t important consideration in viewing the economical effects arising
from performance of necessary government functions is the means adopted
by government to raise the revenue which is the condition of their
existence.

The qualities desirable in a system of taxation have been embodied by
Adam Smith in four maxims or principles, which may be said to have
become classical:

(1) The subjects of every state ought to contribute to the support of
the government as nearly as possible in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state.

(2) The tax which each individual has to pay ought to be certain, and
not arbitrary. A great degree of inequality is not nearly so great an
evil as a small degree of uncertainty.

(3) Every tax ought to be levied at the time or in the manner in which
it is most likely to be convenient for the contributor to pay it. Taxes
upon such consumable goods as are articles of luxury are all finally
paid by the consumer, and generally in a manner that is very convenient
to him.

(4) Every tax ought to be so contrived as to take out and keep out of
the pockets of the people as little as possible over and above what it
brings into the public treasury.

Taxes on commodities may be considered in the following way. Suppose
that a commodity is capable of being made by two different processes.
It is the interest of the community that of the two methods producers
should adopt that which produces the best article at the lowest price.
Suppose, however, that a tax is laid on one of the processes, and no tax
at all, or one of lesser amount, on the other. If the tax falls, as it
is, of course, intended to do, upon the process which the producers
would have adopted, it creates an artificial motive for preferring the
untaxed process though the inferior of the two. If, therefore, it has
any effect at all it causes the commodity to be produced of worse
quality, or at a greater expense of labour; it causes so much of the
labour of the community to be wasted, and the capital employed in
supporting and remunerating the labour to be expended as uselessly as if
it were spent in hiring men to dig holes and fill them up again. The
loss falls on the consumers, though the capital of the country is also
eventually diminished by the diminution of their means of saving, and in
some degree of their inducements to save.

Taxes on for