The Simplified Wealth of Nations of Adam Smith, Book 5, Chap. 2a, Part 1: Government Revenue Sources

Chapter 2a, Part 1: The sources of the public revenue

1 The revenue which pays for national defense and supporting the dignity of the chief magistrate may be drawn:
  1. from some fund of the commonwealth, independent of the revenue of the people; or
  2. from the revenue of the people

Part 1 The funds which belong to the sovereign or commonwealth

2 The funds which belong to the sovereign must consist in stock or land.

3 The sovereign, like any other owner of stock, may derive a revenue from it:

4 The revenue of a Mongol or Arab chief consists in profit.

5 Small republics sometimes derived a big revenue from the profit of mercantile projects.

  • The profit of a public bank was a source of revenue for bigger countries, as in Hamburg, Venice, and Amsterdam.
  • The ordinary dividend of the Bank of England was 5.5%.
  • It is pretended that government could borrow this capital at 3% interest.
  • Government management of mercantile projects like this requires orderly, vigilant, and parsimonious administration, like those in Venice and Amsterdam.
  • In peacetime, she has been slothful and negligently profuse.
  • In wartime, she has been thoughtlessly extravagant.
  • It is doubtful that the English government could be safely trusted with bank management.
  • 6 "The post office is properly a mercantile project."

  • It is repaid with a large profit by its tax duties.
  • It is perhaps the only mercantile project successfully managed by every government.
  • Its capital is not very big.
  • "There is no mystery in the business."
  • The returns are certain and immediate.
  • 7 Princes have frequently engaged in many other mercantile projects.

  • They frequently live with the profusion of princes and sometimes acquire the fortunes of princes.
  • Machiavelli tells us that the agents of Lorenzo of Medicis carried on his trade.
  • He used what remained of his fortune and the state revenue in projects more suitable to his station.
  • 8The character of the trader is very incompatible with the character of a sovereign.

    9 A state may sometimes derive some of its public revenue from interest and profits.

    10 Berne derives a big revenue by lending some of its treasure to foreign states.

    1. The security of those funds and the good faith of the government which manages them
    2. The certainty of peace with the debtor nation

    11 Hamburgh established a public pawnshop which lends money on pledges at 6% interest.

    12 The government of Pennsylvania, without amassing any treasure, invented a method of lending something equivalent to money to its citizens.
    1. The demand for some other instrument of commerce besides gold and silver money or
  • The good credit of the government of Pennsylvania
  • The moderation of how this method was used
  • 13Stock and credit are naturally unstable and perishable.

    Next: Chapter 2b: Revenue from state lands