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THE DIALOGUE IN HELL BETWEEN MACHIAVELLI AND MONTESQUIEU -- TRANSLATION |
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Montesquieu: Up until now you have been concerned with the structure of your government and the stringent laws necessary to maintain it. That is a considerable undertaking, but you have only just begun. For a sovereign who desires absolute power in a modern European state accustomed to representative institutions, you still have to face the most difficult problem of all. Machiavelli: And what's that? Montesquieu: The problem of state finances. Machiavelli: I've not ignored such things. I remember telling you that every thing comes down to knowing how to manipulate numbers. Montesquieu: That's all well and good. But in this case, the very nature of things will resist you. Machiavelli: I confess that you take me somewhat aback. I was born in a century extremely backward when it comes to matters of economics and I understand little about such things. Montesquieu: I'm not too anxious on your behalf. However, let me ask you one thing. I remember having written in The Spirit of the Laws that the absolute monarch was compelled, by the principle that informed his government, to impose only small taxes on his subjects. [1] Will you at least give your subjects the same satisfaction? Machiavelli: I make no such promise. In truth, I know nothing more question- able than the proposition you have set forth there. How do you expect the trappings of monarchic power and the brilliance and display of a grand court to exist without imposing heavy sacrifices on a nation? Your thesis may be true in Turkey or in Persia, for all I know, for petty , lazy people who would not even have the wherewithal to pay a tax. But in European societies, labor produces a superabundance of wealth that presents itself in various forms-all amenable to taxation. In these countries, the government supports itself through luxury .All public service projects are under central control. All high officials and dignitaries are given great salaries at public expense. Can you really expect someone who is sovereign master of all this to limit himself to modest taxes? Montesquieu: All right. I accept your premises and will not defend my proposition whose real meaning has seemed to escape you. So, your government will be costly. Evidently it will be more expensive than a representative government. Machiavelli: That's possible. Montesquieu: Yes. But here is where you begin to have problems. I know how representative governments provide for their financial needs, but I have no idea of how absolute power, in modern societies, can support itself. If the past is any indication, absolute power could be maintained upon the following conditions: first, the absolute monarch would have to be a military leader. You understand this. Machiavelli: Yes. Montesquieu: Moreover, he would have to be a conqueror, for war would be the principal source of those revenues that would keep him in splendor and support his armies. If these expenses were met by taxation, they would crush his subjects, not because he spends less but because he .finds his means of support elsewhere. But today, war is no longer profitable. It ruins the conqueror as well as the conquered. Here then is one major source of revenue that escapes you. Taxes remain. But to Jay taxes as he wants, the absolute monarch would have to ignore the will of his subjects. In despotic states, a legal fiction is appealed to and this allows such rulers to tax indiscriminately. The sovereign is presumed to possess all the goods of his subject by right. When he expropriates something, he is only taking back what belongs to him. Thus, there is no basis for a claim against him. Finally, it is in the nature of absolutism that the prince be free to dispose of his tax revenues. His action in this domain is above discussion and control. You have to admit that the defects of despotism are so extreme that it would take a lot ever to return to it. Even if modern peoples are as indifferent as you say to the loss of their liberties, they are not so when their interests are at stake. And these interests are linked to an economic order far removed from despotism. Financial matters, which resist arbitrary handling, will impinge on your discretion in political matters. You whole reign threatens to collapse on this score. Machiavelli: I don't see the cause for too much concern about this or any other matter. Montesquieu: We'll see. Let's come to the point. That taxes are voted upon by the representatives of the nation is the fundamental rule of modern states. Do you or do you not accept this principle? Machiavelli: Why not? Montesquieu: Don't be too rash. This principle is the clearest token of a people's sovereignty .Granting them the right to pass taxes is to recognize the right to refuse, limit, or reduce to nothing the power of the prince to act. Ultimately, it is the right to destroy him, if need be. Machiavelli: You seem very sure of yourself. Montesquieu: Those who vote taxes are themselves the taxpayers. Their interests are closely bound up with those of the nation. They will be attentive to such matters. You will find these representatives adamant and unaccommodating in appropriating money in the same way that you will find them docile with regard to political liberties. Machiavelli: Here your argument is demonstrably weak. Please consider a couple of things. In the first place, the nation's representatives are salaried. Even if they are taxpayers, other personal matters can make them malleable when voting tax measures. Montesquieu: I agree with what your scheme portends. Your remark is to the point. Machiavelli: You see the disadvantages of looking at things too systematically. The least change, if skillfully made, can change everything. Perhaps what you say is right if I were basing my power on the aristocracy or on the middle classes that could refuse to cooperate with me at any moment. Secondly, I base myself on the proletariat, the bulk of which possess nothing. The costs of supporting the state are hardly borne by them at all. I will arrange it so that they are completely exempt from any burden. The working classes show little concern for fiscal measures, since they are unaffected by them. Montesquieu: If I've understood you correctly, one thing is clear. The "haves" would be forced to pay because that is the sovereign will of the "have-nots." Because of their poverty and greater numbers, the poor will hold the rich ransom. Machiavelli: And isn't there something fair in this? Montesquieu: It isn't even true. In contemporary society, from the economic point of view, there is no rigid demarcation between the rich and the poor. Through labor, the artisan of yesterday can be the bourgeois of tomorrow. You must realize what you are doing by attacking the landed or industrial bourgeoisie. In reality, you are making it more difficult for someone to emancipate him self through labor. You are holding back a greater number of laborers in the bonds of the proletariat. It is a grave error to believe that the proletariat can profit from attacks on the source of productivity. By impoverishing the "haves" through fiscal measures, you will only be creating an unstable social situation. In time, even the "have-nots" will be totally impoverished. Machiavelli: These are fine theories. I will counter them with others, just as fine, if you wish. Montesquieu: Not just yet. You haven't resolved the problem I have posed for you. You have to obtain the wherewithal to meet the expenses of absolute monarchy. It will not be as easy as you think, even with a legislature in which you will have an absolute majority, backed by all the power of the popular mandate with which you are invested. Tell me, for example, how can you make the financial mechanisms of modern states amenable to the exigencies of absolute power? I repeat. The very nature of things will resist you. The civilized people of Europe have regulated their finances with multiple guarantees that are so strict and so jealous that it would be just as hard to raise public revenues arbitrarily as to spend it so. Machiavelli: Please elaborate and explain this marvelous system. Montesquieu: It will only take a moment to summarize it. The perfection of the financial system in modern times essentially rests on two fundamental operations: a system of accountability and public access to information. Herein lies the taxpayers' security. A sovereign may not tamper with such reforms without in effect saying to his subjects. "Things may be in order, but I want disorder and obscurity in the management of public funds. There are multitudes of expenditures I want to undertake without your approval. There are deficits that I want to conceal and revenues I want to disguise or inflate, according to circumstances." Machiavelli: I like what you're saying here. Montesquieu: In free industrialized countries, everyone is acquainted with financial management either out of necessity or out of personal or professional interests. Your government could not deceive anyone in these matters. Machiavelli: Who is talking about deception? Montesquieu: The whole work of financial management, so vast and complicated, can be reduced to two very simple operations: appropriations and expenditures. It is around these two financial poles that so many laws and special regulations gravitate. There is nothing complicated in their objective. It is simply to guarantee that the taxpayer pays only the necessary and duly called for tax and that the government applies public funds only for expenditures approved by the nation. I will not address myself to what is to be taxed, establishment of a tax rate, or how taxes are to be collected. Nor will I investigate how to guarantee against tax evasion and to instill order and precision into the circulation of public funds. Those are accounting details that I don't need to discuss with you. I only wish to show you how public scrutiny goes hand-in-hand with a system of auditing in well-organized systems of public finance in Europe. One of the most important innovations was to bring the operations of public financing to light, to make visible the government's use of the public's wealth, the source of its revenues and object of its expenditures. This was achieved by the invention of what is today called the state budget, which is a rough estimate of expected revenues and projected expenses, not over an extended period of time, but each year, for the following year. The essentials of the financial situation may be found there. In a way, the budget also shapes that situation, which is improved or worsened according to its projections. The different ministers prepare the parts of the budget and account for the various programs in their departments. They take the allocations of former budgets as a base for their projections, while introducing certain modifications, additions, or necessary cut- backs. All the requests are brought before a Minister of Finance who synthesizes the disparate elements and presents them to the legislative Assembly what is called a budget plan. This impressive document is published, printed, and reproduced in a thousand newspapers and reveals to all eyes the domestic and foreign policy priorities of the state and its civil, judicial, and military administration. It is examined, discussed, and voted upon by the representatives of the country and put into effect like any other law of the state. Machiavelli: When it comes to financial matters, I want to express my admiration for the illustrious author of The Spirit of the Laws, how he rendered obscure theories into apt formulations and reduced somewhat ambiguous terms to the modern idiom in that great work that made him immortal. Montesquieu: The Spirit of the Laws is not a work on finances. Machiavelli: Your terseness on this score deserves all the more praise, for you were certainly capable of giving a complete account of the subject. Please continue. I beg you. I am following you with great interest. Montesquieu: It may be said that the creation of the budgetary system has brought in its train all the other financial reforms that are a feature of all well- regulated political societies. Thus, from the nature of budgeting itself emerges the rule that expenditures correspond to existing resources. This balance must be openly expressed through demonstrable and certified statistics. To better insure this result and so that the legislators that vote on the provisions are not led astray, recourse has been had to a very prudent measure. The general budget of the state has been divided into two distinct elements: an expenditure budget and a revenue budget, each of which must be voted separately and passed by its own special law. In this manner, the legislator is obliged to concentrate on expenditure receipts separately and in turn. His decisions are not influenced in advance by vague notions as to the general balance of revenues and expenditures. In the final stage, he scrupulously examines, compares, and harmonizes these two elements with a view to a final vote on the general budget. Machiavelli: All this is very good, but can it be that expenditures are restricted to only what has been voted on by the legislature? Is this possible? Is it in the power of a legislative body so to cripple the executive, to forbid a sovereign to appropriate for unforeseen expenses through certain emergency measures? Montesquieu: Obviously, you are uncomfortable with such an arrangement. I'm not. Machiavelli: In states that operate in a constitutional framework, isn't there a provision for a sovereign, by decree, to requisition supplementary or extraordinary appropriations when the legislature is not in session? Montesquieu: That is so, but on condition that these decrees be passed into law when the legislature reconvenes. Its approval is necessary. Machiavelli: If I have already committed the money, they will be called upon to ratify a fait accompli. I don't find this so bad. Montesquieu: That would be the case were it not for other restrictions. The most progressive legislation prohibits the sovereign from acting contrary to the ordinary provisions of the budget, other than by requisitioning supplementary and emergency appropriations. But the expenditure of such appropriations can not be made without the authorization of the legislature. Machiavelli: I don't think it would be possible to govern under such restrictions. Montesquieu: Sure it is. Without curtailing the possible abuses arising from supplementary and emergency appropriations, modern states have thought that legislative control over the budget would be a chimera. After all, they thought, since here is a finite amount of resources, expenditures must somehow also be limited. Political events can not force financial realities to change from one moment to another. Furthermore, the recess of the legislature would never be so long as to preclude the possibility of an expeditious vote on exceptional expenses. Reform has gone even farther. When resources are earmarked for a certain purpose, they return to the general fund if they are not used. It was thought that, while staying within general allocated limits, a government should not be able to use the funds for other than its appropriated purpose, to engage in a kind of shell game, where funds are transferred by administrative decree from one department to another. If this were not the case, expressed legislative intent could be circumvented, and, by an ingenious subterfuge, we would return to a situation of arbitrariness. In this light, what has come to be called line-item budgeting has been invented. That is to say, expenditures are broken down into subsidiary accounts that are similar in nature in all departments. For example, subsidiary A will comprise, in all departments, expenditure A, subsidiary B expenditure B, and so on. In this scheme, unspent appropriations must be removed from the accounts of the various departments and reported as surplus revenue for the budget in the following year. It goes without saying that department heads will be held responsible. These financial guarantees culminate in the establishment of an independent board of auditors that sits permanently, acting as a kind of appeals court, having jurisdiction and auditing powers over all facets of state bookkeeping and the management and use of public funds. It even has the task of pointing out to the administration better ways of financial management from the point of view of both expenses and revenues. This explication should give you some idea of how such an organization would constrain absolute power. Machiavelli: I confess to still being a bit dumbfounded by this financial excursion. You are taking advantage of my weakness. I told you that I understood very little about such things. But let me assure you. I would have ministers who would know how to turn these arguments around and show the dangers of most of these measures. Montesquieu: You wouldn't be able to do some of these things yourself! Machiavelli: Don't get me wrong. The principal concern of my ministers would be to spin out fine theories. As for myself, I will speak of finances as a statesman rather than an accountant. There is one thing you are inclined to forget. Of all things that concern politics, financial matters are most amenable to the maxims of The Prince. Those states that have budgets organized in detail and kept up to date look to me like those merchants who have perfectly kept books but end up bankrupt. Who has budgets larger than your parliamentary governments? What government is more expensive to run than the democratic government of the United States or the constitutional monarchy of England? It is true that the immense resources of this latter power are placed at the service of the most profound and savvy statecraft. Montesquieu: You are not speaking to the point. What are you getting at? Machiavelli: This. The rules that govern financial management on the state level bear no relation to those governing household economics, which seem to serve as your model. Montesquieu: Are you coming back to that same distinction-between politics and morality? Machiavelli: In effect, yes. Isn't this universally recognized and practiced? Although much less extreme, didn't such a distinction exist in your time? Didn't you yourself say that when it comes to finances, states permit themselves irregularities that would put the most dissolute sons of well-off families to shame? Montesquieu: It's true. I did say that. But I would be very surprised if you can draw an argument favorable to your thesis from such a statement. Machiavelli: I presume you mean that our orientation must be not what is done but what should be done. Montesquieu: Exactly. Machiavelli: I answer that it is necessary to will the possible and that what holds universally cannot but be done. Montesquieu: I agree that this is what experience would teach. Machiavelli: And I have a sneaking suspicion that if you were even to balance your budget, as you indicate, my government, totally absolute as it is, would be less expensive than yours. But I am not interested in getting into an argument about this. You are completely deceived if you think I feel myself hampered by that system of finance, howsoever perfected, that you have just elaborated. I share with you your enthusiasm for streamlining the process of tax collection and for measures to counter tax evasion. I am delighted at ways to insure accounting accuracy. I am sincere when I say these things. But this plethora of precautions is truly silly if you interpret the real problem as coming from the absolute sovereign dipping his hand into the public till or wanting to manage the public finances alone. Do you think the danger lies here? Once again, so much the better if the funds are collected, move, and circulate with the miraculous precision that you have described. In fact, I expect to adopt all these marvels of accounting, all these splendid financial reforms and have them redound to the splendor of my reign. Montesquieu: You possess a certain vis comica. What I find surprising is that your financial theories are in patent contradiction with what you said in The Prince, where you strictly recommend parsimony for the prince, and even avarice. [2] Machiavelli: You're wrong to be surprised at such a thing. I recognize that the times have changed. One of my most fundamental principles is to adapt myself to the times. Please, let's go back to what you said about a board of auditors so we can get that out of the way. Is this institution a part of the judicial branch? Montesquieu: No. Machiavelli: Then it is a purely administrative body. Let's even presume it to be beyond reproach. There's nothing it can do once it has audited the accounts! Can it prevent appropriations from being voted or expenditures from being made? Its audits tell us no more about the financial state of affairs than the budget. It is a bookkeeper's office, without the ability to oppose, utterly gullible. So let's stop talking about it. I'm not the least bit anxious if such an institution is retained, no matter how efficient you have made it. Montesquieu: Retain it! Then you plan to tamper with the other features of financial organization? Machiavelli: You guessed it. After a political coup d'etat, doesn't a financial one inevitably follow? Is the exercise of my absolute power to stop short there? What is the magic of your financial institutions that would ward it off! I am like the giant in the fairy tale who was tied down by pygmies while he slept. In getting up, he broke the bonds without having noticed them. The day after I take control of the throne, I won't bother about votes for the budget. It will be decreed extraordinarily. Appropriations will be passed by dictate, which my Council of State will later approve. Montesquieu: Do you plan to go on like this? Machiavelli: No. The following year, I will return to legal ways. I've already told you several times that I don't intend to destroy anything directly. There were regulations before me. I will regulate things in my turn. You mentioned that the budget would be voted under two distinct laws. I consider that a bad arrangement. Finances can be better handled when revenues and expenditures are voted at the same time. My government is hardworking. Public deliberations should not squander precious time in useless discussions. Henceforth, budgetary revenues and expenditures will be included under the same law. Montesquieu: And what about the law that prohibits spending supplementary appropriations other than by a previous vote in the Assembly? Machiavelli: It is abrogated. You understand the reason very well. Montesquieu: Yes. Machiavelli: It is a law that can not be applied under all circumstances. Montesquieu: And what about itemized budgeting? Machiavelli: It can't continue. Expenditures will no longer be voted according to individual line-items in the various ministries, but according to ministry by total expenditures allotted it. Montesquieu: You are talking about immense sums. Block sums for each ministry gives only the grand total to examine. As far as the public's expenditures go, you have, in effect, thrown away the sieve and are content to have a bottomless barrel. Machiavelli: That's not quite accurate. I will retain what you call line-items. Expenditures will be in blocks representing distinct elements. They are there to be examined. But ministries will decide expenditures within the blocks and transfers among accounts will be allowed. Montesquieu: And from one ministry to another? Machiavelli: I don't go that far. I want to remain within the limits of what is necessary. Montesquieu: Your moderation is exemplary. Don't you think such innovations will cause financial panic in your country? Machiavelli: Why would they cause more alarm than other measures? Montesquieu: Because these touch upon the material interests of everyone. Machiavelli: The distinctions that you draw are too subtle. Montesquieu: Too subtle! That's a well-chosen word in this context. Why don't you just say that a country that can't defend itself when it comes to political liberties can not defend itself when it comes to money? Machiavelli: What could anyone complain about? In all the essentials, the public's fiscal rights have been preserved. Aren't taxes duly voted and collected? Aren't expenditures also duly voted? Here, as elsewhere, everything is based on people's votes. My government is certainly not reduced to indigence. The people who acclaim me do not merely tolerate the splendor of my throne. They positively crave it. The people look to a prince for an expression of their power. They really hate only one thing-wealth in their peers. Montesquieu: Don't try to slip away. You're not finished yet. I want to make you consider budgetary matters a bit further. No matter what you say, the very existence of a budget represents a limit to your power. It may be breached, but only at your peril. It is published. Its elements are known. It stands as a financial barometer of sorts. Machiavelli: Since you want to, let's get on with it. Machiavelli: The budget represents a kind of limit, you say. Perhaps. But its limit is elastic and can be expanded as far as wanted. I will always act within it, never outside. Montesquieu: What do you mean? Machiavelli: Do I have to teach you how things can be handled, even in states that have perfected the art of budgeting? Real art lies in knowing exactly when, by ingenious expedients, to elude limitations that really exist only on paper anyway. What is the annual budget? Nothing but a provisional measure, a rough survey of principal financial goals. The books aren't closed until account is taken of expenditures that necessarily arise during the year. In your budgeting, there are I don't know how many different kinds of expenditures. These correspond to all types of contingencies and are known as complementary, supplementary, extraordinary, provisional, what have you. Each of these expenditures alone makes up so many more distinct budgets. Now this is the way it happens. Suppose for example that the main budget passed in the beginning of the year totals 800 million. At mid-year, financial realities are no longer in line with first estimates. There is then presented to the Assembly what is caned a revised budget that adds 100 million or 150 million to the original estimate. Afterward comes the supplementary budget. It adds 50 or 60 million to it. Finally, there comes a budget to amortize the debt, which adds 15, 20, or 30 million. In short, in terms of the general budget, the total difference is one-third of the anticipated expenditure. The legislature is called to confirm these. later figures by vote. In this way, at the end of ten years, the budget can be doubled or tripled. Montesquieu: I doubt that this increase in expenditures is based on anything you've done to improve the financial situation. Nothing you've hypothesized can occur in states that are not subject to your inanities. But you're not finished yet. Expenditures, after all, must balance with revenues. How will you bring this about? Machiavelli: It can be said here that everything consists in the art of classifying certain sets of figures and in making use of certain distinctions among different expenditures. Skillfully done, the necessary latitude can be obtained. Thus, for example, the distinction between the ordinary budget and the extraordinary budget can be of great use. Extraordinary is a marvelous cover word. Such a budget can be used to help pass what would otherwise be an arguable expenditure or to raise more or Jess problematical revenues. Assume, for example, that I have 20 million in expenses. It must be met with 20 million in revenue. I have listed among my revenues a war indemnity of 20 million, which will be collected later on. Or again, l have listed an increase of 20 million from the proceeds of certain taxes, but which will be realized only the following year. Examples like these could be multiplied. Such things would take care of the revenue problem. As far as expenditures go, recourse can be had to a contrary procedure. You simply subtract instead of add. For example, the expense of collecting the tax is deducted from expenditures. Montesquieu: May I ask how all this will be justified? Machiavelli: I could reasonably maintain that this is not an expense of the state. In a similar way, l could remove from general state expenditures the cost of services to provinces or towns. Montesquieu: I won't debate any of that. I just want to know what you plan to do with revenues that mask deficits and with the expenditures that you eliminate? Machiavelli: The essential thing in this regard is to make use of the distinction between the ordinary and extraordinary budgets. Those expenditures that so preoccupy you must be referred to the extraordinary budget. Montesquieu: But in the end these two budgets are totaled and the sum of expenditures appears. Machiavelli: On the contrary. They must not be totaled. The ordinary budget is presented alone. The extraordinary budget is presented as an appendix and is handled in a different way. Montesquieu: How? Machiavelli: Don't make me get ahead of myself. In the first place, there is a particular way of presenting the budget to disguise rising costs, when the occasion presents itself. The government doesn't exist that isn't required to act like this. There are inexhaustible resources in industrial countries, but, as you pointed out, those countries are sometimes parsimonious and suspicious. They haggle over even the most necessary expenditures. The conduct of financial policy is no different from others. It can't be done openly and aboveboard. Otherwise, it would meet with obstacles all along the way. But in the end, and, thanks to the perfection of budgeting, everything is broken down to be seen and analyzed. If the budget can be made to harbor certain mysteries, it also must bring certain things to light. Montesquieu: Undoubtedly, you mean for the initiated only. I surmise that you will reduce financial legislation to obscurity and empty formalities as happened with the Romans' judicial procedure at the time of the Twelve Tables. But let's get into this a bit more. If your expenses increase, your resources must increase proportionately. Or do you expect, like Julius Caesar, to find two billion francs in the coffers of the state. Perhaps you intend to discover the Potosi mines? Machiavelli: You're getting a bit carried away. I will do what all governments do, what makes government itself possible. I will borrow. Montesquieu: This is what I wanted you to say. Certainly there are but few governments that do not have to borrow. Yet, they resort to such expedients with great caution. It would be immoral and dangerous to weigh down future generations with exorbitant burdens beyond the limits of any foreseeable resource. How are loans made? By issuing notes that support an obligation on the part of the government to pay interest at a rate proportionate to the amount of money lent out. For example, if the loan is 5 percent, the state at the end of twenty years has paid a sum equal to the borrowed capital. At the end of forty years, double that sum. At the end of sixty, triple. Notwithstanding this, there will remain the indebtedness for the fun amount of the principal. It follows that if the state adds to its debt indefinitely, without taking any steps to pay it off, it would eventually make it impossible for it to borrow any more or cause it to fall into insolvency. The upshot of all this is easy to grasp and there isn't a country that doesn't recognize it. In this light, modern states wanted to set certain limitations to the increase in taxes. A scheme caned a system of amortization was invented. It is truly admirable in its simplicity and mode of execution. A special fund was created whose resources are designed to redeem the debt in successive stages of payments. Every time the state borrows, it must contribute a certain sum of money to a sinking fund for the purpose of extinguishing the newly owed money over a given time period. The government is indirectly limited in such a scheme. This is the source of its ingenuity. Because of the requirements of amortization, the nation, in effect, says to the government: "Borrow if you must, but you must always make provision to fulfill the new obligation you contract in my name." If constantly required to amortize, borrowing will not be undertaken lightly. The nation will authorize only borrowing that is duly amortized. Machiavelli: Why should I adopt such a scheme, I ask you? Ten me which states have sound amortization laws? Even in England they have been suspended. If we don't find them there, where are we to find them? What is done nowhere can't be done. Montesquieu: I can assume that you won't have them, then? Machiavelli: On the contrary. The scheme does have certain advantages. I will have such regulations and will certainly put the funds produced to good use. When the budget is up for adoption, the money in the sinking fund could, from time to time, be accounted as revenue. Montesquieu: And when the debt fans due, it will be accounted an expense? Machiavelli: I can't swear to that. It all depends on circumstances. Of course, I will be very sorry if this financial arrangement does not proceed in an orderly way. My ministers win present the situation in a very dour manner. My God, when it comes to finances, I don't claim that my administration can't be criticized for certain things. But when a case is well presented, many things can be gotten away with. Don't forget that financial management is also to a large degree a matter for the press. Montesquieu: What? Machiavelli: Didn't you say that the very essence of a budget was the public scrutiny it allows? Montesquieu: Yes. Machiavelli: Aren't budgets accompanied by accounts, reports, and official documents of all sorts? What possibilities these public communications lend to the sovereign when he is surrounded by able men! I want my Minister of Finance to be perfectly clear in his use of statistics. Moreover, his literary style must be impeccably lucid. It's good policy to repeat .constantly the truism that "the management of public finances at the present time takes place in broad daylight." This incontestable statement must be presented in a thousand ways. I want things written like this: "Our accounting system, the fruit of long experience, is distinguished by the clarity and verifiability of its procedures. It hinders abuses and allows no one, from the petty bureaucrat to the chief of state himself; to divert the most miniscule sum from its destination or to put it to improper use." Or, take your own words. How might they be improved upon? It could be said that: "The excellence of the economic system rests on two foundations--a system of accountability and public access to information. By auditing and overseeing financial management, we make it impossible for even the most miniscule sums to enter the public coffers from the hands of the taxpayer and from there be transferred from one account to another. It will not be passed into the hands of state creditors without guaranteeing the legitimacy of its collection, the regularity of its movement, and the legitimacy of its use. We will see to it that the funds are audited by responsible officials, judicially overseen by irremovable judges, and finally sanctioned and accounted for by the legislature." Montesquieu: O Machiavelli, you ridicule everything. But your ridicule has something hellish in it! Machiavelli: You are forgetting where we are. Montesquieu: You would defy heaven itself. Machiavelli: Only God can fathom the heart. Montesquieu: Shall we get back to the matter at hand? Machiavelli: At the beginning of the fiscal year, the Comptroller of Finances will declare: "Up until now, nothing changes the estimates of the current budget. Without being overly optimistic, there are very good reasons to hope that, for the first time in many years, the budget, despite borrowings, will show no deficit. Such an enviable state of affairs, obtained in exceptionally difficult times, is the best indication that the increase in national income has not slowed." Do you think that's well phrased enough? Montesquieu: Go on. Machiavelli: At this point, debt management, which you mentioned a short while back, will be addressed in the following terms. "Plans to payoff the debt will be carried out soon. If what is projected in this regard actually comes to pass, if the revenues of the state continue to increase, it is not impossible that, in the budget five years hence, the public debt will be liquidated because of a surplus of revenue." Montesquieu: These are long-term hopes. But what if, after having promised to work out some schedule of debt cancellation, nothing is accomplished? What will you say? Machiavelli: It will be said that the moment was not propitious. It will be necessary to wait a little longer. It is possible to go even further-respectable economists contest the real efficiency of sinking fund schemes. You must know about these theories. I can recall them for you. Montesquieu: It's not necessary. Machiavelli: These theories can be published in non-official journals, until they insinuate themselves into the public's consciousness and are finally openly avowed. Montesquieu: What are you saying now? Earlier you had recognized the efficiency of amortization and exalted its benefits. Machiavelli: But don't the fundamentals of all science change? Mustn't an en- lightened government be open to the advances made in economics in this century? Montesquieu: Nothing displays more effrontery. We'll leave aside debt management. After having been unable to keep any of your promises, when you find yourself overrun by expenses, after having predicted a surplus of revenue, what will you say? Machiavelli: If need be, our state of affairs will be boldly acknowledged. This frankness does honor to a government and moves the people when it emanates from a mighty power. But on another level, my Minister of Finance will try to strip away all significance from statistics that indicate increasing expenses. He will say what is true: "When it comes to finances, experience demonstrates that a certain amount of overspending is not as serious as thought. New resources ordinarily arise in the course of a year, notably in the proceeds from this or that tax. In addition, a considerable portion of appropriations, not put to use, will be impounded." Montesquieu: Will that ever happen? Machiavelli: When it comes to finances, you know that there are certain cut- and-dried terms, stereotypic phrases, that have a great effect on the public, calm it and reassure it. Thus, while artfully presenting this or that liability, something like the following is said. "There is nothing exorbitant about this figure. It is not out of the ordinary. It conforms to preceding budget requests. Figures that later bear on our outstanding debt are very encouraging." There is a bunch of similar expressions that I won't mention because there are other more important artifices to which I must call your attention. First, in all official documents, it is necessary to insist on the theme of prosperity, increasing productivity, commercial activity, and a constantly rising standard of living. The taxpayer is less affected by any imbalance in the budget when he is told such things. So magical is the effect of official documents on the mind of bourgeois blockheads that these things can be repeated ad nauseum without their ever challenging them. When the budget falls out of balance and, the following year, the public mind must be prepared for a certain shortfall, you have merely to publish an advance report to the effect that next year the deficit won't be nearly so high. If the deficit proves lower than predicted, it will be presented as a real triumph. If higher, you merely say: "The deficit is greater than predicted but was even more the preceding year. On the whole, the situation is better. Less has been spent, although the circumstances have been particularly trying-war, scarcity, epidemics, unforeseen shortages of certain essentials, etc. But next year, increasing revenues will, in all probability, allow us to attain the long-desired goal of solvency. The debt will be reduced and the budget correctly balanced. Progress can be expected to continue. Barring extraordinary events, a balanced budget will be customary in our public finances as it is now our standard." Montesquieu: This is high comedy. The standard will be customary indeed! It will never be attained. There will always be some extraordinary circumstance, some war, or some essential shortage somewhere. Machiavelli: I'm not so sure there will be such crises. What is certain is that I will be the standard bearer of the nation's honor. Montesquieu: That's the least you could do. If you win glory, that's no cause for rejoicing. In your hands, honor is only a means to power. Machiavelli: I fear you have some prejudice against borrowing. It is a very useful practice in a number of ways. Whole families are made dependent on the government. Individuals are given an excellent investment opportunity. Contemporary economics recognizes that far from impoverishing the state, public debts enrich it. Allow me to explain how. Montesquieu: That's not necessary. I am familiar with such theories. Because you are always speaking of borrowing and never repaying, I first would like to know to whom you will ask for such capital and for what purpose. Machiavelli: Foreign wars are a great help in providing a rationale. For a large state to undertake a war, it might take about five hundred or six hundred million francs. Only one-half to two-thirds of such a sum need be spent. The rest finds its way into the treasury for domestic expenditures. Montesquieu: Five hundred or six hundred million francs, you say! Where are these modern-day bankers who would loan a sum that, by itself, might equal the total wealth of certain states? Machiavelli: You mean to say that you haven't gotten beyond such rudimentary notions of borrowing! Don't take offense but you are still in the dark ages of finance. We no longer borrow from bankers. Montesquieu: From whom, then? Machiavelli: When you are dealing with money merchants, you are dealing with a small number of people who frustrate competition by combining to insure high interest rates. It is far better to address yourself to all your subjects, the rich, the poor, artisans, manufacturers, anyone who has a coin at his disposal. The public is called upon to underwrite the debt. So that everyone may purchase government securities, they can be sold in very small shares, for ten francs up to a million, or even for five francs up to a hundred thousand. Shortly after the shares are issued, rumor has it that their value is rising and that they are going fast. Word spreads and there is a rush from all sides to purchase them. Things are at a fever pitch. In a few days the coffers of the treasury are overflowing. So much money comes in that places can't be found for it. Nevertheless, arrangements are made for accepting it, for if demand outstrips the supply of outstanding securities, it is then possible really to impress public opinion. Montesquieu: How? Machiavelli: Those who acted too late are given their money back. This is played up big in the press and orchestrated with dramatic flair. You may have to give back as much as two to three million. Judge for yourself how great an effect this will have on the public mind. Montesquieu: As far as I can see, this trust is alloyed with an unbridled spirit of speculation. I've heard this scheme spoken about. But somehow everything that comes from you has a sinister and underhanded air. Be that as it may, you now have your hands full of money, but ... Machiavelli: I would have even more than you think. In modern nations, there are great banking institutions capable of directly lending the state one hundred to two hundred million francs at prime rates. Large cities can also make loans. In these states, there are other financial institutions such a savings banks and agencies to administer health plans and retirement funds. Normally, the state requires that their funds, which are immense (sometimes ranging from five hundred to six hundred million francs), be deposited in the public treasury, where they mix with the general fund, usually in return for small interest to the depositors. Moreover, the government can raise money exactly like bankers. They issue readily negotiable bonds for a sum of two or three hundred million francs- negotiable I.O.U.'s, so to speak, which are quickly bought up before they fall due. Montesquieu: Let me stop you here. You speak only of borrowing and these I.O.U.'s. Are you never concerned about paying back what you have borrowed? Machiavelli: Let me remind you that the state's land can also be sold, if need be. Montesquieu: Ah. Now you are beginning to sell yourself. Do you have any other way of financing your loans? Machiavelli: I suppose it is about time I told you how debts are dealt with. Montesquieu: You say how debts are dealt with. I wish you would be more precise. Machiavelli: I use this expression because I think it is precise. Debts can not always be paid off, but they do have to be dealt with. The vigor implied in the phrase is quite apt, for debts, like a formidable enemy, must "be dealt with." Montesquieu: Well, how would you then "deal with them?" Machiavelli: There are several ways. First, there is taxation. Montesquieu: That is to say that the debts will be used to pay off the debts. Machiavelli: You are speaking to me as an economist, not as a financier. What is valid for the one may not be for the other. With the proceeds from a tax, debts can be paid off. I know that taxes cause complaining. If resistance is met, I will try a different one or I might still be able to employ the same tax under a different name. You know that there is great art in filling the loopholes of what can be taxed. Montesquieu: I imagine that you will soon find and fill them all. Machiavelli: There are other things that can be done. There is what is called conversion. Montesquieu: What's that? Machiavelli: Conversion applies to the consolidated debt, that is, debt that accrues from the state issuing bonds. For example, bondholders can be told something like this: "Until today, I paid you 5 percent on your money, now I intend to only pay 4.5 percent or 4 percent. Agree to this change or immediately take back only the principal that you have lent me. Montesquieu: But if the money is really given back, the procedure is not wholly dishonest. Machiavelli: If they ask for it, it Will be given back. But very few so situated would do so. Holders of such bonds are creatures of habit. Their funds are invested in the first place because they have confidence in the state. They prefer less interest and a secure investment. lf everyone were to demand his money, it is obvious that the treasury would be in a fix. This never happens. In this way, several hundreds of millions of debt can be cancelled. Montesquieu: Extracting such loans, no matter how it is defended, is an immoral expedient that always destroys public confidence. Machiavelli: You don't know stockholders. Here is another scheme that might be tried to finance the public debt. A short while ago I spoke to you of certain other funds, like savings accounts, that were at the state's disposal. The state is required to pay interest for the use of such monies, except when such investments are immediately redeemed. If, after managing such funds over a long period of time, the state can not payoff these contributors, it can refinance such debt, postponing its due date. Montesquieu: In effect, the state says to its depositors that temporarily it does not have the money it owes. It merely issues a new certificate of indebtedness. Machiavelli: Exactly. It can refinance all its uncovered debts in just the same way-treasury bonds, debts owed to municipalities and banks. This applies to all debts that form a part of what is rather picturesquely called "the floating debt," that is, debts that have no fixed basis and which mature in the more or less distant future. Montesquieu: These are strange ways of paying off the public debt. Machiavelli: How can you blame me if I am only doing what others do? Montesquieu: For sure, if everyone in fact does it, how can we hold Machiavelli blameworthy? Machiavelli: I am only telling you a fraction of the schemes that could be employed. Far from dreading a policy that sees the national debt increase and constantly refinanced, I would want the entire public fortune tied to government bonds. I would have it so that cities, towns, and public authorities convert all their real estate and liquid capital into bonds. It is in the interest of my dynasty to promote these financial measures. Every last cent in my kingdom would depend on my continued existence. Montesquieu: Isn't all this somehow fatally flawed? Aren't you directly bent on ruining yourself through ruining the state? Large bond markets exist in all countries of Europe, but backed by prudence, wisdom, and the probity of the government. The way you arrange your finances, your bonds would be spurned in foreign markets, and they would fall to the lowest value in those of your kingdom. Machiavelli: What you say is just plain wrong. A glorious government like mine would enjoy great credit abroad. And vigor would overcome apprehensions at home. Moreover, I would not want the credit ofroy state to depend on the exaggerated fears of the most insignificant brokers. I would dominate the stock and bond market through the market itself. Montesquieu: What now? Machiavelli: I would have mammoth banking institutions ostensibly chartered to lend money to industrial enterprises but whose real purpose would be to bolster my bonds. These financial giants would be able to manipulate the markets at will. They would be able to sell four hundred or five hundred million francs worth of securities at any given moment. They could also relieve pressure on the markets by buying an equal amount of securities. What do you think of such a scheme? Montesquieu: Your ministers, favorites, and mistresses will reap big profits through such institutions. Apparently, you will Jet your administration use state secrets to play in the money markets. Machiavelli: What on earth are you saying? Montesquieu: How else do you justify these institutions? You have used theory to obscure the real nature of your government. But in practice, it is all too evident. Your government will be unique in history. It will never be slandered. Machiavelli: If anyone in my kingdom were to do so, he would disappear as if struck by a thunderbolt. Montesquieu: Admittedly, it is difficult to argue with thunderbolts. You're really quite fortunate to have them in your arsenal. Are we finished with finances? Machiavelli: Yes. Montesquieu: It's quickly getting late. _______________ 1. The Spirit of the Laws X 13.
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