An Inquiry Into the Nature and Causes of the Wealth of Nations. Adam Smith
of the soil, so as to render them fit for consumption. Commerce, indeed, regards those rude productions as real wealth; but it is only from the consideration, that the proprietor has it always in his power to convert them, at will, into consumable goods, by submitting them to the necessary operations of manufacture. They possess, as yet, merely the virtual value of a promissory-note, which passes current, because the bearer is assured that he can, at pleasure, convert it into cash. Many gold mines, which are well known, are not worked, because their whole produce would not cover the incidental expenses; but the gold which they contain is, in reality, the same with that of our coin; and yet no one would be foolish enough to call it wealth, for there is no probability it will ever be extracted from the mine, or purified; and, of course, it possesses no value. The wild fowl becomes wealth the moment it is in the possession of the sportsman; while those of the very same species, that have escaped his attempts, remain without any title to the term.
It is further, without question, true, that all who do not possess property in land must draw their subsistence from wages received, directly or indirectly, from the proprietors, unless they violate all rights, and become robbers. In this respect, every service is alike; the most honourable and the most disgraceful receives each its wages. It is certain, too, that if the circumstances determining the rate of the various kinds of wages remain the same, that is if the offers of service, and the demand, preserve the same proportion to each other, after as well as before the imposition of a tax; then, of course, the wages will continue at the same rate, and thus the tax, however imposed, will uniformly, in the end, fall on that class in the community who furnish the wages; so that they must suffer, either an addition to their former expenses, or a retrenchment of those luxuries they enjoyed. And according as the tax is less directly levied, the greater will be the burden they are subjected to; for besides indemnifying all the other classes who have advanced the tax-money, a further expense must be incurred, in the additional number of persons now necessary to collect it. The natural conclusion we must draw from the theory is, that a tax, directly levied on the neat revenue of the land proprietors, is that which agrees best with reason and justice, and that which bears lightest on the contributors.
If, however, this theory should be found to throw entirely out of consideration a multitude of circumstances, which possess a powerful influence over the facility of collecting a tax, as well an over its consequences; and if the general result of this influence be of far more importance than the single advantage of a less burden; then the theory, inasmuch as it neglects a part of those particulars which have their weight in the practice, is contradicted by this last. And this is exactly what happens in the question respecting the comparative advantages and inconveniencies of the two modes of levying taxes.
The habit which men have acquired, of viewing money as the representation of every thing which contributes to the support or comfort of life, makes them naturally very unwilling to part with what portion of it they possess, unless it be to procure some necessary or enjoyment. We spend money with pleasure, but it requires an effort to pay a debt, and particularly so when the value received in exchange is not very obvious to the generality, as in the case of a tax. But by levying the tax on some object of consumption, by thus confounding it with the price of the latter, and by making the payment of the duty and of the price of enjoyment become one and the same act, we render the consumer desirous to pay the impost. It is amid the profusion of entertainments, that the duties on wine, salt, &c. are paid; the public treasury thus finding a source of gain in the excitements to expense produced by the extravagance and gaiety of feasts.
Another advantage of the same nature, possessed by the indirect mode of taxation, is its extreme divisibility into minute parts, and the facility which it affords to the individual, of paying it off day by day, or even minute by minute. Thus the mechanic, who sups on a portion of his day's wages, will sometimes in one quarter of an hour, pay part of four or five different duties.
In the plan of direct taxation, the impost appears without any disguise; it comes upon us unexpectedly, from the imprudence so common to the bulk of mankind, and never fails to carry with it constraint and discouragement.
All these considerations are overlooked by the friends of direct taxation; and yet their importance must be well known to all who have ever attended to the art of governing men.
But, perhaps, this is not all. An indirect tax, by increasing from time to time the price of the objects of general consumption, when the members of the community have contracted the habit of this consumption, renders these objects a little more costly, and thus gives birth to that increase of labour and industry which is now required to obtain them. But if this tax be so proportioned as not to discourage the consumption, will it not then operate as a universal stimulus upon the active and industrious part of the community? Will it not incite that part to redoubled efforts, by which it may still enjoy those luxuries which, by habit, have become almost necessaries, and, of course, produce a further developement of the productive powers of labour, and of the resources of industry? Are we not, in such a case, to conclude, that after the imposition of a tax, there will exist not only the quantity of labour and industry which was formerly requisite to procure the necessaries and habitual enjoyments of the active class of mankind, but also such an addition to this, as will suffice for the payment of the tax? And will not this tax, or increase of produce required for the tax – as it is spent by the government that receives it – will it not serve to support a new class of consumers, requiring a variety of commodities which the impost enables them to pay? If these conjectures are well founded, it will follow, that indirect taxation, far from having any hurtful influence on wealth and population, must, when wisely regulated, tend to increase and strengthen these two great foundations of national prosperity and power. And it will tend to do this, inasmuch as it bears immediately on the body of the people, and operates on the working and industrious class, which forms the active part of the community; while, on the other hand, direct taxation operates solely on the idle class of landed proprietors – which furnishes us with the characteristic difference existing between these two modes of taxation.5 These hints, which seem to afford an explanation of that most extraordinary phenomenon in political economy, viz. the rapid and prodigious increase of wealth in those nations which are most loaded with indirect taxes, deserve to be discussed at greater length than our limits will allow. Enough, however, has been said to shew, that no rigorous and purely mathematical calculation will ever enable us to appreciate the real influence of taxes upon the prosperity of a nation. Thus, some of the truths perceived by the economists are of little use in practice; while others are found to be contradicted in their application, by those accessory circumstances which were overlooked in the calculations of the theory.
While this sect of philosophers filled all Europe with their speculations, an observer of more depth and ability directed his researches to the same subject, and laboured to establish, on a true and lasting foundation, the doctrines of political economy.
Dr. Smith succeeded in discovering a great truth, – the most fruitful in consequences, the most useful in practice, the origin of all the principles of the science, and one which unveiled to him all the mysteries of the growth and distribution of wealth. This great man perceived, that the universal agent in the creation of wealth is labour; and was thence led to analyse the powers of this agent, and to search after the causes to which they owe their origin and increase.
The great difference between the doctrine of Smith and of the economists, lies in the point from which they set out, in the reduction of their consequences. The latter go back to the soil as the primary source of all wealth; while the former regards labour as the universal agent which, in every case, produces it. It will appear, at first sight, how very superior the school of the Scotch professor is to that of the French philosophers, with regard to the practical utility, as well as to the application of its precepts. Labour is a power of which man is the machine; and, of course, the increase of this power can only be limited by the indefinite bounds of human intelligence and industry; and it possesses, like these faculties, a susceptibility of being directed by design, and perfected by the aid of study. The earth, on the contrary, if we set aside the influence which labour has over the nature and quantity of its productions, is totally out of our power, in every respect which can render it more or less useful – in its extent, in its situation, and in its physical properties.
Thus the science of political economy, considered according
This observation, as may easily be perceived, cannot apply in certain indirect imposts, such as those for the support of the roads; which, as they cannot be confounded with the price of any consumable commodity, combine all the inconveniencies of indirect, with those of direct imposts.