The Elements of Politics

Henry Sidgwick

Chapter XI

THE MAINTENANCE OF GOVERNMENT

§3. The peculiar relation of the community to land, as contrasted with other species of wealth, appears again when we consider the sources from which the funds required for governmental purchases are to be obtained. For one such source, historically of much importance, is the rent of the land. So far as this rent is a price paid for utilities that are not due to human labour,---or are an indirect result of labour spent for other objects, and incapable of being appropriated by the persons whose labour has caused them,---the appropriation of such rent by government on behalf of the community is theoretically quite in harmony with individualistic principles: but the difficulty of securing for public uses this ``unearned'' rent without at the same time confiscating the earnings of human labour and enterprise is very great, and perhaps insuperable. And in any case, where land has become private property, the financial operation required to transfer its unearned value to public ownership, with due compensation for existing rights, could not be safely undertaken, unless the time at which the community would enter upon the enjoyment of its ownership were postponed to a distant date: so that for this reason alone---apart from the difficulty before noticed---the plan of defraying any considerable part of governmental expenditure from the rent of land is not within the range of practical politics for modern States generally.

We may therefore assume that by far the greater part of the funds required by Government must be raised, in the long run, by the contributions levied from private persons which we may broadly call taxes. But large supplies may be obtained temporarily, by Government as by individuals, through loans: and, in fact, a considerable part of the taxes now levied in most of the leading European States is required to pay interest on such loans. Speaking broadly, such borrowing is legitimate for governments under conditions similar to those under which it would be prudent for private persons: either (1) when the loan is employed productively, so that interest may be paid and a certain portion of the principal annually repaid out of the profit made by the use of it; or (2) where it is employed to meet an occasional necessity for enlarged consumption, which could not be met without painful sacrifices out of the income of a single year. Productive outlay, again, may be either financially profitable, when the loan is employed in some business carried on by Government, of which the profits go directly to the treasury; or it may be only profitable socially by increasing private incomes: in the latter case it has to be considered whether the extra taxes which it will necessitate will not involve disadvantages outweighing the gain. At any rate the increased receipts accruing to the community in consequence of such outlay ought obviously to be at the very least sufficient to repay the loan with interest by the close of the period required to exhaust the productive effects of the outlay. A similar general principle is, I think, theoretically incontrovertible in the---practically more important---case of unproductive borrowing to meet an occasional need of extra expenditure: the number of years over which the sacrifice imposed by the emergency may safely be extended ought to be limited by the condition of paying off the loan before a similar emergency may be expected to occur again. But in practice the application of this principle is very difficult: since the chief emergencies which necessitate such loans are foreign wars, and we have at present no means of forecasting scientifically the magnitude and frequency of a nation's future wars. In these circumstances, it seems most prudent to infer the probability of future wars from past---especially recent---experience: and if so, the principle above laid down is certainly too much neglected by the nations of modern Europe:---a neglect which can only be partly excused by the probability that the future increase of national wealth and the tendency in the rate of interest to fall will reduce the burden of any national debt already contracted.

To discuss more in detail the effects of loans, or the right mode of raising them, would be inappropriate in such a work as this. And it also seems to me best, in passing to consider the central question of this chapter---the question of taxation---to omit such topics as seem appropriate rather to treatises on political economy or on technical finance. Accordingly, I shall not discuss the applications of the elementary maxims that ``every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it'', and that every tax ought to be so contrived as to inflict as little extra sacrifice as possible on the contributor, over and above the sacrifice of the money that it brings into the public treasury. I will only observe that in carrying out the latter maxim we have to consider not only the expense to Government of collecting taxes, and the trouble and annoyance entailed by the process of collection, but also the economic loss to the community that may be caused by the effect of the tax in modifying the processes of industry and trade: indeed, it is to this latter kind of loss that special attention should be directed by theoretical writers, as it is more liable to be overlooked. But it belongs rather to the political economist to develop the importance of this consideration, and to apply it to particular cases: in a treatise on General Politics what most concerns us is to seek for a clear view of the equitable principles on which the burden of taxation should be distributed.

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