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History of Political Economy 33.2 (2001) 345-367

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Sir James Steuart and a General Sales Tax

Takuo Dome

Sir James Steuart began to write book 4 (“Of Credit and Debts”) and book 5 (“Of Taxes, and of the Proper Application of Their Amount”) of An Inquiry into the Principles of Political Oeconomy after returning to Britain from exile in 1763 (Sen 1957, 15). He published the Principles in 1767, before he had procured a formal pardon, which was eventually granted in 1771.1 In chapter 12 of book 5—the last substantive chapter of the Principles—he offered the following proposal:

Every one who has written concerning taxes has endeavoured to contract [i.e., reduce] the object of them as much as possible: more, I imagine with a view to ease the public than the people. I have followed another course. I have been for multiplying the objects of taxation as much as possible, and for making them more in proportion to expence than to property or income. But that I may conform myself in some measure to the ideas of those who have examined the same subject, I shall propose a tax, which would fill up the place of every other; and could it be levied, would be the best perhaps ever thought of. [End Page 345]

It is a tax, at so much per cent. upon the sale of every commodity. (4:247; emphasis added)2

In fact, Steuart proposed a general sales tax as a replacement for the land tax. Steuart's general sales tax can be credited partly to Charles Davenant, who proposed to finance the War of the Spanish Succession by extending the excise (Davenant 1695, 159; [1698] 1967, 1:143).3 Steuart's proposal can also be said to be a revival of the discussion with respect to Walpole's Excise Bill of 1733. Walpole's bill was regarded as a preparatory measure that would be followed by the imposition of the excise on all the necessaries of life; it was finally withdrawn because of strong opposition (Dowell 1965, 2:105).4

However, in contrast to his precursors, Steuart attempted to derive his policy proposals from a consistent system of political economy. In the Principles, he examined the topics of population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes, concluding that “the principles deduced from all these topics, appear tolerably consistent; and the whole is a train of reasoning, through which I have adhered to the connection of subjects as faithfully as I could” (1:7).

The purpose of this essay is to demonstrate that Steuart's proposal of a general sales tax can be deduced consistently from his system of political economy. For this purpose, this article reconstructs Steuart's system of political economy, showing the logical relationship between his theory of public debt (part 4 of book 4 of the Principles) and his theory of taxation (book 5). It will also show that his macroeconomic theory of taxation and public debt is established on, and consistent with, his theory of tax incidence. Since John Maynard Keynes's reappraisal [End Page 346] of mercantilism, many scholars have attempted to rehabilitate Steuart.5 However, Steuart's theory of public finance has rarely been examined, aside from treatments by Walter F. Stettner (1945), Samar Ranjan Sen (1957), and Hong-Seok Yang (1994); regrettably, their work has not clarified the reasons why Steuart concluded with the recommendation of a general sales tax.6 In order to rehabilitate Steuart's economics as a system of logic, his theory of public finance has to be reconstructed in a consistent form.

Steuart's System

To demonstrate his theory of public finance in books 4 and 5 of the Principles, Steuart began with the stage of inland trade, which was the stage after foreign trade had decayed because of the excessive importation of luxuries (2:34–35).7 This stage did not consist in a completely closed economy. Whereas the importation of luxuries was restricted by high customs duties, export was encouraged and subsidized...


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