best bear to have a peculiar tax imposed upon them."1

Adam Smith observed that in his day, had it not been for the tithe the landlords could have paid much more land-tax, and "America pays no tithe, and could, therefore, very well afford to pay a land-tax.” It is not necessary to go over ground so well "eared" already, but if we take the usual estimates that at present the self-governing colonies have a population of some thirteen millions, and that in a century this will exceed one hundred millions, and if we assume that site values grow with wealth and population in new countries, this source of revenue seems admirably fitted for meeting the growing needs of defence.

The other principal source of revenue on which Adam Smith would rely for contributions from each part of the empire is the customs revenue. Here again the historical origin is interesting as bearing on present-day proposals. "The duties of customs appear to have been originally considered as taxes on the profits of merchants. . . . The gains of alien merchants were looked upon more unfavourably than those of English merchants. It was natural, therefore, that those of the former should be taxed more heavily than those of the latter." "In those ignorant times it was not understood that the profits of merchants are a subject not taxable directly; or that

1 The whole of Adam Smith's treatment of taxation of land is of special interest at the present time. He shows that improvements ought not to be taxed; approves, and gives examples of national valuation of lands, and observes that "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."-Book v. chap. ii. art. 1.

the final payment of all such taxes must fall with a considerable overcharge upon the consumers."

" 1

The further examination of the customs duties as a source of imperial revenue for imperial purposes may be deferred until after the consideration of internal free trade (ie. within the limits of the empire) and the commercial relations of the empire to foreign states. One more reference, however, may be made to general principles. The method of assigning particular revenues to particular expenses which was at first universal has in general been for the most part abandoned. In a period of transition, however, such a method may be useful as being of a more simple type. That a colony should vote so many millions a year from its general revenues for defence against what many might think unreal dangers, might seem an absurd suggestion, but it seems not unreasonable that it should assign a certain share of a growing revenue to new needs. In matters of imperial defence, as so often observed, a century may be a short period.

§ 6. Free Trade within the Empire.

If we take a broad view of Adam Smith's ideas on the conditions necessary to convert the project of an empire into a real empire, next in importance to the recognition by the colonies of the duty of defence, must be placed the establishment of free trade within the limits of the empire. Here we must carefully distinguish between such internal free trade and free trade with

1 Book v. chap. ii. art. 4.

foreign nations; the two questions are quite distinct and are best considered separately, as is obvious by a reference to actual instances of the policy of nations. The United States, for example, has adopted against the rest of the world a protectionist system; but from the beginning free trade between the constituent states was provided for by the constitution.1 Alexander Hamilton was as strong an advocate of internal free trade as of external protection. And in the same way internal trade between the different states of the German empire is combined with protection against foreign countries; and here again List was as much in favour of the first as of the second condition.

As already shown, Adam Smith was of opinion that the separation of the colonies on friendly terms (as in the Grecian model) might not be disadvantageous to the mother country if—and the condition is essential-if the separation were made with the provision of commercial treaties "which might endure for centuries together" for the establishment of free trade between the parts; that is to say, political disintegration with alliance for defence and open markets for trade.

And in the real federation of which he himself approved one of the essential conditions is that the whole empire should form one great internal market. "The trade between all the different parts of the British empire would, in consequence of the uniformity in the custom-house laws, be as free as

1 See below, § 9.

the coasting trade of Great Britain is at present. The British empire would thus afford within itself an immense internal market for every part of the produce of all its different provinces." Then follows a remarkable sentence which has an important bearing mutatis mutandis on present issues. "So great an extension of the market would soon compensate, both to Ireland and the plantations, all that they could suffer from the increase of the duties of customs.'

§ 7. Advantages of Internal Free Trade.

The whole range of economic history shows that national progress has always been associated with the development of internal free trade. In mediæval England, for example, every town protected itself against every other, and one of the principal characteristics of the transition from the medieval to the modern period was the break-up of these "ancient customs" and the substitution of national for local regulation of trade. "The fifteenth and sixteenth centuries saw the rise of nationalities not only in a political but in an economic sense as well; since industry and commerce were beginning to be organised for national objects and on a national basis. The town no longer held its position as the chief organ of economic life." 1

As regards the advantages of internal free trade to the empire as a whole the appeal to experience ought to suffice. Consider the United Kingdom, Germany, the United States, France, Italy, and it is plain that

1 Cunningham, Growth of English Industry and Commerce, vol. ii. p. 5.

in every case the adoption of internal free trade between the different states or provinces or underkingdoms was essential to the completion of national unity.

Both the United Kingdom and the colonies would suffer certain inconveniences as regards revenue, from the necessary alteration of their customs duties which at present, to a considerable extent, fall on the products of different parts of the empire; but there can be little doubt that the necessary revenue could be raised in other ways; and customs for revenue might be retained so long as necessary. The real difficulty is encountered when we look at the question from the standpoint of the protectionist colonies; the real difficulty is not revenue but protection. And if these difficulties are to be overcome,' the advantages must be made clear.

In the first place, then, the very idea of such internal free trade is that capital and labour would flow where most required. And there can be no doubt that the flow in both cases would be from the mother country to the colonies. It is also equally clear that the great object of all the colonies is to attract labour and capital.

The interests of the colonies in this matter of internal free trade may be examined from the point of view of the history of the United States and in reference to the arguments advanced by Alexander Hamilton. The question may be put in this form: If it was an advantage to the American colonies in

1 See next section.