and that any rise in the cost of the lowest sorts of labour must also indirectly raise the cost of the higher grades; so that taxes on necessaries in the end meant a general rise in the cost of labour in the country concerned. If, then, conversely, such taxes were taken off, there would be a reduction in the cost of labour. Money wages would be less (so far as dependent on the cost of necessaries),' but real wages indirectly would be raised. This argument is of historical importance, as it had great influence with the manufacturers who advocated the repeal of the corn laws. The benefit to the consumer qua con

sumer was an afterthought.

The point of importance in the present argument is that Adam Smith does not look on the reduction or abolition of customs duties only from the point of view of the consumer, but he always traces the effect on labour. The labourers, no doubt, gain as consumers, unless their money wages are reduced precisely in proportion to the fall in the articles freed from taxes. But money wages are not on balance reduced so much -they may not even fall at all-because there is an improvement in the demand for labour. The two sources of gain are well brought out in the summary of the advantages to be derived from a reduction in the national debt. The people might be relieved from some of the most burdensome taxes; from those which are imposed either on the necessaries of life or upon the materials of manufacture. The labouring

66

1 "The reduction in the money price of labour would necessarily be attended with a proportionable one in that of all home manufactures, which would thereby gain some advantage in all foreign markets" (Bk. v. ch. ii.).

poor would thus be enabled to live better, to work cheaper, and to send their goods cheaper to market. The cheapness of their goods would increase the demand for them, and consequently for the labour of those who produced them. The increase in the demand for labour would both increase the numbers and improve the circumstances of the labouring poor. Their consumption would increase, and together with it the revenue arising from all those articles of their consumption upon which the taxes might be allowed to remain."1

§ 5. Mr. Gladstone on Cheapness and Employment.

There is a famous passage in Mr. Gladstone's financial statement of 1860, in which he replies to the ultra-orthodox Free Traders who tried to show that the commercial treaty with France was an infringement of their dogma. The main point is a reassertion of Adam Smith's position on the employment of productive labour (p. 128). "It is a mistake to suppose that the best mode of giving benefit to the working classes is simply to operate on the articles consumed by them. If you want to do them the maximum of good you should operate on the articles which give them the maximum of employment." He illustrates by reference to the Corn Laws. He says it is doubtful if the repeal up to that time had made bread cheaper; but the trade in corn had developed a corresponding export trade with a rise in wages, and it is "the enhanced price their labour thus brings even more

1 Book v. chap. iii.

2

2 Gladstone's Financial Statements, p. 128.

than the cheapened price of commodities, that forms the main benefit they receive. That is the principle of a sound political economy applicable to commercial legislation."

§ 6. "All Taxes on Commodities tend to reduce

Employment."

One more sentence may be given from Adam Smith: "All taxes on consumable commodities tend to reduce the quantity of productive labour below what it otherwise would be, either in preparing the commodities taxed if they are home commodities, or in preparing those with which they are purchased if they are foreign commodities." Curiously enough, the illustration given of the last case is that of the hardware trade of Birmingham, and the producer who is adversely affected is not directly the common artisan but the manufacturer himself. "The dearer the Birmingham manufacturer pays for his foreign wine the cheaper he necessarily sells that part of his hardware with which, or what comes to the same thing, with the price of which he buys it. That part of his hardware, therefore, becomes of less value to him, and he has less encouragement to work at it." And then follows the general principle that is fundamental in all foreign trade: "The dearer the consumers in one country pay for the surplus produce of another, the cheaper they necessarily sell that part of their own surplus produce with which, or what comes to the same thing with the price of which, they buy it. That part of their own

surplus produce becomes of less value to them, and they have less encouragement to increase its quantity."

§ 7. The Masses of the People are the Masses of Consumers and Producers.

In dealing with taxes on consumable commodities. Adam Smith brings out very clearly the fundamental idea that the masses of the consumers are also the masses of the producers of the country. "The whole consumption of the inferior ranks of people or of those below the middling rank, it must be observed, is in every country much greater not only in quantity but in value than that of the middling and of those above the middling rank. The whole expense of the inferior is much greater than that of the superior ranks. In the first place, almost the whole capital of every country is annually distributed among the inferior ranks of people as the wages of productive labour." But apart from the wages of productive labour paid out of capital (or rather from the continuous reproduction of capital), a great part of the revenue that arises from the rent of land and the profits of stock is spent in the wages of servants and other unproductive labourers. And besides, the inferior ranks themselves own a certain amount of land and capital from which they receive revenue directly.

The actual statistics of consumption confirm this view. Production on a large scale means also con

1 Book v. chap. ii.

sumption on a large scale. When Adam Smith wrote he included under the foreign luxuries, taxes on which fell principally upon the middling or superior ranks of the people, coffee, chocolate, tea,1 sugar, etc., which are all now regarded as necessaries.

The taxes which fall on articles of general consumption are always much more productive than those which fall on the luxuries consumed by the richer classes. It follows, then, that only a relatively small part of the total revenue of a country can be obtained from taxes on foreign imports that are luxuries in the sense that they do not enter into the general consumption of the masses of the people. And conversely if a large revenue is to be obtained from taxes on imports, such taxes must be imposed on things that directly or indirectly affect the consuming power of the masses of the people. But a reduction in the consuming power of the people is the same thing as a falling off in the aggregate annual produce of the land and labour of the country, and that again means that for a given amount of labour a less real reward is forthcoming.

§ 8. Adam Smith always considers the Producer as well as the Consumer.

There can be no question that Adam Smith always considered the effects of foreign trade not merely from the point of view of the consumer but also from that of the producer. Comparing his treatment with

1 "Tea was a drug very little used in Europe before the middle of last century."-Book 1. chap. xi.