Economics for Helen by Hilaire Belloc

Every country must, to carry on its national services, raise taxes from its citizens, and those taxes, though levied in money, translate themselves, of course, into goods, that is, economic values attached to material objects.

We say that the State "raises," say, a hundred million pounds in taxation from its citizens a year, for "State Purposes"; and when you come to look into what is actually got by the State and how the State uses what it has got, it means that the State levies so many boots and so much bread, and so much housing material and so much clothing, and spends this again in maintaining State servants, that is, in clothing and housing and feeding soldiers and policemen, and civil servants and school teachers, and so on.

But in the modern world, and for the last two hundred years or so, nearly all states have also had to raise taxation _in order to pay interest upon the State loans_.

A State loan, or _national debt_, arises in this way. The State needs a great quantity of goods for a particular purpose -- usually for the very unproductive purpose of waging a war. It has to get a lot of metal for its munitions and guns, and quantities of food to feed the soldiers, and coal to transport them. Now there are two ways in which a state gets these. The first is to get the whole amount, as it is needed, directly from the people, by a very heavy tax levied at the time. That was what was done for hundreds of years before the second method was attempted. The king of a country, wishing to wage war, would ask his subjects for contributions, and he could not wage war upon a scale more than these contributions would meet.

But about two hundred years ago there began (and since then has very largely increased), the second method, which is that of _national loans_.

The State is, let us say, taking in ordinary taxation from its citizens about one-tenth of their produce. Suddenly it finds itself involved in a much higher expenditure, amounting to, say, half the produce of the country. If it asked for half the produce right away as a tax people might refuse to pay it, or it might make the policy of the State -- the war, for instance, which the Government wanted to wage -- so unpopular that the State could not pursue that policy or wage that war. So the Government had recourse to _borrowing_ from the citizens, promising to pay, to those who lent, interest in proportion to what they borrowed, as well as the capital itself. Thus they would _take_ in taxation for a war money from a farmer equivalent to _ten_ loads of wheat; but they would also _borrow_ from him _one hundred loads_ of wheat, promising to give him as interest _five_ loads of wheat every year for any number of years until they should ultimately pay back the whole hundred loads as well.

When these national loans began the Governments honestly intended to pay back what they borrowed. But the method was so fatally easy that, as time went on, the debt piled up and up until there could be no question of repaying it: all the State could do was to pay the interest out of taxation. It remained indebted to private rich men for the principal, that is, the whole original sum, and meanwhile, through further wars, this hold of the rich men upon all the rest of the community perpetually increased.

The "National Debt" -- as it came to be called -- remained a permanent institution, in connection with which all the citizens had to be taxed in order to provide interest for the rich lenders. Latterly these burdens of national debt have become overwhelming, and at the present moment about a twelfth of everything that English people produce is taken from them and handed over as interest to the comparatively few wealthy residents in England and abroad who lent great sums to the Government during the war.

It is true that whenever a loan is raised the Government provides not only interest but what is called a "sinking fund" -- that is, an extra amount of taxation every year which is dedicated to paying back the whole of the loan slowly. But long before a loan is paid off some new occasion arises compelling the Government to borrow again on a large scale, and the total debt perpetually increases.

The result is that all the great modern European nations are now loaded with a debt really larger than any of them can bear, and that therefore they have all taken steps to lighten that burden by various tricks not at all straightforward. Some of them pay back in money which appears the same as the money which they borrowed, but which has a very different value. They have borrowed for a war, say, £1,000, representing 100 tons of wheat. Then they debase the currency, so that a sum still called £1,000 will only buy 20 tons of wheat, and in this way they can pretend to pay the lender back, although they are really cheating him of four-fifths of what he lent. Two countries, Germany and Russia, have pushed this so far that the lenders are now not really paid anything at all. A man who lent the German Government, for carrying on the war, money which during the war would have bought a million tons of wheat, is now (October, 1923) paid back in money called by the same name but able only to purchase a tenth of a ton -- which is the same as saying that he is not paid back at all.

Of all European countries that fought in the war our own has been the most honest in this matter, but even in England a man who lent the equivalent of 1,000 sheep, say, and who was promised interest at the rate of 50 sheep a year, is only getting 25 sheep a year on account of the change in the value of money.