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The Public Economy in Process of Growth

THE PUBLIC ECONOMY IN PROCESS OF GROWTH.

§ 51. The whole historical development of the public economy has hitherto consisted of nothing but an increasing differentiation between the private economy of the individual citizens and the public economy of the commonwealth to which they all belong. The strength of our modern concept of the state lies in the con sciousness of a developed individuality on the part of the body of citizens, which, however, is in turn supposed to lend a power ful support to the whole.

But as is necessarily the case in all human development, a long and arduous course of historical growth is needed to bring this to pass.

In the first place it is to be remarked as we have already seen, that at the beginning of national development this contrast is entirely absent. The primitive populace is the visible mani festation of the primitive state. This crude primitive type, which, significantly enough, closely resembles a certain high strung ideal of the free state, sinks the individual man in the state, and also at the same time sinks the state in the simple aggregate of men.

But all this changes. The crude equality of the earliest times (even imperfect as that equality is) gives place to a differen tiation in the course of which arises an hereditary monarchy, an hereditary nobility, then a nobility of service which in turn develops into an hereditary nobility, repeated changes in the dis tribution of property by the fortunes of conquest, rise and fall of different industrial classes accompanied by a greater contrast in property relations ; all these causes, together with a great many others, conspire to bring about a manifold gradation of society in place of an In like manlier as this highly differentiated society owes its peculiar structure in part to the presence of a hierarchy, so does it itself contain elements which further the establishment of a permanent monarchical power.' The earlier constitution, based on a principle of copartner ship, no longer expresses the actual facts of the existing inequal ity. The autonomy of free members of the community results in the subjugation of the weak by the strong. Hence the need of a regal power, such as develops out of the struggles of the warring chieftains.

The mingling of the duties of personal service and material contribution, handed down from the regime of communal free dom, with the services and burdens imposed by the subjection of weak to strong, as well as the complex gradation of this subjec tion from the power exercised over his serfs by the local lord up to the juridico-national relation of the sovereign to his people ; all this results in a party-colored mixture of civil and public duties such as frequently to defy all attempt at analysis.

§ 52. In order to reach any sort of a clear notion of the char acter of this early fiscal system, it is necessary to restrict the field of view to a single country, and also, further, to select for con sideration that country which has had the earliest as well as the most unbroken course of development within the European group of nations. That country is England.

The fiscal system of the Anglo-Saxon kings' rested on the same basis as that of any large landed proprietor ; namely, the private estate of the king. Besides this there is the usufruct of such portion of the conquered land as yet remains common prop erty after the more valuable part of the public domain in most sections of the country has been bestowed on servants of the crown as a living, and as long as the public domain has not all been squandered in donations to churches and convents and in remuneration or favor bestowed for service rendered.

However, even after the whole of the public domain has been disposed of there remain certain royal prerogatives attaching to it, as e.g., in the case of harbors, docks, military highways, which become the source of the royal dues, particularly of those on wool and pelts.

As the public domain diminishes there supervenes a more complete development of such lucrative prerogatives as attach to the exercise of public power and authority —the war power, the administration of justice and police supervision. Out of the war power arises the claim on the service of the people in building and maintaining the royal castles and residences ; out of the func tion of dispensing justice springs the royal claim to property (real as well as personal) forfeited through treason or other offense, as also the claim to a variety of fines, which, however, within the manorial jurisdiction fall to the lord of the manor. From the police function is developed, apart from a comprehensive system of fines, a market privilege which is turned to account chiefly by a granting of licenses ; from the same source arises also an extension of the system of dues levied in harbors and on navi gable streams, as well as a variety of fees paid for the royal pro tection by traders, Jews and other foreigners who may be in need of protection.

On the other hand the right of direct taxation is unknown to these times. The Germanic chieftain might levy tribute from conquered peoples ; from his own people he received gifts, especially of cattle and produce. Honorary contributions of this kind were tendered at the time of the popular assembly ; but also whenever the king made his progress for purposes of war or of justice he was, himself and his retinue, entertained free of expense, —a practice which presently came to apply to the entertainment of the royal stewards and royal emissaries in their peregrinations. The tax as a normal constituent of the fiscal system is excluded for the time being by the fact that the military and judicial func tions on which the Teutonic commonwealth was based were entirely of a personal character. It was only in the last extrem ity that the national assembly could bring itself to decide upon a national contribution with which to buy off the Danish pirates, from which originated the Dane-geld as a permanent tax on land.

§ 53 In the Anglo-Norman state established by the Nor man conqueror the fiscal system of the Anglo-Saxon period attained a more vigorous development.

The groups of financial elements chiefly to be considered are the following First, the royal domains, established after the conquest by a large reservation of estates and forests, and augmented by fre quent escheat of fiefs. Second, the lucrative prerogatives attaching (a) to the war-power--the customary services of vas sals in the construction of bridges and strongholds, as also, and especially, the newly introduced revenues derived from the mili tary contributions attaching to feudal tenure, which attached in the form of a money payment to wardship, marriage and succes sion ; (b) those attaching to the administration of justice— fines and fees which in the Anglo-Saxon period had become of very inconsiderable importance, but which now flowed in freely in consequence of all the more important suits at law being now brought under the jurisdiction of the curia regis ; the comprehen sive power of forfeiture in cases of felony also became quite lucrative ; (c) from the police power arose a number of fines that are also not to be overlooked.

In the third place there were also the vigorous beginnings of a system of direct taxation based on the military duties attach ing to feudal tenure, and comprising : the aids due from vassals of the crown and limited to three occasions of honor or neces sity (the knighting of a son, the marriage of a daughter, and the ransom of the king's person from prison); scutage, a money composition paid in lieu of service in the field ; and finally the taille (the constant attendant of the feudal system),' a con tribution levied from the inhabitants of towns and of the open country not liable to military service in the field.

The Norman administrative system succeeded in turning every sphere of the national administration to fiscal account. Its pliable administrative spirit carries its indispensable system of fines and amercements into every field, in a way that defies all methodical classification. And through being centralized in a royal treasury (exchequer) the finances acquire quite a new prestige.

§ 54 The fiscal system of the Middle Ages, the earlier and later types of which as exemplified in the development of the Anglo-Norman state which we have here briefly described, has been regarded as a system based on private law [Privatrecht], in the same manner as it has been the tradition to consider the medieval state as a system of private-law relations.

This view, however, is tenable only with limitations. We do, it is true, recognize as ever present in these institutions which went to prepare the way for the modern state, the neces sity of connecting the functions of the state with something concrete, tangible, familiar to the thoughts of common men ; hence came this blending of public duty and private gain ; and this holds true throughout, from the apex of the feudal system to the undermost layer. This dependence on the concrete has in fact continued down into the present as regards certain fun damental elements of our existing system. Such is the weak ness of human nature that the only stable point in our public law is that afforded by an hereditary dynasty.

The main outlines of a public fisc are after all present already in the feudal state of the Middle Ages.

In virtue of the military character of that state, the duty which, as a matter of fact, constitutes the foundation of every Louis III., of the year 879, as "steura," equivalent to Heersteuer, IConigssteutr. In the same connection and with, at least approximately, a like meaning, occurs also the word "bede," which etymologically (Bitte, pethio, rogatio, precaria) seems to indicate its having had its beginning in solicitation. In an edict of Count Albert von Holstein, of 1428, Tallie and genuine Bede are used as synonyms.

state, becomes the central fact in its system of public duties.

And this is true whether the contribution takes the form of per sonal service or of such a contribution of goods as comes con tinually more and more to take the place of personal services Scutage and tallage are contributions of a genuine political char acter towards defraying the expenses of war, and they replace the liability to personal military service and form the transition to the modern system of taxation.

It is, however, to be noticed that the development of this system of taxation to satisfy the growing demands meets with obstacles. In order to appreciate this fact we have no need of that gift of abstraction which enables men to transport themselves from the present to the remote epochs of the past.

On the contrary it is unfortunately very easy to appreciate from present facts alone what a difficult matter it is to keep the sense of duty to the commonwealth ever alert and ready.

Hence, under the exigencies of this development, there arises a series of intermediate links which serve to bind together in a tangible manner the natural self-seeking of the private citizen and the public needs. The services which go to afford the subjects dispensation of justice and preservation of the peace are coupled with a heavy payment, which—to our notions of what a rational public economy should be—seem a crude expedient, but which are, after all, the means adapted to those times for obtaining an increasing income. These props of human or civic feebleness have also, for good cause, persisted down into the present, in less crude form it is true, but so far as concerns the service they render in linking the tangible self-seekings of private life with the great abstraction of a commonweal, they remain essentially the same.

The linking together of lucrative civil rights and public duties is in many cases counted on to secure the due fulfillment of the latter. As a case in point we find in the towns of lower Saxony the liability to bear arms and to pay taxes attached to the right of brewing.

§ 55. As it is in the German towns of the Middle Ages that the microcosm of the modern state first makes its appearance,' so it is also more particularly in these cities that a fiscal system is first developed, and then in succeeding centuries analogous devices were developed in the larger commonwealth of the state.

If we are to select a typical instance of this, the city of Basle in the fifteenth century will serve our purpose.

Indirect taxation constitutes the basis of the municipal fiscal economy. The so-called Ungeld (indebitum)—a tax on con sumption —was to a certain extent an invention of the munici palities. Inasmuch as the Ungeld did not invade the traditional forms of taxation reserved to the king and his feoffees, the princes of the empire, it was a new kind of tax to which no one had a prior title and which its inventor, the municipal council, could therefore levy without coming formally in conflict with existing privileges.3 An independent municipal fiscal system begins with the Ungeld. The earliest form of it is the Ungeld on wine ; i. e., a tax on wine sold from the tap. Another especially prevalent form was the Ungeld on milling, a tax levied on millers in proportion to the amount of grain ground in their mills.

These taxes on consumption had the advantage, in the munici pal economy of the Middle Ages, as well as in different situations subsequently, of reaching all classes of the population without distinction, and especially the clergy, who, in virtue of the privilegium immutzitatis secured them by canon law, claimed and achieved exemption from direct taxes.

Beside the wine and mill dues, there are three other regular forms of indirect taxes on consumption which the towns, through acquisition of existing princely rights to tax, have been enabled to introduce : town-dues, poundage (levied on imported commodities) and the salt-tax.

The receipts from indirect taxes, as a regular thing, afforded only one-half of the aggregate annual revenue. The remaining one-half was raised by loans, a fiscal expedient constantly employed in Basle since the year 1365-66, and of historic signifi cance as a symptom of advancing development on part of the municipal fiscal system as contrasted with the neighboring rural districts. This system of borrowing served on the one hand to meet an unforeseen deficit for any given year, and on the other hand it also indicates the gradual growth of a body of muni cipal debt which served as an investment for private capital.

At a time when national credit, as regards extended terri tories, was yet unknown, we find the German towns already involved in innumerable, regularly recurring public loans which were managed on well-defined principles. In like manner as they were hastening onward into the future in the matter of credit, so also with respect to the banker-like business which they pursued in interest-bearing deposits and in annuities, undertaken in order to meet the demand for investments for private capital. On no other hypothesis can we explain the regular recurrence of loans in every annual budget. But there certainly also was pres ent in this development of municipal credit a powerful financial factor, inasmuch as the town was enabled by this means to raise considerable amounts to meet sudden emergencies.

56. In addition to these ordinary sources of revenue to the, municipal economy there were the property tax and the personal tax, for the most part employed as extraordinary imposts. But however full an account of the population and distribution of property the tax lists which deal with those matters may afford, and however frequently these imposts may recur at the period of highest municipal development, still they seem never to have ripened into a permanent institution ; at any rate in many of the foremost municipalities they were not present at all.

This becomes quite intelligible when we call to mind that the levying of a direct tax on a fregman seemed, to the Teutonic man as to the man of antiquity' (and with a remarkable similarity in the line of thought), to be a degradation. In Athens, too, the oft-mentioned property taxation which is credited to Solon, was only an expedient employed in cases of extraordinary necessity and not a regular source of national revenue. The regularity of the personal tax seems to have had, in their eyes, the odium of a sort of bondage.

It is also worth noticing that (in exact contradiction to the maxims of a modern rational fiscal system) these sentiments of theirs should be repelled by the arbitrary character of the tax on personalty with its uncertain appraisement of property and income, and should seek refuge in a fixed tax on realty, or should consider it a step in advance to replace the arbitrariness of the personal tax with the invariability of the tax on real property. This is what Lang says: It would have been unbearable to the German of antiquity to remain in uncertainty as to what he would have to pay in taxes the coming year ; and it accordingly actually came to pass that the due the feudal lord was commuted into a rent-charge on houses and lands. So, later, also Alexis de Toqueville' concludes that a chief fault of the earlier system of taxation at large lay in the uncertainty of the Taille, as contrasted with the more advantageous position of cer tain provinces where there was an unchangeable tax on realty. And as a matter of fact the French Revolution hastened to make this advantage universal by means of its system of an income tax.

But even if this more perfect form of taxation had not yet become a permanent element in the municipal finances, still, in spite of its variable character, as a factor in the course of histori cal development it marks an important step in advance in the direction of the new era of national spirit. And as a matter of fact controversies took their rise, or even came to an issue in that movement, which bring us down into the midst of our own times. For example, in Duderstadt in the year 1438 the nine guild masters carried through in opposition to the council—on its motion to augment the impost on property—a proposition that the appraisement was to be made in their presence ; they demanded also that " Patrimony and Estate " [Erbe and Gut] be taxed at a relatively higher rate, that is, that a higher rate be levied on property as contrasted with personal income from handicraft.* An ordinance of the city of Stendal of the year 1345 enacts : For such sum as a citizen may rent his property may the council appraise it. The town laws of Freiberg declare : Whoever sells the rent of his house out of a consideration of the tax, in order that he may pay the less hearth-money, he bath malice [welch Mann Zins verkauft von seinem Haus Burch Geschosses widen, dass er desto minder schatze von der Feuerstatt, der hat arge List]. An ordi nance [Richtebrief] of Zurich for 1304 declares : Whenever the Gewerf is imposed, the .tables on which the Gewerf is engrossed shall be read in the presence of all the citizens. All this goes to show that the difficulties and struggles of the modern income-tax question were already being fought out in the economy of the municipalities.

§ 57. A further point worthy of remark in the municipal finances of the mediaeval towns, is that in the matter of indirect taxation they were forced into paths which were adopted cen turies later, in their peculiar fashion, by the princes of the land.

So, for example, even at this early date, the comprehensive sumptuary laws so much in vogue (prohibitions affecting orna ment, dress, but especially festivities) are commuted into a fiscal composition. The final clause of an ordinance of 1434 regulat ing weddings, declares' that : Whosoever will not observe these directions, he shall pay unto the city two marks, and shall then be at liberty to invite as many guests as he may wish. As a matter of fact a very liberal use was made of this concession, and the rubric de nuptiis in the account books of the town covers a pretty regular source of income.

Further, there is a distinct effort directed to the development of municipal monopolies ; such for example is the very usual custom of retailing wine on public account, which afforded a yearly net profit. Where the surrounding country is a wine producing region, and where accordingly the citizen supplies the wants of his household directly from the neighborhood, the council retails imported wines (in Zurich, the "alien" [elende] wine); but in the North, where no wine is produced, there the council controls the entire wine supply, sometimes with such marked advantage both to the consumer and the revenue that usage, prescription without any public coercion, has secured to the town-cellar [Rathskeller] its patronage and its profit even down to the present (Bremen).

This system of monopolies extends also to other things. In Duderstadt there are three municipal baths which are farmed out. The right of brewing has taken on a very peculiar form as a municipal concession to the public houses, which are in turn permitted to brew for domestic consumption and for the towns people (hanging out a fir twig as a sign). This concession was made to bring an income to the town council in various ways : by means of a payment for the use of the town-owned brewers' copper-kettle—which was passed in turn from one to another of those entitled to use it ; also by means of an impost on hops, a tap-fee for every cask of beer, and the like.

§ 58. After we have in this way come to recognize in the mediae val municipality the precursor of the modern state, as being in pos session of a fiscal system having the character of a public busi ness, the true character of these earlier centuries and the slow ness of the later course of development becomes still clearer.

We see the cities rising into power and then in their turn seeking to fortify their supremacy by using their fiscal superiority for the purpose of extending their own territorial dominion. Being in themselves a complete unity which in some sense anticipated the modern state, they acquired power in the world about them by making use of their sovereignty, in feudal fashion, as a cross between public authority and private investment, which refers to their possession of disposable capital made available to them. The attempt made by feudalism to provide a national organiza tion for a numerous population, was made possible only by the fact that this organization rested on a disposition to administer public law with a strict view to private gain. Exploitation of office for fiscal purposes is a mark of this disposition, and the contrast between the mediaeval city as possessor of these feudal rights, and the surrounding territory, throws a light on the course of development.

The reverse aspect of this conception of public office comes into view in the fact that at every emergency in the shifting and varying necessities of princes and governments, offices and places are sold or pawned, and that it grows to be a lucrative business for people of means to purchase offices and make what they can out of them. When the Hohenzollerns came upon the field a good nine-tenths of all the revenues of the crown had been either pledged or sold. The classes who were in possession had bought out the state (if we may speak of a state at that date) at a nominal price and at an enormous profit.' In France it is a mark of the prevailing corruption of the state and the finances down to the end of the eighteenth century, that offices are sold and resold again and again, and that a multitude of offices were cre ated with this sole purpose. In this way there is gradually erected an administrative machinery so cumbersome, so compli cated and so unproductive, that it becomes necessary to let it go on working only as a dummy administration, and set up a dis tinct,apparatus beside it for carrying on the work of administra tion. From century to century the estates of the realm protest : " He who sells an office sells justice, and that is a base thing." But all in vain ; for this was the form, says Tocqueville, under which the government disguised the tax which it dared not let the people see in its real character.' § 59. As an approach to modern times, we will now take a look at the German territorial state of the seventeenth and eighteenth centuries, taking Prussia as an The German princes of the sixteenth and seventeenth, and even of the eighteenth century, looked upon themselves as great land owners and landlords. The administration of domains and forests was, or was coming to be, the chief element in their finances.

As late as the reign of William I. the opinion is distinctly held that the utmost conceivable stretch of taxation alone will not avail to maintain the state and the army, and that this fact necessitates a domanial administration that shall be equally par simonious and shrewd, and directed both to the production of the highest possible net income and to the acquisition of new sources of income. Leasing for a term of years to a class of farmers-general who were possessed of a high degree of pro fessional skill, great accumulation of capital and a modern spirit of enterprise, together with certain of the characteristics of an official class, yielded the largest cash income. This financial advantage even outweighed the king's master-passion for a growth of population, and the granting of hereditary leases of domains, which had been introduced under Frederick I. by Luben, was discontinued. Not until the time of Frederick the Great was the latter policy again adopted, especially after the seven years' war. The extension of the domanial possessions ceased. The king forbade the purchase of manors by the state. He wished to see the baronial estates retained in the ownership of the nobility in order to constitute the basis of the social order and of the official class.

Even in the more highly cultivated south-western states of Germany it happened that the state was able even down to the end of the eighteenth century to get along very well without any taxation at all in times of peace. So, for example, in Wurtem burg the revenue from the "crown lands" [Kammerguter] was amply sufficient to defray the expenses of the central govern ment and the requirements of the court.' Even in our time there are distinct traces of the survival of a conception which saw in the domains the most important source of national revenue. We may notice that the extremely modern law of the canton of Zurich, of March 2, 187o, relating to a Property, Income, and Aktivbiirger tax, begins with the words : "So far as the revenues from the public estate and from the other sources of income established by law may not suffice to defray the expenses of the state, a tax shall be levied on property, etc." In the canton Graubunden, indeed, such part of the expenses of the government as exceeds the amount covered by the revenues from domains is designated a " deficit " to this day.

§ 6o. But inasmuch as, everywhere and for a long time past, at least as regards extraordinary times and extraordinary emergencies, the revenues of the domanium have not sufficed, the princely power in its struggle against the estates was obliged to seek additional income. The difficulties in the way of the grant ing of taxes, partly of a practical character and owing to the circumstances of the time, partly of a constitutional nature, led to the adoption of means for raising revenue which would free the royal power from the onerous right of assent asserted by the estates. The doctrine of Roman law which is based on the conception of the state in vogue in the days of the Roman Empire, declares even at the middle of the seventeenth century : "optime sibs* constat respublica in qua imperantur tributa non rogantur.'" But by the year 1782, for having asserted that the will of the sovereign was the sole and sufficient law in matters of taxation,' the prince-bishop of Saltzburg was censured by a coma:mum of the Imperial Aulic Council.

An expedient was not far to seek. It was to be found in the traditions of feudalism with its fiscal exploitation of all preroga tives of sovereignty belonging to the state. All that was neces sary was to extend these sovereign rights (regalia) as far as might be, both as to kind and quantity. Kaspar Klock enumer ates not less than four hundred regalia, and, indeed, the ingenuity of the time-serving jurists of the Roman law had already got as far as the discovery of a royal prerogative of counterfeiting.

And yet who can fail to recognize as a factor in this system of royalties, spite of all abuse, the pressing necessities of the developing national idea, which was making good, against the obstacles opposed by the tax-granting powers of the estates, the claim of the state's necessities. In place of the taxes, which could only be solicited, not commanded, was adopted a disguised form of taxation, which nominally derived its mandatory charac ter from another, more plausible power than the taxing power.

The various countries of Europe have been running a race in this matter of royalties. Even in Russia at the middle of the sev enteenth century, we find the czars carrying on several branches of trade, even the retail trade in meats and fruit. Incredible sums were received even at that time from the licensing of the retail trade in spirits.' And at the same time the fact should not be overlooked that this system of royalties, also as concerns the rela tion of the state to industry, in many ways affords an adequate expression of the growing power of the state. So, e. g., it was very usual in the various countries of Europe for the state to take the colonial trade into its own hands. So also in France in the sixteenth century the industrial system, and consequently the responsibility of its development, was declared droit domanial.

But just this fact that the different points of view were min gled and confused together, that there was a complete absence of any distinct discrimination between the question of prosperity and that of fiscal expediency, this fact itself —apart from all abuses in matters of detail —is a characteristic mark of the spirit of this royalty system.

In Brandenburg-Prussia we find, for example, the following contrivances which have persisted down into later times.

The Great Elector introduced the government sale of Lunen burg salt. But after the great salt works of Magdeburg in the days of Frederick I., had passed into the possession of Branden burg, Frederick William I. was able-to extend the salt monopoly pretty much to the entire community and to carry on a consider able export of salt. This was continued through the whole of the eighteenth century.

The Great Elector likewise instituted a model letter post which presently extended itself far beyond the confines of Prussia. It was not administered on a narrow revenue basis, and had also not assumed the character of a strict monopoly down to 1712, but still it yielded a very appreciable net income.

Frederick the Great introduced the lottery, the coffee monop oly and the tobacco monopoly. The first of these is still in existence ; the second was a failure ; the third was modeled after the pattern set by France and other European nations, but under the pressure of public disapproval and the influence of liberal principles with regard to industry it was discontinued by Fred erick's successor.' § 61. But the state of Brandenburg-Prussia was vigorous and pushing and consequently in great need of funds, and it found a way, even in that age, to erect other institutions in the field of taxation besides royalties and domains.

These are the Contribution and the Excise.

In Brandenburg usage "Contribution" denoted everything that had to be paid by the country, whether in money or in kind, for the support of the troops. The feudal system and the arriere ban had been replaced by hired mercenaries, recruited by cap tains and colonels, leased to the princes, and put in charge of commissaries. Out of this mercenary army gradually developed the Prussian army. From being a private enterprise undertaken by the colonels it came to be a public institution, and so regained the status it had temporarily lost, of a fundamental element in the state. In the first place the mercenary troops hired by the month were replaced by a standing army, for the support of which the Great Elector carried on a severe struggle with the estates, until little by little the contribution in kind came to be patiently borne and at the same time the grant of taxes was also carried year by year and even, almost imperceptibly, grew redun dant, and the conviction of the legal perpetuity of the contribu tion came to prevail.

In assessing the contribution, use was made of the ancient scot cadaster [Schosskataster]. Town and country, county and village, were taxed according to the proportion indicated by the figures of the cadaster. The details of the levying of the tax were left to the estates, that is, to the nobility, who did their best to shift the burden from their own shoulders.

The Elector tried from the outset, and with persistent effort, to bring the estates to the point of imposing the burden of taxa tion on an impartial basis, and to the adoption of a uniform princi ple in the levy of taxes. In response to a plan of reform sub mitted in the year 1647 to the estates, who were still stuck fast in the traditions of feudalism, he got an expression of their opin ion that an unconditional liability to taxation was something that pertained to bondmen alone : " How is it possible," says the document, "to compel any one, who is ready and willing as a good patriot to bear his share of the burdens of the Fatherland, to disclose the entire amount of his possessions, as if Your Electoral Highness's loyal subjects were bondmen and serfs ?" After a number of minor amendments of the ancient cadaster, the first thorough tax reform was finally effected under Frederick William at a time when the estates were prostrate and less. The reform applied to the province of East Prussia. And even then it was not carried without serious collision with the nobility, at whom the king in his irritability flung the since famous declar ation that he would crush the power of the squirearchy and establish the crown as a rocker de bronze against their arbitrary caprices. The general land-tax which took the place of the taxes heretofore levied on the open country was based on the com puted production of each particular estate, whether of noble or peasant ownership. A large part of the nobility now paid six times what they had previously paid. Under Frederick the Great a new cadaster after the pattern set by this reform was executed for Silesia in 1742 and for West Prussia in 1772. The like was done for the other provinces not until the land tax reform of the year 1861.

§ 62. The obstacles referred to which the great Elector encountered in his efforts for reform, were influential in introduc ing, at least so far as concerns the towns, a new tax : the Excise.

This had originally been but a part of the system of "contri butions." Certain of the provinces belonging to the electorate had adopted it experimentally in 1641 with the assent of the Elec tor, in place of the earlier matricular, as being a more expedient form of taxation. A few of the towns had retained it from that time. The nobility opposed it more and more strenuously, for this tax fell on them as well as on the rest of the people. But in the towns, where the amount and apportionment of the "contribu tions" were growing ever more unbearable, the preference for it grew apace, and even occasionally expressed itself in riots. The Great Elector was well inclined to the excise from the outset ; but it was not until 1667 that the decisive struggle took place, when the Elector asked for the introduction of a tax on con sumption in place of the existing contribution. The nobility declared that in that case they should retain nothing but the name of their prerogatives, that they would then stand on an equality with the burghers and peasants. On renewed petition from the towns they were allowed freely to adopt the excise ; while taxation of the open country was left as it had been. The excise was introduced in the towns of Magdeburg in 168o, in those of Pomerania about 1700, in the towns of the remaining provinces after 1713.

This excise is a system of consumption taxes, which in addition to a land, license [Gewerbe] and poll tax, were levied on beverages, grain, meat and merchandise, and was collected partly on their entry into the town, partly at the point of their produc tion, partly at their sale. The individual rates of these taxes were low, but they were levied on a correspondingly greater num ber of objects.

The excise was looked on all over Europe at the time as a "newly discovered gold mine "; for it was capable of meeting the growing demands of a progressive age with comparative ease and flexibility, as contrasted with the feudal method of direct taxa tion which raised the necessary public funds only in the crudest and most burdensome manner. In the seventeenth and eighteenth centuries men were enthusiasts for the indirect taxes, much as we have since the time of the Physiocrats and Adam Smith been enthusiasts for direct taxes, and even for a single direct tax, and finally have come, in Prussia, since the liberal reforms in the beginning of the nineteenth century, to condemn the once admired excise as the embodiment of absurdity. But the reverberations of that era, of the "gentle excise" (1685) as contrasted with the "violent contribution" have reached down into the present. For the saying of Montesquieu, that the excise is an attribute of liberty, is repeated by Thiers, who says : L'impot indirect est cell: des peuples les plus avances dans la civilisation, tandis gue Pimp& direct est celui des peuples barbares.

§ 63. Public credit was but meagerly developed in the terri torial state of the seventeenth, or even of the eighteenth cen tury.

We have already seen that as regards this point also the cities of the Middle Ages showed an early ripeness for modern national and fiscal institutions. Indeed, it is especially noticeable that the stage at which we find this pioneer development existing is not that of a remedy for an acute need of funds which cannot be covered otherwise than by a debt, but it is the stage at which the credit is made the basis both of a permanent loan and of a banking business in the service of private investment.

The situation is quite different as regards the sovereign. We find him nearly down to the present in the position of an embarrassed private person. His need of credit as well as the satisfaction of it bears all the marks in substance and form of distress. Nothing indicates so clearly the painful course of development of the state institutions of the past few centuries as the contrast visible between private credit, as shown by a highly-developed system of trade and banking, and the pitiable plight of the public credit. The general course of national development in different countries of course differs in this respect also. In a state such as England, with its rapid development, credit also naturally develops early, but the contrast pointed out above is visible even here.

The adoption of abnormal expedients—the sale and mortgag ing of the future revenues of the state, an extortionate financier ing in all departments of the public administration, debasement of the coin as a customary practice—points to the gap that was filled for the first time by the modern system of loans. When Czar Alexei got a refusal from the Venetians in answer to a request for a loan, he debased the coin. Even France and Germany found themselves driven to this expedient during the seven years' war. It is by no means a failure to appreciate the perni cious effects of such expedients—that was appreciated even dur ing the Middle Ages—but simply downright distress that com pels their employment.

When the Great Elector came to the crown his pecuniary necessities were so great (as a consequence of the Thirty Years' War) that it became necessary to pawn offices and places in order to meet current expenses. It happened repeatedly that a loan of fifteen thalers was obtained from the city officials of Berlin in order to keep the royal kitchen supplied from one day to another. And this state of things lasted for a considerable time.

The domanial debts of Brandenburg amounted in 1620 to two- million thalers, and it rose considerably after that time. The chancellor, Schwarzenberg, held claims on places in the pub lic service to the amount of 400,000 thalers. The toll of Lenzen was pawned to Denmark for 200,000 thalers. A debt of 100,000 thalers to the Dutch Collector-General [Generaleinnehmer], incurred to enable the state to enter into possession of Cleve Mark, had grown, by usury, interest and compound interest, to five or six millions.

After the extraordinary warlike activity of this prince it became the part of the peaceful Frederick William I., devoted to the reform of the home administration, to put the finances of the country also in order. The hypothecated domains were all redeemed ; a great number of new domains were acquired ; expensive fortificatiOns and structures for civil pur poses were erected ; and in addition to all the rest, a national treasure of eight or nine million thalers was accumulated.

This treasure was sufficient to cover the first Silesian war of Frederick the Great ; at the breaking out of the second war it had again been brought up to six million ; at the outbreak of the third, to sixteen or seventeen million. The seven years' dura tion of this war was a trial of strength, but at the same time it was also an evidence of the undeveloped resources of the national economy of that time. The entire aggregate of the ordinary revenues of the state was applied to the purposes of the war ; all payments were suspended ; officeholders received instead of pay certificates that were not payable until the close of the war. The fact that the king had no debts worth mentioning at the close of the war, if it was on the one hand a proof of his having triumphantly surmounted all financial embarrassments, was at the game time equally an evidence of the absence of public credit, in the sense in which the term is understood in the days of the maturer state.

system, tax, time, development and fiscal