Mercantile wine will be diminished, by dealing with the former System. country. Besides, what is imported may often be so, only for the purpose of re-exportation to some other country.

2. The whole idea of the balance of trade is quite fanciful and chimerical. By every exchange which takes place with a foreign country, the nation gains as well as the individual; nor does it make any difference whether goods or money be received in return. If in deed the legislature could succeed in forcing a greater importation of gold and silver than would naturally take place, it would do the country a serious injury. These metals, when converted into money, form, as above observed, a part of the fixed capital of the society, a most useful and necessary part, but still one which is merely instrumental, and does not make any direct addition to the wealth of the society. If we could have the same functions performed without it, the society would gain the whole of what it has been accustomed to pay for it. On the contrary, when a government forces upon the nation more than is requisite for the purposes of circulation, it makes it incur an expence which would otherwise have been saved. It does not appear, in the case of nations which have no mines, that any of the boasted regulations respecting import and export, will have the least effect in enlarging the importation of gold and silver. But where a people have mines within themselves, a strict prohibition, such as is usually imposed, against the export of these metals, though it will be far from absolutely preventing that export, will yet keep within the country a somewhat greater quantity than would otherwise have remained. This appears to be (or at least to have been) actually the case with Spain and Portugal, occasioning a considerable loss to

both these countries.

As the principle of the mercantile system naturally leads to the supposition, that whatever is gained by one nation, is lost to another, it generally leads to violent commercial jealousies between neighbouring countries. The nearer they are to each other, the more are restrictions and prohibitions multiplied. This is altogether unreasonable. The nearer a country, the more advantageous is its trade. It approaches the more nearly to the home trade, in the quickness of its returns, and can be carried on with a smaller capital. The plan, therefore, of making our neighbours as poor as possible, is completely unwise. The richer they are, they will be the better customers for our commodities, and the greater will be the benefit which we derive from their trade.

Having thus proved, that the regulations of the mercantile system are altogether unfitted for attaining their end, and that the end, were it attainable, is useless, and even pernicious, we shall now consider what is the real effect of these regulations. With this view they may be classed under two heads, restraints upon importation, and encouragements to exportation.

SECT. II. Restraints upon Importation. These are either high duties or prohibitions.

It has been an universal principle of modern taxation, that duties are to be levied only on articles imported, and not on those which are exported. This principle is sound. The taxes imposed by any community ought to

fall upon its own members, not upon those of other Mercantile communities. To attempt acting otherwise, would be System. not only unjust, but impolitic. These articles of produce and manufacture, on which the export duty was imposed, would not, in the general market of the world, keep their ground against the same commodities from other nations, which imposed no such duty. The mercantile system, however, goes much farther. With the view of encouraging internal industry, and preventing importation, it lays higher duties upon certain articles imported, than upon the same when manufactured within the country; thus securing to the latter, a certain advantage in the home market, independent of any superiority of skill. It thus turns to certain branches of industry a greater proportion of the national industry and capital than would naturally have gone to them. Now, we have proved, that in all cases, the direction which individual interest spontaneously gives to the national industry, is the best and most useful direction. Every thing, therefore, which tends to disturb it, to turn industry into channels into which it would not naturally have gone, is injurious to the public, and tends to render that industry less productive. Such is precisely the operation of the duties in question, which, therefore, though they may augment the productive industry of the nation in some particular branches, tend to diminish its whole amount. Thus, in an agricultural nation, if duties are imposed upon the importation of manufactured goods, a part of the national capital which was employed in the more profitable employment of agriculture, will be forced into the less advantageous one of manufactures. The misfortune is, that in the mercantile system, from a very natural prejudice of those with whom it originates, the less advantageous branch is always rated higher than the more advantageous; manufactures than agricultural, commerce than manufactures, and foreign trade than domestic. Its operations are pernicious, not only in their general principle, but still more in their particular application.

In regard to prohibitions their effect is the same as bigh duties, only greater in degree. They are seldom completely effectual, unless in the case of very bulky goods; but their operation must always be equal to the highest duty, and must therefore be equally injurious, without bringing any advantage to the revenue.

SECT. III. Encouragements to Exportation.

The expedients which the mercantile system employs to encourage exportation are drawbacks and bounties.

As to drawbacks, they are extremely reasonable. No government we observed, can properly, or without imprudence, attempt to tax the consumption of other nations. When, therefore, it has imposed a duty on any article produced within itself, it is quite expedient that this should be repaid on exportation; otherwise the articles, when carried to a foreign market, could not meet the competition of others, which had paid no such duty. In the same manner, when an article has paid a duty at importation, it is perfectly fair that the duty should be repaid, in the case of the article being re-exported; otherwise a severe check would be put both upon the carrying trade, and the foreign trade of consumption. Still, indeed, the merchant has the disadvantage of having advanced the tax, and consequently been deprived,

Mercantile for a certain time, of the use of that portion of his caSystem. pital. In some instances, a plan has been adopted, which obviates this inconvenience. The goods are placed in a warehouse, under the joint lock and key of the merchant and the officer of government. No duty is then paid upon them, unless they are taken out for the purpose of home consumption.

Bounties are expedients of a different nature. They are given upon the production and exportation of certain articles, which, it is conceived, would not otherwise pay the expence. Their tendency is, therefore, to force capital and industry into the channels which, it is admitted, are disadvantageous to the individual, and which according to the principles above explained, must be equally so to the society. Their effect, therefore, is nearly the same as that produced by restraints upon importation. Premiums are not liable to the same objections: Being only given to one or two specimens of peculiar merit, they merely stimulate to excellence in any branch of industry, without having much tendency to turn towards it a disproportionate share of the national capital.

The bounty on corn is the most important of those granted in Great Britain; and as the whole system of corn laws is not only of the utmost importance, but closely connected with the views of the mercantile system, it may not be unseasonable to introduce our sketch of them in this place.

SECT. IV. Of the Corn Laws.

To render the necessaries of life cheap, is a grand ob❤ ject of the mercantile system, since it thus expects to lower the wages of labour, and thereby lessen the expence of manufacturing. The expedients it adopts, however, are by no means judicious. The object of the legislator, on this subject, has been to prevent as much as possible all trade in corn; to urge the farmer to bring it to market as soon as possible, and to discourage to the utmost its passing through any intermediate hands between him and the consumer. All such intermediate persons are stigmatized by the opprobrious names of regraters and forestallers, and the severest penalties are enacted against them. Let us consider on what grounds these proceedings can be justified.

The great evil in the price of grain is the variations to which it is liable, which at one time produce superfluous plenty, and at another threaten the community with absolute want. The production of it being only once a year, there is a constant danger, that before next harvest, the supply may run out. Crops too vary, and sometimes fail to a distressing degree. It is most desirable, therefore, that the superabundance of one period should, if possible, be made to supply the defficiency of another. The grand interest of the public, in regard to grain, is to distribute, as equally as possible, over different years, and over different parts of the same year, the supply of grain, so that the plenty of one period may relieve the want of another, and the general price be kept as equal as possible. This is precisely what the merchant does. He buys when it is cheap, and sells again when it is dear. If he buys it even when it bears a high price, it is only from the expectation of its rising still higher, that is, of the scarcity becoming still greater; and unless this expectation be well grounded, he loses instead of gaining by the transaction.. He, may miscalculate in

deed; but in this case, he suffers severely for his mistake; Mercantile and he has the constant stimulus of private interest to System. guard him against it.

It follows, therefore, that the freer we leave the trade in corn, the better will the public be guarded against the evils of famine, and that the vulgar outcry upon this subject has no real foundation.

With regard to the bounty, it has been defended as. being an artificial mode of obviating that irregularity of price, to which grain is liable. The increased quantity which the bounty tends to produce, may, it is alleged, be employed in a year of scarcity, to alleviate the evils of dearth. See this subject treated at length in the * Anderson article CORN LAWS, SUPPLEMENT.

SECT. V. Of Exclusive Companies.

At the first introduction of commercial enterprise in Europe, it was frequently the practice of governments to vest particular trades, supposed to be of a peculiarly arduous nature, in the bands of an exclusive company. Such a measure is almost always hurtful to the public.. The interest of all traders is to buy cheap and sell dear, and is thereby hostile to the interest, both of the producers and consumers. But an exclusive company, having no competition to dread, can carry this system into. effect to a much greater extent than the private trader. It is even found that the selling a small quantity at a high price, is more profitable than the selling a large quantity at a moderate price. The Dutch East India. Company are said to have destroyed a number of their plautations in the Spice islands, with the view of dimi nishing the supply, and thereby raising the price.

It is supposed that some very extensive branches of trade could not be carried on by individuals with safety; but in this case, either the capital of the country is not yet sufficient for such undertakings, or a company will be formed to carry them on, without the necessity of any exclusive privilege. It may be observed, that such companies, from the waste and negligence attending a large concern, managed often by persons who have no deep interest in it, and not stimulated by the dread of competitors, prove generally as ruinous to those concerned in it, as to the public. Almost all the exclusive companies, established in this and the neighbouring coun-. tries, have ended in bankruptcy.

SECT. VI. Of Colonial Policy.

As countries increase in populousness, and as cultiva tion is carried to a greater extent, the means of subsistence become continually more and more difficult. The evil most felt is a scarcity of land, of that grand source from which all revenue must originally flow. But while there are other countries comparatively unimproved, an obvious remedy presents itself. A certain portion of the inhabitants of the cultivated country removes into that which is still uncultivated, where they find land cheap, and the means of subsistence easy. Of all societies, these generally make the most rapid strides towards improvement. To the abundance and cheapness of land, which is peculiar to uncultivated countries, they join the arts and industrious habits of cultivated society. They are thus enabled to make a much more rapid progress than either. All the Grecian colonies, in Asia Minor, Italy,

and

on National Industry.

Mercantile and Sicily, enjoyed an unexampled degree of prosperity. System. The North American colonies doubled their numbers

* Smith,

book iv. ch. viii. Brougham on Colonial Policy.

every twenty years; and in South America, notwithstanding the injudicious restraints with which its commerce was fettered, the increase has not been much less considerable.

In spite of the temptation thus held out to colonize, men are in general not easily induced to leave their native country, till they are driven by some compulsory motive. In the ancient republics, colonies were formed by men who had been driven from their homes by civil war and faction. The North American states were peopled by refugees, criminals, and other refuse of the mother country. The case was somewhat different in the southern part of the continent, where a false but glittering lure was thrown out by the immense mines of gold and silver which it contained.

In pursuance of the monopolizing and trafficking spirit of modern Europe, each country has reserved to itself the exclusive trade of its colonies. This restriction evidently tends to cramp the improvement of the latter, and to divert the trade of the former into a less natural and advantageous channel. To Britain, and to the British colonies, however, the restriction has been little injuri

ous.

The former was in a state to carry on, and to need, the whole of this commerce; while the latter, from their infant state, could confine themselves with much more advantage to agriculture. The French colonies have probably suffered something from the restriction; but to the Spanish and Portuguese it has been very ruinous, as their mother countries were wholly unfit for carrying on so extensive a commerce *. See COLONY, SUPPLEMENT.

SECT. VIII. Of the Economical System.

We have already noticed, in our historical introduction, the circumstances in which, and the persons from whom, this system originated. According to it, agriculture is the only real source of wealth, and the persons employed in it are alone to be honoured with the appellation of productive labourers. The capital spent by the landlord in improvements, and that employed by the farmer in cultivation, are in like manner represented as the only capitals which are productive of wealth. In support of this position they argue, that manufactures merely repay what has been spent upon them; the expence of materials, and the subsistence of the labourers. The only part which is gain to the nation is the profit of the manufacturer, and the portion of their wages (probably a very small portion), which the labourers save, and convert into capital. It does not follow, however, that traders and manufacturers, though under this system they receive the name of unproductive labourers, are useless to the society. They are valuable servants to the proprietors and cultivators of lands. They ch. 9. save them the trouble of performing a variety of operaCondorcet's tions, which would distract their attention, and which Life of they could not do equally well. By giving a greater Turgot; quantity of manufactured commodities in exchange for Spence, Britain in- the produce of land, they raise the value of that prodependent duce. Still, however, they act altogether a subordinate of Com- part to the agricultural portion of the community, by merce, whom they are fed and supported +. with Mill's A very

+ Smith,

book iii.

Answer.

little consideration will shew us the fallacy of

this system. The wealth of a nation, as we observed Economies above, consists in the total amount of external conveni- System. ences and comforts which are produced and enjoyed in it. Now every commodity, with every increase in its value, which is produced by manufactures and commerce, is so much added to national convenience and comfort, that is, to national wealth. It is of no consequence, that, while the labourer is producing it, he is also consuming a certain portion of corn and other necessaries of life. These were produced for the purpose of being consumed, and if they have perished, they have not done so without having performed their office, without having ministered to the benefit of the society, and enlarged the amount of its comforts. The whole, therefore, of what the manufacturer produces in any given time, is clear gain to the public. To be convinced of this, we have only to suppose, that in this time, he had consumed the same quantity of goods, without working

at all.

We admit indeed, and have already observed, that agriculture is more productive than any other species of industry, and alone, besides paying the labour and capital employed in it, affords a surplus as rent to the landlord. It does not follow, however, because the one employment is more productive, that the other is not productive at all. Besides manufactures, over and above the labour and circulating capital employed in them, pay often a very large fixed capital. Now land, we conceive, is merely to be considered as a great fixed capital provided by nature, and rent as a consideration given for the use of that fixed capital.

The Economists conceive the rent of land to be the fund on which all taxes must ultimately fall. They therefore recommend a land tax to be substituted instead of all others. The propriety of this system will come to be considered in the course of the following chapter. Sec ECONOMISTS, SUPPLEMENT.

CHAP. V. Of Public Revenue.

As the whole society derives from government their protection against evils internal and external, the regu lar administration of justice, and a variety of other benefits, without which they could not subsist, it is perfectly equitable that each, in proportion to his means, should contribute to the extent which is necessary for fulfilling these different objects. Regular government is even indispensable to the production of public wealth, as it alone affords that security of property which is the life of industry. In this view, the officers of govern ment cannot, even upon Smith's principle, be considered as unproductive labourers. They might more properly be considered as a part of the fixed capital of the society.

SECT. I. Of Taxes in general.

In the composition of taxes there are four circumstances, which ought, as far as possible, to be constantly kept in view, and the observance of which forms the criterion of the propriety or impropriety of each particular tax.

1. They ought to fall as equally as possible on every member of the society, in proportion to his means of contribution. As all derive equal benefits from the esta

blishment

Of Public blishment of regular government, all ought to contribute Revenue, equally for its support. The rich, however, ought to contribute not only more, but in a greater proportion, than the poor. As by far the greater part of their expenditure is on luxuries, they can retrench a part of it much better than those who, to pay the tax, must deprive themselves of the necessaries or first comforts of

life.

2. The sum paid by each person ought to be fixed, and not left to the arbitrary appointment of the collecting officers. In this last case, the security of property is in a great measure done away, and room is left for the most grievous oppression. This is a still greater evil than inequality.

3. A tax ought to be payable at the time when a man can best afford it.

4. In proportion to what it brings into the treasury, it ought to take as little as possible from the people; that is, the expence of collection ought to be as moderate as possible. There ought also to be care taken to avoid trouble and inconvenience to the people, in the way of domiciliary visits, fines, &c.

Some persons have fancied, that taxes were beneficial. They allege, that the merchant derives a profit, not only for his advance upon the article, but also for his advance upon the tax. In this way, doubtless, he is no loser but neither is he a gainer; for, in consequence of the increased price, the public must retrench in their use of the article, and consequently the extent of his dealings in it be diminished. Even should they not retrench in this, they must in some other article, which will fall heavy on some other class of merchants. But it is the interest, not of the merchant, but of the con sumer, which ought to be the grand object in political economy; and this interest infallibly suffers. The consumers of the article taxed must inevitably have their comforts, that is, their wealth, abridged.

We admit, indeed, that taxes, where they are not so heavy as to intrench on the capital of the country, do not essentially encroach on its wealth. They merely transfer income out of the pockets of one class of men into those of another. The money which a man of fortune would spend in maintaining menial servants and other instruments of luxury, when placed in the hands of government, is employed in maintaining soldiers and sailors. The amount of national income is not diminished. They have the disadvantage, however, that the money is taken out of the hands of those by whom it was earned, and put into the hands of those who contributed nothing to its production. If taxes come to fall upon capital, or to diminish its accumulation, they are then ruinous.

SECT. II. Taxes upon Rent.

The rent of land has always been considered as a proper object of taxation. In most of the eastern empires, the whole land belongs to the sovereign, who draws the rent of every farm throughout his dominions *. In atic Mo-most of the European kingdoms, a certain portion of

Paton on

-chics.

ought to possess, are lands for the purpose of pleasure of Public and magnificence.

The rent of land is a very proper subject of taxation. It comes to the possessors without care or trouble, and it depends, more than any other source of income, on the protection of government. The chief difficulty arises from its being so variable. Thus the English landtax was imposed in the reign of King William. Since that time, the value of all the lands in England has risen, but that of some much more than others; so that the tax, even had it been equal at first, must now have become very unequal The only remedies are by making a survey at certain intervals, or by keeping a register of leases. To this it is objected, that it would discourage the landlord from laying out money on improvements; but the objection might be obviated by making liberal deductions on that account.

Revenue.

+ Book v.

The rent of houses is of a very different nature from the rent of land. It is a commodity produced by art; and as the builder must have his profit, the rent will be raised in consequence of the tax. The rise, however, does not take place immediately. Houses are so durable an article, that for some time there will be no diminution of the supply; the rent will continue the same; and the loss will fall on the proprietor. As a certain number of houses, however, fall to ruin, undertakers will not build new ones without adequate profits; and the rents will rise to their proper level. It is singular that this should have been overlooked by Smith +. Taxes are sometimes imposed, not on the rent, but on ch. ii. the produce of land. Such is that levied for the support of the church, both in England and Ireland Such taxes are pernicious. They discourage industry. The farmer feels that the more he raises, the more will be taken from him. It would be of great advantage, therefore, to the country, if tithes were commuted for a fixed annual sum. It would then completely be the interest of the cultivator to raise as much produce as possible. The difficulty, no doubt, lies in making such an arrangement as would enable the clergy to benefit by the improvement of agriculture; but expedients might doubtless be found out, similar to those which were proposed above, in the case of land tax.

The economists, as above observed, contend that all taxes fall finally on the rent of land; and therefore recommend that they should be laid directly upon that subject. The only argument which they allege in support of this opinion is, that taxes cannot fall either upon the profit of stock, or the wages of labour. Now we shall, in treating of these subjects, endeavour to prove, that taxes may most readily fall upon both.

land belongs to the sovereign, under the name of crown lands. These, however, are seldom managed in that economical manner, which would be necessary to render them productive. The only lands which a government VOL. XVII. Part I.

than

Of Public than not receive a full compensation for the risk he runs Revenue. in so doing. But the first (which perhaps ought alone to be considered, strictly speaking, as the profits of stock), is, to almost its whole extent, completely taxable. Although, out of five per cent. government should take four, it would still remain the interest of the capitalist, to lend, or to employ his stock, rather than lose the 1emaining one. The profits of stock, however, are a less proper subject of taxation, than the rent of land. They are not so easily ascertained; the capital from which they are derived has been accumulated by industry and frugality; and it is the interest of the public to encou rage this accumulation. There would be a danger of driving the capitalists into other countries where they would be liable to no such imposition, to the great detriment of the country which they left.

A tax is sometimes imposed upon the profit of particular employments. Such a tax can never fall finally upon these profits. The persons engaged in this employment must have the usual profits for their stock, otherwise they will carry it into some other. Where these taxes, however, are unequal, they may favour certain classes of traders. Thus all licences, being the same whether the trader deals to a greater or less extent, fall heavier on the small than on the great dealer.

Taxes on the tranference of property, stamp duties, duties of registration, &c. have been carried to a considerable extent in modern financial systems. The facility of raising a revenue by this method, has encouraged its adoption. Such taxes are unequal; for the frequency of transference has no connection with the value of property. We may conceive an estate coming so often to market, that these duties may absorb the whole of it; while another of the same value, from remaining long in the same hand, may pay nothing whatever. These taxes, too, fall chiefly upon the national capital, the fund by which its industry is supported. In many cases, they may prove a bar to the frequency and facility of mercantile exchange. Upon the whole, therefore, it is to be regretted, that they should prevail to so great an

extent.

SECT. IV. Taxes on the Wages of Labour.

Dr Smith is of opinion, that no tax can fall upon the wages of labour; that wages, in consequence of such taxes, must immediately rise; and that the only e effect will be a rise in the price of every species of produce. But how this effect can follow, we confess we do not see. A tax on the wages of labour has no tendency to increase the funds for the maintenance of labour; so far as it has any effect, it tends to diminish them. The supply and the demand will still remain the same. The only way in which such taxes can raise the price of la bour, is by diminishing the supply of it, that is, the population; which, in process of time, they are very likely. to do. The same funds being then distributed amsng a smaller number, the wages of labourers will be higher; after paying the tax, they will still sub-ist as well as formerly; but still a portion will remain to go into the pocket of government. It is to be fully admitted, however, that such taxes are oppressive, and by all means to be avoided. When they diminish, too, the

population and raise wages, they produce all the bad of Publie effects which Smith imputes to them, in raising the price Revenue. of every manufactured commodity.

SECT. V. Of Capitation Taxes.

The taxes already noticed, are destined to fall on some particular source of revenue; this, and the rest of which we are now to treat, fall indifferently on all..

Capitation taxes are obviously unequal. The same sum is paid by the richest and the poorest. They must fall chiefly, too, ou the labouring classes; and what may be most oppressive to them will be scarcely felt by the more opulent. They are not arbitrary, however; they are easily levied; and in absolute governments, where the comfort of the people is little considered, they are pretty frequent. A capitation on slaves must he paid by the masters, and forms a tax on his farming or manufacturing stock.

SECT. VI. Of Income Tux.

A well regulated income tax is, in many respects, the most equal which can be imposed. It falls upon every one according to his ability, and it affords no one an opportunity of exempting himself from bearing a share in the public burdens. The expence of collection is small, and it takes as little as possible out of the pockets of the people, in proportion to what it places in those of the government. At the same time, it is liable to serious objections. It demands a disclosure of private circumstances, which must often be a hardship. It affords considerable room for evasion. The payment of a large sum at once is felt much more grievously than the same would be, if paid gradually and insensibly, by taxes on commodities. These causes have hitherto prevented its adoption, unless in a few rare instances, where reliance, it was supposed, could be placed on the good faith of the contributors. This seems to have happened only in some small republice, where the connection between public and private interest was very evident. By this means, however, under the present exigency, a very large sum is now raised in this country, more easily perhaps than it could be raised by any other method. To render it an equal tax, however, some further modification would still be necessary. One broad distinction is that of income which perishes with its owner, and income arising from land or capital. The last is evidently of considerably greater value, yet, under the present system, it is taxed equally. Land, indeed, pays the land tax. We observed above, that the larger a man's income, the greater proportion of it can he afford to pay, since he spends the more on superfluities. In regard to the lower ranks, this is sufficiently provided for by the present income tax; but by levying 10 per cent. on all who have 15cl. a-year and upwards, it falls heavy on the middling ranks.

SECT. VII. Of Taxes on Consumable Commodities.

Of all taxes these are the least felt. Being directly paid by the merchant, they are felt by the consumers only.