Guidebook to the Wealth of Nations: CH 11 Book V.2-3

Chapter 11: Book V.2-3

BOOK V chapter II: Of the Sources of the General or Public Revenue of the Society.

After analyzing the expenses of the government, most of which can be financed with user-fees, as Smith explained in the previous chapter, we are left with the question of how to finance the expenses that cannot be funded with user-fees or similar mechanisms—national defense and the dignity of the sovereign. Smith’s answer is to fund them with the general revenue belonging to the sovereign or with taxes.

Let’s analyze these two sources of revenue, then.

Part I: Of the Funds or Sources of Revenue which may Peculiarly Belong to the Sovereign or Commonwealth

What are the sources of revenue of the sovereign? The sovereign has capital, which he can either use himself and earn a profit, or he can lend it and earn interest. And he has land.

The sovereign uses his capital to generate significant revenue generally only in rude states of societies. In advanced societies, when a sovereign engages in financial adventures himself, he uses the skills he has: profusion. If he uses agents, they also use profusion. The capital is not theirs after all, so they act as if the wealth of their sovereign was infinite.

For Smith, trading and ruling are incompatible. A sovereign makes a bad trader, and a trader a bad sovereign. The only examples of successful direct use of the fund of the sovereign may be seen in small republics: Hamburg, Venice, and Amsterdam. They seem to have successful state banks. The post office also seems to generate revenue for the state. But that is about it.

The sovereign does not have to use his capital himself. He can lend it out, at an interest. But this is not a common practice. If the state has a treasure, part of that treasure could be lent out to citizens or foreigners, rather than letting it lay idle in the treasury. But as far as Smith knows, only Berne lends to foreigners, and Hamburg lends domestically, as if in a pawn-shop. The North American colony of Pennsylvania lends to its subjects, even if without a treasure. But they use paper bills of credit. These advances bear an interest, are transferable, and are legal tender. They are accepted because there is a demand for an instrument of commerce other than gold and silver, because the government has good credit, and because they are equivalent in quantity to the quantity of gold and silver that would be in circulation, if gold and silver were to be used. But because of its unstable nature, this cannot be the primary source of revenue of a great nation.

Land is more permanent and stable and a more reliable source of revenue. Indeed, it is not by accident, that the rents of public lands are generally the principal sources of revenue for governments of pre-commercial societies.

In pre-commercial societies, the rent of the sovereign’s lands is generally enough to cover the expenses for wars and preparation for wars, and the maintenance of the sovereign’s family. This is not because the revenues are high, but because the expenses are low. In pre-commercial societies, all citizens are soldiers, so defense expenses are quite minimal. And the administration of justice, as Smith told us earlier, is actually a source of revenue, rather than an expense.

Things are not the same in civilized monarchies. In civilized monarchies, the rents barely cover the expenses in time of peace, mostly because of its inefficient use. Smith tells us that the lands of the crown in Great Britain give less than a quarter of what they could give if they were in private hands. But Britain is not an exception. No European state receives great revenue from land rents. Yet a lot of land belongs to the state. The revenue from the crown lands costs more than any other revenue in society. For Smith, crown lands are thus a loss and waste to the country.

It would make more sense to divide the land and have a public sale. The sale would generate a large sum of money, which can be used to pay down the public debt. And this itself is a benefit larger than the lands could ever produce. In addition, in private hands, these lands would be improved and cultivated, which means that the produce would increase, and as a consequence of it, population would also increase, and with it consumption and thus public revenue would increase too! Remember, not accidentally, Smith’s position on primogeniture: having too much land concentrated in one person’s hands incentivizes waste and higher prices. Ending primogeniture would allow the sale of land, making it cheaper and more available to more people, which would be a great economic stimulous. The same logic applies here.

Only parks and gardens should remain in the crown’s hand, but they should count as expenses, not as sources of revenue.

To sum up: the sovereign has capital and land to generate public revenue. But he uses them both improperly and inefficiently. He thus needs private revenue to contribute to public revenue: he needs taxes to cover his expenses.

PART II: of Taxes

And so on to taxes. Taxes come from the private revenue of individuals, which in their turn take the form of rent, profit, or wage, or a combination of them.

Smith offers us four maxims of taxation, four characteristics of taxes that ought to be present to have a good tax system.

First, Smith claims, taxes must be in proportion to the revenue of the individual taxed: they must be as much as possible in proportion to the ability to pay of each contributor. If a tax falls only on one kind of revenue, the tax becomes unnecessarily unequal.

Second, a tax ought to be certain and not arbitrary. One needs to be sure about the time, the manner, and the quantity of the tax payment. If not, the tax collector will have extortion powers. Uncertainty in taxation is also the most odious defect of a tax. It is less accepted than inequality.

Third, a tax ought to be levied at a time and in a manner that is convenient to the contributor. For example, taxing little by little, as a consumer buys a good, is generally more convenient than paying a large tax all at once.

Fourth, collecting taxes should be as cheap as possible. If to levy the tax, one needs many officers, their salaries will eat up a large part of the tax, which induces the tax to be large. But a large tax discourages industry and encourages evasion. Smuggling may then prevail. And to prevent smuggling, penalties may increase, which creates a set of incentives contrary to justice. Furthermore, frequent visits of tax collectors become odious and synonymous with oppression.

Needless to say, Smith reminds us that different societies have had different successes in applying these maxims.

What follows is a problematic parts of the Wealth of Nations. Smith’s analysis of tax incidence is inconsistent and, more often than not, incorrect, given today’s understanding of price elasticity of demand and supply, that is, given our understanding of how much consumption and production change given taxation. This matters because it is the source of how much consumers and producers share the tax burden. Smith does understand that who is legally obliged to pay a tax may not be the one actually paying the tax. Yet, not having the marginal analysis of the Supply and Demand apparatus we have today, he finds himself at a loss to explain tax incidence in a way that makes sense to us today. So, bear with him.

ARTICLE I: Taxes upon Rent; Taxes upon the rent of the land.

Taxes on rent can take two different forms, either a fixed tax or one that varies with the variation of the rent and production.

The fixed tax is equal for all when it is established but it becomes unequal over time since the productivity of different lands will vary over time. The positive aspects of this tax are that it is certain, cheap to levy, and conveniently collected with the rent. It also does not create perverse incentives that may lead to a decrease in industry. But because of its fixity, this tax cannot capture improvements in production. Landlords pay a fixed amount, whether their rent increases or decreases. So when the rent increases, they keep the higher profits. They are better off, but the sovereign is not. In times of economic downturns, instead, this fixed tax may benefit the sovereign at the expense of the landlords. Furthermore, if the payment is required in money, and if the value of silver increases, the tax may become oppressive. On the other hand, if the value of silver decreases, the revenue of the sovereign will decrease with it. This variability of benefits with their circumstances makes the fixed tax problematic, as a tax should be convenient in all circumstances, not just in some.

A tax that varies with the variations of rent, instead, changes with improvements. The French economists recommend it. It may be more equal than a fixed tax, but it is more uncertain and more expensive to assess and collect. A possible way to reduce uncertainty would be to record each lease in a public registry. But this may encourage landlords to ask for fees rather than increasing rent. The practice is also deleterious because it requires a relatively large sum of ready money, which reduces capital and thus reduces the ability to cultivate the land.

Some landlords may believe they have better knowledge than their farmers. Most likely that is not the case. Nevertheless, they may dictate in the terms of the lease the kind of cultivation to be done and the methods to use. This is like asking for an additional rent, in service rather than in money. It is a practice to discourage. A higher tax for these kinds of leases may do the trick.

Some other landlords may require payment in kind. Tenants are always hurt more than landlords benefit. The poverty of the tenants where there are these leases is evidence of it. These leases should also be discouraged with higher taxation.

Finally some landlords occupy part of their lands. They actually encourage cultivation because they have more capital available than their tenants so they can afford experimentation. If they fail, it is a small loss to them. If they succeed, everybody benefits from the improvement. But too much of a good thing can become a bad thing. Landlords should not try to cultivate all their lands themselves. They would displace the sober and industrious tenants, decreasing the revenue not just for themselves but for society too.

Additionally, a tax that varies with the variation of rent is expensive to collect. But the most powerful objection is that this tax would discourage improvement. A possible way around it is to reimburse the expense of the improvement and also to try to offer a larger market for the produce of these improvements.

Yet, a tax that varies with rent has the advantage that it varies with the changes of society, with its improvements, with variations in the value of silver and the standards of the coin. This tax adjusts itself to changes of circumstances without much attention from the government.

Now, regardless of a fixed or variable tax, which rents should we tax? Some states require the registering of leases; others require a laborious and expensive survey and valuation of lands. Chances are that the lessor and the lessee combine to defraud the public. The problem is that even a land tax assessed according to general survey and evaluation becomes unequal over time. It needs continual and painful attention from the government, causing more pain than benefits to the contributors.

One last thing to note is that the lands of the church are treated differently from the lands of regular landlords. In some states they are not taxed at all; in other states they are taxed more lightly than the land of private individuals.

Taxes which are proportioned, not to the rent, but to the produce of the land

Here we can’t escape seeing the unfortunate problem that Smith incurs in explaining actual tax incidence. For Smith, these taxes on the produce of the land are actually still taxes on rent. The farmers may be paying them at first, but the landlord is the one actually having to pay them in the end. The price of produce will not change, the wage of the worker will not change, so rent will. Only rent will decrease; by the amount of the tax.

An example of tax on produce is the tythe, usually a tenth part of the annual produce collected by the church. This type of tax might seem equal but in reality is not. In very poor places, cultivating is quite expensive. Paying a tenth of the produce in taxes may easily decrease capital. The tythe is thus unequal, and it discourages improvement and cultivation.

In theory the church’s tythe is similar to the Asian land tax. In Asia, Smith reminds us, it is in the interest of the sovereign to extend the market with good roads and canals: if agriculture improves, he collects more taxes. But the taxes in Europe are used to support the church, not good roads. Thus, there are no benefits in having a tythe.

Taxes on the produce of land can be levied in kind or in money. If the landlord has a small estate, payment in kind is better because it is easy to see and check the quantity collected. If the estate is large, and if he lives away, paying in kind means frauds, with great losses to the sovereign too. The servants of the most careless private person, Smith tells us, are more under the eye and control of their master than the one of a very careful prince. The public revenue collected in kind is therefore always mismanaged by its collectors. Remember that the Mandarins are abusive and extortive, in Smith’s account of the stationary conditions of China? Guess how they collect taxes? Yes, in kind.

More evidence? A tax levied in money is always in proportion to the value of the produce, varying with the variations in market prices and the value of precious metals. If the tax is equal to a certain sum of money, such as the land tax of England, it will not change with the changes in rent or improvement. This means that as the economy improves, tax revenue remains the same. So, some servants in the East India Company, under the pretense of restoring public revenue to the previous value, petitioned and obtained changing the payment into an in-kind payment. Not a surprise, cultivation declined, abuses increased, and revenue dropped.

Taxes upon rent of houses

The rent of a house, for Smith, is divided into two kinds: the building rent and the ground rent.

The building rent is the interest or profit of the capital spent in building the house. Since capital can be either lent out at interest or used to build a house, the rent is the same as the forgone opportunity of receiving interest had the money been lent. In addition, it includes the costs of repairs of the house. If not, the building would not be there. This is why for Smith, the interest of money regulates the building rent.

The ground rent, instead, is what is left after a reasonable profit. It is the price paid for some real or imagined benefits. So, for example, ground rent is usually higher in the capital or where the demand of housing is higher.

Smith goes on explaining: a tax on the house rent does not affect the building rent. If the builder does not get what is considered a reasonable profit, he will not build the house. The demand for buildings will thus increase, bringing profits back to the level of the profits in other trades. As a side note again, that differentiation between changes in demand and changes in quantity demanded are still to be desired at this time, and yet here he seems to have some visions of shared tax burden. He indeed continues by saying that this tax will not fall on the ground rent but will be divided between who lives in the house and the owner of the ground. The inhabitants of the house indeed will pay part of the tax in the form of smaller homes, with fewer conveniences. By looking for a smaller place, they reduce competition for larger houses, decreasing their prices. The owners of the ground, receiving a lower rent, will pay part of the tax by ways of the lower revenue received.

This tax on house rent has an unintended benefit: it falls more heavily on the rich. Again, here we need to follow Smith in his logic. Rich people, Smith tells us, spend more on housing than poor people (in absolute, not relative terms). Homes are conspicuous consumption goods, to use a term made famous by a later economist called Thorstein Veblen—they are goods meant to show off status and wealth. The poor, being poor, spend most of their income on food trying to survive. Housing, let alone fancy housing, is not as much a priority as food. So since the rich spend more on housing than the poor, the house rent tax will fall more on the rich than on the poor. And this is not a bad thing, to Smith.

A house rent tax is different from a land rent tax. The land produces the means to pay for its taxation. For a house rent tax, the ground on which the house stands does not produce anything. So the means to pay the tax must come from other sources of revenue, more or less like a tax on consumable commodities. This means that the tax on house rent falls equally on all kinds of revenue, in this way fulfilling one of the maxims of good taxation.

But as for all taxes, if this one is too high, it will incentivize evasion and substitution toward other possibly less comfortable housing options.

Two final suggestions: a house that is not inhabited should not be taxed. And a house inhabited by its owner should be taxed as if it was rented out.

Ground-rents are a more proper subject of taxation than rents. The ground rent tax does not increase the rent of the house. It simply, well not that simply, but simply for Smith, falls on the owner of the ground. The owner of the ground is basically like a monopolist, and he can extract the highest rent possible from his tenants. But the more one has to pay in taxes, the less one is willing to pay for the ground. This is why the final payment falls on the owner of the ground-rent and not on the tenant.

The ground-rent and rent of land taxes are special because they create revenue without discouraging industry, according to Smith. This seems to be because they do not affect the price of the good. But in Europe it is difficult to find ground rents separated from building rents so it is difficult to separate which is which in order to tax them separately.

Other taxes, all odious, include a heart-tax, a dwelling-tax, and a window-tax. A heart-tax is a tax on each heart beating in a house. This implies that the tax collector needs to inspect regularly all the rooms in a house. A dwelling tax is a tax on the number of windows in a house. It is less invasive because one can count them from the outside. A window tax is a tax that increases with the number of windows in houses. Countryside houses tend to have more windows than city houses, and poor people tend to live in the countryside while the rich reside in cities. So this law unequally punishes the poor. But at least it is easy to collect, certain, and conveniently paid.

Lesson learnt? Rents decrease as taxes increase. Can we prove it? Yes, we can look at the data on rents and taxes. But if we do, we see the opposite! Rent generally increases as taxes increase. But Smith reminds us once again to look with care at what goes on. There may be a missing variable. And indeed there is. At the same time, and for independent reasons, the demand for housing increased. The higher demand increased rents more than the increased taxation decreased rents. Without taxes, rents would be much higher. Too bad for the landlords who are losing out.

Article II: Taxes upon profits; or upon the revenue arising from stock

Smith recalls that capital creates a surplus to pay for its interest. This surplus is not taxable directly. It is the compensation for the risk and trouble for using the capital. If taxed directly, it would either increase profits or reduce interest.

If it increases profits, the capital owner simply advances the tax. In reality the tax will be paid either by the landlords in case the tax increases the price of produce and thus decreases the rent of land, or by consumers, if the tax increases the prices of goods. If the tax increases profits, it will decrease interest.

The interest of money seems to be taxable directly like the rent of land. But what it seems is not what it is, as it is often the case with Smith. The quantity of land one owns is not a secret. The amount of capital stock is. In addition, capital stock varies constantly, almost from day to day. An inquisition over the private circumstances of individuals would create an unbearable burden.

Another difference between land and capital stock is that land does not move. Capital does. And easily so. The owners of capital are citizens of the world in the sense that they are not attached to any countries. They are willing to abandon a country if that country proves too intrusive. If they move their capital, the industry will suffer, and with it the revenue of both the sovereign and of all people since both rents and wages will decrease. The only way to prevent this disastrous situation is to use extreme moderation in taxing capital stock, to the extent of taxing it below its earned revenue.

In England the tax works because the tax assessment is very old. And since the economy grew over time, the tax actually decreased over time. In Hamburg, to avoid an inquisition, there is a system of self-declaration of wealth with anonymous contribution to the public revenue upon oath. In a canton in Switzerland people publicly declare their wealth by oath and pay a percentage of what they declared. But these systems would not work elsewhere. In particular, they would not work where there are many merchants engaged in risky business. Sober and parsimonious people do not feel the need of secrecy, but merchants of risky trades are terrified to declare publicly the state of their finances. Their credit could be ruined and their projects decrease.

Taxes upon the profit of a particular employment 

In some countries, there are extraordinary taxes on profits in particular branches of trade or agriculture.

One form of this extraordinary taxation is a license fee. Now, the tax on profit of capital employed in trade falls on consumers, as the prices of goods increases with the tax. This tax is equal because each consumer pays the tax in relation to how much he wants to consume. But a fixed license fee to sell something is unequal. It is the same for small and big businesses. It can thus be oppressive for smaller businesses. If it is moderate, this inequality becomes less important. But if it is considerable, it will put small dealers out of business.

Furthermore, taxes on profits in particular employments do not affect the interest on money. If they did, nobody would lend to the employment which is taxed.

Smith here lists a bunch of activities with these extraordinary taxes. For example, in England there is a special tax on hawkers (a sort of street vendor), peddlers (a sort of travelling seller), or keeper of ale-houses (a sort of bar). They all have to pay a license to work.

There is a tax called taille, which is a tax on the profits of capital used in agriculture. It probably originated from the jealousy of great landlords who see their former dependants now owner of land. They convinced the king to tax them out of envy. This tax takes two forms: the real taille, which is a tax on the lands held by “ignoble tenure”, which is very unequal; and the personal taille, which is a tax on the profits of each farmer, which is not only very unequal but very arbitrary.

In the case of a tax on the profits of particular trades, traders bring to market only the goods they can sell at a price high enough to cover the tax. Ergo the tax falls entirely on consumers. Yes, that is not right, his lack of marginal analysis tools forces him to consider the shift an all or nothing shift, rather than a sharing of the tax burden, but let’s just follow Smith’s logic. In the case of a tax on agricultural profits, farmers have incentives to bring to market all their produce, just like before. They pay taxes on land, so if they reduce the quantity sold, they may no longer be able to pay rent or taxes. Ergo, taxes here do not increase the price of produce, but decrease the rent the farmer pays to the landlord. The farmers will not see his profits decrease. If he does, he will stop cultivating land and switch jobs.

With a personal taille, a farmer is assessed in proportion to the capital he appears to employ. He will therefore fake poverty. But to show how hated this tax is, Smith tells us that farmers will most likely lose more by the reduction in production than what is saved in taxes. In addition, their actions will make everybody else suffer too because of the reduction in production.

Finally, in North America there is a special tax called poll-tax on African slaves. Paying it is a sign of freedom since if you have property to be taxed, you cannot be property yourself. In Holland, instead, there is a tax on servants. But this is more correctly an expense tax.

Appendix to Article I and II: Taxes upon the capital value of lands, houses, and stock

Taxing transfer of property often results in a tax on its capital value. In the case of transfer from the dead to the living, or transfer of immobile property, direct taxing is generally easy because the transfer cannot be hidden for long. Taxing the transfer of capital or movable property when it implies lending of money is instead not easy, since it is possible to keep it secret. Thus, taxation needs to be indirect such as with a deed on paper with a duty-stamp, the absence of which would invalidate the deed, or with a record in a public or secret registry with a duty of registration.

Stamp-duties and duties of registration are now used for all transfers of property, Smith tells us, even the ones that can be taxed directly. Why? Because it is easy to do. And, not holding punches, Smith comments that governments learn very quickly how to drain money from people’s pockets. The implication seems to be that governments do not learn as quickly how to prevent special privileges from hindering the economy.

Here Smith goes on again in what today looks like an incoherent tax incidence analysis, where there is a hint of intuition that price elasticity of demand and supply may have an effect, but not enough to make it work in full. So Smith claims, uncontroversially, that the tax for the transfer of property from the dead to the living falls, of course, on the living. Then he claims that the tax on the sale of land falls on the seller because the seller needs to sell more than the buyer needs to buy. The tax on the sale of new-built houses falls on the buyer because the builder must have his profits or he would not build. The tax on the sale of old houses falls on the seller, as he needs to sell. Smith can see this also because the number of newly built houses brought to market depends on demand, while the number of old houses brought to market is independent of demand. Finally, the tax on the sale of ground rents falls on sellers like the tax on land and on old houses. The stamp duties and the duties of registration for borrowed money fall on borrowers. The problem here, again, is the missing price elasticity of demand and supply, and thus an all-or-nothing analysis.

Now, if taxes on property transfers decease the capital value of the property, we increase the revenue of the sovereign, which maintains mostly unproductive labor, at the expense of the funds that maintain productive labor, which now decreases. Despite this negative effect, this tax is, yes, unequal, but it is not arbitrary. It is also convenient and inexpensive to pay.

The registration of mortgages is actually beneficial. It gives security to both creditors and debtors. Other deeds, unfortunately, are inconvenient and do not offer any significant benefits to the public.

Stamp duties on cards and dices, on newspaper and periodicals, are consumption taxes, that a consumer pays in proportion to his desire to consume them.

Article III: Taxes upon wages of labor 

As Smith reminds us here, the wage of a worker depends on population and on the price of subsistence goods. If the price of provision increases, wages have to increase too. Workers have to have enough to live. So a direct tax on wages will have the effect of increasing wage, and of doing it more than the tax itself. I use a numerical example, which Smith does not, to clarify his reasoning. Let’s say a worker needs a wage of 100 to live and the tax is 10%. 10% of 100 is 10, but if you pay him 110 and tax him at 10% the tax paid is 11, and he will have only 99 left to eat. This is why the raise in wage has to be more than the tax. The worker still needs to have 100 in his pocket after the tax is paid, or he will not survive.

If the direct tax on wage does not affect wages, it is because landlords and consumers paid it, thus decreasing the demand for labor. The decline in industry and employment of the poor will follow, as well as the decline in the produce of the land.

A tax on wages of country labor will increase the price of rude produce and will be like a tax on the farmers’ profits. It is absurd and destructive and yet adopted by many countries.

The tax on the recompense of “ingenious artists and men of liberal professions” increases their wages so that the after-tax wage is as it was before the tax, or people will quit these activities.

Wages of office are often higher than what they would be if there was competition like in other professions. But there is not competition, and wages are higher. These are good wages to tax. And since they usually generate envy, a tax higher than others would be popular. Passions always play a role in Smith’s analysis.

Article IV: Taxes which, it is intended, should fall indifferently upon every different species of revenue 

Capitation taxes and taxes upon consumable commodities do not target any specific revenue, but are paid indifferently from whatever revenue one has.

Capitation taxes 

Capitation taxes, also known as “head taxes” are a Catch 22: one cannot win. If you gain on one margin, you lose on another: if you make them equal they become arbitrary and uncertain; if you make them certain, they become unequal. So if capitation taxes are in proportion to the fortune or revenue of individuals, they are arbitrary. In addition, since fortunes can and do change frequently, capitation taxes require an “intolerable inquisition,” as Smith calls it. This makes the tax arbitrary because its assessment will depend on the good or bad humor of the assessor. Even if you make them proportioned to the rank of individuals, you make them unequal since there is a wide variance of fortune within each rank.

Uncertainty is always a problem. Inequality is more acceptable when taxes are light, but it becomes intolerable when taxes are high. A capitation tax does not cost much to levy, and it provides a sure, even if modest, revenue for the state.

Taxes upon consumable commodities 

The impossibility to tax people in proportion to their income with a capitation tax led to the creation of a new tax: a tax on consumption. When one’s consumption is proportioned to one’s revenue, this tax on consumption is proportional to revenue. In addition, taxes on consumable commodities are generally certain: one knows how much and when to pay them; they are generally paid piecemeal, which is also a plus. The problem is that they are costly to administer. They need a large number of customs officers. This discourages industry, since the tax increases the price of the goods, and an increase in price induces a decrease in quantity demanded and supplied of all other domestic products too. As productive labor decreases, it alters the national industry in a direction which is less advantageous.

Consumable goods are of two kinds, according to Smith: necessity and luxury. He defines them both.

Necessities are those things that are seen as indispensable to support life and decency, so that even people of lower ranks cannot go without. Note that the definition includes decency, and standards of decency are something that vary from culture to culture and from period to period. Indeed, Smith immediately tells us that in his time in Britain, a linen shirt is a necessity, not a luxury. Why? Because even a day-laborer would be ashamed to go around without wearing one. But while leather shoes are seen as a necessity in England, they are not one for Scottish women or for both man and women in France, who are perfectly comfortable in going around barefoot.

Luxuries, for Smith, are those goods from which one can abstain without reproach. Beer and ale are, for instance, luxuries in Smith’s account because one can live without them and still be considered a decent person.

We already know that the wage of labor depends on its demand and on the average price of necessities. And we already know we need to ignore our knowledge about tax incidence and follow Smith’s logic, even if imprecise. So, the consumption of necessities, being necessities, will be unaffected by a change in their price. The change in their price will be picked up by wages, which will change so that real wage (how much you can actually buy) stays constant. This implies that taxing necessities will increase not just wages, but also the price of all manufactures, which will eventually decrease consumption. So, taxing necessities works like a direct tax on wages: the final payment of the tax will fall on rich consumers of manufactures, since the employer will charge a higher price to maintain the same level of wages and profits. And if the employer is a farmer, the final payment will fall on the rent that the landlord receives. If an increase in wage does not compensate the average increase in the price of necessities, the supply of labor will fall since the poor will not be able to bring up children.

If only the people of superior ranks understood their interest, laments Smith. They would never favor a tax on necessities or direct taxation of wages. But we know from Book I that they do not know their own interest, even if it is an interest that aligns with society’s interest.

The other reason why necessities are taxed, ignorance aside, is that they do generate a considerable revenue for the government, and it is almost impossible to find a suitable substitute.

In Britain, during Smith’s time, the principal taxes on necessities are on salt, leather, soap, and candles.

Taxes on luxuries work differently, Smith explains. They will not affect the wage of labor, nor will they affect the ability of the lower classes to raise a family. They are actually more like sumptuary laws: they induce the industrious poor to refrain from consumption, maybe even increasing their ability to raise a family, given the extra money saved from the decreased consumption. The dissolute poor, on the other hand, will continue with his indulgencies. This will not change his inability to raise a numerous family since usually his children perish from neglect anyway.

Taxes on luxuries will also not affect the prices of other goods and will be paid by consumers, independently from the source of their revenue. They may not be proportional to their revenue, as they are actually proportionally to their expenses. If expenses are not proportioned to revenue, then they are not taxes proportioned to revenue. For example two people may have the same revenue, but one is more frugal than the other. The frugal will pay less taxes than the other, despite having the same revenue. In addition, absentees, subjects who live abroad gain from the protection of their property that the state guarantees, but do not contribute to it.

But at least this tax is a voluntary contribution since one can choose to consume the taxed good or not. Furthermore, the payer eventually will get accustomed to the tax and will assimilate it with the price.

Now let’s figure out how to pay for these taxes. There are two ways, Smith tells us. One is to pay an annual sum, usually for non-perishable goods. The other is to pay the tax while the goods are with the dealer, before they are delivered to consumers, usually for perishable goods. So for example, taxes on houses are more conveniently paid in small annual installments than combined in one single payment at the time of the sale of the building.

The other form of taxation is a sort of license to consume, which could substitute for import and export duties. This fee would make the tax unequal since it would not be in proportion to consumption. If they have to pay the same amount to buy drinks, a man who drinks lightly and occasionally would be taxed more heavily than a drunk. This fee would also lose the convenience of paying taxes a bit at the time. It would also lose the function of a sumptuary law, as once the tax is paid, it will not matter if one drinks a lot or a little. And finally it will add the distress to have to pay it all at once. It is not a good idea.

What about excise and customs duties? Excise duties on domestic goods meant for domestic consumption are similar to taxing luxuries. On the other hand, duties on customs seem to have ancient origins. Smith claims that “customs” in customs duties refer to the practice of “customary payments”, customary taxes on the profits of merchants. Merchants generated envy for the nobility, and since foreign merchants were disliked even more than domestic ones, they could be taxed more heavily. Again, note how Smith uses psychological motivations to explain “the spirit of monopoly” which afflicts society.

Probably Smith’s experience at the customs house in Edinburgh motivated this sort of back hand praise of smugglers. Smith claims that the ancient duties were levied equally on all goods. Today the importation of several goods is prohibited altogether instead. The prohibition makes smugglers into the main importers. And smugglers do not give any revenue to the state. This is also true for high duties. They encourage smuggling, decreasing the revenue of the state. Smith cites Jonathan Swift: with customs two plus two makes one more often than four… Hume cites the same passage in his accusations of mercantile policies.

Criminalizing imports, for Smith, makes something that is natural into a crime. It creates a group of hypocrites: those who pretend to have scruples in buying smuggled goods. And it wastes productive resources attempting to stop smugglers, thus decreasing the capital of society.

Then there are bounties on exports of domestic products, which are export subsidies, and drawbacks on re-exportation, which are tax rebates for imported goods that are then exported, as described in Book IV. The combination of the two is a destructive cocktail of fraud which damages the public finances. The goods are sent at sea to collect either the bounty or the drawback, and then are smuggled back in to be resold in the domestic market. But on the books of the customs house they show up as exports, so it looks like the balance of trade is better than otherwise. What comfort politicians get from these frauds! Frederic Bastiat, a French pamphleteer of the following century, will repeat this argument in a similar way in his accusations against mercantilists: if one cares only about a favorable balance of trade, the only thing that matters is that ships leave domestic ports full of domestic goods. Whether the ships sink immediately after departure or arrive safely is irrelevant: the customs books note the increased exports and all is well.

Following Smith, all imports are charged duties of customs according to some uncertain classifications. This uncertainty makes import duties inferior taxes compared to excise taxes.

It is actually not necessary to tax all imports. It would be more effective to tax just some, decrease those taxes left, and eliminate all the prohibitions, if you care about state revenue, that is. If you care about restricting competition of foreign producers on domestic markets, then all these high duties and prohibitions make more sense.

So what exactly should one do to increase tax revenue? Smith believes that the only solution is to decrease taxes. Lower taxes will decrease the temptation to smuggle. Substituting excise taxes for customs duties and eliminating bounties will also allow for a more effective system. The problem is that excise duties require more checks and visits from the odious tax collectors, making both excises duties and their officers more unpopular than customs duties and customs officers. Yet, a solution could be that some, not all, imported goods could be stored in public warehouses and duties could be paid on storage. Public revenue would see no losses and trade and manufacture would actually benefit. The free circulation of goods and the decrease in price of raw materials would decrease the money price of necessities, which would decrease the money wage of workers, so that the price of manufacture would also decrease, bringing benefits both to foreign and to domestic markets.

But factions and the interests of smuggling merchants are too strong to implement these changes. So British people of middling and higher ranks keep paying duties on imported foreign luxuries, and all rank of people keep paying duties on cheaper luxuries.

The same logic of changing customs duties into excise duties may be applied to reform the current excise duties system with the same result of increasing tax revenue. Smith offers as an example the then-present tax on malt, beer, and ale. Malt, beer, and ale are luxury goods for Smith. They are also popular items of consumption and taxation, and in the mid- 18th century their taxation is the source of riots in Scotland. Like for import taxes, Smith suggests decreasing the tax on malt—the prepared grain used to make beer, ale, and spirits. And similarly to the “warehouse” solution for imports, taxing the malt rather than the distillery would also decrease the incentive to smuggle, which would be otherwise high.

With a delicate balancing act, Smith reminds us, a tax cannot reduce for long the profits of a trade. The profits of each trade must be kept at the level of other trades or people will quit. Similarly, Smith explains that the demand for barley would most likely increase with the decrease in taxes. Yet the rent and profit of barley would stay more or less the same as the rent and profits of other equally fertile lands. If they were less, less barley would be produced as the field would be used for other produce. If it is larger instead, more land would switch into barley cultivation.

The only real sufferer from this change in taxes would be the people who brew for private consumption. If the consumption tax is levied at the retail level, private brewers do not pay it. If the tax is levied on malt they do. The people who brew at home in Smith’s time are people of higher ranks. This change would not be that bad, after all, since higher rank people can enjoy many exemptions from taxes, which is unjust and unequal. So it would only be fair that they pay this tax, like others do. But here, as it is often the case, the interests of the superior ranks of people stand in between the possibility of change that would increase revenue and bring relief to the poor. The consistency of Smith’s arguments is not always as solid as one wishes. While before people of higher rank did not understand that it was in their interest not to tax necessities, since they would end up paying for those taxes, and thus letting necessities being taxed, here they do know what their interest is, and try to prevent this form of taxation that would hurt them directly.

There are other kinds of taxes on consumable commodities. Most are disruptive. The duties of passage are some other unequal duties that the sovereign collects to increase his revenue, rather than for the maintenance of the transportation system. These inland customs are generally not on bulk but on value, to testify that they are not meant to maintain the roads. They obstruct the most important of all branches of commerce, which is the interior commerce of a country. In some smaller states there is a version of these duties, called transit duties. They are duties collected to transport goods across the small states. Foreigners are the ones paying them.

So for Smith, the system of taxation in Great Britain is far from perfect, but is far from being the worst system either. It is uniform for the whole interior of the country, and the inland and coastal trade is almost entirely free. Smith goes so far as to claim that this freedom of interior commerce and the effect of the uniformity of the system of taxation is probably one of the main reasons why Great Britain achieved prosperity.

Comparing the system of taxation of Britain with the French one will see the point clearly, in Smith’s view. In France the government appoints the officers who levy taxes on consumable commodities. These officers are directly accountable to the government. Taxes are also levied by “farmers”, agents that substitute the government officers in collecting taxes. “Farmers” receive the right to collect revenue in exchange for a rent that they pay to the state. But since very few people can become “farmers of public revenue”, the competition among them is limited and it is easy for them to combine. They thus can offer close to no rent or something much less than the real value of the tax.

Smith concludes with one of his paradoxes: The sovereign is compassionate toward his subjects, because he knows that the prosperity of his family depends on the prosperity of his people, so he will never knowingly ruin his subjects. The “farmer” on the other hand is a monopolist. He extracts two kinds of exorbitant profits, one as a farmer and one as a monopolist. Since “farmers of public revenue” do not have reason to care about what happens to the subjects after their “farm” expires, they try to extract as much revenue as they can. So to them, the law is never severe enough. They constantly push for more rigorous revenue laws.

This is a testable hypothesis. Revenue laws should be the most sanguinary where there is farming of revenue and the mildest in the areas under the direct control of the sovereign. And indeed we see that with farming, the blood of people is nothing compared to the revenue of the prince: smuggling salt and tobacco sent several hundred people to the galleys (a death sentence to row to death on war ships) and to the gibbet (a death sentence to be hung in a public space).

Thus, the British system of taxation, with all its imperfection, is thought to be superior to the French one.

One last topic is left to our analysis: what happens if all the proper forms of taxation are exhausted, and even the improper ones, and one country faces a war that is so expensive that no tax revenue would be able to pay for? This is the topic of next chapter in the Wealth of Nation: the great debts of the state.

Chapter III: Of public debts 

Smith has been telling us that the size and the nature of government expenditure as well as the revenue used to pay for those expenditures vary with the different historical circumstances of a nation. To understand the current circumstances, we need to compare them with others. And this is how the last chapter of the Wealth of Nations starts.

In rude states of society, a sovereign has nothing to spend his revenue on but to maintain people. What Smith calls rustic hospitality is thus the principal expense of the rich and great. As we were told in Book III, it is unlikely that one ruins himself by feeding and clothing others. Evidence of this, for Smith, is the length of time an estate remains within a family. In pre-commercial societies, estates stay within the same family for generations and generations witnessing the lack of dissipation of wealth. If the surplus of the estate, say wood or raw hides, could be sold for money, people would hoard the money, in part because there was nothing interesting to buy, and in part because it was considered a disgrace for a gentleman to engage in trade or to lend at an interest. Plus, in times of violence and disorder, having some money at hand was convenient. If people had to escape they could have some valuable things to take with them. But the same violence that gives incentive to hoard money, also provides incentive to hide the hoarded money, Smith claims. Evidence of this? The frequency of treasure troves, of treasures buried or hidden away, which are later found. In the past they were a considerable source of revenue for the sovereign. In Smith’s day all the treasure troves of the country would not make a dint in the revenue of a wealthy person, let alone of a country. This is not necessarily to say, even if Smith leaves it unexplained, that treasure troves are less frequently found in Smith’s time, but that wealth has significantly increased. So, in ancient times, the disposition to save and the lack of things to buy, the absence of standing army, and of other expenses was such that ancient sovereign would build a treasure.

In commercial societies there are expensive luxuries and trinkets to spend money on. And the sovereign as well as the great lords do spend their revenue on trinkets and baubles. They will eventually dismiss their retainers and give independence to their farmers to pay for these “childish vanities”, to bring back the words Smith uses in Book III, where he fully describes the process of collapse of the feudal system.

The ordinary revenue of the sovereign is now barely enough to cover his ordinary expenses. There is nothing left to amass in a treasure. So when he faces extraordinary expenses, he has no other option than to ask for extraordinary help. Smith’s claim is that the lack of parsimony in times of peace forces the sovereign to contract debts in times of war. Even if there was something in the treasury, war times are three to four times more expensive than peace times. It would be impossible to cover that expense with only the treasure and tax revenue. And even if one increases taxes, the revenue comes in around 12 months after the tax is imposed. How does the sovereign pay for his troops? Borrowing is the only option. And so borrowing it is.

Borrowing is possible because the same commercial state that brings the need to borrow to the sovereign brings the ability and inclination to lend to his subjects.

If people are not confident in the justice of their government, they would doubt the enforcement of contracts and payments of debts. They would only reluctantly engage in trade and manufacture. But if they believe their government would protect their property, they would also trust the government with the use of their property. And it does help that given the pressing need of the government to borrow, it generally offers advantageous terms to lenders. And, the general confidence in the justice of the state often allows government debt to sell for more than what was originally paid for it. So trading men happily lend because they can increase their trading capital. And the government foreseeing the ease of borrowing does not see the need to save anymore.

In rude societies the opposite is true. Hoarding is a sign of the distrust that people have in their government. They hide their treasure for fear of the government plundering them. Nobody would be willing to lend to these governments. And so these governments, foreseeing the almost impossibility of borrowing, save.

All great nations of Europe are now borrowers. They start borrowing on “personal credit”, without assigning or mortgaging (collateralize, that is) any particular funds for the payment of the debt. The unfunded debt, like personal credit, can either have no interest, like a debt upon account (which Smith described in Book II), or it can have interest, like a promissory note.

When this credit is exhausted, sovereigns have to borrow offering a collateral: future tax revenue or, as it is was called at the time, by mortgaging taxes. The future tax revenue would go to pay this debt. The mortgaging of tax revenue could be of two kinds: for a short period, or in perpetuity. A short term mortgage of taxes implies that the fund should pay both the interest and the principal within the amount of time specified. Since the debt is issued in anticipation of the future tax revenue, this technique is called “raising money by anticipation”. A mortgage of taxes in perpetuity would instead create a fund for paying only the interest, not the principal, and the government could redeem the debt at any time by paying back the principal. This method of raising funds is called instead “by perpetual funding” or just “funding”.

In Great Britain the annual land tax and malt tax are anticipated every year. The Bank of England advances them at interest and it receives payments as the tax revenue gradually comes in. Should this revenue not be enough, as it never is, the incoming revenue covers it. So the only tax revenue not yet mortgaged is actually spent before it comes in.

Perpetual funding seems to have been present with three major funds. The South Sea Fund was created to pay the interest on the money that had been anticipated to the government by the Bank of England and the East India Company to create a land-bank, which was never created. The Aggregate Fund brought together several funds of mortgaged taxes which were now made in perpetuity to pay the Bank annuities and several other annuities. Then, several more taxes were made into perpetuity forming the General Fund. By now the greater part of taxes previously anticipated for short terms are perpetual ones, paying only the interest of the debt. For Smith, this is the birth of the most ruinous practice of perpetual funding. Nobody will ever care to “liberate public revenue”, meaning, to free the tax revenue from paying the interest of the public debt and use it for other purposes.

Then, the legal rate of interest was lowered from 6% to 5%. So 5% was declared as the highest rate which was legally possible to receive for lending money. How convenient! Soon after the perpetual funds were created, the creditors of the South Sea Fund, General Fund, and Aggregate Fund were forced to accept an interest rate of 5% rather than of 6%. This is a saving of 1% which left a considerable surplus from the taxes accumulating into the funds. By 1757 the legal interest dropped to 3%, creating an even more significant increase in this surplus.

The surplus of the three funds formed a “sinking fund” a fund meant to pay old debts. In reality the sinking fund facilitated contracting new debts instead. The sinking fund is inadequate to pay off the debt, especially war debts. It is easier to use it for other things. Raising taxes or creating new ones always generates loud complaints. It is difficult. It is much easier to borrow from the sinking fund. And so it is done.

Borrowing took different methods: upon anticipation or upon perpetual funding, upon annuities for a term of years or for lives. If the annuities were for life, they could be upon separate lives (one a person dies, their annuity stops) or upon lots of lives (when a person dies, their annuity goes to the survivors. The last survivor gets the annuities of all the subscribers, which at times can be 20 or 30 people). These last annuities, the one with rights of survivorship, are worth more than the sum of equal annuities on separate lives. Smith’s explanation? The good confidence each man has in his own good fortune, the same overconfidence that every man in relative good health has in his probability of success which we met in Book I. That overconfidence that induces people to play the lottery or to become soldiers. Governments prefer these annuities too because they raise the most money, even if they are not the ones that enable the fastest liberation of the revenue.

Here Smith describes a difference between France and Britain: a reminder that people are all the same and if they behave differently it is just because they have different constraints not because they are different. So, in France annuities for lives, as opposed to annuities for a term of years, are more popular than in England. Why? Well, the interests of the lenders are different. In England the seat of the government is in the greatest mercantile city in the entire world. Merchants advance money to the government because they want to increase their capital. When they subscribe to a loan, they expect to sell it and to make a profit. On the other hand, annuities on one’s own life always sell at a loss, because you would not pay the same amount for an annuity on the life of another person of similar age and health as for one on your own life. As we see again here, Smith believes we prefer what is close to us than what is farther away. And what is closest to us than ourselves? So, these annuities are not good transferable stock as perpetual annuities. But in France, the seat of the government is not a great mercantile city. The receivers of taxes are tax farmers or court bankers. They are commonly men of low birth but good wealth and great pride. As a matter of fact their pride is so great that it prevents them from marrying their equals, which would be now deemed inferior. But the “quality women” look down on them. So the number of unmarried men is greater in France than in Britain. The unmarried men do not care about posterity, since they will have none, so they are happy to exchange their capital for a revenue that lasts just as long as their own life, and which allows them to live a life of splendor.

Back to government. Why does the government need to borrow so much again? For war. Wars in commercial societies are extremely expensive as we saw in the first chapter of Book V. The government has no way to increase its revenue as fast and as much as its expenses. The sovereign is afraid that raising taxes so much and so suddenly would “offend people” and disgust them. The ease of borrowing releases them of these fears. Borrowing, especially if with perpetual funding, allows raising money to pay for war with the smallest possible increase in taxes. And the people who live in the capital, away from the dangers of wars, actually enjoy reading in the newspaper the adventures of their troops! They can dream of the greatness of their empire! When peace comes, they are disappointed because their amusement ends and with it their visionary hopes of national glory! Debt reduces the perceived costs of wars and actually can transform wars in a form of entertainment for the people not directly involved! Smith here gives us a very novel understanding of the relation between debt and war.

The decrease of debt in peace time is not remotely close to the increase in expense during war. The enormous debt Great Britain accrued with the war of 1688 could never be paid off. Expecting that public debt is completely paid off is day-dreaming, if one relies only on current ordinary revenue.

Arguing against Melon (1734), a supporter of public debt, Smith reminds us that the capital advanced to the government is capital that generally goes from maintaining productive labor to maintaining unproductive labor. It is wasted capital. The only beneficial use of funding, the expedient way to pay only interest on debt, is during wars. If people feel the complete burden of wars, they would soon grow weary of them, and wars would not be accepted so carelessly and would end faster.

Furthermore, if taxes become very high, capital owners would take their capital where they can buy more with it because of the lower taxes. And if tax collectors constantly aggravate merchants, they will move with their capital too. Industry would thus decline, as well as trade and manufacture and agriculture.

Now, half a century earlier no one would have thought Great Britain could withstand her current debt burden. But this does not mean that it can support any burden, or even more than the present one. Indeed, chances are that if the national debt rises above a certain threshold, it becomes impossible to pay it. The only way to liberate public revenue, Smith claims, is with bankruptcy or “pretended payment”. Pretended payment is either raising the denomination of the coin or adulterating the coin.

Raising the denomination of the coin (the same coin was before, say, 10 and now, say, 20) is a common expedient to hide bankruptcy by pretending to pay the debt. In reality creditors, both private and public, are defrauded. Raising the denomination of the coin has the effects of what today we call inflation. It is the “most general and pernicious subversion of fortunes of private people.” It enriches the idle and profuse debtors and punishes industrious and frugal creditors. Capital goes from one who can increase it to who can only dissipate it. Almost all states from antiquity to modernity have used this trick. The direct raising of denomination of the coin (a small weight coin is now called by the same name as a big weight coin) is an unjust operation, but at least it is an open and known operation.

Adulterating the coin has the same consequences. But in adulterated coins precious metals are mixed with a greater quantity of alloy, thus reducing the quantity of precious metals in the coin. The French call this process “augmentation” of the coin. Adulteration, differently from the direct raising of denomination, is a secret operation. The coin has the same denomination, the same look, but less metal in it. It is an unjust operation and a “treacherous fraud” too. When it is discovered, it causes great protests. So much so that coins have to be brought back to their original fineness.

Back to the debt of Great Britain. It is too big to pay off. Unless one of two of the following things happen.

Remember the Wealth of Nations was first published in March 1776 and in Book IV Smith already told us he favors a complete Union of the colonies with Britain, just like Scotland did with England, or letting the colonies go. Or else a war will happen.

Smith suggests that Britain could extend taxation to the colonies. This would raise enough revenue to take care of the debt. The problem is that it cannot be done without offering the colonies representation in the British parliament. And private interests and prejudices would make the change impossible. Yet, it is something worth exploring, even if just as speculation. A new utopia, Smith states.

Land tax, stamp duties, customs, and excise are the four principal taxes of Britain. Ireland as well as both the North American and the West Indian plantations are able to pay a land tax too. Stamp duties can be requested with the deeds of the transfer of property everywhere, just like in Britain. The extension of customs duties to Ireland and to the plantations, combined with the freedom of trade, would benefit everybody: when all the invidious restraints to trade are removed, there would be an immense internal market. The excise duties are the only ones that need some modifications, mostly because consumption patterns are not the same in all British territories. Yet we can say that sugar, rum, and tobacco are not necessities of life even if they are universally consumed. They are thus the proper object of taxation and should be taxed before they go out of the hands of the manufacturers and growers, or deposited in public warehouses and taxed there.

It is difficult to estimate the exact increase in tax revenue this Union would bring, but it could well increase the sinking fund enough to pay off the whole debt in a few years, and relieve some of the more burdensome taxes too. This would increase the standards of living for the laboring poor. The price of their goods would decline, and thus the demand for them would increase (Smith is unfortunately but understandably always sloppy in distinguishing between changes in demand and changes in quantity demanded, so bear with his imprecision). The demand increase would increase the demand for labor, which would increase population and the standards of living of the working poor. Their consumption would increase, and thus also the public revenue from the taxes on consumption. Everybody is better off.

Objection: Americans do not have gold and silver money. So they would have issues paying taxes, which are required to be paid in gold and silver. But the absence of gold and silver money is not a sign of poverty. Rather, it is a sign of the entrepreneurial spirit and of the desire to employ all stock productively. Using paper money saves the expense of using gold and silver money, which as described in Book II is a much more expensive form of money. The objection is irrelevant: it is not poverty that makes their payment irregular and uncertain, but their eagerness to become rich.

Objection: it is unjust that Ireland and North America contribute toward the discharge of the debt of Great Britain. On the contrary. That great debt was contracted to support the government that gave Ireland security and liberty, and gave the American colonies their charter, that is, their present liberty and security of property. The debt was not contracted to defend Britain, but to defend the provinces of the empire. Actually, if one wants to be precise, the last two wars to defend the North American colonies are the causes of this immense debt.

With a Union with Britain, Ireland would be freed from the power of its oppressive aristocracy and from the violence of factions. With a total separation, factions may become even more virulent. True that both Ireland and North America would face higher taxes in the case of a complete Union with Britain. But if the debt is indeed paid off, those higher taxes would not be there for long.

The Union should also include the territories of the East India Company. They are fertile and populous. They would generate a great revenue. Their taxes, though, should not increase. They are already too high. They should decrease.

This is a first solution.

Solution two: If it proves impossible to tax the colonies and to incorporate them in full into the British parliament, the only other solution is to decrease the expenses of the government. And the only way to do it is to eliminate the expenses for the defense of the colonies. Had it not been for those wars to defend the colonies, the debt would probably have been paid off. And had it not been for those colonies, there would have been no war.

So, if the empire cannot sustain the expense of keeping the colonies, it should let them go; if it cannot have a revenue that covers its expenses, it should reduce its expenses to match its revenue. Smith states loud and clear: the British Empire is an “imaginary empire”, it is a “project of empire”, it is a “golden dream” that cannot be realized. Give it up.

The first edition of the Wealth of Nations was published on March 9, 1776. July 4, 1776 proved to Britain it should have listened to Smith’s advice.

Further Readings

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