Adam Smith on how governments learn from each other the best way of draining money from the pockets of the people (1776)

Adam Smith

Adam Smith (1723-1790) studied in great detail how taxes were used to fund the activities of the monarchies of his day. He was especially interested in how new taxes in one state would be copied by other states:

In France there are both stamp–duties and duties upon registration. The former are considered as a branch of the aides or excise, and in the provinces where those duties take place, are levied by the excise officers. The latter are considered as a branch of the domain of the crown, and are levied by a different set of officers. Those modes of taxation, by stamp–duties and by duties upon registration, are of very modern invention. In the course of little more than a century, however, stamp–duties have, in Europe, become almost universal, and duties upon registration extremely common. There is no art which one government sooner learns of another than that of draining money from the pockets of the people.

Here we have an example of “the spread of worst practice” to counter E.L. Jones' notion of “the spread of best practice” which he developed in order to show how free institutions gradually emerged in Europe. The latter expressed the idea that people and industries would relocate to areas in Europe which had lower taxes and less regulations, thus spurring other states to lower their taxes and regulations in order to compete. Smith takes the opposite view in this passage from Wealth of Nations where he shows how innovations in tax collection in one state (here France and stamp duties) where quickly copied by other states. he sadly concludes that “There is no art which one government sooner learns of another than that of draining money from the pockets of the people”.