works, posts, telegraphs, telephones, mints, stationery, and printing, forests, etc.; (2) the revenue from social services, e.g. education and hospital fees or receipts; (3) revenue from loans or debt services-the State is sometimes a lender of funds; and (4) miscellaneous. This last head would not be of importance but would in most cases include a few special heads which could not be conveniently grouped under heads (1), (2), and (3). In India, military receipts, exchange, and receipts in aid of superannuation would be included under this miscellaneous grouping.

The following tables show for India and Great Britain the classification in detail.

PERCENTAGE DISTRIBUTION OF THE GROSS REVENUE OF THE GOVERNMENT OF INDIA (CENTRAL AND PROVINCIAL)

CHAPTER XIV

THE CANONS OF TAXATION

1. In a previous chapter where the characteristics of a good revenue system were dealt with,1 a reference was made to the canons, or to use Adam Smith's expression, the maxims of taxation, which are an indispensable part of any exposition on public finance. We shall now refer to these in greater detail. In spite of the unfair and destructive criticisms of Cohn and Walker,2 these Smithian canons have rightly been regarded as classic. Modern writers, notably Garnier, Roscher, and RiccaSalerno, not to mention Wagner, have attempted to lay down precepts or rules regarding the characteristics of a good tax system. No genius, however, has succeeded in condensing the principles into such clear and simple canons as has Adam Smith. His acute and capacious mind gave an entirely new turn to former inquiries, and his successors have not, to any material degree, improved on these principles or succeeded in displacing them from the position which they hold in the science of finance. It is true some have altered the relative importance of these canons, and others have attempted (not always successfully) to introduce new fundamental principles. One writer,3 for example, analyses taxes from three points of view: (1) that of the taxpayer; (2) that of the State; and (3) that of society as an economic or

1 Chapter XIII. p. 109.

2 Cf. F. A. Walker's remarks in his Political Economy (Macmillan), §§ 587-589: A vast deal of importance has been assigned by English economists to these maxims. They have been quoted over and over again as if they contained truths of great moment; yet if one examines them, he finds them, at the best, trivial; while the first and most famous cannot be subjected to the slightest test without going all to pieces " (§ 587).

3 Sir Josiah Stamp, The Fundamental Principles of Taxation in the Light of Modern Developments (The Newmarch Lectures for 1919), Macmillan, 1921.

producing unit. Prof. Cannan, however, with reason shows that these are not fundamental principles but merely another way of saying that equity, productiveness, and economy (economy being used in its wider sense of general social advantage) are the basic principles of taxation.1

Some have sought to trace the maxims to the two Physiocrats -Moreau de Beaumont and Turgot. There was, it is true, in Adam Smith's library the Mémoires by Moreau de Beaumont.2 In a letter to Sir John Sinclair, Adam Smith confessed that "he (Smith) had frequent occasion to consult the book himself, both in the course of his private studies and in the business of his present employment (as Commissioner of Customs), and is therefore not very willing to let it go out of Edinburgh. The book was never properly published; but there were a few more copies printed than were necessary for the Commission for whose use it was compiled. One of these I obtained by the particular favour of Mr. Turgot, the late Controller-General of the Finances. I have heard but of three other copies in Great Britain. . . . If any accident should happen to my book, the loss is perfectly irreparable." Cunningham, in his Growth of English Industry and Commerce, holds that "Adam Smith's celebrated maxims about taxation are improved in form, but in substance they are found in the Avertissement to the splendid Mémoires which were compiled and printed for the French Government in 1768 ". Similarly Leon Say and Thorold Rogers believed Turgot's Formation and Distribution of Wealth had a considerable effect on the author of

1 Economic Journal, vol. xxxi., 1921, p. 350.

Cf. Bonar's Catalogue of the Library of Adam Smith (Macmillan, 1894), p. 9. Mémoires concernant les impositions et droits en Europe (par Moreau de Beaumont), Paris (vols. i.-iv. 1768-69; vol. v. 1789). In Bk. V. ch. ii. pt. i. of The Wealth of Nations, Adam Smith thus describes the book: "This work was completed by the order of the court for the use of a Commission employed for some years past in considering the proper means for reforming the finances of France. The account of the French taxes, which takes up three volumes in quarto, may be regarded as perfectly authentic. That of those of other European nations was compiled from such information as the French ministers at the different courts could procure. It is much shorter and probably not quite so exact as that of the French taxes."

3 Vol. ii. p. 437.

Cf. Rae, Life of Adam Smith (Macmillan), p. 203. Questions of literary obligation are often difficult to settle. Two contemporary thinkers, dealing with the same subject under the same general influences and tendencies of the time, may think nearly alike even without any manner of personal communication."

1

The Wealth of Nations. The maxims of the Physiocrats 1 were far from perfect from the undue importance given in their system to the rent of land as the only "net product" and, therefore, the only source of taxation. To-day Adam Smith's canons continue to be regarded as almost an essential part of the study of finance, and they have had a considerable effect on practical financiers, as, for example, on Gladstone in England,2 and on James Wilson, the first Finance Minister of India. They are extremely simple maxims, and in this lay their author's stroke of genius. In short, they were, in the phraseology of The Wealth of Nations, "intelligible to common understandings".

3

I. THE CANON OF EQUALITY OR EQUITY

2. "The subjects", says Adam Smith, " of every state ought to contribute towards 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. The expense of government to the individuals of a great nation, is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation. Every tax, it must be observed once for all, which falls finally upon one only of the three sorts of revenue above mentioned, is necessarily unequal, in so far as it does not affect the other two. In the following examination of different taxes I shall seldom take much further notice of this sort of inequality, but shall, in most cases, confine my observations to that inequality which is occasioned by a particular tax falling unequally even upon that particular sort of private revenue which is affected by it."

II. THE CANON OF CERTAINTY

3. "The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner 1 Euvres de M. Turgot, Ministre d'État (Paris, A. Belin, 1811 (9 vols.)). • Vide Gladstone's budgets, especially that of 1853 (Gladstone's Speeches, Methuen & Co.).

• Finance Minister 1859-60. Vide Bagehot (his son-in-law), in Life of Walter Bagehot, vol. x. p. 347 (Longmans, Green & Co., 1918).

of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put, more or less, in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty."

III. CONVENIENCE OF TIME OF PAYMENT

4. "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. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to pay; or, when he is most likely to have wherewithal to pay. 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 for him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy, or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable inconveniency from such taxes."

IV. ECONOMY IN COLLECTION

5. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose