The root idea in this policy would be the protection against the foreigner by the empire (the United Kingdom included), rather than the gradual development of free trade within the empire. The system of preferences by the method of supertaxes must be regarded as a substitute for free trade within the empire, instead of being a method by which it may be promoted. Judging by experience, preferential protection of this kind, like other forms of protection, would tend to be permanent owing to the creation of vested interests, and possibly to increase owing to the political power usually exercised by protected interests.

There is no getting over the difficulty that the adoption of free trade within the empire must mean the disturbance of vested interests in the colonies. If the policy is to be decided by a conflict of classes, the colonial agriculturists have more to gain by free trade with the United Kingdom than by any system of supertaxes on foreign manufactures. A conflict of classes is not a good beginning for union, but it may be necessary.

If the ideal of internal free trade is accepted it might no doubt be approached by the method of preferences if they take the form of a gradual and continuous reduction in the duties imposed on British goods, supertaxes on foreign goods being only used as a temporary method of adjustment.

In the last resort, however, if free trade within the empire is to be attained it must be by the realisation that such internal free trade is a fundamental condi

tion of any real imperial union. Here, as already insisted, the history of all the great civilised countries is conclusive. The colonies without any bribe, or any careful weighing of the class interests affected, recognised the duty of sharing in the naval defence of the empire as soon as the need was realised. Their statesmen repudiated with indignation the idea that their contributions would depend on the grant of commercial favours. If in the same way they can be brought to see that free trade throughout the empire is one of the best methods of securing closer union, greater community of interests, and greater wealth and power to the empire as a whole, it may be expected that they will follow the example of other great states, and consent to this partial abandonment of national sovereign rights. The adoption of free

1 The advantages of internal free trade as the basis of imperial union, and the difficulties to be overcome in the attainment, are well shown in the history of the United States after the recognition of independence by Britain by the treaty of 1783. The point has been admirably brought out in Mr. Oliver's Life of Hamilton. One of Hamilton's chief difficulties was to get rid of the sovereignty ideas of the particular states in matters of trade. "Power, prosperity, and consideration, which all men affected to desire, were only to be had on terms which the states could not bring themselves to pay. . . . The thirteen states proceeded to indulge themselves in the costly luxury of an internecine tariff war. The states with seaports preyed upon their land-locked brethren, and provoked a boycott in return. It was a dangerous game, ruinous in itself, and behind the custom-house officers men were beginning to furbish up the locks of their muskets" (Alexander Hamilton, p. 134, by F. S. Oliver).

The necessity for vesting the control of foreign commerce solely in Congress and the difficulties of an independent commercial policy for each state, have been well summarised by Dr. E. L. Bogart in his excellent Economic History of the United States (p. 102 sq.). "Until 1789, therefore, the states undertook to regulate commerce, and by retaliatory measures to secure greater freedom (i.e. in foreign trade). During the years 1780 to 1788 Pennsylvania enacted fifteen tariffs, Virginia twelve, Massachusetts, New York, and Maryland, each seven; Connecticut six, and the other states a smaller number. . . . To make matters worse the states finally began to make commercial war upon each other. It had now become evident that if

trade within the empire would naturally lead to, or be accompanied by, the agreement to a common policy in the commercial relations of the various parts of the empire with foreign states.

§ 10. Fiscal and Commercial Relations of the
Empire with Foreign Countries.

There remains, then, the difficult question: What ought to be the relations of the united British Empire to foreign states in the matter of trade? What ideas of Adam Smith are here applicable and with what results?

We cannot, of course, expect to find in Adam Smith cut-and-dried answers to our present problems. "Conditions have changed," although, as it happens, the problems of greatest moment at the present time are those which in his day were also of supreme importance, namely problems of empire. But, apart reprisals were desirable it was impossible to carry them out so long as each state controlled its own action with regard to foreign commerce. Unified action could never be secured until Congress should be made supreme in foreign relations. Moreover, the mutual jealousies of the states were daily making some plan of central control more necessary. At the same time, American industries had been developing, and a growing desire for protection began slowly to replace the idea of retaliation." Inter-state protection was abandoned by the Constitution of 1789, but protection against foreign countries did not become the main idea of commercial policy till after the conclusion of the great Napoleonic wars. The point is that internal free trade within the states was adopted first on its own account; secondly, for the power it gave in retaliation and treaty-making; and lastly (after an interval) the commercial union was used largely for protection against foreign countries. The commercial relations of Britain and the colonies and of the colonies inter se are certainly much less strained and more capable of adjustment than were the relations of the thirteen states. It must be remembered also that Pitt in 1783 (no doubt under the influence of Adam Smith) tried to persuade the British Parliament to offer full freedom of trade to the new United States, possibly with the idea of again bringing about a union with the mother country.

from changes in conditions, in matters of national policy there is no appeal to authority; and what we want to find out is not what the master said, but why he said it.

If it were a question of authority merely, to be settled by the appropriate ipse dixit, the answer would be simple. Adam Smith certainly approved of a customs union for the whole empire; a uniform system for the whole empire.

Adam Smith deals with the proposal for an imperial customs union from the point of view of revenue; a revenue to meet the expense of defence and the expense of the general government of the empire. Land-taxes, stamps, and excise are also considered from the same standpoint. The idea is to provide an imperial revenue which shall not depend on the annual votes of the provincial assemblies but on a system of taxation for imperial purposes approved by a central authority in which the different provinces are represented.

1

"What is necessary for the defence and support of the whole empire and in what proportion each part ought to contribute can be judged of only by that assembly which inspects and superintends the affairs of the whole empire." The object in the extension of the British system of taxation to the colonies for imperial purposes was obviously to get over the difficulty of assigning the particular contributions of the constituent states.

Adam Smith does not discuss the possibility of 1 Book IV. chap. vii.

using the customs union for protective purposes; though he remarks incidentally that "the extension of the custom-house laws of Great Britain to Ireland and the plantations, provided it was accompanied, as in justice it ought to be, with an extension of the freedom of trade, would be in the highest degree advantageous to both." The extension of freedom of trade, however, refers to the abolition of the vexatious restraints at that time imposed on the external trade of Ireland and the colonies, including their trade with Britain.

In his treatment of taxes on consumable commodities Adam Smith lays down the general rule that customs duties ought always to be for revenue and not for monopoly, and it may be inferred that in his judgment the rule would apply also to the imperial customs proposed.

At the same time it is to be observed that although he maintained that, corresponding to every excise duty on the home product, there ought to be a corresponding customs duty on the foreign import, he never insists on the converse that corresponding to every customs duty there ought to be an excise exactly equivalent. He considers the applicability of the excise duties for imperial purposes in some detail, and incidentally gives some interesting facts on the difference between an American fermented liquor called beer, "but which, as it is made of molasses, bears very little resemblance to our beer"; but he does not suggest that for every customs duty there must be an excise in the interests of the purity of free trade.