Fiscal Policy and Business Cycles

By Alvin H. Hansen | Go to book overview

Chapter VI
FISCAL POLICY, NEW AND OLD

THE changing ideas about the nature and use of public credit, from ancient times through the early modern period, constitute a fascinating chapter in the history of thought. Scholastic theologians, like Thomas Aquinas, were bitterly opposed to loans.1 This attitude was due not merely to the official church opposition to the payment of interest, but to a belief that public debt was itself immoral. Political philosophers of the early modern period continued to regard the prior accumulation of treasures as superior to borrowing. Jean Bodin, for example, approved only six sources of state revenue: the public domain, conquest, gifts (which are "rare"), annual contributions of allies, customs, and taxes. Traffic in rights and titles he considered pernicious, and borrowing at high interest rates "the ruin of princes." Emergencies should be met by accumulated hoards, and only war provided justification for extraordinary levies or loans.2

Thomas Hobbes was more realistic in his approach. He recognized the limitations of revenue from the public domain alone. In view of the widening scope of governmental expenditures, the monarch must resort to taxation, and occasionally even to public credit.3 Adam Smith reverted to the

____________________
1
Cf. E. R. A. Seligman, article on "Public Finance," in the Encyclopedia of the Social Sciences, Vol. 12, p. 641.
2
Six livres de la Republique, Book VI. Chapter 2, especially pp. 655-56, 661, 671, 680-83, 690-92.
3
English Works of Thomas Hobbes, ed. Molesworth; Volume VI, Chapter 1. A Dialogue Between a Philosopher and a Student of the Common Laws of England, pp. 10-22.

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