The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable.
It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion" Smith believed that an even "more proper" source of progressive taxation than property taxes was ground rent. Smith wrote that "nothing [could] be more reasonable" than a land value tax. Of the Expenses of the Sovereign or Commonwealth: Smith uses this chapter to comment on the concept of taxation and expenditure by the state.
On taxation Smith wrote,.
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate.
In the observation or neglect of this maxim consists what is called the equality or inequality of taxation. Smith advocates a tax naturally attached to the "abilities" and habits of each echelon of society. For the lower echelon, Smith recognised the intellectually erosive effect that the otherwise beneficial division of labour can have on workers, what Marx, though he mainly opposes Smith, later named "alienation,"; therefore, Smith warns of the consequence of government failing to fulfill its proper role, which is to preserve against the innate tendency of human society to fall apart.
The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.
Adam Smith (1723—1790)
The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
Under Smith's model, government involvement in any area other than those stated above negatively impacts economic growth. This is because economic growth is determined by the needs of a free market and the entrepreneurial nature of private persons.
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A shortage of a product makes its price rise, and so stimulates producers to produce more and attracts new people to that line of production. An excess supply of a product more of the product than people are willing to buy drives prices down, and producers refocus energy and money to other areas where there is a need. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion. He also introduced the distinction between a direct tax , and by implication an indirect tax although he did not use the word "indirect" :.
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It is thus that a tax upon the necessaries of life operates exactly in the same manner as a direct tax upon the wages of labour. Constitution, and James Madison , who wrote much of the Constitution, is known to have read Smith's book. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war [ The return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war.
These are mortgaged for the interest of the debt contracted in order to carry it on. Smith then goes on to say that even if money was set aside from future revenues to pay for the debts of war, it seldom actually gets used to pay down the debt. Politicians are inclined to spend the money on some other scheme that will win the favour of their constituents. Hence, interest payments rise and war debts continue to grow larger, well beyond the end of the war. Summing up, if governments can borrow without check, then they are more likely to wage war without check, and the costs of the war spending will burden future generations, since war debts are almost never repaid by the generations that incurred them.
The first edition of the book sold out in six months. Strahan also wrote: "What you say of Mr. Gibbon's and Dr. Smith's book is exactly just. The former is the most popular work; but the sale of the latter, though not near so rapid, has been more than I could have expected from a work that requires much thought and reflection qualities that do not abound among modern readers to peruse to any purpose.
- An Inquiry Into the Nature and Causes of the Wealth of Nations Summary & Study Guide?
- by Adam Smith.
- An Inquiry Into the Nature and Causes of the Wealth of Nations Summary & Study Guide Description?
Adam Smith has enriched the public! An extensive science in a single book, and the most profound ideas expressed in the most perspicuous language". Burke possessed talents similar to the author 'On the Wealth of Nations,' he would have comprehended all the parts which enter into, and, by assemblage, form a constitution. She is our best customer; and by the gentle and peaceable stream of commerce, the treasures of the new world flow with greater certainty into English reservoirs, than it could do by the most successful warfare.
They come in this way to support our manufactures, to encourage industry, to feed our poor, to pay taxes, to reward ingenuity, to diffuse riches among all classes of people. But for the full understanding of this beneficial circulation of wealth, we must refer to Dr. Adam Smith's incomparable Treatise on the Wealth of Nations. In , a correspondent writing under the pseudonym of Publicola included at the head of his letter Smith's line that "Exclusive Companies are nuisances in every respect" and called him "that learned writer".
Smith's biographer John Rae contends that The Wealth of Nations shaped government policy soon after it was published. In , in the first budget after the book was published, Prime Minister Lord North got the idea for two new taxes from the book: one on man-servants and the other on property sold at auction.
The budget of introduced the inhabited house duty and the malt tax, both recommended by Smith. In , Smith was consulted by politicians Henry Dundas and Lord Carlisle on the subject of giving Ireland free trade. There was a maxim laid down in an excellent book upon the Wealth of Nations which had been ridiculed for its simplicity, but which was indisputable as to its truth.
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In that book it was stated that the only way to become rich was to manage matters so as to make one's income exceed one's expenses. This maxim applied equally to an individual and to a nation. The proper line of conduct therefore was by a well-directed economy to retrench every current expense, and to make as large a saving during the peace as possible. However Fox once told Charles Butler sometime after that he had never read the book and that "There is something in all these subjects which passes my comprehension; something so wide that I could never embrace them myself nor find any one who did.
In the same year George Dempster MP referenced it in the debate on the proposal to farm the post-horse duties and in by a Mr. Hussy on the Wool Exportation Bill. The prime minister, William Pitt , praised Smith in the House of Commons on 17 February "…an author of our own times now unfortunately no more I mean the author of a celebrated treatise on the Wealth of Nations , whose extensive knowledge of detail, and depth of philosophical research will, I believe, furnish the best solution to every question connected with the history of commerce, or with the systems of political economy.
The book was not mentioned in the House of Lords until a debate in between Lord Lansdowne and Lord Loughborough about revolutionary principles in France. During a debate on the price of corn in Lord Warwick said:.
There was hardly any kind of property on which the law did not impose some restraints and regulations with regard to the sale of them, except that of provisions. This was probably done on the principles laid down by a celebrated and able writer, Doctor Adam Smith, who had maintained that every thing ought to be left to its own level. He knew something of that Gentleman, whose heart he knew was as sound as his head; and he was sure that had he lived to this day and beheld the novel state of wretchedness to which the country was now reduced He would now have abundant opportunities of observing that all those artificial means of enhancing the price of provisions, which he had considered as no way mischievous, were practised at this time to a most alarming extent.
He would see the Farmer keeping up his produce while the poor were labouring under all the miseries of want, and he would see Forestallers, Regraters, and all kinds of Middle-men making large profits upon it. Lord Grenville replied:. The Radical MP Richard Cobden studied The Wealth of Nations as a young man; his copy is still in the library of his home at Dunford House and there are lively marginal notes on the places where Smith condemns British colonial policy. There are none on the passage about the invisible hand. In , Cobden quoted Smith's protest against the "plain violation of the most sacred property" of every man derived from his labour.
Cobden believed it to be morally wrong to lend money to be spent on war. In , when The Times claimed political economists were against Cobden on this, Cobden wrote: "I can quote Adam Smith whose authority is without appeal now in intellectual circles, it gives one the basis of science upon which to raise appeals to the moral feelings. Cobden said that if Bright had been as plain-speaking as Smith, "how he would have been branded as an incendiary and Socialist".
You will find just the same authority in Adam Smith for the one as for the other. After the British took control over occupied French North America in the Seven Years' War, Charles Townshend suggested that the American colonists provide help to pay for the war debt by paying an additional tax on tea. During this time, Adam Smith was working for Townshend and developed a relationship with Benjamin Franklin, who played a vital role in the United States' independence three months after Smith's The Wealth of Nations book was released.
James Madison , in a speech given in Congress on 2 February , cited The Wealth of Nations in opposing a national bank: "The principal disadvantages consisted in, 1st. It was admitted by the most enlightened patrons of banks, particularly by Smith on the Wealth of Nations. With 36, citations, it is the second most cited book in the social sciences published before , behind Karl Marx 's Das Kapital. George Stigler attributes to Smith "the most important substantive proposition in all of economics" and foundation of resource-allocation theory. It is that, under competition, owners of resources labour, land, and capital will use them most profitably, resulting in an equal rate of return in equilibrium for all uses adjusted for apparent differences arising from such factors as training, trust, hardship, and unemployment.
Paul Samuelson finds in Smith's pluralist use of supply and demand —as applied to wages, rents, and profit—a valid and valuable anticipation of the general equilibrium modelling of Walras a century later.
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