Economic History Association

The Birth and Death of Taxes: A Hypothesis Author(s): Edward Ames and Richard T. Rapp Reviewed work(s): Source: The Journal of Economic History, Vol. 37, No. 1, The Tasks of Economic History (Mar., 1977), pp. 161-178 Published by: Cambridge University Press on behalf of the Economic History Association Stable URL: http://www.jstor.org/stable/2119453 . Accessed: 15/01/2012 03:29
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The Birth and Death of Taxes:A Hypothesis

INTRODUCTION

TAXATION

is a major preoccupation of government and the governed. The legislative and administrative history of taxes is very intricate. But the fiscal history of Western Europe leads to a strong simplifying hypothesis about the origin and duration of tax systems, namely:

The taxes that financed early modern states were born in essentially their final form at the time central governments were formed (between 1200 and 1400 depending on the country). These taxation systems survived almost without change until the collapse of the ancien regime. Each tax system was imprinted at birth by the nature of the problems faced by government in securing and maintaining power in its formative years. In each state, social needs for protection and royal ability to provide it at the historical moment of the birth of the tax system determined the character of taxation long into the future. For once born, taxes generally survived as long as the entire system of government.1

Our discussion deals with Europe before about 1800. It was motivated, however, by a consideration of U.S. taxation. There were no federal taxes before 1787. The taxes introduced by Washington's administration (tariffs and excises) were the only ordinary sources of federal revenue until the income tax was introduced by the Sixteenth Amendment in 1913. (The Civil War income tax was a temporary measure.) The only other new taxes have been the (state and local) sales taxes of the 1930s and the (federal) social security tax of that same date. The only tax existing in 1790 clearly to have died has been the poll tax. If our thesis is defensible, then economic historians might note that the simultaneous adoption of the value added tax by the Common
' Journal of Economic History, Vol. XXXVII, No. 1 (March 1977). Copyright The Economic History Association. All rights reserved. The authors gratefully acknowledge the advice and criticism of Donald McCloskey and H. 0. Stekler. 1 We define a "new tax"as a change in the objects taxed or a change in the mode of collection. In the early modern period governments created countless taxes with new names but almost all of these were based on the precedents of the late middle ages. An important exception (and a good example of a new tax) is the impost on income from public office such as the Paulette (France, 1604), the Decima degli offci (Venice, 1574), or the media anata (Spain, 1631). These arose because a new form of property (the office) had recently been created. From the taxpayers' standpoint, the rate, yield, and frequency of tax collections may be as significant as the overall character of the tax system, but our present concern with institutional development leads us to neglect these matters here. 161

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Market countries in the 1960s is an event unprecedented in European history, and that its consequences may endure for centuries to come. And the fiscal problems of state and local government in the United States in the 1970s may well persist for centuries to come; they may be solvable only by fundamental changes in the structure of government itself. By presumptuously discussing a vast subject in a small paper we cannot but fail to anticipate all of the objections that specialists may raise. We limit ourselves to showing that our thesis is compatible with conclusions already reached by a number of authorities, and that it is useful as a lens through which to sharpen the focus of the comparative history of public finance.
THE ORIGIN OF TAX SYSTEMS: FOUR SKETCHES

We shall outline four tax systems that emerged from seigneurial arrangements. A lord (including a king) had "ordinary"revenues on which he was supposed to subsist. He might, with the consent of the taxpayers, obtain "extraordinary"revenues to meet unusual temporary conditions (such as wars which exhausted the customary obligations of his vassals). Medieval taxation developed from the "extraordinary" revenues, and ultimately became the fiscal basis of government. France The French tax system was developed in the fourteenth century. In the eleventh century, local lords began to levy on new towns arbitrary taxes called tailles, but as towns grew more capable of resistance, these were replaced by the less capricious cens.2 Royal power at first relied mainly on seigneurial revenues. Around 1300 Philip the Fair levied repeatedly, but irregularly, several new direct taxes (tenths, annates, aides) on the church and on feudal subjects to finance the wars with England. At this point the break with the past became evident. Taxes became generalized, but were still collected in consultation with the taxed.3 The taille reemerged as a royal direct tax, and aides became a network of indirect taxes. By the second half of the
2 Carl Stephenson, "The Origin and Nature of the 'Taille'," Revue beige de philologie et d'histoire, 5 (1926), 801-70, especially pp. 802-03, 859-63. The taille remained for a time a local, servile tax levied by feudal lords on noncombatant subjects in time of war. 3 Joseph Strayer, "Consent to Taxation under Philip the Fair," in Joseph Strayer and Charles H. Taylor, Studies in Early French Taxation (Cambridge, Mass., 1939), pp. 3-105.

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fifteenthcentury,the taille andaides had become regularandannual, and the estates lost the right to approveor veto taxes. the Thereafter systemhardlychanged.4In 1604a tax(the paulette) but levied againstofficeholders almostat once higher rankswere was were tried, exempted.In 1696, the capitationandin 1710the dixweme followed by similar progressive tax projects later in the century. These did not succeed as "new"taxes in that oppositionfrom the privileged eliminated their progressive features. Thus the basic Frenchtaxstructurewas establishedin the earlypartof the Hundred evolved and tax collecYears'War; thereafterroyal administration tions increased as populationand economic activity grew, but no changes in the tax structuretook place.5 England In England,too, the basic tax system of premoderntimes was well establishedby the early fourteenthcentury. The old danegeld and feudaltaxeswere replaced,first, by a flexible tax on other occasional movable property. Beginning in 1166 this tax was occasionallyim(a posed, but it assumedits matureformin the "thirteenth" taxof 1/13 the assessed value of grain, livestock, wool, household effects, and cash) in 1207. This tax, King John'scontributionto tax history, was modifiedin 1334when it becamea fixedsum (the fifteenthand tenth) ways by county, town, and parish, and apportionedin "customary" of levied by the localofficials.Togetherwith the "newcustoms" 1275, it was the basis of royalfinance until Williamand Mary.6
4We are not alone in our impression of the static nature of tax systems. For the case of France, see Martin Wolfe, The Fiscal System of Renaissance France (New Haven and London, 1972), pp. 52-56, 77-78;and John Dent, Crisis in Finance: Crown, Financiers, and Society in Seventeenth-Century France (New York, 1973), p. 20. s On the origins of the French tax system: Ferdinand Lot and Robert Fawtier, Histoire des institutions frangaises au Moyen Age, vol. 2, Institutions royales (Paris, 1958); John Bell Henneman, Royal Taxation in Fourteenth Century France: The Development of War Financing, 1322-1356 (Princeton, 1971); and Gustave Dupont-Ferrier, Etudes sur les institutionsfinanciers de la France a lafin du Moyen Age, vol. 2, Les finances extraordinaireset leur micanisme (Paris, 1932). On the paulette see Roland Mousnier, La venalitg des offices sous Henri IV et Louis XIII (2nd ed.; Paris, 1971), pass.; and A. D. Lublinskaya, French Absolutism: The Crucial Phase, 1620-1629, trans. by Brian Pearce (Cambridge, 1968), pp. 181-82. On the failure of progressive tax programs, see: Franklin L. Ford, Robe and Sword: The Regrouping of the French Aristocracy after Louis XIV (New York, 1965 rpt.), pp. 14-15; Betty Behrens, "Nobles, Privileges and Taxes in France at the End of the Ancien R6gime," Economic History Review, 2nd ser., 15 (1963), 461; and Pierre Goubert, L'Ancien Regime, vol. 2 (Paris, 1973), pp. 231-32, 234-37. 6 The tax on movable property gave the king something useful, mainly food for his army and wool (foreign exchange). It came too close to purveyance (the requisitioning, with compensation, for the needs of the royal household and army). In 1334, therefore, this tax became a lump-sum levy on local authorities, who made assessments and collections. After a disastrous

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Although the English tax on movables antedated the taille and Spanish alcabala by many decades, it never became automatic or extra-parliamentary. Parliament respected the feudal obligation to give the king what he needed in war, but it reserved the right to decide the extent of royal needs. As in the crises of 1297 and 1378, royal attempts at augmenting taxation frequently were met with rebellion, and the correlation was close between periods of heavy taxation and constitutional movements in which political concessions were won from the crown.7 Indeed, in the reign of Edward III Parliament imposed on the king the requirement that he maintain the royal domain as a precondition of seeking extraordinaryrevenue. And Parliament claimed the right to decide whether it would pay for wars which sent the king's army across the Channel, which was not a customary duty.8 Even when Charles I attempted to bypass Parliament with his "ship money," he was careful to base his claim upon Plantagenet procedures for raising a navy in wartime. The Commonwealth and Charles II endeavored unsuccessfully to introduce, respectively, domestic excise taxes and a hearth tax (on continental models). But these taxes were short-lived, and only in the eighteenth century was a system of excise taxes to become a major source of revenue.9

Spain
A main theme of Spanish tax history is the fiscal independence of Catalonia after the union of Castile and Aragon. The Castilian system of taxes was based on the famous sales tax, the alcabala, born in 1269 and lasting into the eighteenth century. This tax originated in a war-related crisis but became a permanent tax for which consent of
attempt at an income tax in 1378 (the Peasants' Revolt followed), a land tax supplemented it. This pair of taxes, called subsidy in Tudor times, monthly assessment in the Commonwealth, and the Land Tax of 1692, survived the Napoleonic Wars until the late nineteenth century; Stephen Dowell, A History of Taxation (2nd ed.; London, 1888), Book II, ch. 1. "And when, after the Revolution, another attempt was made to introduce and establish the principle of rating in taxation, the property tax of William III . . . grew gradually to resemble the assessments, the subsidies and the fifteenths and tenths in the form it attained of the fixed land tax of the eighteenth century. To the present day, at the distance of five centuries and a half, the consequences of the arrangement made in 1334 for the local assessment and collection of the fifteenth and tenth are clearly visible in England" (ibid., vol. 1, p. 88). 7 Edward Miller, "WarTaxation and the English Economy in the Late Thirteenth and Early Fourteenth Centuries," in J. M. Winter, ed., War and Economic Development: Essays in Memory of David Joslin (Cambridge, 1975), pp. 11, 20. 8 G. L. Harriss, King, Parliament, and Public Finance in Medieval England to 1369 (Oxford, 1975) contains a detailed analysis of the relations between king and Parliament. 9 Dowell, History of Taxation, vol. 2, pass.

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the realmwas not required.At the time of Ferdinandand Isabella,80 to 100 percent of the Crown'sordinaryincome came from the alcabala andan associatedecclesiastical 10These taxes,being calcutax. lated at flat rates, became much less importantas prices rose in the sixteenthcentury. The servicio, a direct farmedtax which originated at the same time as alcabala, became much more important.Originally a war subsidygrantedby the Cortes, it was transformed into a regulartax by CharlesV, with the grudgingconsent of the Castilian Cortes, which thus lost its last vestige of purse power. Serviciosbore more heavily on commonersthan alcabala because the clergy and nobility were exempt from it."' in Beforethe Union of the Crowns,Aragon(andCatalonia particular) relied on customsduties, manufacturing taxes, and consumption taxes for ordinaryrevenues, and on public borrowingfor extraordinaryrevenues.12 The power of the Cortes over the royalright to tax was supreme, and continued to be so after 1469. Venice By the late thirteenthcenturyVenetiangovernmentwas run by a closed caste of merchantnobles, and its tax structurehad the formit would largelyretain until the end of the republicin 1797. Ordinary expenses of administration were kept low, and were financed by indirect taxes:customsduties on entrepot trade, taxes on consump13 tion, and revenue fromthe salt monopoly. Direct taxes go backto
10 Miguel Angel Ladero Quesada, La Hacienda Real de Castilla en el siglo XV (Seville, 1973), p. 63 and throughout, for other less important taxes. On the date of the alcabala, Jaime Vicens Vives (with Jorge Nadal Oller), An Economic History of Spain, trans. F. M. Lopez-Morillas (Princeton, 1969), p. 285. Ladero Quesada says that the alcabala assumed its characteristicform only in 1342 when it was reimposed during the seige of Algeciras. 11 A warning against assuming that indirect taxes were more regressive than direct taxes is issued by Joseph Schumpeter, History of Economic Analysis (New York, 1954), p. 201. By the end of the reign of Philip II there were indications that the economy of Castile was cracking under the strain of the imperial adventures of the Spanish crown, increasingly financed by Castilian taxes in the wake of the declining importation of American silver. A new levy, the servicio de milliones, was imposed on the towns. In fact, it was not so much a new tax as a reorganization of the mode of collection of older taxes. The millones was paid with funds compiled from the old consumption taxes and, as the name suggests, it came to bulk large in the state budget. See Vicens Vives, An Economic History of Spain, p. 441; J. H. Elliott, Imperial Spain, 1469-1716 (New York, 1963), pp. 279-80. 12 Jean Broussolle, "Les impositions municipales de Barcelone de 1328 a 1462," Estudios de historia moderna, 5 (1955), 3-164; Vicens Vives, Economic History of Spain, pp. 236-38. 13 Frederic C. Lane, Venice, A Maritime Republic (Baltimore, 1973), p. 150. Lane remarks that the rich did very well under a system where consumption taxes paid for ordinary government expenses, including interest on the public debt. This is so, but it should not be inferred that the arrangement was harshly regressive. Gino Luzzatto's opinion is that the burden of indirect taxes was not excessively heavy: Storia economic di Venezia dall'XI al XVI secolo

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the eleventh century. The decima or patrimonialtithe at first was payableonly once in a taxpayer's lifetime, but in later centuriesmore often. Like other Venetianincome-and-wealth taxes, it was based on self-assessments ratablepropertyand touched mainlythe wealthof iest of the population.After the costly War of Chioggia(1378-1381) direct taxesbecamemoreprominent,andin the fifteenthcenturyhad two variations:the tansa (an income tax) and campatico (a tax on acreageowned). Venice solved the primeproblemof earlypublicfinanceby relying on forced and voluntaryloans for war finance. The "bonds,"which retainedtheir value as financialassets, became a popularinvestment and a sustenanceratherthana burdenfor the wealthyof Venice. The debt was reduced or retired when practicable from the proceeds of direct and indirecttaxes. This combination relativestabilityof tax of collection and of borrowingto meet extraordinary (wartime)needs sustainedVenice throughfive centuries.14
PAYMENTS FOR GOVERNMENT SERVICES

In relatingtax systems to the economic functionsof government Lane and, later, North and Thomas have asserted that there is a homogeneouspublic good called protection,the suppliersof which 15 are called governments. A governmenthas a monopolyover the supplyof protectionto its subject,and taxesare the price paid to the monopolist. We shall add several refinementsto this theory. First, we shall distinguish two kinds of protection (so that protection is not a homogeneousgood).In bothcases, the protectionis againsta threat:a
(Venice, 1961), p. 115. The diet of the very poor, at least, based on bread or polenta, cannot have been greatly affected by the major consumption taxes on meat, wine, oil, and salt. The cost to taxpayers of day-to-day administration was minimized by relying on fees and fines to pay much of the ordinary expenses of government. Officials' salaries were kept low and were supplemented by the profits of office. 14 On Venetian taxation: Bilanci generali delta Repubblica di Venezia, vol. 1, part 1 of Documenti finanziari delta Repubblica di Venezia, ser. 2 (Venice, 1912); and Luzzatto, Storia, pp. 32-34, 108-15. On forced loans and the public debt, see Frederic C. Lane, "The Funded Debt of the Venetian Republic, 1262-1482," in Venice and History: The Collected Papers of Frederic C. Lane (Baltimore, 1966), pp. 187-98; and the volume to which this essay was originally appended, Gino Luzzatto, Il debito pubblico delta Repubblica di Venezia (Milan, 1963). 15 See the four articles reprinted in part 3 of Lane, Venice and History, pp. 373-428; Douglass C. North and Robert Paul Thomas, The Rise of the Western World: A New Economic History (Cambridge, 1973), pp. 6-7; and Lane, "The Role of Government in Economic Growth in Early Modern Times," this JOURNAL, 35 (March 1975), 8-17, with discussion by North and Thomas, pp. 18-19.

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threat by foreignerscreates a demand for defense; a threat by one groupof the populationagainstanothercreatesa demandforjustice. Defense and justice are local public goods; that is to say, a given governmentservice mayaffectdifferentgroupsdifferently.16 Second, we shallintroducethe conceptof extortion.A paymentfor defense or justice contains elements of extortionto the extent that there is a monopolyprofit to government.17 extreme forms, taxes may be In completely extortionate,with the taxpayerreceiving no compensatory public good.18 Third,we shallclaimthat an existinggovernment does not necessarilyhave a monopolyof protectionservices, and that the importanceof extortionin tax revenue depends upon the availability of close substitutesfor a given governmentservice. The demand for protection arises from threats to subjects.19A threat is interpretableas follows:Imagine two individualsX and Y, each of whom has a choice between two actions. Y has a utility functionU(ai,b), with i, j = 1, 2 so thatY'swelfaredepends uponhis own actions(a, or a2)and also on the actionsof X(b, or b2). Imagine
16 Lane considers possible subdivisions of protection in "The Economic Consequences of Organized Violence," Venice and History, p. 414, n. 2. In his "National Wealth and Protection Costs," ibid., pp. 373-82, Lane has applied the term protection to the use of force by a nation to drive up the cost of commerce for competing nations, thereby creating "protection rents" for its own merchants. In such cases the government in effect becomes a partner in a business venture with its merchant class. 17 In the monopoly of usual economic theory, private goods are involved. Nobody may be compelled to buy from the monopolist. The public goods supplied by government, however, are not to be refused, except by rebellion or emigration, and "organized violence" guarantees that they will be paid for. Thus the term "extortion" seems to make an appropriate distinction between the monopoly profit we discuss and the usual monopoly profit. The extortion payment corresponds closely to Lane's "tribute" ("Economic Consequences," p. 418; "Role of Governments," p. 12). Speaking of taxes (or a part of tax payments) as tribute or extortion-money is historically quite acceptable an abstraction. Taxation of property or person originated in the West as an exaction on conquered enemies, and for many centuries such taxes were borne as a badge of disgrace. Edwin R. A. Seligman, Essays in Taxation (3rd ed.; New York, 1900), p. 4; Gabriel Ardant, Theoorie sociologique de l'imp6t, 2 vols. (Paris, 1965), p. 33 ff. The blurry line between customs-duty collection and highway robbery is admirably discussed in Niels Steensgaard, The Asian Trade Revolution of the Seventeenth Century (Chicago, 1974), pp. 60-67. 18 In 1315 the French king took charge of the wholesale distribution of salt because there was then a severe shortage. In 1343, the king decided (as a wartime measure) to retain the profits of the salt trade, and in 1346 made this a permanent source of revenue. Thereafter a variety of tax rates for salt are reported at various dates. Beginning in 1517, a fixed sum was assigned to each parish, representing the tax on an amount of salt the parish was supposed to consume. In effect, the parishes were to pay for salt whether or not it was actually sold by the royal monopoly. Note that salt is not a public good, but extortion is. The salt monopoly could not have sold at the prices it charged without police assistance (Dupont-Ferrier, Etudes sur les institutions, vol. 2, chap. 5). 19 This account is suggested by D. Souli6, Thgorie des marches contraries: antagonismes, negociations et menaces entre un monopole et un oligopole. Unpub. diss., University of Paris IX-Dauphine, 1975, chap. 3. Our calculations are based on diagrams, pp. 627-28.

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also that b, is something very harmful to Y. We say that X threatens Y if he says, "If you choose al, I will choose b1."'Y, then, faces an uncertain situation. X's threat may turn out to be a bluff; but also, if X is hostile enough to make the threat, he may choose b, even if Y chooses a2 (that is, he may be unconditionally hostile). Y must assign probabilities to each of the possible outcomes, namely (a,, b,), (a2,b,), i (al, b2), (a2,b2), and the expected utility of Y of action a1, say UE(aP) = 1, 2, is given by
UE(a) = p(aibl) U(ai,b1) + p(a1,b2)U(ai,b2) UE(a2)will exceed UE(al)if 1) the harm to Y of action b1 is sufficiently

great; 2) the probability of X's carrying out his threat if Y chooses a, is sufficiently great; 3) the probability of X's choosing b, if Y chooses a2is then Y will yield to X's threat and sufficiently small. If UE(a) > UE(ao), chose a2. Now suppose that U(a1, b2) > U(a2,b2)and UE(a2)> UE(ao. This means that Y would choose action a, if he were not threatened by X. Then Y would be willing to make a payment to X to induce X to withdraw the threat. We would call this a payment for protection, which involves extortion if X makes a monopoly profit on the transaction. Suppose that the two inequalities of the preceding paragraphhold, and that there is a third individual Z to protect Y. This means that Y will be willing to make a payment to Z in return for a threat by Z against X: "If you choose b1 (which harms Y), I will harm you." The effect of such protection is to reduce the probability that X will choose > b1, and (if successful) it will convert the inequality UE(a2) UE(al)into inequality U'E(al) > U'E(a2),essentially because the probability the p(a1,b1)is reduced. Such payments as Y would make to Z in this case are for the service of defense orjustice depending on the nationality of X. Now suppose an individual is confronted by a threat which, if executed, will damage him by some amount D; if not executed, damage will be zero; he assigns a probability p to the execution of the threat, so that his expected loss is pD. All the damage is assumed to occur at time t=O. We ask the individual to agree to pay a tax T per unit of time, in perpetuity to have this immediate threat removed. Given a discount rate r, then, the maximum value of T is given by
pD=

Jo T= rpD

FTe-rt dt=

T r

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If the discount rate, as before, is r, and the tax at t=0 is T and grows at an exponential rate of s, then pD =

Jo

Te-(r-st dt =

T r-s

T = (r-s)pD The point of the demonstration is that a one-time threat, clearly, will occasion only a very small protection payment in perpetuity. Let us illustrate this formula by means of an example. One of the threats common in history is the threat of a neighboring king to invade one's territory. An invasion causes damage while in progress, but soon the neighbor will either annex the territory he has invaded, or else go home, and economic life will resume. The inhabitants of the territory may well pay their own king to defend them against a foreign king; or they might buy off the neighboring king. But, as the analysis has shown, they will agree to a permanent tax equal only to a small part of the damage which the invasion would cause them. If subjects expect that a tax, once established, will tend to grow, then the tax they approve would be smaller still. Consider a peasant living in time of war. There is some probability that the enemy will invade his village and completely destroy his capital. Assume that this was worth one year's income to him. (In India in 1957 the capital/output ratio in agriculture was 1.1.)20 Assume this probability to be 1/2, and the discount rate to have been .1. Then the peasant would have been willing to agree to the establishment of a 5 percent tax on his income in exchange for protection. If he pays it to the foe it may represent pure extortion (if there is no military cost to refraining from razing this particular village). If he pays it to his own king it will not represent pure extortion, providing the king deters the invader. If the commitment is to pay a tax that would increase 2 percent per year, the peasant would be willing to pay 4 percent of his income in the initial year [since . 5(.1-.02) = .04]. Even if premodern subjects did not anticipate the invention of the calculus, they might well have realized that a new tax might last a long time and grow over its lifetime. Generally speaking, wars and external threats of a similar sort do not last long and are thus not appropriate occasions for the formation of new, perpetual taxes. The exceptions to this rule, as we shall show, are uniquely important cases in the history of taxation.
20

J. Tinbergen, Development Planning (New York, 1967), p. 105.

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WARS AND THE BIRTH OF TAXES

The premodern fisc was dominated by the distinction between "ordinary" and "extraordinary" budgets. The need for justice was continuousand its cost low. Hence the ordinary budget was financed by periodicextra-parliamentary taxes. Subjectswere, in effect, willing to accept these taxes in perpetuity and without recourse. Warexpenses,in contrast,were responsesto one-timethreats,and were thereforefinancedby one-time subsidies, subjectto parliamentary approval.If such approvalwere not forthcomingin adequate amounts,government used financial expedients: forcedloans,borrowing from foreign bankers, currency debasement, and the sale of assets.2'When governments foundefficientsourcesof taxrevenuesin wartime it would have served their best interests to make these incomes permanentand unconditional. we have shown, this norAs mallywouldnot havebeen acceptableto taxpayers. Wheretaxeswere introduced in time of seemingly interminablehostility, however, governmentssucceeded in perpetuatingthese defense-relatedexactions. In these cases, the consequences have been profoundand long-lasting. In Francethe tailles and aides, which were originallythe basis of extraordinary finance, had become regularand were levied without consent by 1453.22 Royaltaxes in England,born in war like those of France, never passed from parliamentarysupervision. The circumstancessurroundingthe birth of the tax systems differed. For both countriesthe old regime tax system came into being between 1200 and 1400, supplantingfeudal finance by which the king was expected to live mainly from the resources of the royal domain. During this period kings strove to substitutepaid armiesfor feudal troops because technical changes in the art of war had displaced cavalriesby massedinfantry,and the need to maintainsuch forcesin trainingencouraged professionalization armies.The birthof tax the of systems in Western Europe is tied to this militarytransition.23 Perpetual taxingpowersfell to the French crown, for at the time of the birth of France'sfiscal system, the threat of war was real and perpetual. The subjectsof the king of France,throughthe Estates, were
21 Royal assets included land and treasure. Kings could also purvey "rights." The French crown sold titles of nobility, public offices, and exemptions from military service. The Tudors and Stuarts sold monopoly rights (charters and letters patent). Many European cities bought charters that conferred tax exemption. = Wolfe, The Fiscal System, p. 50. 23 Ardant, Thlorie sociologique, p. 47.

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willing to allow monarchial dominationof the fiscal system in return for that precious commodity, defense. While the kings of France began the Hundred Years'War as suppliantsand bargainers the for "gracious of their subjectsin the best mannerof feudalmonarchs, aid" they ended the warin eternal, uncontestedcommandof the financial
machine.24

The war in France made the theory of "threats" "protection" and come to life. It was, with the exceptionof a nine-yearhiatus (13601369), a continuous war.25 The well-known pitched battles of the war

were uncharacteristic; combatwas mostly the chevaucheeor cavalry raidon the countryside-the medievalequivalentof strategicbombing. The greatest sufferers,predictably,were the noncombatants.26 Even in momentsof calm, the war companiesor independenttroops garrisonedin the countrysidemade their economic impact continuouslyfelt by extracting "protection money"(patis,raenconsdu pays), an arrangement which a number of parishespaid a schedule of by quarterlyransomsin money or kind to a garrisonas the price of immunityfromdepredations.27 state of war was costly and conThe tinuous,and the promiseof perpetualdefense froma king was worth the price of "immortal" taxation.28 For Englandthe war was remote, althoughincreasedtaxationand the practiceof purveyancetook some toll on materialwell-being.29 The taxsystem had been moreor less completedbeforethe war, and the war was never a large or steady enough threat to encourage subjects to give substantialtaxingpower to the monarch.Thus the coincidenceof a state of continualbelligerencyand the formationof the tax system in Franceset a peculiarstampon that country'sfiscal andparliamentary system, while the morepeaceablebirthof English taxes preservedthe heritageof negotiationbetween crownand subject. The case of Spain is equally instructive.Before the Union of the
24 See Fritz Kern, Kingship and Law in the Middle Ages, trans. by S. B. Chrimes (New York, 1970 rpt.), pp. 186, 194. 25 Kenneth Fowler, ed., The Hundred Years War (London, 1971), p. 1. 26 John Barnie, War in Medieval English Society: Social Values in the Hundred Years' War, 1337-1399 (Ithaca, 1974), p. 10; C. T. Allmand, "The War and the Noncombatant," in Fowler, The Hundred Years' War, pp. 163-83, esp. p. 167. 27 Kenneth Fowler, "Truces," ibid., pp. 204-09. 28 During the truce of Tours (1444) the French and English crowns prohibited the exaction of protection money and replaced the practice with a direct tax, the taille (ibid., p. 207). 29 Barnie, War in Medieval English Society, p. 41. K. B. McFarlane, "War, the Economy and Social Change: England and the Hundred Years' War," Past and Present, 22 (1969), 3-13, argues that for England the war was not very costly or disruptive of economic life.

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Crowns and, in fact, after as well, Castile and Aragon were two very different societies. Castile's pastoral society was directed to crusading war, since the recapture of lands from the Moors was both a religious and a territorial enterprise.30 When the basic tax structure of Castile was set down in the 1200s the citizenry had every expectation of indefinite conflict. The consequence was a perpetual tax system; the Castilian Cortes effectively abandoned financial control despite the persistence of its constitutional rights to authorize or veto levies.31 Meanwhile the Crown of Aragon was progressing from a compact kingdom to a commercial empire. It was not a society organized for war. Geography played a role in this: Catalonia, the leading state, enjoyed "mountain freedom" and the low defense costs that secure geographic borders provide. The centrality of Barcelona, its leading city, in the trade routes of the Mediterranean gave a commercial character to the region. Strong municipal guilds and city bourgeoisie contributed to the Catalan tradition of strict parliamentary control and the system of "fiscal pacts." But fiscal pacts-which Vicens-Vives notes are unique to Catalonia and England32-are not attributable to the power of the middle class, for even a financially muscular bourgeoisie relies upon government for protection of trade, and so is liable to extortion. Neither is their origin to be found in any special constitutional heritage of these two countries. All feudal states were originally contractual states, based on the theory of reciprocal fealty between sovereign and subjects.33 Rather, the origin of fiscal pactismo lies in the fact that war was not dangerous and interminable for England and Catalonia at the time they set up their tax systems. Our argument sums up as follows: tax systems originated with the
30 J. H. Elliott, The Revolt of the Catalans: A Study in the Decline of Spain (1588-1640) (Cambridge, 1963), pp. 2-3, 6. The crusading aspect of the reconquista is manifest in the Castilian tax system by the way in which the Church, in effect, collaborated with the Crown in the collection of taxes by contributing a proportion of ecclesiastical revenues to the cause. This tradition continued after the reconquest in the tercias reales (one third of tithes), subsidio, excusado, and cruzada, which were all clerical taxes paid to the crown in the time of Charles V (Elliott, Imperial Spain, pp. 192-93). The conquest of Granada, the last Moorish kingdom, was financed mostly by such ecclesiastical taxes (Miguel Angel Ladero Quesada, Castilla y la conquista del Reino de Granada [Valladolid, 1967], p. 212). 31 "During the reign of Alfonso XI (14th century) the Cortes obtained from the king the promise that he would not assess any tax or levy without its authorization. This law appeared in all the fundamental codes of Castile, but in spite of it the monarchy never paid much attention to a concession which had been extracted from it at a tight moment. On the other hand, when the Cortes did vote a tax it was the royal officials who collected it, thus giving an opportunity for the indefinite perpetuation of a tax granted for a special and transitory purpose" (Vicens Vives, An Economic History of Spain, p. 287). 32 Ibid., p. 232. 33 Kern, Kingship and Law, p. 87.

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need of medieval governmentsfor "extraordinary" revenues. When suchgovernments (likeCastileand France)were formedunderconditionsof permanentwar, these revenuesbecamepermanentand legislative assemblies lost the power to control taxes. Otherwise there were two solutions:the Venetian,in which taxeswere stabilized,and wartimeborrowing was matchedby peacetimedebt repayment;and the English and Catalansystems, in which legislative control over taxes and spending developed.
COMPETITION IN THE SUPPLY OF PROTECTION

The Hundred Years'War and the reconquistaended in the late fifteenth century, but the tax systems they generatedcontinuedfor 300 years. Crucialto the survivaland stabilityof these systemsas tax collection and government spending rose was the characteristic exemptionof the landowning nobilityfromdirecttaxes.Thisprivilege was not universal in old regime Europe.34Thus an obvious supposition-that classes in authoritytax others but not themselves-is not generally serviceable as an explanationof noble (or other) tax privilege. In an economy consisting of urban and peasant commoners, a nobility, and a king, protection may be variously supplied. In a "competitive solution,"nobilityand kingwill engage in price competition. In the absence of returnsto scale in the supply of protection, one predictsa "Germansolution,"with local rule and a figurehead king. If there are returnsto scale but relativelyelastic demand for protection, one predicts a nationaladministration and a relatively nonextortionate system.35 tax The tax exemptionof the Frenchand Castiliannobilityseems best discussed as a collusion in restraintof trade. The bargainbetween king and nobilityimplies a relativelyinelasticdemandfor protection. By acceptinga post-feudal statusof nobility,locallyindependentlords
34 J. F. Willard (ParliamentaryTaxes on Personal Property, 1290 to 1334 [Cambridge, Mass., 1934], p. 162) points out that in England only the immediate royal family and the poor were exempt in principle from the tax on moveables; the exemptions he lists (chaps. 5 and 6) fit into no neat social pattern. In Venice direct taxation was aimed especially at the well-to-do, nobility included. And in the Kingdom of Aragon early on, even the king and royal family were not exempt from the municipal taxes of Barcelona (Broussolle, "Les impositions," p. 131). 35 "Mountain freedom" is Braudel's useful phrase describing regions whose physical geography impedes the penetration of mainstream civilization. Mountain freedom thus involves elastic demand for protection and no economies of scale. As Braudel points out, it also means paying no taxes (The Mediterranean and the Mediterranean World in the Age of Philip II, trans. by Sian Reynolds [New York, 1975], vol. 1, p. 41).

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in France and Castile forfeited some of their rights to supply protection. National armies and royal administrators took over some functions of feudal nobility, including that of tax collection. But the nobility, in return, received fuller rights in the land and enjoyed royal protection at no charge. Kings, freed from competition of the nobility, enjoyed extortionate tax powers, and were able, through the court system, to tie the aristocracy to the interests of the crown.36 Likewise, powerful city-based classes could be prevented from offering another substitute for royaljustice: they could buy the status of lesser nobility (hidalguia, noblesse de robe) or offices that provided, respectively, tax exemption or income from the crown. Under what circumstances then do such upper-class tax exemptions emerge? Legalistically they might seem to have arisen from the feudal principle that (some) taxation was an alternative to military service. Thus is would seem that the medieval war technology which gave military supremacy to armored cavalries of nobility created a tax immunity for this caste that long outlasted its importance in warfare. This argument appears without merit, for between 1200 and 1400 the death of the feudal system was hastened both by the creation of new tax systems and by the obsolescence of heavy cavalry. At the historical moment that direct income and wealth taxes were being formulated, feudal armies were suffering calamities from the democratic pike and longbow at Courtrai, Crecy and later episodes. The Hundred Years' War, militarily speaking, is the story of the obsolescence of heavy cavalry. It is unlikely that new tax systems created fundamental and everlasting exemptions for a has-been military class in payment for services rendered.37 If, as historians agree, modern taxation supplanted feudal dues in part because of the need for liquid funds to pay modem standing armies, then the national military role of the feudal aristocracy would hardly have been a source of their privilege. It was rather the continu36f Schumpeter ("The Crisis of the Tax State," International Economic Papers, 4 [1954 (orig. 1918)], 13) speaks of the maintenance of an expensive court as a necessary royal expenditure. We would qualify this assertion by associating the need for a court (a) with the degree of collusion between king and nobility, and therefore (b) with inelastic demand for protection, and (c) an extortionate tax system. 37 Henneman (Royal Taxation in Fourteenth Century France, pp. 308-20) argues that in the mid-fourteenth century the French nobility was not entirely tax-exempt. Their feudal claim to military exemption was weakened by the need for standing armies, and by defeats such as Crecy. The higher nobility, however, had strong enough territorial position to negotiate directly with the Crown concerning taxes. Along with the privilege of not paying taxes, Spain's nobility won the right to collect royal taxes, a fact that suggests their tax exemption was more than a chivalric perquisite.

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ing local power of erstwhilefeudallords-an alternativeto monarchical rule in the countryside-that won them their freedom from income and wealth taxation.Additionally,independentlypowerfulnobles by their potential for complete autonomy continually represented to centralizingmonarchsthe threat of a "Germanalternative" to crown rule. So in circumstances where landed aristocracies survivedthe earlygrowthof monarchy with sufficientlocal power to supply protectionintact, their immunityfrom direct taxes became imperativefor the survivalof the kingdom. An instructive example of a "close substitute"in the supply of protection is Catalonia,although this case features the nobility as buyers, not sellers. After 1469 Cataloniaretained fiscal autonomy. The king of Spain appointed a viceroy and courts, but he had to negotiatefor money with the Catalanprovincialgovernment.As the flow of Americansilver and Catalantrade goods shriveled in the depressed 1600s the king and the province wrangled increasingly over money. Catalonia's regionalliberties obstructedthe Union of Arms, a projectfor distributingdefense costs over the entire kingdom. Around1640 the stationingof Castiliantroopsin Catalonia led to an uprising,supportedby some of the Catalannobility.The ruling class, however, did not look enthusiastically towardindependence, which in some degree threatened them. Instead they turned for protection to France. And in fact from 1640 until 1652 Catalonia became virtuallypartof France, the French king havingroughlythe same powers that the Spanishking had had. This is a brief episode in Spanishhistory. It does, however, point up our claim that Cataloniahad a "close substitute"for the Spanish king. As it happens, 1640was the only occasionwhen Catalonia made use of this substitute. The French king was used (a) to prevent extortionby the Spanishking, and, (b) to provide"justice" a sort of needed by the Cataloniannobility. Thus there was definitely a demandfor justice by the Catalannobility, but an unwillingessto pay the price demandedby the king of Spain.38 In Francethe retentionof power by a factiousnobilitywithin the
38 J. H. Elliott's The Revolt of the Catalans is the essential source for the full history of this event. In his epilogue Elliott points out that Portugal, in 1640 part of Spain, regained its independence permanently in that year. The Portuguese had been treated very much like the Catalans during their brief membership in the Spanish kingdom. Unlike Catalonia, however, Portugal underwent no internal revolt. Thus the Portuguese commercial and landed nobility lacked the internal threat to their position which their Catalonian counterparts faced, and were less ambivalent toward the prospect of national independence.

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developingstate was a sourceof actual,not potentialthreat.The two centuriesof intermittentcivil strifefromthe noble uprisingin 1465, throughthe Warsof Religionto the Fronde,indicatesthatthere were durable alternativesto royal power. "The history of the Capetian monarchyhad in fact been largely the story of its struggle with the aristocracy."39 Althoughat one time or anotherall classesparticipated in socialupheavals,the mainthreatto crownsovereigntycame from the existence of variousgroups in the nobility (organizedat times alongreligiouslines) that were fully willing to overthrowthe current monarch to replacehis powerwith localautonomy.40 or Althoughnot a cohesiveforce, the high nobilitycontinually proposedan increasein local power relative to central authority.It is interesting to note, therefore, that essentially the same platformpersisted until 1789. The fiscal crisis that initiated the Revolutionof 1789 had a long series of antecedents.Fromthe time of LouisXIVprivilegedopposition had quashedprogressivetax reform.41Againin 1787 the king's minister, Calonne, saw the need to tax the nobility. Althoughthe king'spowerto do this was absolute,he tried to persuadethe aristocracy to sanction new taxes rather than impose the royal will. This indicatesthat at the outset the attemptedreformwas in the natureof a contract renegotiation, not of a constitutional confrontation. Calonne and his successors applied to a council of notables, the parlementof Paris,and the provincialestates in the hope of winning approval.These bodies, dominatedby the nobility, made two unacceptable conditions:(a) that royal expenditurebe subject to their functionsbe transferred surveillance; that manyroyalgovernment (b) to provincialadministrators. was to overcome these dangersthat It was ultimatelyconvened. the Estates-General It is hardlynecessaryto recapitulate failureof the French king the to get whathe wantedin 1789. Fromourpointof view, it is enoughto the point out thatin the "aristocratic phase"of the FrenchRevolution
39 Georges Lefebvre, The Coming of the French Revolution, trans. by R. R. Palmer (Princeton, 1947), p. 16. Also see Goubert, L'Ancien Regime, vol. 2, p. 70. 40 Revolts by the petit peuple directed violence against royal officers and royal taxation, but not against the kings person or right to rule (ibid., p. 82). Often, however, the desperation of country folk in the face of royal exactions drove them to seek protection from the local seigneur. In this capacity aristocratsfrequently led "popular"uprisings. See Lionel Rothkrug, Opposition to Louis XIV: The Political and Social Origins of the French Enlightenment (Princeton, 1965), p. 134. 41 As Rothkrug has shown, the aristocracy at this time was willing to forfeit its tax exemption in exchange for an increased share of governing power and in fact proposed the most efficient legislation in this regard (ibid., pp. 132-44). The crown resisted and the bargain was never struck.

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nobilitythreatenedthe royaladministration with regionaldecentralization.This threat,persistingat sucha late date, wouldno doubthave been put as forcefullyon earlier occasionsif circumstances warhad rantedit. There was indeed a substituteavailablefor royaljustice so far as the nobles were concerned:provincialjustice. The nobility evidently was unwilling to pay a price much above zero for royal protection. It turned out that they had undervaluedthe royal services.
THE THESIS RESTATED

Governments providetwo public goods.Defenseis protectionfrom foreigners,andjustice is protectionfrom fellow-subjects. The prices of these goods (taxes)can become extortionateif governmentsearn monopolyprofits;such profitsare less likely if there are substitutes availablefor a given government. Since "extortion" finance excan penses other thanprotection,governmentswill collude (if demandis inelastic)with competing suppliersin order to sustain such profits. Althoughall Europeangovernments havefrequentlybeen engaged in wars, wars are generallynot an occasionfor the creationof new taxes because war is a temporarythreat and a tax is a payment in perpetuity.Thereforewarshave typicallybeen financedin largepart by borrowing,currency debasement, or impermanentincreases in the rates of old taxes. But when a governmentis createdat a time of permanentwar (The Hundred Years'War in France or the reconquista in Castile)wartimetaxes, which normallyare temporary,become extra-parliamentary permanent.Then the entire courseof a and country's developmentseems to be different,because normalconsultation procedures between rulers and ruled are bypassed by the development of administrative procedures. Once established,tax systemslast until the end of the government that instituted them. Thus the tax systems introducedin the thirteenth and fourteenthcenturiessurvivedalmostintact until the late eighteenth century. This stability seems to be associatedwith the mannerin whichgovernments providejustice. Governments function by systems of rightsand obligationsfor differentgroupsof subjects. Taxliabilitiesand exemptionsforma partof these systems, and are as hard to change as any other componentsof the basic governmental structure.42Thus serious tax reform, involving new imposts or
42 A narrower statement of this same view is R. R. Palmer's remark that "The inflexibility of the taxation system [in old regime Europe] was due mainly to institutions associated with

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changes in the objects taxed, is a revolutionary undertaking,even when its advocatesare not revolutionaries. Justice Marshall Mr. may have expressedthe taxpayers' view when he said that "the power to taxis the power to destroy."We suggesta converse;namely,that the power to change taxes is the power to destroy governments.
EDWARDAMESand RICHARD RAPP, State University of New York, T.

Stony Brook
aristocracy"(The Age of the Democratic Revolution [Princeton, 1959], vol. 1, p. 78). In matters of taxation the aristocracy was the most militantly conservative group, not because they alone had privileges, but rather because their privileges were more under attack than those of any other group. See Behrens, "Nobles, Privileges and Taxes," pp. 452, 464-66.