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18th Century Fiscal Policy

From Christopher Clark’s Iron Kingdom: The Rise and Downfall of Prussia, 1600–1947, a window into the fiscal policy dilemmas of a large north German state in the early 18th century:

Waldburg focused above all on the iniquities of the existing tax system, which tended to operate to the disadvantage of the smallholding peasants. Under the traditional arrangements in the province, every landowner paid a flat rate of tax for every Hufe of land in his possession (the Hufe was one of the basic contemporary units of land; the English equivalent was ‘hide’). But since the tax-collecting agencies of the administration were still largely in the hands of the corporate nobility, the authorities tended to turn a blind eye when noble landowners understated their taxable landholdings. The returns of peasant households, by contrast, were subjected to the most pedantic scrutiny, so that not a single hide was missed. Further iniquities arose from the fact that no account was taken of the quality and yield of the land in question, so that smallholders, who tended in general to occupy the less fertile land, were subject to proportionally greater burdens than the major landowners. The problem, in Frederick William’s eyes, was not the fact of inequality as such, which was accepted as inherent in all social order, but the depression of revenues that resulted from the operation of this particular system.

At the time, tax systems throughout Europe tended to be regressive since the nature of an Estates General (or a House of Lords) was to sharply overrepresent a given area’s wealthiest residents. At the same time, public expenditures went overwhelmingly to finance either the instruments of war or else the rituals of court. Consequently, Enlightenment-era calls for low taxes and “small government” were essentially left-wing political movements. The alternative was to tax the poor in order to finance the whims of dynastic politics. Today is a very different situation. But it’s a reminder that the questions of what’s the taxes are and what the money is spent on are more important than simple questions about how high or low the tax rate is.

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