In the eighteenth century, Britain established what Brewer (Reference Brewer1989, p. xvii) calls “the fiscal-military state.” The British government increased expenditures on military affairs, financed them by making long-term loans, and paid their interest mainly through indirect taxes such as customs and excise duties. However, according to Daunton (Reference Daunton2001, pp. 32–33), the British fiscal-military state reached its limits at the end of the Revolutionary and Napoleonic wars (1793–1815). The outstanding amount of public debt increased to about 280% of GDP at that time, and the national tax burden became more than 25%. The income tax that William Pitt introduced in 1799 was abolished in 1816, because people regarded it as an unfair and unpleasant tax. The legitimacy of taxation and people’s trust in the state were being lost.
In this situation, George Warde Norman (1793–1882), who served as a director of the Bank of England from 1821 to 1872, wrote an essay on taxation. Although Norman started writing the essay in 1821, and continued until the 1830s, he could not complete it. D. P. O’Brien, with the help of John Creedy, edited Norman’s unpublished essay and brought it to light in the form of this book. Thanks to O’Brien’s laborious editing, with an excellent introduction, readers will be able to follow Norman’s argument with almost no difficulty.
The essay is composed of three parts. Part I contains two chapters (chapters 1–2), in which Norman reveals his views on the general principles of taxation. As O’Brien correctly points out, Norman’s normative background can be called “utilitarian.” Although in the essay Norman does not refer to Bentham and Mill, in his autobiography, he writes, “Towards the end of 1821, I commenced an Essay on Taxation, redolent of Bentham and Mill—the object being to shew, how the Revenue of Country might be levied with least pressure on the Taxpayers” (Essay, p. xv). Moreover, in the essay, Norman repeatedly uses such terms as “the public happiness,” “the general felicity,” and “the greatest happiness of the great number” as an ultimate standard to differentiate good and bad taxes. It must be stressed that Norman considers not only the “economic effects” of taxes on the public happiness—effects through changes in the production, distribution, and consumption of wealth—but also their “moral effects” through changes in people’s sentiments and actions.
Norman was one of the founders of the Political Economy Club. Hence, it is quite conceivable that in the club he had a chance to discuss the issues of taxation with David Ricardo and Jon Ramsey McCulloch. It is also probable that Norman read not only Ricardo’s Principles of Political Economy and Taxation (1817) but also his article on the “Funding System” in the Encyclopaedia Britannica (1820), and McCulloch’s early writings on taxation. In fact, Norman’s explanations with respect to the shifting and incidence of taxes employ some theories in Ricardo’s system of political economy—for example, the theory of differential rent and that of equalization of profit rate. Strangely, however, Norman does not discuss the influences of taxation on long-term economic growth, to which Ricardo and McCulloch attached a high importance. Norman’s analysis of taxation can be called Benthamite, rather than Ricardian, because it focuses on the static, rather than dynamic, effects on public happiness.
Part II of the essay is composed of twelve chapters (chapters 3–14), in which Norman provides eleven maxims of taxation: computability, simplicity, frugality in collection, constancy, divisibility, popularity, noninterference, equality, uncorruptiveness, unvexatiousness, and unevasibility. These maxims can be regarded as an expansion of Adam Smith’s four maxims: equality, certainty, convenience, and economy.
In the nineteen chapters of Part III (chapters 15–33), Norman examines various taxes on the basis of the eleven maxims. As a general rule, Norman prefers direct taxes to indirect taxes. This preference culminates in his proposal of a single tax on property, which emerges in the final two chapters. In Chapter 32, Norman shows the scheme of a single tax on property as an ideal. This scheme involves a proportional impost on all kinds of material properties—such as land and material capital—with an exemption of subsistence minimum. Norman’s scheme can be regarded as a proposal to make perpetual a capital levy that Ricardo put forward in his article on the “Funding System” as a temporary measure to redeem the public debt. However, the single tax on property had a problem: it would not capture the incomes of traders and professionals who had no material property. Like Ricardo, Norman sidesteps this problem, stating that in the long run, the free movement of labor between occupations will lower these incomes.
The single tax on property had another serious problem—unpopularity. As Ricardo did not think that his capital levy scheme would be accepted by Parliament, Norman thought his scheme unacceptable for the people. Thus, in the final chapter, as the second-best policy, he puts forward a tax system in which a tax on property at a moderate rate is combined with an improved house tax, a timber duty, and a fixed impost on traders and professionals. Revenue obtained from these taxes will be used in order to abolish oppressive indirect taxes. If people become familiar with the tax on property, its rate can be gradually raised, whereas that of other taxes will be reduced. Thus, states Norman, the system of a single tax on property will finally be established.
Readers of this essay may have the following questions. Why did Norman postpone the publication of his essay? Did he give up on its publication because he considered his scheme too radical to be accepted by the people? Alternatively, did he think that Henry Parnell’s successful book, On Financial Reform (1830), which proposed reintroduction of income tax in order to abolish oppressive indirect taxes, diminished the significance of the essay?
Changes in the fiscal conditions in Britain may provide one of the possible answers. After the end of the Revolutionary and Napoleonic wars, until Robert Peel reintroduced an income tax and started tariff reforms, the British government did not carry out a radical fiscal reform. However, continuous economic growth, which started in the 1820s, prevented the British government from falling into a fiscal failure. Although the amount of outstanding public debt was reduced very little, its proportion of GDP fell from 280% in 1815 to 180% in 1842. Moreover, although tax revenue continued to increase, its national burden fell from 25% to 11%. Economic growth, to which Norman paid little attention, was a genuine source of public revenue (Dome, pp. 5–12). Norman himself admits this fact in a pamphlet published in 1850, An Examination of Some Prevailing Opinions, as to the Pressure of Taxation in This, and Other Countries. Norman may have thought that his essay failed to use the kind of political economy that emphasized the role of economic growth in fiscal reform.
The true reasons regarding why Norman kept the essay unpublished may be elucidated from his autobiography, which O’Brien is now preparing for publication. Together with the autobiography, as well as the 1850 pamphlet, this essay provides a precious document to all scholars interested in the arguments on the fiscal reform in nineteenth-century Britain. Thus, this book can be regarded as an important supplement to O’Brien’s magnificent editorial work, The History of Taxation (1999).
