The Wealth of Nations is a book to be read as it was written. More than half its nutriment and all its fascination is lost if you cut away the theory from its historical setting.[29] Osteology is fatal to economics. That is why the Wealth of Nations is far better suited to beginners than an ordinary child’s primer. But as the Lectures on Police were the author’s own first draft, the reader of these pages is already cognisant of a great part of the Wealth of Nations.
It remains to indicate some of the principal accessions to Smith’s scheme of political economy after he left Glasgow. The task has been made easy by Mr. Cannan. In the first place, the chapters on Wages, Profit, and Rent in the First Book, and on Taxation in the last, mark a wonderful development and improvement of the imperfect and rudimentary treatment accorded to these subjects in the Lectures. Then again, chapter ix. of Book IV. on the French economists and their agricultural system is entirely new. The system of the économistes is described in that chapter as one which, with all its imperfections, was perhaps the nearest approximation to the truth that had yet been published on the subject of political economy. We are told that its adherents, a pretty considerable sect, had done good service to their country by influencing in some measure the public administration in favour of agriculture. They all followed “implicitly and without any sensible variation the doctrine of Mr. Quesnai,” whose Economical Table they regarded with extraordinary veneration, ranking it with writing and money as one of the three great inventions made by mankind.
Quesnai’s Table showed three sorts of expenses: Productive expenses, Expenses of revenue, and Sterile expenses, with “their source, their distribution, their effects, their reproduction, their relation to each other, to population, to agriculture, to manufactures, to commerce, and to the general riches of the nation.” In the Wealth of Nations this idea is followed out and improved; for the author, having shown in his First Book how the average produce of labour is regulated by the skilled dexterity and judgment with which it is generally applied, shows in his Second that it is further regulated “by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed.” It would be absurd to call him a plagiarist; it would be equally absurd to deny that the French School had opened his eyes to the necessity for analysing the distribution of wealth no less carefully than its production. As the division of labour came from the Greek, so the distribution of the annual produce of wealth into wages, profit, and rent, came from the French philosophers. And we cannot forget that Quesnai’s death alone prevented Smith from dedicating his book to the inventor of the Economic Table.
Equally important from the standpoint of theory, and far more so from that of the legislator and statesman, are the chapters upon taxation. There the lectures, though they made a distinct advance upon Hume, were rudimentary. But modern ingenuity cannot improve upon the four practical maxims or canons of taxation:—
1. The subjects of every State should contribute in proportion to their respective abilities.
2. A tax should be certain, and not arbitrary.
3. A tax should be levied at the time and in the way most convenient to the taxpayer.
4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury.
Axiomatic as these rules appear to us, in Adam Smith’s day they were new and startling: they had never been formulated or practised in any country. Smith was “the first that ever burst” upon the silent sea of taxation. He put into the hands of statesmen, who had hitherto been groping and blundering in the dark, a perfect touchstone by which to test projects old and new of raising revenue. The idea of considering the taxpayer was itself a novelty. It is true that the criterion of ability had been adopted in the Elizabethan poor-rate, but there was no other trace of it in the fiscal system of Great Britain, which was on the whole, even at that time, the best in Europe.
Smith treated taxation as one of the causes that impede the progress of wealth. It is characteristic of the man that he does not regard any tax, even the land-tax, as good in itself, but only praises it comparatively as a lesser evil. Burke himself was not a more consistent or persistent preacher of economy. Not that Smith was jealous of expenditure on roads and communication, public instruction, and other services which were plainly beneficial to the whole society, and could not be left to private enterprise. He has no pedantic objection to the State managing a business that it is capable of managing well. He mentions without disapproval that the republic of Hamburg makes money out of a lombard,[30] a wine cellar, and an apothecary’s shop. But the post-office “is perhaps the only mercantile project which has been successfully managed by every sort of Government.”
Of all taxes he most dislikes taxes upon the necessaries of life. Yet he does not deny that if, after all the proper sources of taxation have been exhausted, revenue is still required, “improper” taxes must be imposed. To preserve their land from the sea, and their republic from its enemies, the Dutch had had recourse to very objectionable taxes, and he does not blame them if they could in no other way maintain that republican form of government, which he regards as “the principal support of the present grandeur of Holland.” But he makes it very plain indeed in his last, and perhaps his greatest, chapter “Of Public Debts,” that the miseries and embarrassments of Europe are due in the main to profligate expenditure of all kinds, and especially to the immense sums wasted on wars that ought to have been avoided.
Therefore a new commercial policy would not suffice. New principles of foreign and colonial policy must be introduced, and we must sweep away for ever the cobweb occasions and pretexts that had drawn us into so many futile conflicts. But he was equally anxious to promote economy in time of peace. He was alarmed at the progress of the enormous debts “which at present oppress and will in the long-run probably ruin all the great nations of Europe.” He saw that when war has once been begun, no limit can be set to expenditure. But some limit, he thought, could and should be set to debt; and therefore he pleaded for a policy of strict economy in time of peace, and pleaded so effectively that it was adopted by Pitt in the breathing-space between the American and the French wars. But for that policy, which reduced armaments to a point considered by some dangerously low, Great Britain could hardly have stood the stress and strain of her long-drawn conflict with Napoleon.
To thriftlessness in time of peace Smith attributes some of the peculiar evils that attend modern warfare. His remarks sound strangely familiar in our ears, as though they had been written by a philosopher of yesterday about the events of the day before:—