2018.- “Introduction: maximising revenues, minimising political costs- challenges in the history of public finance of the early modern period”, Special issue on war, taxes and finance in the long eighteenth century, Financial History Review,

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War, Taxes and Finance in the Long Eighteenth Century Volume 25 - Special Issue 1 - April 2018 Latest issue of Financial History Review Taxation is accepted as a fact of modern life, despite recurring political conflict over the nature and direction

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  Special issue on war, taxes and finance in thelong eighteenth centuryIntroduction:maximisingrevenues,minimisingpolitical costs  –   challenges in the history of public finance of the early modern period MARJOLEIN  ’ T HART, * PEPIJN BRANDON ** andRAFAEL TORRES SÁNCHEZ *** *Huygens Institute for the History of the Netherlands and Vrije Universiteit Amsterdam**International Institute of Social History and Vrije Universiteit Amsterdam***Universidad de Navarra Taxation is accepted as a fact of modern life, despite recurring political conflict over the nature and dir-ection of fiscal policies. Most financiers regard obligations issued by the state as a safe investment option.Neither taxation nor state obligations were taken for granted during much of the history of publicfinance, however, at least not before the early   s. The  ‘ tax state ’  developed in fits and starts, drivenby the exigencies of warfare, which provided the main rationale for raising state income. Althoughwartime fiscal innovations eventually facilitated the rise of an efficient militarystate, the options availablefor implementing such improvements and preferences for specific fiscal or financial instruments variedgreatly across early modern states. Focusing on the  ‘ long ’  eighteenth century, this introduction presentsa framework for assessing these differences and introduces the other articles in this special issue. Keywords:  state finances, warfare, taxation, public debt, history  JEL classification:  G  , H  , H  , H  , H  , N  , N  M.  ’ t Hart (corresponding author), Huygens Instituut voor Nederlandse Geschiedenis, OudezijdsAchterburgwal   ,    DK Amsterdam, The Netherlands; email: m.c.t.hart@vu.nl; marjolein. thart@huygens.knaw.nl; web pages: www.huygens.knaw.nl/t-hart-marjolein/ and https://research. vu.nl/en/persons/marjolein-t-hart. R. Torres Sánchez, Departamento de Economia, Facultad deCiencias Económicas y Empresariales, Universidad de Navarra, Spain. P. Brandon, InternationalInstitute of Social History, Amsterdam, and Department of History, Vrije Universiteit Amsterdam,The Netherlands. Several of the articles collected in this special issue were first presented at the inter-national workshop  ‘ The Economic Impact of War     –   ’ , which took place at the NetherlandsInstitute for Advanced Study on    –    December    , and was co-funded by NIAS and Huygens-ING Amsterdam. Further discussion took place at a session with the same title at the XVIIth WorldEconomic History Congress in Kyoto,    –    August   . Editorial work on the special issue and thework on the introduction were executed with the help of a grant from the Spanish government, ref.HAR   -  -C  -  -P, and an NWO Veni grant, no.   -  -  . The latter grant also permittedthe writing of Brandon ’ s article. 1 Financial History Review    .   (  ), pp.    –   . © European Association for Banking and Financial History e.V.   doi:  .  /S  X  Should foreigners, staring at English taxation,Ask why we still reckon ourselves a free nation,We ’ ll tell them we pay for the light of the sun;For a horse with a saddle, to trot or to run;  … How great in financing our statesmen have been,From our ribbons, our shoes, and our hats may be seen  … One would think there ’ s no room one impost to put,From the crown of the head to the sole of the foot;Like Job, thus John Bull his condition deplores,Very patient, indeed, and all covered with sores.(Anonymous  c  .   , quoted by Dowell   , p.   ) Thisanonymous poemintroduces oneofthemajorchallenges inthe historyofpublicfinance: how to tackle increasing expenditure, especially the expenses caused by war,whilst ensuring that the population remains  ‘ patient ’ , like the  ‘ very patient John Bull ’ of the last lines. The poem dates from the aftermath of the War of AmericanIndependence, which saddled the British with one of the highest tax burdens per capita in the world. The author could not have envisaged that yet more burdensometaxes would be added in the next decade, including the novelty of an income tax,caused by the exhausting and extremely expensive French and Napoleonic Wars(O ’ Brien   ). The history of early modern public finance is an ongoing story of state rulers trying to maximise revenues whilst minimising the political costs, to para-phrase the political scientist Richard Rose (  ; cf. Irigoin and Grafe   ). Howstate rulers tried to achieve that precarious balance was and continues to be a fascin-ating story, one that is recapped in this special issue, in which the challenge is viewedfrom different angles. In addition to taxation, the solutions for maintaining thatbalance included forming coalitions with other states, manipulating currencies,extracting even more revenues out of state enterprises or domains, developing astable system of state credit, exploiting networks of financiers, economic warfare,the sale of offices, or engaging in severe austerity measures  –   to mention just themost common solutions. By the end of the eighteenth century, however, the mostdurable and flexible systems of public finance combined a variety of domestic taxeswith domestic credit that was relatively easy to obtain, firmly grounded in a giventerritory; a combination that eventually facilitated the rise of nation states.The consolidation of state finances occurred in fits and starts, and included a learn-ing process whereby states copied other states. In the   s, the French minister of finance, Jacques Necker, wrote: No nation has established at a single moment all the taxes and levies with which it is presentlyburdened. The contributions necessary for each state have been established in stages. Suchstagesarenotequal,becauseexpenseshaveincreasedasa result ofwarsandotherextraordinarycalamities. (Quoted in Bonney   , p.   ) Thisspecialissuefocusesonthe ‘ long ’ eighteenthcenturythatstretchedfromthefinaldecade of the seventeenth century to the early years of the nineteenth century; an era MARJOLEIN  ’ T HART  ET AL  .   characterised by the crystallisation of various public finance instruments that wouldlast into the twentieth century and help to shape the different models of themodern state. The individual contributions show how this period was one that fea-tured an intensification of existing financial networks and new short-term creditinstruments that eased transnational war transactions; how currency manipulationwithout safeguarding the stability of coin circulation led to high political costs;how severe austerity measures without proper innovations in public finance wea-kened the overall establishment; and how the escalating war expenses of the longeighteenth century sparked increasing debate about the relationship between war expenses and economic growth, accompanied by the rise of mercantilist state policies.In this introduction, a longer timeframe is employed in order to view these strategiesin a wider context; it seeks to establish the conditions under which taxpayers came totolerate increasing levels of taxation, and why creditors believed the state ’ s commit-ment to paying the interest charges on public loans to be credible. Taxation bringsabout political disputes, whereas a developed system of public debt requires notonlyaspecificinstitutionalframework,butalsodecadesoftriedandcompliantbehav-iour by state authorities. All in all, state rulers needed to fulfil two basic and oftencontradictory functions: stimulating the accumulation of capital within the statewhilst maintaining the conditions for social peace (O ’ Connor    , p.   ).The article starts by addressing the challenge posed by war finance and the resultingtransition towards the tax state in its various forms. In doing so, the analysis draws uponrecentquantitativestudies.Thesecondsectionaddresseseighteenth-centuryinnovationswithingovernment,especiallycentralisationandincreaseddirectcontrol,whichresultedin new types of interaction between state, elites and taxpaying communities. The thirdpart considers the innovative schemes that followed the Financial Revolution, enablingthe rise of secure long-term debt, and discusses the role of parliaments and secondaryfinancial markets. The final section introduces the articles in this special issue and sum-marises the major conditions underlying the rise of the modern tax state.ITaxation always involves conflict, since tax structures are part of what economists call ‘ property rights ’ . These structures also entail distributive effects, giving preference toone group over another (Alt   , p.   ). Historically, politicians have tended to berisk-averse and have preferred to avoid the contention and turmoil associated withnew or higher taxes (Rose   ). As a result, they have tried to maintain the statusquo; yet the history of state formation shows that state rulers could not avoid thelevying and restructuring of taxes.The maxim that the king should  ‘ live of his own ’ –   that he should finance the statewiththe revenues fromhisowndomains  –  dominatedthepolitical discourseinmedi-evalEurope.Thekingcouldonlylevytaxesonatemporarybasis,usuallyduringwars.Historians and social scientists have described the transition from this situation to onein which tax revenues became  ‘ ordinary ’  as the evolution from the  ‘ domain state ’  to INTRODUCTION    the  ‘ tax state ’  (Schumpeter    ; Krüger    ). The historians Bonney and Ormroddeveloped a broaderconception of this process, starting with the  tributary state  , mainlyfinanced by payments from dominated, foreign or external subjects; the  domain state  ,based on the personal property and perquisites of the ruler; the  tax state  , with regular taxation on the inhabitants ’  properties; and finally the  fiscal state  , with a sophisticatedcredit structure for state loans (Ormrod, Bonney and Bonney   , pp.    –   ; cf.Monson and Scheidel   ). Most of the literature, however, continues to focus pri-marily on the transition from domain states to tax states.The economists Peacock and Wisemann explained the acceptance of graduallyexpanding levels of taxation with their thesis on the  ‘ displacement effect ’ : Peoplewillaccept,inaperiodofcrisis,taxlevelsandmethodsofraisingrevenuethatinquieter timesthey would have thought intolerable, and this acceptance remains when the disturbanceitself has disappeared. (  ; Peacock   , p.   ) They observed peaking tax levels during wars which were separated by plateaus intimes of peace, whereby each new plateau was always higher than the previousone. Indeed, this is a trend that can be observed throughout the early modernperiod (Bonney   , p.   ; Kiser and Linton   , p.   ; Sabaté   , p.   ).The displacement effect diminished in the nineteenth and twentieth centuries, atleast in the Western world, when tax levels had already reached substantial heights.The transition towards gradually higher tax plateaus was not a uniform one, and itoccurred in various time frames (Yun-Casalilla and O ’ Brien   , p.   ). Whereastributary states dominated much of central Eurasia for centuries, China was alreadya tax state after the victory of the Qin in the third century  BCE  (Deng   ; Liu  , p.   ). There was no true tax state to be found in medieval Europe, apartperhaps from city states that drew most of their revenues from regular taxation. It isnot until the fifteenth century that we witness the embryonic rise of regular and ‘ ordinary ’  taxes in a number of territorial states, such as France. Tax states developedrapidly in the sixteenth and seventeenth centuries, especially in southern and westernEurope; eastern Europe would maintain the dominant features of the domain stateuntil the eighteenth century (Krüger    , p.   ; North   , pp.    –   ). In theFar East, Japan would essentially remain a domain state until the later nineteenthcentury (Nakabayashi   ). The delimitation of a territorial entity constituted animportant accompanying factor in the development of the tax state. In Europe, thesixteenth century marked a watershed in the rise of the proto-national territorialstate with clearly defined borders; an essential precondition for legitimate taxation,all at the expense of the revenue-raising capacity of the landlords, churches andcities of the medieval period (Schulze   , p.   ; Körner    , p.   ).In recent decades, numerous quantitative studies, based on extensive data fromseveral European states, have established much firmer ground for such claims. TheWars of Religion in particular stand out, with a doubling of the per-capita taxburden calculated in its grain equivalents between    and   , followed byanother acute wave of rising war costs between    and   , roughly coinciding MARJOLEIN  ’ T HART  ET AL  .   withtheThirtyYears ’ War.WesternEuropeexperiencedthehighesttaxincreasesper capita between    and   , with the significant exception of England; the Englishper-capita tax burden only took off in the eighteenth century (Gelabert   , p.   ;Ashworth   , p.   ). Eastern European countries such as Russia, Prussia and theAustrian Empire joined Britain in doubling their per-capita tax burden in the sameperiod (Karaman and Pamuk   , p.   ).Alloftheserisingtaxburdenswereaccompaniedbyredefinitions ofpropertyrightsand new regulations regarding access to the  ‘ state-making ’  process, causing disputesand widespread discontent ( ’ t Hart   , p.   ). Violent clashes involving rebelliouspeasants and town-dwellers peaked in the sixteenth and seventeenth centuries(Mousnier    , p.   ; Zagorin   , p.   ). Gabriel Ardant, the French taxhistorian, remarked: ThelettersofRichelieu,Mazarin,Séguier, Colbert,CharlesV,orofGranvelleandoftheoffi-cials who were their collaborators make clear their daily concerns:  …  how they strove topredict revolts, to put them down, and to avoid their recurring. (Ardant   , p.   ) Peasants often clashed with tax collectors, because taxes needed to be paid in coin,whereas feudal duties had usually been levied in kind. Monetisation advancedslowly, as much of Europe was dominated by subsistence farming. Nevertheless, bythe eighteenth century the fiercest conflicts had subsided; the degree of monetisationhadincreased,notleastbecauseoftheongoing pressureofmoneytaxesneededtopaysoldiers in cash (Schumpeter    ; Torres Sánchez   ). People continued to resisttaxation, but this resistancewas integrated into broader political movements (Klooster   ,p.   ). Demands for more equitable taxation and control overspending becamelouder,whilstcomplaintsaboutthetaxburden  per se  declinedandtaxationcametoberegarded as a natural phenomenon.Urban taxpaying communitiestended to demand control over spending at an earlystage. Charles Tilly divided the paths to European state formation into  ‘ capital-inten-sive ’  and  ‘ coercion-intensive ’  trajectories; the first was dominated by  ‘ struggle, nego-tiation, and sustained interaction ’ , with representatives  –   especially the governingbodies of municipalities  –   already controlling much of the tax revenue; the secondwas exemplified by vast agricultural territories with top-down, bulky and coercivebureaucracies (Tilly   ). Karaman and Pamuk confirmed the logic of Tilly ’ s trajec-tories on the basis of quantitative evidence from European states:  ‘ it was authoritarianregimes in more rural economies and representative regimes in more urban econ-omies that tended to better translate into state-building ’  (  , p.   ). The rulersof Russia (Muscovy), for example, taxed the peasants by sending cavalrymen tocollect the rent; Peter the Great introduced new land taxes and a poll tax, leviedby state commissioners (Hellie   , pp.   ,   ). No middlemen managed anddisbursed the funds, in contrast to most of urbanised western Europe.The  ‘ poor kings ’  of the medieval period eventually became  ‘ rich kings ’  in the fol-lowing centuries (Webberand Wildavsky   , p.   ), yet in order to stay in power,they needed to allow for the  ‘ political ceiling of taxation ’  (Fujita   , p.   ; cf. INTRODUCTION  
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