Somerset Place London 19th June 1798.
As you have greatly distinguished yourself by your learned discussions on political subjects, & are now by your eminent situation enabled to promote the establishment of just fundamental principles of taxation, from which the European Governments have wandered for upwards of two hundred years, I have taken the liberty of transmitting to you some Copies of an imperfect Essay of mine, wherein I have endeavoured to illustrate those principles, with the view of drawing the attention of Legislators to the consideration of them. In Europe, & more particularly in Great Britain, encumbered with a very heavy national debt, & a most perplexing and chaotic system of finance, my principles of drawing the whole of the Public Supply directly from land, cannot be reverted to but by very slow degrees; but in the United States of America, not yet far advanced in the European maze of taxation, they may be put in practice without difficulty, provided the Legislators are but convinced of the sound policy of them. I shall therefore in my present letter make a few observations applicable more particularly to the actual state of the United Governments, over which you preside, or supplementary to the reasoning in my Essay.
The great Capital of the United States is land; & I will venture to say, that it would be sound policy in Congress to consider it, in conjunction with the industry bestowed upon it, as the only Capital, in so far as relates to the Supplies of Government. Those Supplies would thus be raised at very little expence; they would be a most inconsiderable burden upon that Capital; the foreign commerce of the States would thereby be freed from checks and shakles that tend to interrupt its prosperity; many temptations to fraud at the seaports would be removed; & artificial values would be prevented from attaching themselves to marketable commodities, consequently the territory of the States would long continue to be resorted to by foreigners as a cheap market, or a cheap habituation. All those are agreeable circumstances; but should Congress impolitically persevere in adopting the unsystematic modes of European taxation, it will instead of securing those circumstances to the United States, gradually introduce among them the embarrassments, which all European Governments have brought themselves into, by those unsystematic modes.
The causes which have insensibly led the European States to abandon the natural & simple source of Public Supply are various; but one of the principal of those causes will be found to be the erroneous opinion that a community has other sources of Income, of great importance, besides land. Numbers of writers on politics & finance might be quoted, who have held this opinion. Mr. Arthur Young had gone so far as to assert, that land yields little more than one half of the Income of a Community; & Dr. Adam Smith in his Enquiry into the Nature & Causes of the Wealth of Nations, has with most weak & fallacious arguments endeavoured to maintain the same doctrine. This doctrine, which is the belief of the multitude, being of a most pernicious tendency (as all errors in fundamentals are) I have though it extremely necessary to give it a full refutation; & to prove by, I hope, conclusive arguments, that manufactures, make and sold at home, produce no national Income, & consequently that the National Income arises wholly from land, exclusive of the small gains from foreign commerce. That alone is a National Income, which is an Income collectively to the whole Community; that fills the pockets of it, without taking any thing out of the pockets of B?; and what Income is of this kind besides the Income of the Cultivator. When this principle is clearly understood, the idolatry of manufactures will fall of course, & the jealousy of commerce will cease to be the pest of nations.
Because a trade, a manufacture, or a profession is very productive to a few individuals, the conclusion I say has been hastily drawn by many political writers, that it is nationally productive. This error may be said to pervade the whole of Dr Adam Smiths enquiry, where a Capital acquired by a mere transfer of income is but too much confounded with a Capital acquired by an increase or renovation of income, though in their nature very distinct, & consequently requiring to be kept distinct by an Enquirer into causes & principles. ‘Tis the Capital of the last kind, which directly supports a nation, & adds to its wealth & strength; the other may or may not add to its wealth & strength, and can do it only indirectly. Lord Mansfield died worth £400,000; but was not the whole of that accumulation drawn out of other peoples funds? The same may be said of the wealth of the late Dr Warren, of that of Sir Joshua Reynolds, of that of Sir James Arcwright, & of that of the late Alderman Wright and Gill Stationers formerly on London Bridge, who are said to have realized half a million. Now under these names are comprehended the whole of the most numerous classses of the Law, of Physic, of the Arts, of Manufactures, & of Retailers, all of which classes, so far from augmenting the National Income, are fed out of it.
Were money (as by the wise mosaic Constitution) to bear no interest, & were lands not saleable, accumulations of the above kind could hardly be called Property; at least, they could never produce what is directly signified by the words Income, Revenue, Re-ditus. They might be locked up in chests, like so many rare pebbles; & no-body would have a right to enquire what they were, or how many they were.
The natural distinction between the possessors of such accumulations & the possessors of land did not escape the penetration of our ancestors. They most accurately & deservedly called the last, possessors of Real Property; & from them alone as such, they required the whole of the Supplies for the inland defense of the State. Unhappily however in Great Britain, & more particularly in Ireland, for many years back, this natural order of things has been reversed. Real Property & Real Income have been taken little more notice of by Legislators than if they did not exist, & taxes without intermission and without measure have been imposed upon personal property; which from its nature the Legislature ought not to pry into, whether it be lodged in a pocket, or in a chest. It ought to be indifferent to the Legislature whether I have ten guineas in my pocket, or ten chests full of guineas. But if I possess one thousand productive acres, or one hundred productive acres within the State, I am thereby marked out as a possessor of Real Property, & consequently am under an obligation to contribute a proportion of my Income with the other possessors of Real Property to support & maintain Government, which is to protect the whole.
This plain principle not having been clearly understood by the people of England at the close of the last Century, the treatise of Dr Davenant on Ways & Means, instead of being considered by them as the production of a writer who took but a half view of things, met with the most unbounded approbation & applause. Ways & Means have since become a Parliamentary phrase;& Ministers of State, & political writers without number have valued themselves upon being good ways and means men. Even so, unskillful artists might value themselves in having constructed a time piece with an hundred, or rather with a thousand wheels, continually wanting alterations & repairs, when the hours might have been just as well marked by a clock with three or four wheels, of such materials, & such a frame, as would seldom have made repairs necessary.
I have, in page 83, proved, that if the Parliament of Gr. Britain had altogether abstained from Excises, Stamps, Licences, &c:d: & even from Customs, & restricted the Public Supplies wholly to the Ways & Means, pointed out by the Antient Constitution, one twentieth part of the produce of its lands, that is, one shilling in the pound of the national Income would have sufficed to maintain 250,000, Soldiers. And in confirmation of my reasoning I have appealed to the page of history, & shewn that the practice of many nations in different parts of the Globe was conformable to the principle I had previously illustrated, of drawing the Public Supplies directly from the produce of land. To the historical examples quoted in my Essay pages 91.2.3. I might have added the following from Cicero, who says of Sicily, Omnis Ager Siciliæ livitatum decumanus est; itemque, ante imperium Populi Romani, ipsorum Siculorum voluntate et institutis fuit.—Siculis charissimus Hiero, ut qui alia vectigalia non haberet. It would give me a very particular satisfaction to be authorized to add Americanis fæderatis charissimus Adams ut qui alia vectigalia non valuerit, as in that case, the Will united to the affectionate approbation would soon be followed by the Effect, to the advancement of the prosperity of the United States.
Should the arguments in my Essay lead the United States to imitate the wise King of Sicily, & to take the Supplies for the Public Defense as near the fountain head as possible, I am persuaded it would be found, that less than sixpence in the pound of the produce of their lands would suffice for the whole of those supplies. Nay most likely an assessment of three pence in the pound would suffice; & the proprietors of land would be more than indemnified for that threepence in the pound, by the greater cheapness of articles of manufacture, & of all foreign merchandise.
I have the honour to be very respectfully / Sir / your most obedient / and most humble Servant
Post script. The London Periodical Reviewers have considered my Essay very differently. By one it is deemed the production of an agent of Government acting in concert with Mr Dundas, who has procured for the Author a Diploma of L.L.D. from the University of St Andrews, of which University he is Chancellor. By another it is the work of a concealed Jacobin (to use the absurd French term) who has bad designs against the peace of Society. A third very candidly acknowleges my real patriotic views; but has some hesitation about what I have said of the unproductiveness of manufactures, merely from the novelty of the proposition. To the examples on this point given in the Essay, I shall here add the following. From the reigning fashion of the females in London for these two Summers past, manufactured Straw has been sold for upwards of £100 the cart-load, consequently the raw material may be said to be increased in value by manual labour above thirty fold; but the money which on this occasion is gone into the pockets of the Milliners, for hats & bonnets, is precisely equal to what is gone out of the pockets of their Customers; and the Straw in an unmanufactured State is only to be counted upon as the increase of National Capital.
Sero medicina paratur cum mala per longus invaluere moras. Several years ago I had occasion publicly to notice the dangerous error, which the United States at first committed in regard to Duties on Exports & Imports. I soon after had the satisfaction to see that system abandoned, & Port duties submitted to the Regulation of Congress, an alteration easily effected, because the false system had not by a long continuance become very complex. In like manner, the sooner the States pursue the true theory in regard to taxation in general the fewer difficulties they will find in establishing it.
Mr. Pitt has this year made a giant step towards the reform of the financial system in Great Britain by fixing for a perpetuity the Land Tax at its nominal value of four shillings in the pound, as a prelude (according to general expectation) to an equalised Land Tax. Had this measure been effected seventy years ago by Sir Robert Walpole, the National Debt might thereby have been rendered 120 millions less than it now is. But false theories instead of being refuted by that minister, were adopted by him, & he even assumed praise to himself for reducing the Land Tax to a nominal shilling in the pound.
MHi: Adams Papers.