Wartime borrowing

2 passages · search this phrase →

Often appears with: taxation, tribute, and revenue · strategy and the aims of war · public finance and debt · perpetual funding · sinking fund misuse · sinking fund misapplication · mortgaged taxes in peace · mortgaged taxes after peace

Usually: argument (2) · sudden reversal of fortune (1) · censure (1) · curiosity (1)

Quotable

“The return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war. These are mortgaged for the interest of the debt contracted, in order to carry it on.” Adam Smith, An Inquiry into the Nature and Causes of the Wealth · observation

“By means of borrowing, they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war; and by the practice of perpetual funding, they are enabled, with the smallest possible increase of taxes, to raise annually the largest possible sum of money.” Adam Smith, An Inquiry Into the Nature and Causes of the Wealth · insight

An Inquiry into the Nature and Causes of the Wealth of Nations secondary

Adam Smith · 1776
PRICES OF WHEAT > part of the temporary taxes of Great Britain had been rendered perpetual, (4/21)

He argues that borrowing during wartime lets governments avoid large, immediate tax increases, and that perpetual funding leaves taxes mortgaged after peace rather than removing them.

posterity, nothing can be more convenient than to exchange their capital for a revenue, which is to last just as long, and no longer, than they wish it to do. The ordinary expense of the greater part of modern governments, in time of peace, being equal, or nearly equal, to their ordinary revenue, when war comes, they are both unwilling and unable to increase their revenue in proportion to the incre…

An Inquiry Into the Nature and Causes of the Wealth of Nations primary

Adam Smith · 1776 (composed/publication period); modern imprint not specified beyond a 1852 reprint
BOOK I. > L.140,000 a-year, for sixteen years. In 1691, an act was passed for borrowing a million upon annuities for lives, upon terms which, in the present times, would appear very advantageous; but the subscription was not filled up. In the following year, the deficiency was made good, by borrowing upon annuities for lives, at fourteen per cent. or a little more than seven years purchase. In 1695, the persons who had purchased those annuities were allowed to exchange them for others of ninety-six years, upon paying into the exchequer sixty-three pounds in the hundred; that is, the difference between fourteen per cent. for life, and fourteen per cent. for ninety-six years, was sold for sixty-three pounds, or for four and a-half years purchase. Such was the supposed instability of government, that even these terms procured few purchasers. In the reign of queen Anne, money was, upon different occasions, borrowed both upon annuities for lives, and upon annuities for terms of thirty-two, of eighty-nine, of ninety-eight, and of ninety-nine years. In 1719, the proprietors of the annuities for thirty-two years were induced to accept, in lieu of them, South-sea stock to the amount of eleven and a-half years purchase of the annuities, together with an additional quantity of stock, equal to the arrears which happened then to be due upon them. In 1720, the greater part of the other annuities for terms of years, both long and short, were subscribed into the same fund. The long annuities, at that time, amounted to L.666,821 : 8 : 3-1/2 a-year. On the 5th of January 1775, the remainder of them, or what was not subscribed at that time, amounted only to L.136,453 : 12 : 8. (3/4)

Smith claims perpetual funding helps wartime financing by allowing governments to raise money with only moderate tax increases, while peace fails to reduce the tax burden because revenues are mortgaged to debt interest.

posterity, nothing can be more convenient than to exchange their capital for a revenue, which is to last just as long, and no longer, than they wish it to do. The ordinary expense of the greater part of modern governments, in time of peace, being equal, or nearly equal, to their ordinary revenue, when war comes, they are both unwilling and unable to increase their revenue in proportion to the increase of their expen…