------------ EH.NET BOOK REVIEW -------------- 
Published by EH.NET (October 2004) 
 
Takuo Dome, _The Political Economy of Public Finance in Britain,  
1767-1873_. London: Routledge, 2004. xii + 231 pp. $100 (hardback),  
ISBN: 0-415-33369-5. 
 
Reviewed for EH.NET by Anthony Brewer, Department of Economics,  
University of Bristol. 
 
 
Public finance has always been a major issue for economists -- the  
full title of Ricardo's _Principles_, for example, is _The Principles  
of Political Economy and Taxation_ -- but it is rarely given  
prominence in histories of economic thought. Takuo Dome of Osaka  
University has set out to make good the deficiency in this study of  
seven leading British writers from the late eighteenth and nineteenth  
centuries (Steuart, Smith, Bentham, Malthus, Ricardo, McCulloch and  
John Stuart Mill). After an introduction setting the context, there  
is a chapter explaining what each writer had to say about government  
spending, taxation and management of the public debt. The focus is on  
central government, largely excluding local spending and taxation, so  
(for example) the costs and application of the poor laws are only  
dealt with in passing. 
 
A useful (if rather difficult to read) graph in the introduction  
reminds us that central government spending in Britain up to about  
1850 consisted overwhelmingly (about 90 percent) of military spending  
and debt service (the debts being the result of earlier war  
spending). The business of the British state was war. As far as the  
economists were concerned, Adam Smith set the tone for the whole  
period by identifying three legitimate concerns of government:  
defense, law enforcement, and "certain public works and ...  
institutions which it can never be for the interest of any  
individual, or small number of individuals, to erect and maintain."  
The last of these, however, should where possible be paid for by the  
beneficiaries and devolved to private or at least local management,  
while the central costs of law enforcement were in practice modest,  
so Smith's maxims fit fairly well with the practice of government.  
Following Smith, most of the writers discussed here saw government  
spending as a necessary evil which diverted resources away from  
private saving and therefore reduced economic growth. Steuart and  
Malthus were the exceptions since both were worried about demand and  
thought that government spending could sometimes maintain demand by  
transferring income to those who were more likely to spend it. At the  
other end of the period John Stuart Mill was less worried about the  
effects of government spending on growth because Britain had  
redundant capital which was being sent abroad. 
 
Smith also set the tone in discussions of taxation with four  
criteria: equality, certainty, convenience and economy. These were  
generally accepted, but different writers assigned different weights  
to them and reached quite different conclusions about the right way  
to distribute the burden of taxation "equally" or fairly. Tax  
incidence is clearly an important issue -- where does the burden  
really fall? Smith thought that the main burden of all taxes would  
ultimately fall on rent. Ricardo's rent theory led him to disagree --  
most taxes fall on profit (and hence damage economic growth), except  
that a tax on pure rent falls on landlords only, and a tax on  
luxuries falls on the consumers of luxuries. As McCulloch emphasized,  
and Ricardo accepted, a tax on pure rent was in practice impossible  
since the return on land could not in practice be separated from  
returns to past investment in improving the land. A great variety of  
taxes came under discussion and a great deal of the interest of the  
book is in tracing how different writers applied the growing body of  
economic theory to the resulting problems. 
 
Debt service costs were a substantial part of public spending  
throughout the period, but most notably so during the forty years or  
so after the end of the Napoleonic wars. Around 1820, for example,  
about 10 percent of GNP was being transferred from taxpayers to  
holders of government debt. With a broadly Ricardian theory of tax  
incidence this was seen as lowering profit rates and probably  
reducing the growth rate (depending on one's assumptions about the  
savings behavior of bondholders compared with others). A variety of  
proposals for reducing the debt were floated, though none could get  
around the basic problem -- taxes were seen as a bad thing, the tax  
burden was seen as heavy already, but reducing the debt would pretty  
certainly have to be paid for by higher taxes. Even before the  
Napoleonic wars debt was an issue, if not perhaps quite so pressing.  
Dome is an excellent guide to the issues. 
 
In a short review, it is hard to do justice to the detailed studies  
of specific writers and topics which are one the main strengths of  
this book. I can recommend it to anyone interested in classical  
economics, both to browse through in search of new insights and as a  
work to have on the shelf for future reference. 
 
 
Anthony Brewer, Professor of the History of Economics at the  
University of Bristol, has written extensively about eighteenth and  
nineteenth century economics. 
 
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