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of those waves of speculative excitement which are booms while they last and bubbles when they burst. But it had little to do with the South Seas. It was in substance a scheme for funding government debt. However, the credit of the Government was in those days so shaky that it could not obtain permanent loans without attaching to them a durable commercial privilege. It raised loans in this way from the flotation of the Bank of England in 1694 and from the bargaining which preceded the union of the old and new East India Companies in 1709. In 1719 the outstanding liabilities of the Government amounted to £30,000,000; and the South Sea Company, in return for a monopoly of trade to the South Seas, agreed to take over the whole of the debt. The boom resulted from the method of conversion. The Government did not fix the cash price at which the South Sea stock was to be exchanged for debt scrip, and it authorised the Company to issue to the public stock equal to the difference between its par value and the price of issue to the debt holders. If the Company had dealt first with the debt holders and realised a genuine premium, the issue of the balance to the public would have been innocuous, but it anticipated the premium and the public bit. The debt holders, observing that the price of the stock was soaring, became eager for conversion and accepted stock at prices which, however fanciful, were less than the estimate of the outside market. All this happened between April and August 1720, but during the same time there were dishonest transactions behind the scenes. The Company gave, or sold at less than market price, blocks of stock to members of the Government and of Parliament. To force up the price it lent money against its own stock, which it then secretly pawned. In fine, it rigged the market by all the devices it knew. But its phenomenal success brought rivals into the field, and when in self-defence it obtained injunctions to restrain the wildest of them, the check recoiled upon itself. The bubble burst, and the ruined public clamoured for vengeance.

At this point Walpole was called upon, with all the more confidence because he was believed to have sold out in time at a profit. The adjustment finally reached was in substance Walpole's proposal. Subscribers who could not meet their calls were released on easy terms and the shrunken stock was supported by a contribution of £6,000,000 from the Sinking Fund. The trading and debt-holding functions of the Company were separated, and, as the former never amounted to anything, the net result was that the original debt holders became holders of South Sea stock on which they received from the Government a somewhat lower interest than before the conversion. After a heated

parliamentary inquiry, in which Walpole did his best to hush up scandals, a number of the directors were found guilty and punished by very heavy fines on their estates, but the shock to credit was great. It engendered a long-lasting distrust of joint stock organisation. The one redeeming feature was that the scotching of a South Sea financial trust kept the South American market open for individual enterprise at a later date.

In office Walpole devoted his financial genius to the thankless task of meeting from existing taxes an expenditure loaded with the charges of past wars. In his efforts thereto he laid the foundations of something approaching a system of taxation ; and Adam Smith's analysis of the incidence of taxation owes much of its singular modernity to the fund of experience accumulated by Walpole. The sources of revenue at Walpole's command were threefold: customs, excise, and land tax. Customs duties were the least unpopular; for British imports were mainly luxuries, and it was believed that their burden fell on the foreigner. But the customs cordon was so lax that any heavy duty on a luxury for which there was a keen demand merely diverted revenue into the pockets of the smuggler. The excise, i.e. the taxes on certain articles of domestic or foreign origin levied inland as they passed into consumption (the idea had been borrowed by Parliament from Holland during the Civil War), was much more satisfactory from the Government's point of view, for it yielded money in war as well as in peace, and being levied internally it was harder to evade. But for that reason and because the articles in most general consumption were necessaries of the poor man, it was intensely unpopular. The list of excises which Walpole inherited included salt, spirits, malt, candles, leather, soap, paper and starch. Most of them had been granted as war taxes and pledged to the interest of particular loans; and any addition to the list in peace time would have been considered outrageous. There remained the land tax, or tax on rents, which was paid by the landed proprietors. During the Commonwealth Parliament had imposed monthly assessments on its adherents, assigning to each district a quota. In 1692 Parliament granted an aid of four shillings in the pound, and in 1697 returned to the Commonwealth plan of fixing in advance the total to be raised. Personal income was liable, and the balance was to be made up by a pound rate on lands. But when Walpole inherited the tax, personal income had slipped out and the tax was not even a percentage on the true annual value of land. Each so-called shilling in the pound meant a fixed sum of half a million sterling distributed among counties in the proportions fixed by the assessment of 1692. It was varied in rate, according to the needs of different years,

between one and four shillings; and therefore it varied in yield between one-half and two million sterling. Walpole strove hard to keep it down, for he realised that its incidence was unequal and he desired to placate the landed gentry. In 1732, to avoid raising it, he reimposed the intensely unpopular salt excise, which he had repealed in 1730. But when the nation insisted on war in 1739, the tax had to go up to its top rate of four shillings, at which it remained for the next half-century till it became a fixed charge on landed estate, and as such was treated by Pitt in his scheme for redemption in 1798.

There were, however, two possible sources of increased revenue which did not involve the formal imposition of new taxation. The first was the diversion of the surplus on the debt funds. This surplus might arise either through an increase in the yield of taxes specifically pledged to the payment of interest or through a reduction in the rate of interest itself. Walpole's stable government achieved both. It brought increase of trade and therefore of tax yield, and it made possible the reduction of interest from an average of six to an average of five per cent. The understanding was that all such surplus should be earmarked for debt redemption and held in a sinking fund. Walpole made a legitimate call on the sinking fund in 1720 when he employed a part to support the South Sea stock, but in 1727 he charged on it an addition to the Civil List for the behoof of the newly ascended sovereign George II, and from 1733 onwards he regularly raided it for current needs.

The second source was the improved administration of the customs. In 1724 he revised the rating of dutiable imports and exports, bringing the old Book of Rates of 1660 up to date. But his main difficulty was the prevalence of smuggling, and he could only arrest this by collecting the bulk of the duty inland through the machinery of the Excise. In 1724 he applied this method to tea, coffee and chocolate, and made compulsory their warehousing until they were taken out for consumption. The tea duty went up by £120,000; and the warehousing plan assisted the export trade, since excise was only payable when the article was taken out for internal consumption. In 1733 he tried to do the same with wine and tobacco. In tobacco fraud was peculiarly flagrant. Quantities were stolen from the ships by thieves and still larger quantities were conveyed by a chain of smugglers into the interior with the connivance of merchants. And the Exchequer was further mulcted by fraudulent drawbacks on re-export. Dirt was blended with tobacco to earn a higher drawback. A violent outcry the outcry of aggrieved law-breakers working through the passions of the mob-greeted his scheme. In vain Walpole

showed that it would assist the export trade and positively reduce the duty on the domestic consumption. His opponents saw their chance of overthrowing his long regime. He was trying, they said, to make the Crown independent of Parliament and to foist on the people a General Excise. Ballads were published holding up the author to execration. One of these 'Britannia Excisa is illustrated by a cartoon in which the many-headed dragon Excise is gulping down every kind of food and drink.

Grant these and the Glutton

Will roar out for Mutton,

Your Bread, Beef and Bacon to boot,
Your Goose, Pig and Pullet

He'll thrust down his Gullet

While the Labourer munches a root.

Walpole had to yield. Lord Scarborough feared for the loyalty of the Army. 'I'll answer,' he said, ' for my regiment against the Protector, but not against opponents of excise.' 'We must drop it,' said the Queen, Walpole's best friend, and he dropped it. 'This dance will no further go.'

After this Walpole tried no more reforms. To keep down the land tax he lived on the Sinking Fund and stood aloof from the attempt to repress the growing evil of dram drinking by the prohibitive taxation of spirits in 1736 (9 Geo. II, c. 13). But the law was defied. Gin was sold as a medicine in chemists' shops and hawked through the streets under a variety of disguises and slang names. Walpole's successors abandoned the unequal contest. The duties on spirits were lowered and the licensing regulations relaxed; and Londoners enjoyed a further spell of free trade in gin, when dram shops advertised their delights with the legend 'Drunk for a Penny, dead drunk for Twopence, clean straw for nothing.' Happily, however, there were serious wars ahead, which by compelling a gradual rise in effective taxation restored the population to comparative sobriety. Our streets are quieter than Hogarth's Gin Lane, but it is not easy to imagine what would happen if suddenly, the world over, all interferences with the sale and price of alcohol were removed.

Section 3. Trade Policy in War Time, 1793–1815

The continuity of British trade policy over the centuries is well shown by the determined fashion in which Great Britain forced her export trade between 1793 and 1815 when she was at open war with France. She used her naval superiority after Trafalgar (1805) to flood Europe with British goods. In seasons

when her own harvest was short she took steps to obtain corn from Europe, but owing to the productivity of her own soil her need for foreign food was not more urgent than the need of Napoleon's allies to get rid of their surplus crops. She proclaimed a naval blockade of a large part of Europe-not in order to starve her enemy into submission, as was the purpose of the Allies in the late war-but in order to hold her share in the profits of the export trade to Europe. By making trade with the enemy illegal she provided prize money for her navy and privateers, but at the same time, by issuing freely licences to trade, she promoted the interests of her manufacturers and merchants. Fundamentally her war policy was in accord with the ancient policy of the Navigation Laws as conceived by Cromwell, but France was the enemy in place of Holland and the war was open instead of disguised. In both periods the policy would have been futile if it had not been backed by naval superiority.

Napoleon's reply was the Continental System, and he too was following precedent. From the time of Louis XIV the two nations had been engaged in continuous commercial warfare. The commercial treaty of 1786, the Pitt-Vergennes Treaty (often called the Eden Treaty after its English negotiator), was only an interlude. By it France gave more than she received. For the ban on her silk goods remained; and in return for lower rates on her wines and spirits she admitted at rates of 10 to 12 per cent. the machine-made manufactures of Great Britain. There was at once an outcry of commercial distress from all the manufacturing centres in France, and shortly before the outbreak of war in 1793 the Government of the Revolution denounced it. Between 1793, when war broke out, and 1802, when the brief Peace of Amiens was concluded, the penalties imposed by France on British goods were as harsh as those imposed by Napoleon under the Continental System which he built up from 1806 onwards. The difference between the two periods of retaliation was that Napoleon was trying to enforce the restrictions upon the whole of Europe.

Napoleon's motto was ' France before all,' and to help French trade he was grandly inconsistent. When the strength of the British Navy prevented him from conveying French goods to America and the West Indies, he found a vent for what he meant to be a one-way traffic with Great Britain in the operations of Dunkirk smugglers. When French agriculturists were suffering, as in 1809, from a plethora of grain, he permitted the export of corn, knowing that its destination would be Britain. But, at once a dreamer and an opportunist, he seems to have comforted himself with the notion that by taking only gold from England he

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