to the context occurs in the general summary of the attack on the mercantile system.

§ 2. "Consumption the sole End and Purpose of all Production": Critical Examination of.

The

"Consumption is the sole end and purpose of all production; and the interest of the producer ought only to be attended to only so far as it may be necessary for promoting that of the consumer. maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production and not consumption as the ultimate end and object of all industry and commerce. That the very meaning of production is the adaptation of things to the wants of man-the putting utility into things or adding to the utility— and that utility itself means the power to satisfy a want-have long since become the commonplaces of political economy. But Adam Smith's reference to the interest of the producer as entirely subordinate to that of the consumer has been altogether misunderstood and misapplied.

The term "producer" has been interpreted to mean the "productive labourer," and it has been supposed that Adam Smith meant by this assertion that so long as commodities were produced as cheaply as possible the conditions under which the work was done by labour might be disregarded; that in the

1 Book IV. chap. viii.

interest of the consumer labour itself was to be made as cheap as possible, and if, for example, the labour of little children was cheaper than that of men it was to be preferred. In this way, out of the perversion of maxim, a maxim so self-evident that it came very near the explication of a definition, there arose the opposition to all the long series of reforms for the improvement of the conditions of labour which have marked the economic progress of the nineteenth century.

But, as so often pointed out, the teaching of the Wealth of Nations cannot be understood from a few isolated sentences. And with Adam Smith there is the less justification for this perversion of popular dogmatism, because he always makes his meaning perfectly clear by a context illuminated by facts. The sentence under examination follows immediately on a passage in which he severely condemns the laws which prohibited the emigration of skilled workmen : "It is unnecessary to observe how contrary such regulations are to the boasted liberty of the subject, of which we affect to be so very jealous; but which in this case is so plainly sacrificed to the futile interests of our merchants and manufacturers," who in effect wanted a buyer's monopoly of labour, to use the modern term. And after a summary of the modes in which, under the mercantile system, the interests of the consumer have been sacrificed to those of the producer, we have as the conclusion: "It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not

the consumers we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to; and among the latter class our merchants and manufacturers have been by far the principal architects. In the mercantile regulations which have been taken notice of in this chapter1 the interest of our manufacturers has been most peculiarly attended to: and the interests, not so much of the consumers as that of some other sets of producers, has been sacrificed to it."

Again, in describing the essential features of the system of natural liberty the first sentence runs : "Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way." But it is plain, from the whole trend of the argument, in which the mercantile system is attacked that, in Adam Smith's opinion, the interests of the productive labourers had been sacrificed to the interests of monopolies, and that the whole body of consumers had suffered by the reduction in the produce of the land and labour of the society consequent on these same monopolies. § 3. Taxes on Consumable Commodities: Effect on Labour.

2

The same ideas are evident in the treatment of the taxes on consumable commodities. A distinction is drawn between the taxes which are intended

1 Book IV. chap. viii. The producers sacrificed are the poor spinners, the artisans, etc. See below Chapter X. § 4, pp. 141-4.

2 See next chapter.

primarily for revenue and those the object of which is to secure the monopoly of the home market. "Taxes imposed with a view to prevent or even to diminish importation are evidently as destructive of the revenue of the customs as of the freedom of trade.' A passage already quoted deserves requotation for emphasis at this point. "The greater part of the taxes have been imposed for the purpose not of revenue but of monopoly or to give our own merchants an advantage in the home market. By removing all prohibitions, and by subjecting all foreign manufactures to such moderate taxes as it was found from experience afforded from each article the greatest revenue to the public, our own workmen might still have a considerable advantage in the home market; and many articles, some of which at present afford no revenue to the government and others a very inconsiderable one, might afford a very great

one.” 1

This passage is so liable to misquotation that it is well to point out that in the account which follows of the advantages of this proposed reform of the customs duties the phrase occurs, "taxation being always employed as an instrument of revenue and never of monopoly." It is often forgotten by those who imagine that Adam Smith advocated free importation under all conditions of all things, that one of his greatest contributions to practical finance was in the improvements he suggested in the customs duties considered as sources of revenue. His lead

1 Book v. chap. ii.

ing ideas were: that the number of such duties should be very greatly reduced; that the rate should be lowered so that the revenue might be increased by the extension of demand; and that the indirect expense should be diminished by more effective administration and by the provision of bonded warehouses. "If by such a change in system the public revenue suffered no loss the trade and manufactures of the country would gain a very considerable advantage. The trade in the commodities not taxed, by far the greatest number, would be perfectly free and might be carried on to and from all parts of the world with every possible advantage. Among those commodities would be comprehended all the necessaries of life, and all the materials of manufacture. It must always be remembered, however, that it is the luxuries and not the necessary expense of the inferior ranks of the people that ought ever to be taxed."

§ 4. Taxation of Necessaries: Reasons against.1

And here it must be observed that Adam Smith did not insist on the exemption of necessaries simply on the ground of inequality of sacrifice and the burden on the poor of such taxes. He did not regard the question simply from the point of view of the consumer. On the contrary, he held that as regards the lowest classes of labour who lived very near the minimum of subsistence, any tax on necessaries must be transferred to the employers of labour, 1 See also below, Chapter XI. § 10, p. 163.