The Wealth of Nations · Chapter
I: Of the Funds or Sources of Revenue Which May Peculiarly Belong to the Sovereign or Commonwealth explained
Smith examines the potential sources of public revenue for a sovereign or commonwealth, focusing on stock (profit and interest) and land (rent).
What happens
Smith examines the potential sources of public revenue for a sovereign or commonwealth, focusing on stock (profit and interest) and land (rent). He argues that while mercantile projects like public banks or post offices can yield revenue, they are often mismanaged by governments, especially monarchies. Public lands, historically a key revenue source, are now insufficient for modern states due to war expenses and inefficiency. Smith concludes that selling crown lands to private owners would benefit society by increasing productivity and tax revenue, and that the bulk of public revenue must come from taxes on the people.
Themes in this chapter
Role of Government
Smith argues that governments are often unfit to manage mercantile projects due to profusion and inefficiency, and that public revenue should come from taxes rather than state-owned enterprises.
Wealth and Money
Discusses how sovereigns can derive revenue from stock (profit and interest) and land (rent), and critiques the inefficiency of crown lands as a source of wealth.
Social Class and Inequality
Highlights the contrast between the 'orderly, vigilant, and parsimonious' aristocracies of Venice and Amsterdam versus the 'slothful and negligent profusion' of monarchies like England.
Characters to notice
- Great Britain
Mentioned as an example of a state considering public bank management and as a modern monarchy with large public revenue needs.
- The Tartars
Cited as an example of a chief deriving revenue from profit on herds and flocks in a rudimentary state of government.
- Holland
Referenced as a republic (Hamburg, Venice, Amsterdam) that successfully managed public banks for revenue.
- The Romans
Mentioned in the context of ancient republics using public land rent for revenue.
- The Greeks
Referenced alongside the Romans as ancient republics that derived revenue from public lands.
Key passages
“The sovereign, like any other owner of stock, may derive a revenue from it, either by employing it himself, or by lending it. His revenue is in the one case profit, in the other interest.”
A ruler can earn income from capital either by using it directly (earning profit) or by lending it (earning interest), just like any private investor.
Smith introduces the two basic ways a sovereign can generate revenue from stock.
“The post office is properly a mercantile project. The government advances the expense of establishing the different offices, and of buying or hiring the necessary horses or carriages, and is repaid with a large profit by the duties upon what is carried.”
The postal service is a commercial venture where the government invests in infrastructure and earns a profit from postage fees.
Smith uses the post office as an example of a successful government-run mercantile project.
“No two characters seem more inconsistent than those of trader and sovereign.”
The roles of a merchant and a ruler are fundamentally incompatible.
Smith argues that the prudent, profit-driven mindset of a trader conflicts with the lavish spending typical of a sovereign.
“The revenue which, in any civilized monarchy, the crown derives from the crown lands, though it appears to cost nothing to individuals, in reality costs more to the society than perhaps any other equal revenue which the crown enjoys.”
Although crown lands seem to provide free revenue, they actually harm society more than other forms of revenue because they prevent productive private use.
Smith advocates selling crown lands to private owners to boost overall economic productivity and tax revenue.
