked and continued increase in the control of the forces of nature for production, the ratio of taxation to aggregate wealth undoubtedly tends to diminish.
That there are, however, some striking illustrations that seem to prove to the contrary, is not to be denied. Thus, we have a recent statement that the expenses of the city of Philadelphia in eight years have increased two hundred and thirty per cent, while the taxable valuation of property in the same time has increased only twenty-five per cent. In 1862 the aggregate taxation of the city of Providence, R. I., was $379,000. In 1892 it was $2,333,000. In the former year the taxable real and personal estate was valued at $61,000,000, while for the year 1892 the valuation was $155,000,000. Thus the increase in the amount of taxes collected within the thirty years was five hundred and fifteen per cent, while in the amount of assessable property the gain was only one hundred and fifty-four per cent. The rate of tax increased during the same period from $6.50 per $1,000 to $15.
Among the leading nations of the world the comparative burden of exactions by Government is heaviest in Russia, Italy, and France. In Russia the present governmental exactions—under the name of taxes—from the agricultural peasant are reported to be about forty-five per cent of the value of his annual product or earnings. In Italy the State exaction is believed to absorb from one third to one half of the value of its agricultural product. The present aggregate of annual taxation in France is undoubtedly the greatest to which any country in modern times has been subjected; and including all taxes—national and local—is estimated as in excess of $1,400,000,000, or about one fourth of the annual income of its people. And yet it is claimed that the prosperity of the nation is increasing. There can, however, be no doubt that the financial strain caused by such great and continuous demands on the income of the French people is beginning to be severely felt; and in a recent budget discussion in the Senate of the republic, M. Loubet, chairman of its financial committee, insisted that taxation had reached its utmost endurable limit.
As far back as 1879 the taxation imposed by Spain on her island of Cuba was reported to have made the latter the most heavily taxed country in the world; the rate on its free population being then estimated as equal to $34.50 per capita.
The cost of the Government of Great Britain for 1893-'94 defrayed by what are termed imperial taxes—mainly customs and inland revenue, and deducting all items of compensating revenue—as receipts from crown lands, etc.—was £75,427,000. The total expenditures of the local authorities of the kingdom for 1893, defrayed from rates on the annual value of houses, or lands occupied, from gas and water rents, tolls, dues, loans, etc., and less the grant of subsidies from the Imperial Government, was about 56,000,000, making an aggregate of 131,400,000—or $657,000,000.
For the year 1890 the aggregate receipts of the Federal and State governments of the United States, mainly from taxes, as reported by the census for that year, were $1,040,473,013, apportioned as follows: Federal taxation, $461,154,000; State or local taxation, $578,328,000. Deducting the cost of postal service repaid by postal charges, and the receipts from the sale of public lands, the aggregate expenditures of the Federal Government would have been about $390,000,000.
Of these large sums it is safe to say, more especially of the latter national summary, that very small proportion, not even as much as a single dollar, has been raised under a statute framed and enacted solely from recognition of and conformity with any correct economic principles; and that in most, if not all, tax legislation, ideas not warranted by thought and experience, and based on expediency or political considerations, have always predominated. Illustrations of the truth of this assertion are abundant, but for the present one most pertinent, drawn from recent experience, must suffice. In August, 1891, the Farmers' Alliance of the State of Maryland held a convention in Baltimore, for the purpose of advocating a complete revision of the tax laws of their State, the imperfection, injustice, and practical futility of which were not questioned. And after general debate the following resolutions were unanimously adopted, not one of which is economically true; not one of which in the light of experience can be successfully enforced by other than a despotic government; and every one of which, if enforced, would prove prejudicial to the interests of the community which sanctions and enacts them:
A recent English writer has claimed that the experience in reference to taxation of the forty-five anomalous sovereignties which now make up the United States [none subordinate to a national Government except to a limited extent and in respect to particular questions], has thrown a great light upon the temper of democracies. "Half a century ago every thinker predicted that the one grand evil of democracy would be meanness; that it would display an 'ignorant impatience of taxation,' and that it would refuse supplies necessary to the dignity, or at least to the visible greatness, of the state." That prediction has, however, proved itself, not only by the experience of the United States, but also of the leading countries in Europe, to be the exact contrary of the facts. "The lower the suffrage, the higher the budget mounts. Democracy loves spending, is devoted to dignity, and, provided they are indirect, or fall heaviest on the rich, will pay any amount of taxes. The English democracy with household suffrage, though it has reduced its debt, has increased its budget, increased rates all over the country, and would not be frightened to-morrow if a great socialistic experiment were to cost it a hundred millions. It hardly shudders when it is asked to support in comfort, at a cost of about £17,000,000 ($85,000,000), its whole aged poor. The French democracy has nearly doubled its taxation and raised its debt more than a third, apart from the tribute paid to Germany. The German democracy, with enlarged suffrage, a poor soil, and nearly universal poverty, is always granting new demands, whether for soldiers, ships, colonies, or centralized officials."
But it is in the United States, with universal suffrage and the richest of estates, that the extravagance of government expenditures, sustained by taxation, rises to a point which fiscal experts, like Alexander Hamilton, Robert J. Walker, and Albert Gallatin in the United States, and Sir Robert Peel or Ricardo in England, could not have been persuaded to believe possible. Either of them would have declared an American pension list amounting to $155,000,000 (£31,000,000) a year too absurd for credence, and would have criticised the prophet who made the prediction for his poverty of invention.
That the interests benefited by national extravagance will, under free suffrage, always constitute a formidable obstacle to judicious tax reform, especially if such reform contemplates national economizing, can not well be doubted; and also that this opposition will be re-enforced to some extent by a popular feeling that something of color and dignity will go out of national life by any marked curtailment of the expenditures of the State. On the other hand, the political supremacy of the United States confessedly yet resides in its agricultural classes, who more than any other are characterized by a spirit of thrift and a desire for equitable and low taxes.
Such, then, is the situation which confronts any one who proposes to discuss broadly the great subject of taxation with a view of effecting reforms in the existing system. It exacts, on the part of him that is to attempt it with any prospect of success, a familiarity with theory, not merely gained from the study of books, but theory based on extensive practical administration. It requires, on the part of both the teacher and the taught, what Herbert Spencer has declared to be the conditions of success in all departments of scientific research, namely, "an honest receptivity and willingness to abandon all preconceived notions, however cherished, if they be found to contradict the truth."
- Recent investigations indicate that the absolute effective force available to the American people for the production of wealth is more than three times greater at the present time than it was in 1860. The outflow of British capital for investment in foreign securities and negotiated in London alone, during the eight years next previous to 1890, has been estimated by those best qualified to express an opinion, to have amounted to the large sum of nearly or quite $700,000,000 per annum. And this estimate does not comprise all the British capital loaned to foreign countries, but only such as was subject to public cognizance.
- The number of people annually transported on the railroads alone in the United States exceeds many times the total population of the country, the annual number for the New England States being more than sixteen times greater than their population. The widening of the sphere of one's surroundings, and a larger acquaintance with other men and pursuits, have long been recognized as not productive of content. Writing to his nephew more than one hundred years ago, Thomas Jefferson thus concisely expressed the results of his own observation: "Traveling," he says, "makes men wiser, but less happy. When men of sober age travel they gather knowledge, but they are, after all, subject to recollections mixed with regret; their affections are weakened by being extended over more objects, and they learn new habits which can not be gratified when they return home."
- "The great, the unanswerable argument in favor of universal suffrage is, not that it insures a better or purer government, but that all must be contented with a government in which all have an equal voice. If it be deficient in this particular, if it fail to protect the poor against the oppression of the rich, or the rich against a destruction of their property by the poor, it is pro tanto a failure, and another method of representation should be adopted." Address of Justice Brown, United States Supreme Court before the Law Department of Yale University, July, 1895.
- M. Léon Say, the distinguished French economist, in a recent discussion of the income tax, asserts that the public and private financial history of France has been one of incessant abolition of private and state debts, and in substantiation of such a conclusion he shows that if a capital of 8,330 francs had been invested in national debt obligations of France in 1522 and allowed to remain subject to the various changes in respect to capital and interest which the financial policy of the state has necessitated and required under its successive governments, the present value of the investment to the legitimate heirs of the first investor would be but 83 francs.
The reduction of annual income to the holders of the national debts of Europe, contingent on the refunding of the same during the year 1894, is estimated at $24,000,000, requiring an addition of $960,000,000, with an earning capacity of two and a half per cent per annum, to the total of what is called capital, to make up for the subtraction of income from the individual holders of such securities in the previous year. In the United States the shrinkage in the amount of annual dividends paid on the capital stock of its railroads between the years 1892 and 1894 is reported as in excess of $14,000,000, and in the annual interest on bonds during the same period at $13,000,000, or a total greater than the losses contingent on the whole refunding operations of the states of Europe during 1894.
- In a recent article in the Économiste Français, M. Leroy-Beaulieu presents some facts which enable foreigners to form an opinion of the financial management of France under its present democratic form of government. There is at present, according to this well-recognized authority, an actual annual deficit of between three and four hundred million francs. The floating debt, "official or concealed," has taken enormous proportions, and is met by a variety of expedients, and mostly by secret loans (which are always costly), because the Government does not dare contract a large public loan, the only regular and least expensive means of extrication from financial embarrassments. Expenses are piling up and nobody takes any thought of repressing them. In short, according to M. Beaulieu, there is under the present Government, notwithstanding "constant and vain buzzing on the subject of democratic reforms, the adhesion of a mollusc to the wretchedest routine and a downright hatred of every kind of improvement."
- In the following chapters the absurdity of the above resolutions will be specifically demonstrated.