Imperialism: A Study

Hobson, John A.
(1858-1940)
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First Pub. Date
1902
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New York: James Pott and Co.
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1902
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Part I, Chapter VII

Imperialist Finance

I.VII.1

The analysis of economic forces in the foregoing chapter explains the character which public finance assumes in States committed to an imperialist policy. Imperialism, as we see, implies the use of the machinery of government by private interests, mainly capitalist, to secure for them economic gains outside their country. The dominance of this factor in public policy imposes a special character alike upon expenditure and taxation.

I.VII.2

The accompanying diagram brings into clear light the main features of the national expenditure of Great Britain during the last three decades of the nineteenth century.

Figure. Click to enlarge in new window.

I.VII.3

The first feature is the rate of growth of national expenditure taken as a whole. This growth has been far faster than the growth of foreign trade. For whereas the average yearly value of our foreign trade for 1870-75 amounting to £636,000,000 increased in the period 1895-98 to £737,000,000, the average public expenditure advanced over the same period from £63,160,000 to £94,450,000. It is faster than the growth of the aggregate national income, which, according to the rough estimates of statisticians, advanced during the same period from about £1,200,000,000 to £1,700,000,000. The rate of growth has greatly quickened during the later half of the period in question, for, leaving out of consideration war expenditure, the rise of ordinary imperial expenditure has been from £87,423,000 in 1888 to £128,600,000 in 1900.

I.VII.4

The most salient feature of the diagram is the small proportion of the national revenue expended for what may be regarded as directly productive purposes of government. Roughly speaking, three-quarters of the money goes for naval and military expenditure, and for the payment of military debts, about five shillings in the pound being available for education, civil government, and the dubious policy of grants in aid of local taxation.*28

I.VII.5

The only satisfactory incident disclosed by the table is the growing amount and proportion of public money spent on education. A substantial part of the sum expended as aid to local taxation has simply gone as a dole to landowners.

I.VII.6

The direct military and naval expenditure during the period has increased faster than the total expenditure, the growth of trade, of national income, or any other general indication of national resources. In 1875 the army and navy cost less than a 24½ millions out of a total expenditure of 65 millions; in 1898 they cost nearly 43 millions out of a total of 99 millions.

I.VII.7

The enormous expenditure upon the South African war will admittedly be followed by a demand for a large permanent increase in these branches of expenditure, amounting to an addition of not less than £15,000,000 per annum.

I.VII.8

This growth of naval and military expenditure from about a 5 to 60 millions in a little over a quarter of a century is the most significant fact of imperialist finance. The financial, industrial, and professional classes, who, we have shown, form the economic core of Imperialism, have used their political power to extract these sums from the nation in order to improve their investments and open up new fields for capital, and to find profitable markets for their surplus goods, while out of the public sums expended on these objects they reap other great private gains in the shape of profitable contracts, and lucrative or honourable employment.

I.VII.9

The financial and industrial capitalists who have mainly engineered this policy, employing their own genuine convictions to conceal their ill-recognised business ends, have also made important bribes or concessions to other less directly benefited interests in order to keep their sympathy and ensure their support.

I.VII.10

This explains the large and growing grants in aid of local taxation, almost the whole of which, interpreted by a scientific regard to incidence of taxation, must be considered as a subsidy to landowners. The support of the Church and of the liquor trade has been more cheaply purchased; the former by relief of rates on tithes and increased grants for Church schools, the latter by a policy of masterly inaction in the matter of temperance reforms and special consideration in regard to taxation.

I.VII.11

In making the capitalist-imperialist forces the pivot of financial policy, I do not mean that other forces, industrial and political, have no independent aims and influences, but simply that the former group must be regarded as the true determinant in the interpretation of actual policy.

I.VII.12

We have identified almost all the organised interests, commonly summed under the head of Capitalism, including land capital, with Imperialism. Most of them participate directly in one or other of the two sorts of gain which attend this policy: the interest, trade profits, or employment furnished by the imperialist policy; or the interest, profit, or employment connected with military and civil expenditure itself.

I.VII.13

It cannot be too clearly recognised that increasing public expenditure, apart from all political justification, is a direct source of gain to certain well-organised and influential interests, and to all such Imperialism is the chief instrument of such increasing expenditure.

I.VII.14

While the directors of this definitely parasitic policy are capitalists, the same motives appeal to special classes of the workers. In many towns most important trades are dependent upon Government employment or contracts; the Imperialism of the metal and shipbuilding centres is attributable in no small degree to this fact. Members of Parliament freely employ their influence to secure contracts and direct trade to their constituents; and every growth of public expenditure enhances this dangerous bias.

I.VII.15

The clearest significance of imperialist finance, however, appears on the side, not of expenditure, but of taxation. The object of those economic interests which use the public purse for purposes of private gain is in large measure defeated if they have first to find the money to fill that purse. To avert the direct incidence of taxation from their own shoulders on to those of other classes or of posterity is a natural policy of self-defence.

I.VII.16

A sane policy of taxation would derive the whole or the main part of the national revenue from unearned increments of land values and from profits in trades which, by virtue of some legal or economic protection screening them from close competition, are able to earn high rates of interest or profit. Such taxation would be borne most easily, falling upon unearned elements of incomes, and would cause no disturbance of industry. This, however, would imply the taxation of precisely those elements which constitute the economic taproot of Imperialism. For it is precisely the unearned elements of income which tend towards an automatic process of accumulation, and which, by swelling the stream of surplus capital seeking markets of investment or markets for the surplus goods it helps to make, direct political forces into Imperialism. A sound system of taxation would, therefore, strike at the very root of the malady.

I.VII.17

On the other hand, were the capitalist-imperialist forces openly to shift the burden of taxation on to the shoulders of the people, it would be difficult under popular forms of government to operate such an expensive policy. The people must pay, but they must not know they are paying, or how much they are paying, and the payment must be spread over as long a period as possible.

I.VII.18

To take a concrete example from recent history. The medley of financial and political interests which inveigled Great Britain into spending some two hundred millions of public money, in order to obtain for them control of the land and mineral resources of the South African Republics, could not possibly have achieved their object if they had been compelled to raise the money by sending round a tax-gatherer to take from every citizen in hard cash the several pounds which constituted his share of the taxes—the share which by more crooked ways was to be got out of him.

I.VII.19

To support Imperialism by direct taxation of incomes or property would be impossible. Where any real forms of popular control existed, militarism and wars would be impossible if every citizen was made to realise their cost by payments of hard cash. Imperialism, therefore, makes everywhere for indirect taxation; not chiefly on grounds of convenience, but for purposes of concealment. Or perhaps it would be more just to say that Imperialism takes advantage of the cowardly and foolish preference which the average man everywhere exhibits for being tricked out of his contribution to the public funds, using this common folly for its own purposes. It is seldom possible for any Government, even in the stress of some grave emergency, to impose an income-tax; even a property-tax is commonly evaded in all cases of personal property, and is always unpopular. The case of England is an exception which really proves the rule.

I.VII.20

The repeal of import duties and the establishment of Free Trade marked the political triumph of the new manufacturing and commercial plutocracy over the landowning aristocracy. Free Trade was so profitable to the former classes in securing cheap importation of raw materials and in cheapening the subsistence of labour at a time when England's priority in new industrial methods offered an indefinitely rapid expansion of trade that they were willing to support the reimposition of the income-tax which Peel proposed in 1842 in order to enable him to repeal or reduce the import duties. When the sudden financial stress of the Crimean war came on the country the Free Trade policy was in the prime of its popularity and success, and a Liberal ministry, in preference to a reversion to Protection which would otherwise have been inevitable, gave permanency to the tax, extending the area of its application and making its removal more difficult by further repeals of import duties. No Government could now remove it, for the new unpopularity caused by finding adequate substitutes would have outweighed the credit gained by its removal, while its productivity and calculability are advantages shared in an equal degree by no other mode of taxation.

I.VII.21

Some allowance may also be made for the principles and personal convictions of political financiers trained in the English science of political economy, and still more for the temptation of competing parties to seek the favour of the newly enfranchised populace by a well-paraded policy of class taxation. The seething revolutionism of the mid-century throughout Europe, the rapid growth of huge industrial centres throughout England, with their masses of ill-explored poverty and their known aptitude for ignorant agitation, made the establishment of formal democracy seem a most hazardous experiment, and both parties were in a mood to conciliate the new monster by doles or bribery. When the break-up of the old Liberal party in 1885-86 had for the first time thrown the vast preponderance of personal property on to the same side as real property, a genuinely democratic budget with a progressive income-tax and a substantial death duty became possible and seemed expedient. It is not necessary to deny that Sir William Harcourt and his colleagues were sincerely convinced of the justice as well as the expediency of this policy; but it must be remembered that no alternative was open, in face of the need of increased funds for Imperialism and education, except a volte face upon the Free Trade principles they had most stoutly championed, and a dangerous attack upon trade interests which might recoil upon the working classes, whose cause they were anxious to espouse. The financial attack on "property," embodied in the progressive income-tax and death duties, must be regarded, then, as an exceptional policy, due mainly to a combination of two causes—the difficulty of reverting suddenly to the abandoned practice of Protection, and the desire to conciliate the favour of the new unknown democracy.

I.VII.22

Hence the anomaly of Imperialism attended by direct taxation. In no other country have the political conditions operated so. Upon the Continent Militarism and Imperialism have thriven upon indirect taxation, and have enabled the agricultural and manufacturing interests to defeat easily any movement towards Free Trade by urging the needs of revenue through tariffs. In Great Britain it seems unlikely that the policy of direct taxation upon property and income for imperial purposes will be carried any further. The Government of the propertied classes has almost shaken itself free from the traditions of Free Trade; many of the leaders and the overwhelming majority of the rank and file are avowed Protectionists so far as agriculture and certain staple industries are concerned. They are no longer seriously frightened by the power of the people as implied by a popular franchise, nor are they prepared to conciliate it by further taxes upon property; they have experimented with the temper of "the monster," and they think that by the assistance of "the trade" and the Church he is quite manageable, and can be cajoled into paying for Imperialism through protective duties. "Panem et circenses" interpreted into English means cheap booze and Mafficking. Popular education, instead of serving as a defence, is an incitement towards Imperialism; it has opened up a panorama of vulgar pride and crude sensationalism to a great inert mass who see current history and the tangled maze of world movements with dim, bewildered eyes, and are the inevitable dupes of the able organised interests who can lure, or scare, or drive them into any convenient course.

I.VII.23

Had the Liberal party stood by the principles of peace, retrenchment, and reform, refusing to go beyond the true "colonialism" of such men as Molesworth, and rejecting the temptations to a "spirited foreign policy" dictated by bond-holders, they might now be able to resist the attack upon Free Trade which seems inevitable. But a Liberal party committed to a militant Imperialism whose rapidly growing expense is determined chiefly by the conduct of foreign Powers and the new arts of scientific warfare is in a hopeless dilemma. Its position as a buffer party between the propertied classes organised as Conservatism and the unorganised pressure of a loose set of forces striving to become a socialist Labour party dictates moderation, and the personnel of its leaders still drawn from the propertied classes prevents it from making any bold attempt to work Imperialism upon a basis of direct taxation upon property, raising the income and property taxes to cover every increasing need of imperialist finance. It has neither the pluck nor the principle to renounce Imperialism or to insist that the classes who seek to benefit by it shall pay for it.

I.VII.24

There is then no reason to impute to Liberalism either the desire or the power to defray the expenses of militant Imperialism by a further pursuance of progressive taxation of incomes and property. While the conveniences of finance may prevent the repeal of taxation which is so productive, it will not be carried further; when expenditure is placed again upon à normal footing the income-tax will be reduced and all increase of normal expenditure (estimated recently by a statistical authority at £20,000,000 for military services alone) will be defrayed by indirect taxation.

I.VII.25

Now any considerable calculable increase of revenue by indirect taxation means the abandonment of Free Trade. A large steady income of such a kind can only be raised by duties upon imports of necessaries and prime conveniences of life and trade. It is of course quite immaterial to urge that taxation for revenue is not Protection. If import duties are raised on sugar and tea, if they are imposed upon wheat and flour, foreign meat and raw materials of our staple manufactures, or upon finished manufactured goods competing in our market, it matters not that the object be revenue, the economic effect is Protection.

I.VII.26

It is probable that imperialist finance is not yet prepared to admit the name or the full economic policy of Protection. The preparatory steps can find other names. A countervailing duty upon beet-sugar poses as an instrument of Free Trade: once admitted, it introduces a whole train of countervailing duties by parity of reasoning. A tax on prison-made goods, on the ground that they are subsidised and so produced under "cost" price, is logically followed by similar protection against all products of "sweated" foreign industry. An export duty upon coal may well be followed by similar duties on the export of engines and machinery, which similarly aid the growth of our manufacturing rivals. But the most formidable mask of Protection will take the shape of military necessity. A military nation surrounded by hostile empires must have within her boundaries adequate supplies of the sinews of war, efficient recruits, and a large food supply. We cannot safely rely upon the fighting capacities of a town-bred population, or upon food supplies from foreign lands. Both needs demand that checks be set upon the excessive concentration of our population in towns, and that a serious attempt be made to revive agriculture and restore the people to the soil.

I.VII.27

There are two methods which seem possible. The one is a large radical scheme of land reform interfering with the rights of landowners by compulsory purchase or leasing on the part of public bodies, with powers to establish large numbers of small farmers on the soil with loans of capital sufficient to enable them to live and work upon the soil. The other method is Protection, the re-imposition of taxes on imported grain, cattle, fruit; and dairy produce, with the object of stimulating agriculture and keeping the population on the soil.

I.VII.28

Given the political sway of the possessing classes, it is certain that the latter course will be preferred. The landowning and the industrial interests are now sufficiently blended to render it impossible for the town industrialist to refuse assistance to the rural landowner. The recent dole in relief of rates is a convincing testimony to this truth. Political economists may prove that the chief result of "Protection," in as far as it protects, is to raise the rent of land, that a corn tax will raise the price of bread, and by raising real wages injure profits, and that if the tax really succeeded in stimulating intensive cultivation and self-sufficiency for food supply it would not assist the revenue. The Protectionist will not be dismayed by the contradictory positions he is required to hold, for he will be aware that the people whose votes he craves cannot hold two arguments in their heads at the same time for purposes of comparison.

I.VII.29

The demand for agricultural protection in order to keep upon the soil a peasantry with sound physique and military aptitudes is likely to outweigh all economic objections in the near future, and it is quite possible that Protection may here be tempered by such carefully devised land reforms as shall place a new "yeoman" class upon British soil, and a substantial sum as purchase money plus compensation for disturbance in the pockets of British landlords.

I.VII.30

One other secret avenue to Protection is through the shipbuilding trade. Here is a case not for taxation but for bounties. If England is to be strong for contest in war and trade, she must keep open for herself the highways of commerce, and must own ships and men adaptable for purposes of defence. England's great foreign trade was undoubtedly built up in the first instance by the aid of the navigation laws, and the same combination of political exigencies and commercial interests will make towards a revival of this policy. Such are the main streams of tendency towards Protection. But there is no reason to suppose that the policy will be confined to agriculture, sugar and other subsidised imports, export duties upon coal, and bounties on shipbuilding. The leading branches of the textile, metal, and other staple manufactures whose monopoly even in the home market is threatened by the progressive industries of Germany, Holland, and the United States have long lost that confident reliance on Free Trade which they entertained when England's paramountcy in the manufacturing arts was unquestioned. The local specialisation of industries places a most formidable weapon in the hands of the protectionist politician. In spite of the financial and intellectual aid given to the Free Trade movement by certain manufacturing interests, Protection stands as the producer's policy, Free Trade as the consumer's. The specialisation of localities enables a politician to appeal to the separate trade interests of a single town or neighbourhood, and to convince not only its capitalists but its workers of the gain that would accrue to them if their trade was protected against what is termed unfair competition of foreigners: nothing is said about what they will lose as consumers in the diminished purchasing power of their profits and wages, the result of Protection to the trades of other localities. This appeal made to the separate interests of producers is almost certain to be successful in a people of low education and intelligence. Any attempt to put the other side by representing the result of Protection to be a general rise of prices is commonly met by a confident denial that this result will follow, though it is commonly admitted that wages and profits will rise in the particular local trade to whose self-interest the protectionist appeal is addressed.

I.VII.31

It is, however, probable that an attempt will be made to conceal the whole character of the protectionist policy by a misty atmosphere of Imperialism. Protection will not be Protection, but Free Trade within the Empire; a protectionist tariff will hide its exclusive side and masquerade as an Imperial Zollverein. Great economic changes, requiring the use of political machinery, invent that machinery. The Imperialism of England, essentially though not exclusively an economic thing, will strive to cover the protective system of finance it favours, by a great political achievement, entitled Federation of the Empire. This avenue to Protection would in any case have been essayed by Imperialism, as indeed the curious attempt of Mr. Chamberlain in 1897 testifies. The abnormally rapid swelling of financial needs due to the disastrous policy in South Africa merely precipitates this policy and gives it political occasion. It will be sought to exploit the enthusiastic loyalty of the colonists exhibited in their rally round the mother country in the South African war for purposes of formal federation on a basis which shall bind them to contribute money and men to the protection and expansion of the Empire. The probability of success in this attempt to secure imperial federation is a matter for separate consideration. It is here named as one of the avenues to Protection.

I.VII.32

In many ways it thus appears that Protection is the natural ally of Imperialism.

I.VII.33

The economic root of Imperialism is the desire of strong organised industrial and financial interests to secure and develop at the public expense and by the public force private markets for their surplus goods and their surplus capital. War, militarism, and a "spirited foreign policy" are the necessary means to this end. This policy involves large increase of public expenditure. If they had to pay the cost of this policy out of their own pockets in taxation upon incomes and property, the game would not be worth the candle, at any rate so far as markets for commodities are concerned. They must find means of putting the expense upon the general public. But in countries where a popular franchise and representative government exist this cannot be successfully done in an open manner. Taxation must be indirect and must fall upon such articles of consumption or general use as are part of the general standard of consumption and will not shrink in demand or give way to substitutes under the process of taxation. This protection not only serves the purposes of imperial finance, taxing the impotent and ignorant consumer for the imperial gains of the influential economic interests, but it seems to furnish them a second gain by securing to them as producers their home market which is threatened by outside competition, and enabling them to raise their prices to the home consumers and so reap a rise of profits. To those who regard foreign trade in its normal condition as a fair interchange of goods and services, it may seem difficult to understand how these economic interests expect to exclude foreign goods from their market, while at the same time pushing their goods in foreign markets. But we must remind such economists that the prime motive force here is not trade but investment: a surplus of exports over imports is sought as the most profitable mode of investment, and when a nation, or more strictly its investing classes, is bent on becoming a creditor or parasitic nation to an indefinite extent, there is no reason why its imports and exports should balance even over a long term of years. The whole struggle of so-called Imperialism upon its economic side is towards a growing parasitism, and the classes engaged in this struggle require Protection as their most serviceable instrument.

I.VII.34

The nature and object of Protection as a branch of imperialist finance is best illustrated in the case of Great Britain, because the necessity of subverting an accepted Free Trade policy lays bare the different methods of Protection and the forces upon which it relies. In other nations committed to or entering upon an imperialist career with the same ganglia of economic interests masquerading as patriotism, civilisation, and the like, Protection has been the traditional finance, and it has only been necessary to extend it and direct it into the necessary channels.

I.VII.35

Protection, however, is not the only appropriate financial method of Imperialism. There is at any given time some limit to the quantity of current expenditure which can be met by taxing consumers. The policy of Imperialism to be effective requires at times the outlay of large unforeseen sums on wars and military equipment. These cannot be met by current taxation. They must be treated as capital expenditure, the payment of which maybe indefinitely deferred or provided by a slow and suspensible sinking fund.

I.VII.36

The creation of public debts is a normal and a most imposing feature of Imperialism. Like Protection, it also serves a double purpose, not only furnishing a second means of escaping taxation upon income and property otherwise inevitable, but providing a most useful form of investment for idle savings waiting for more profitable employment. The creation of large growing public debts is thus not only a necessary consequence of an imperialist expenditure too great for its current revenue, or of some sudden forced extortion of a war indemnity or other public penalty. It is a direct object of imperialist finance to create further debts, just as it is an object of the private money-lender to goad his clients into pecuniary difficulties in order that they may have recourse to him. Analysis of foreign investments shows that public or State-guaranteed debts are largely held by investors and financiers of other nations; and recent history shows, in the cases of Egypt, Turkey, China, the hand of the bond-holder, and of the potential bond-holder, in politics. This method of finance is not only profitable in the case of foreign nations, where it is a chief instrument or pretext for encroachment. It is of service to the financial classes to have a large national debt of their own. The floating of and the dealing in such public loans are a profitable business, and are means of exercising important political influences at critical junctures. Where floating capital constantly tends to excess, further debts are serviceable as a financial drainage scheme.

I.VII.37

Imperialism with its wars and its armaments is undeniably responsible for the growing debts of the continental nations, and while the unparalleled industrial prosperity of Great Britain and the isolation of the United States have enabled these great nations to escape this ruinous competition during recent decades, the period of their immunity is over; both, committed as they seem to an Imperialism without limit, will succumb more and more to the money-lending classes dressed as Imperialists and patriots.


Notes for this chapter


28.
A portion of the money expended under the head National Debt should, however, be regarded as productively expended, since it has gone towards reduction of the debt. Between 1875 and 1900 a reduction of £140,000,000, equal to about £5,800,000 per annum, has been effected.

Part II, Chapter I

End of Notes


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