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A LEVY ON CAPITAL
FOR THE DISCHARGE OF DEBT
BY
F. Y. EDGEWORTH, M.A.
FELLOW OF ALL SOULS
PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF OXFORD
Price One Shilling net
OXFORD
AT THE CLARENDON PRESS
LONDON EDINBURGH GLASGOW NEW YORK
TORONTO MELBOURNE CAPE TOWN BOMBAY
OXFORD UNIVERSITY PRESS
HUMPHREY MILFORD
A ..
A LEVY ON CAPITAL
FOR THE DISCHARGE OF DEBT
BY
F. Y. EDGEWORTH, M.A.
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FELLOW OF ALL SOULS
PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF OXFORD
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1919
OXFORD UNIVERSITY PRESS
LONDON EDINBURGH GLASGOW NEW YORK
TORONTO MELBOURNE CAPE TOWN BOMBAY
HUMPHREY MILFORD
rUBLISHER TO THE UNIVERSITY
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V
1 ' ) )
A LEVY ON CAPITAL FOR THE
DISCHARGE OF DEBT
The founder of the chair from which this lecture is
delivered, the munificent Drummond, expected too much
from the study which he fostered when he thought that
the conclusions of Political Economy were as secure as
those of Astronomy.^ No doubt the abstract theory of
Economics avails to dispel popular illusions much as
a rudimentary knowledge of Astronomy suffices to dis-
credit Astrology. But in the capacity to afford positive
conclusions and definite directions the most exact of the
human sciences follows Mathematical Physics at a great
distance. One deficiency which it is relevant here to
notice is the frequent inexactness of economic data.
For example, the amount of capital available for levy is
not known to within thousands of millions. The highest
authority on the subject, Mr. J. Stamp,^ estimates the
amount of capital in private hands as between 10,500
and 11,500 million pounds before the War. But what
the amount is now he can only conjecture.^ Again,
with respect to change in the level of general prices,
* *The conclusions of Political Economy are drawn from premisses
as susceptible of proof, are as much in agreement with each other,
and are as little affected b}' the differences of writers who have
treated it as those of astronomy itself (p. 17, Elementary Propositions
on the Currency y by Henrj^ Drummond, published in 1826, the year
after Drummond founded the Professorship of Political Economy
at Oxford).
"^ Economic Journal^ September 1918, p. 284.
' Loc. cit., p. 285.
A f\-i >^>»* ^
• •••"•• •
• • • •, • • •
.V.:',^vi •':•"':: : .i XEVY ON CAPITAL
which it concerns us to predict, we are so far from
having accurate measurements that we have not even
an exact measuring-rod.^ Other data, or rather danda,
are even more indefinite, not even ostensibly objective ;
relating to psychical phenomena, in particular the extent
to which the disposition to save is checked by such and
such an impost on saving. It is true that physicists
also have to deal with inexact observations, from which
they extract approximations to truth by the process of
taking averages. And I believe that the analogous
process of comparing estimates by different authorities
is of some avail in the human sciences. But, with
respect to taxation at least, this resource of modern
science is limited by a circumstance which also dis-
credits a lesson of ancient wisdom, the propriety of
deferring to expert authority. It is plausible to say
with Plato that the passenger who wants to get to
Athens must submit to the experienced pilot, especially
if there is a storm on.^ But what if the pilot is steering
not for your destination, but for some island of the
blest where equality and liberty are imagined to flourish.
Such pilots are the politicians who employ taxation as
a means for levelling possessions. So Mr. Snowden,
in the debate on the Budget of 1909, professed : ^ ' My
object is to make the rich poorer and the poor richer,
because there is no other way under heaven by which
you can make the poor better off except by making
somebody poorer than they are.' Others seek similar
destinations more indirectly. They would take the
destruction of the capitalistic system on the way. Often,
^ See below, p. 17.
^ Cf. Plato, Gorgias, 511; Theaetetus^ 170; Alcibiades /, 125; et
passim.
^ Hansard, vol. iv, p. 1073, May 1909.
FOR DISCHARGE OF DEBT 5
indeed, those who steer for these unknown shores are
discredited as pilots by their evident want of technical
skill. There are those who think that the nautical
astronomy by which Marx shaped his course was no
better than astrology.^ But the like cannot be said of
all English Socialists. They differ from economists
of an older school not so much in reasoning^ as in first
principles, ends, or the relations between ends such as
security on the one hand and equality on the other —
to use Bentham's terminology. There is room for some
difference of maxim respecting these relations. Perhaps
Bentham ruled too trenchantly, ' When security aiid^
equality are in opposition . . . equality should give way \^
It is a question of degree. A little insecurity may be
risked for the sake of a great advantage of another
order. In sEort, within the limits of common sense,
there are differences as to the relevant major premisses
which cannot be settled in the course of a lecture.
Minor contributions to the argument only can be
attempted. To remove ambiguities and define issues
may at least be possible.
In this humble spirit I begin by pointing out that
* Even Professor Sombart, in his admiring — and indeed admir-
able — study on Karl Marx (reviewed in the Economic Jouryial,
vol. xix), admits that the great man made no great contribution to
the technique of economic science— a damning verdict on one who
plumed himself on his elaborate technique. Professor F. Bernis,
of Salamanca, in the course of his particularly lucid exposition of
the doctrines of * Karlos Marx ' (Madrid : Biblioteca Socialista^igiz),
mentions having heard with astonishment from the Secretary of
the Fabian Society that * the work of Marx was not worth the paper
on which it was written '. Cp. Marshall, Principles, Bk. VI, ch. vi, § 3.
* Leon Say, in his Solutions democratiqites de tlmpot, assumes a
little too confidently that all the science in the matter of taxation
is on the side of the classical economists.
^ The Civil Code, chap, xi, Works, vol. i, p. 211.
6 A LEVY ON CAPITAL
under the apparent simplicit}^ of the proposed subject
there lurks a plurahty of issues. As the term ' levy '
does not necessarily imply immediate exaction, and the
term ^capital' is not necessarily restricted to material
wealth, so there are presented three questions relating
to taxation for the extinction of national debt:
L Should there be a contribution from capital in
a much greater proportion than according to the present
system of taxation in Great Britain ?
IL If so, should that contribution be immediate and
once for all, or spread over a period of 3^ears ? ^
III. If the contribution of capital is speeded up,
should there be a corresponding extra income-tax ?
These three questions are closely connected with a
fourth :
IV. How should the new taxes (if an}^) be graduated ?
I. The mere statement of the issue, whether there
should be a disproportionate impost on capital as dis-
tinguished from income, will put it out of court in the
judgment of some theorists. For there is implied a
violation of the received canon of taxation that the
sacrifices incurred by the several taxpayers should be
equal. If the present differentiation against property
(and income accruing from property) is tolerably fair, or
at least not much too light, it follows according to the
canon that it would be unfair to increase that differen-
tiation greatly.
^ Mr. Henry Higgs, in his review of Mr. Pethick Lawrence's
Levy on Capital in the Economic Journal for September 1918, and
Professor Dietzel, in his article on the discharge of the war debt in
the compilation bj^ Dr. Herkner which forms the 156th volume of
the publications of the Verein fiir Sosialpolitik, are the only writers
known to me who have clearly exhibited the separation of Ques-
tions I and II, usually lumped together.
FOR DISCHARGE OF DEBT 7
But the canon of equal sacrifice has been called into
question of late years. It has been represented as a
subordinate maxim deriving its authority from the prin-
ciple of mhiimum sacrifice.^ The voices in favour of
the latter doctrine have multiplied since the outbreak
of the War. The difference between the two canons no
doubt comes more clearly into view when taxation on
a larger scale is contemplated. So it would not matter
for a short journey whether one took the true pole or
some neighbouring star as guide. But in a long voyage
the difference between the two directions would make
itself felt. It is thus that Dr. Marshall, dealing with
taxation after the War, institutes a ' search for the least
detrimental distribution of the future heavy burden of
taxation '} Professor Pigou also bases a drastic war
finance upon the ground that * the aggregate amount of
sacrifice would be a minimum '." The accession to the
doctrine of minimum sacrifice made by Professor Selig-
man is particularly notable. For before the War he
had lent his authority to the side of equal sacrifice.
But now he teaches that ' aggregate sacrifice constitutes
the real burden of the War', which to minimize is the
problem of war finance.* Upon this principle the levy
' See Economic Jottrnal, vol. vii, p. 550 et seq.y and Quarterly
Journal of Economics for May 1910, p. 459 et seq.
"^ After-war Problems^ edited by W. Harbutt Dawson. With
reference to * taxation after the war ', Dr. Marshall obser\'es that
* the hurt caused by obtaining ;,^i,ooo of additional Revenue by
means of levies of £20 from each of fifty incomes of ;^200 is
unquestionably greater than that caused by taking it from a single
income of ;^io,ooo '.
' 77?^ Economy and Finance of the IVar, p. 80 and context.
* See Professor Seligman's article on Loans versus Taxes in the
number of the * Annals of the American Academy of Political and
Social Science ' for January 1918. He justly compares *the aggre-
gate burden of gradual repayment ' with the * sacrifice involved in
outright provision of the original amount '.
8 A LEVY ON CAPITAL
on capital is not necessarily to be rejected because it
inflicts on the propertied classes a burden not shared by
the recipients of earned incomes.
Let me illustrate the principle by an anecdote, one
told by Herodotus.^ When Xerxes was flying from
Greece, the ship in which he crossed the Hellespont,
being crowded with Persian nobles, was like to capsize,
a storm having arisen, unless there were made jettison
of the too numerous passengers. Upon which the
Persian grandees, in order to save the life of their
sovereign, threw themselves overboard. Now let us
vary the anecdote by supposing that some of these loyal
subjects had large cargoes on board, while others had
little property either there or elsewhere. If safety could
be secured for the Head of the State by the jettison
of those cargoes no one would hesitate to resort to that
course, although it involved an unequal sacrifice on the
part of the propertied class.^ Common sense, it may be
said, and the safety of the State dictate such a measure
without recourse to an elaborate theory.^ But it is not
^ Book viii. Ii8. The characteristic touch added by Hero-
dotus that the Persian nobles, before sacrificing their lives for the
safety of the sovereign, did obeisance to the sovereign, may be
utilized to suggest to our capitalists that, if they are induced to
sacrifice a part of their wealth for the safety of the State, they had
best do so with a good grace.
^ A less reckerc/ie illustration is afforded by a Co-operative Society
consisting of capitalists and workmen. In case of disaster, as I am
authoritatively informed, it would be practically impossible to im-
pose on the workmen any contribution towards the deficiency
beyond the resigning of labour's share of the profits or bonus on
wages, the reduction of wages to current district rates. The
capitalists' (subjective) sacrifice may well be greater.
^ The suggestion is that the ' productional ' canon of taxation can
dispense wnth the * distributional '. See as to the contrast and
consilience of the two canons Economic Journal, vol. x (1900), p. 174
et seq. The consilience is well illustrated by Mr. Hartley Withers
FOR DISCHARGE OF DEBT 9
unimportant to show that the measure when required
by the exigency of the State is agreeable to received
canons of what is reasonable. Discontent is thereby
diminished.^ There is mitigated the sense of unjust
treatment at the hands of the have-nots, the appre-
hension of unlimited confiscation which would weaken
the motives to thrift and saving.
Acquitted from the charge of violating fiscal equity,
the capital levy may still be arraigned for breach of
contract: the definite contract which the Government
has made with its creditors that the War Loan (if not
previously redeemed) ' will be repaid at par * at specified
dates. If the holders of War Loan are to be mulcted
of their capital pari passu (or nearly so) with other
capitalists, it is argued or felt that the repayment at par
is nugatory ; there is virtual repudiation.
On this it may be observed that the interpretation
of a contract is a matter for law to settle. Law is
influenced by precedent ; and a weighty precedent is
afforded by the acts of Pitt. According to the terms of
the statutes relating to the loans raised by Pitt in the
nineties of the eighteenth century, the dividends were
to be paid to the stockholders *free from all taxes,
charges, and impositions whatsoever'.^ But when Pitt
in his new book, The Business of Finance, where he shows it to be
bad policy, quite apart from any humanitarian motives, to impose
taxation on those who are struggUng on the margin of existence,
* From the most entirely utilitarian and practical point of view
taxation that increases the misery of the miserable is bad.*
* It is not irrelevant, I think, to recall Wordsworth's just de-
marcation of
* Calamity the chastisement of Heaven
From the injustice of our brother men.*
Excursion, ii. 73.
' Geo. Ill, xxxvii (1796), c. 10, § xiv; xxxviii (1797), c. 37,
§ xiv ; etc.
B
lo A LEVY ON CAPITAL
imposed the Income-tax at the end of 1798 he made no
distinction between stockholders and the general public.
* There can be no question of a breach of good faith
with the public creditor by thus imposing upon him
what every other subject of the realm is to incur/ ^ * If
you (a stockholder) expect from the State the protection
which is common to us all, 3^ou ought also to make the
sacrifice which we are called upon to make/ ^ Pitt's
position was in fact much the same as that which was
attributed to our present Chancellor of the Exchequer
when he explained that he would not discriminate
against the holders of War Loan/^ Pitt reprobated
* the idea of imposing upon the stockholders separately
and distinct!}^ any sort of tax '.* It was on that ground
that he protested against Addington's Budget of 1803,
when, as we read, language in a tone of great asperity
passed from Mr. Pitt towards Mr. Addington \^ Pitt's
interpretation of the contract with the stockholder w^as
fully confirmed by Gladstone in his great financial
speech of 1853 : ^ I think Mr. Pitt's construction of the
pledge was the safest and the wisest ' : namely, that you
should treat the dividends as * so much income ' without
looking to the ^ nature of the source '. The levy, there-
fore, is not to be condemned as equivalent to repu-
diation.
But^though acquitted in the court of reason on both
the counts which have been dismissed, the levy will prob-
ably not be entirely freed from the suspicion with which
- ^ December 3, 1798, Parliamentary History ^ vol. xxxiv, p. 14.
"^ December 3, 1798, loc. cit., p. 15.
^ Letter dated December 4, 1917 ; Hansard, 1918, vol. ci, p. 1502.
^ Loc. cit., p. 14.
^ See Diary of Abbot (Lord Colchester), vol. i, p. 432 ; Parlia-
mentary History, 1803, vol. xxxvi, p. 1666 et seq. ; Life of Lord
Sidmouth (Addington), vol. ii, p. 199.
FOR DISCHARGE OF DEBT ii
it is regarded by the propertied classes. Some will con-
tinue to harbour the feeling which Sinclair, a respectable
financier, expressed with respect to Pitt's apology for
the taxation of the bondholders, 'What a miserable
evasion ! ' ^ There will subsist a prejudice, prejudicial
to thrift and saving. How great that check would be is
a matter of observation ; observation of the intending
capitalist's mentality — a kind of observation which
I cannot pretend to have performed with any precision.
I am inclined to think that the check to accumulation
would be considerable. To be deprived of a capital
fund looms as a greater evil than an actuarially equiva-
lent loss of income for a period of years. The novelty
of the impost makes it to be felt as more burdensome.
The danger which has been pointed out is to be set
against the advantages offered by a levy on capital. The
advantages of a ' clean slate ' (if they could be supposed
net) would obviously be great and many. In particular
the removal of a heavy debt (if effected without a shock
to national credit) would put the Government in a
better position to meet a possible future emergency by
a fresh loan.
The advantages of a capital levy, less by its attendant
dangers, are to be weighed against the continuance of
the present regime with all its evils. The evils of
a prolonged heavy taxation for the service of a national
debt are thus well summarized by J. S. Mill: 'The
* * It is said that we do not intercept the money as it goes nto
the pockets of the creditor ; but that we only put our hands into
his pockets afterwards. What a miserable evasion ! * The proper
course, according to Sinclair, would have been as follows : * Let
books be opened for receiving the names of all the creditors who
assent to this new mode of holding their property, and let it go no
further than to the persons who subscribe ' {Parliamentary History^
vol. xxiv, p. 83, December 14, 1798).
12 A LEVY ON CAPITAL
raising a great extra revenue by any system of taxation
necessitates so much expense, vexation, disturbance of
the channels of industry, and other mischiefs over and
above the mere payment of the money wanted by the
Government, that to get rid of the necessity of such
taxation is at all times worth a considerable effort.' ^
So Ricardo is reported as saying of the National Debt
in 1819 : ' It was an evil which almost any sacrifice
would not be too great to get rid of.'^
But in estimating the extent of the evil and our
capacity to bear it, there should be noted a circumstance
which the classical writers did not emphasize : ^ namely,
that we have already borne a much heavier burden ;
not only the service of the debt, but also the expenses
of the War, since these (so far as they have not been
met by borrowing from abroad) have been defrayed out
of resources which are of the nature of income.* There
is another circumstance to which the classical writers
did not advert, as it was not relevant to the case before
them ; the fact that whereas the service of the debt con-
tracted in the Great (Revolutionary and Napoleonic)
War was largely met by indirect taxation, and so fell
heavily on the poorer classes, now the direct taxation of
income and inheritances plays a leading part. Accord-
ingly the 'heart-burnings' — to use an expression of
Ricardo's — engendered by the continued taxation of
the poor for the payment of interest to rich fund-holders
are no longer serious. The truth that in the case of
^ Political Economy f Book V, chap, vii, § 2.
- June 9, Hansard, vol. xl, p. 1023.
* How far M'Culloch was from emphasizing the truth referred
to may be gathered from the criticism of his statements in my
Lecture on The Cost of War, 1915, p. 15.
* Mr. A. A. Mitchell has called attention to this circumstance.
Economic Journal, September 1918, p. 268.
FOR DISCHARGE OF DEBT 13
internal loans the receipt of interest by one set of
citizens just balances the payment of interest by another
set of citizens ^ becomes more significant when the two
sets belong to the same class — that of persons in easy
circumstances. It should be observed that this miti-
gation of sacrifice would also attend the transference of
capital from members of the propertied class to holders
of War Loan. In neither case is it to be understood
that the alleged compensation implies the total absence
of sacrifice.^ Even when the payment of imposts is
not aggravated by the thought that one is suffering
privation in order to swell the wealth of people already
much better off than oneself, we may still sa}' with
the author of Don Juan :
'Alas! how deeply painful is all payment!'
We must be prepared for sacrifice, whatever course
we adopt. The financial scars incurred in our tremen-
dous struggle with armed oppression will not be healed
without much suffering, whatever treatment we apply.
We have only a choice of evils— those incident to the
levy on capital and those of the present regime. The
balance between these alternatives may best be struck
after we have considered what would be the best— or
least bad —form of levy.^
II. If there is to be a levy on capital, should it be
a unique non-recurring lump sum, or extended over
a period of years, eked out by instalments ?
(i) Let us first consider an argument which appeals
^ The truth is stated in my Lecture on The Cost of War, with
abundant cautions against the misinterpretations to which the
statement is liable (p. 12 et seq.).
'^ Cp. Scott, Proposed Capital Levy, Economic Journal, September
1918, p. 252 et seq.
^ See below, p. 29.
J4 A LEVY ON CAPITAL
to justice. It is urged that the burden of discharging
the debt will be more justly adjusted among contribu-
tories of different classes if the adjustment is carried
out while the spirit of patriotism kindled by the war is
still glowing.^ Later the rich and powerful will be
minded to evade their fair share. This argument would
have force in an aristocratic or a plutocratic regime. It
would have been more applicable to our fathers a hun-
dred years ago than it is to us now. For we may boast
not only that as bravely as our fathers, in defence of
our country and to save Europe, we have shouldered
an enormous financial burden, but also that we are
better than our fathers in adjusting that burden with
consideration for the poorer members of the com-
munity. The strains resulting from the tremendous
struggle against wrong will be more equably distributed
over the body politic. The danger is, indeed, now the
reverse of that which is apprehended : the poorer classes
may seek to evade their fair small share.
(2) I pass on to another argument, which has some-
thing of an ethical character. The project of extin-
guishing the war debt at one stroke derives support
from laudable impulses: the honourable eagerness to
get rid of debt, the glorious sense of effecting a great
delivery by an heroic remedy, the courage which faces
a terrible operation for the sake of regaining health.
It is like having a bad tooth out at once, say advocates
of the levy. But as that which it is now proposed to
extract, namely money, is not bad, a better metaphor is
furnished by the extraction of good teeth, as is some-
times necessary to avert a dangerous disease. I under-
^ Much weight is attached to this consideration, with respect to
the issue of taxation versus borrowing, by Professor Dana Durand
in iht Journal of Political Economy for November 1917.
FOR DISCHARGE OF DEBT 15
stand that where the danger is not pressing, the horrible
operation is not alwa^^s performed completely at one
sitting. The extraction may take place by instalments,
so to speak, where the constitution of the patient would
not stand a severe shock. So the capitalist ma}^ be
encouraged, indeed, to make his contribution integrally
at once ; but he may also be permitted to plead : * Have
patience with me and I will pay thee all.'
(3) The shock given by the operation of extracting
capital is deterrent, but not prohibitive. There need