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Adam Smith

.

CHAPTER Four

4.24.2

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Outline

4.2 Adam smith:

Life

The Theory of Moral Sentiment

Wealth of nations

Division of labor

The Economic Laws of A Competitive Economy

Samuel S. HET Woldia University,2015

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A.S..LifeA.S..Life

Smith was born in the small town ofKirkaldy, on the eastern

coast of Scotland, in 1723. Raised by his motherMargaret.

When he reached 14 he moved to Glasgow in order to attend

the local university. Among his teachers, his favorite was

Francis Hutcheson.He studied

logic,[ AristotelDescartes and Locke]

naturalphilosophy, in mathematics and physics(Euclids

Elements and Newtons Principia mathematics), and

moral philosophy(withFrancis Hutcheson).


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A.S..LifeA.S..Life

He continued his study in oxford, atBalliol College,

with a scholarship, that guaranteed 40 yearly for

eleven years, as preparation for anecclesiastical career. He despised traditionalist and authoritarian English

universities of the time.

he had plenty of time to spend in theBodleian

Library


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A.S..LifeA.S..Life

In 1746, after six difficult years he returned to Scotland

For two years he studied by his own.

After wards he held public lectures in Edinburgh on rhetoric and English

literature until 1751.

1751 joined Glasgow University as a professor of logic then moral

Philosophy.

Mostly he lectured on

natural theology, ethics, jurisprudence and,

in the same set of lessons, politics and political economy.


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A.S..LifeA.S..Life

Smith wrote and published his first book,The theory of moral

sentiments(1759).

After a while smith got an offer to be come a tutor of the young

Duke of Buccleuch, accepting the offer smith withdraws from his

chair in Glasgow.

As tradtion comands he start to travel with his tutor.

The travels on the continent gave Smith the opportunity to meet

Voltaire in Geneva, and in Paris dAlembert, Quesnay and many

others.


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A.S..LifeA.S..Life

Specially The stay in Paris offered Smith stimuli that he would

work upon In the following years.

After the travels he retires and starts the composition of The

wealth of nations, until it published in march 9 1976 it took

him almost ten years.

When the book reaches bookstores it was a total success,

before his deathit went through five editions.

His great friend Hume wrote him an enthusiastic letter about

it.


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A.S..A.S..The Theory of Moral Sentiment

The Theory of Moral Sentiments was published seventeen

years before Wealth of Nations.

The books stand side by side, presenting different but

complementary facets of his thinking.

It discussed the moral forces that restrain selfishness and bind

people together in a workable society; Wealth of Nations

assumed the existence of a just society and showed how the

individual is guided and limited by economic forces.


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The book opens with a chapter titledOf Sympathy.

Sympathy, said Smith, overcomes even selfishness.

Sympathy (or fellow-feeling) interests us in the fortune of

others and makes their happiness necessary to us.

Accordingly to Smith, the chief part of human happiness

arises fromthe consciousness of being beloved; sympathy,

leads us to judge our actions on the basis of their effects on

others in addition to their effects on ourselves.

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Thus man

must [. . .] humble the arrogance of his self-love, and bring

it down to something which other men can go along with. [. .

.] In the race for wealth, and honours, and referments, he

may run as hard as he can, and strain every nerve and

every muscle, in order to outstri all his cometitors. !ut if

he should "ustle, or throw down any of them, the indulgence

of the sectators is entirely at an end. It is a violation of fair

lay, which they cannot admit of.


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This kind of moral attitude is a prerequisite for the very

survival of human societies:

Society [. . .] cannot subsist among those who are at alltimes ready to hurt and injure one another.

In other words, Smiths liberal views are based on a two-

fold assumption, namely that commonly each person knows better than anybody

else her or his own interests,


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and that among the interests of each there is the desire to be

loved by the others and hence respect for the well-being of

the others.

The first assumption explainsthe rejection of a centralized

management of the economy

The second assumption constitutes a precondition to ensure

thatthe pursuit of self-interest on the part of a multitude of economic

agents in competition among themselves leads to results conducive to

the well-being of society.

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Another central element in The theory of moral

sentiments is the notion ofthe impartial spectator.

According to Smith, individuals evaluate their ownactions by taking the viewpoint of an impartial spectator

who, endowed with the knowledge of all the elements

they know, judges such actions as an average citizen. With this argument he lies down a concrete support for

judicial institutions(the functioning of which guarantee

security of market exchange).

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And further, Smith proposes the line of a greater confidence in the self-

governing capacity of individuals:

#$very man is, no doubt, by nature, %rst and

rincially recommended to his own care& and as

he is %tter to ta'e care of himself than of any other

erson, it is %t and right that it should be so.(

However, the free pursuit of personal interest comes up against two

limits:


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one external to the individual (the administration of

justice, one of the fundamental functions that Smith

attributes to the state)

and one internal to him, sympathy for his fellow human

beings.


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Both Moral Sentiments and Wealth of Nations

reconcile the individual with the social interest

through the principle of the invisible hand, or naturalharmony, and the principle of natural liberty of the

individual, or the right to justice.

In Moral Sentiments, sympathy and benevolence

restrain selfishness; in Wealth of Nations, competition

channels economic self-interest toward the social good.

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A.SA.S)ealth of *ation+An introductionAn introduction

An inquiry into the nature and causes of the wealth of

nations (Smith,1776)

It is subdivided into five book: book one, Of the Causes of Improvement in the

productive Powers of Labour, and of the Order according

to which its Produce is naturally distributed among thedifferent Ranks of the People.

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A.SA.S )ealth of *ation+An introductionAn introduction

Book 2 is called Of the Nature, Accumulation, and

Employment of Stock.

Book 3, Of the different Progress of Opulence in different

Nations.

Book 4, which occupies a tremendous space, Of Systems

of political Economythe mercantile system and the

agricultural system, as he called it, of the physiocrats.

And book 5 is called Of the Revenue of the Sovereign or

Commonwealth.

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The scientific tame of wealth of nation

o The main content of the Wealth of Nations is a theory

of productive organization and a theory of the causesof economic growth.

o At first lays it down that labor as a source of wealth

and division of labor as a means to increase

productivity of labor.

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o Then he continues to say division of labor necessitates

exchange, and exchange leads to money as a medium

of exchange and value.

o The discussion of price follows, and then the

components of price: wage, profit and rent.

o

Finally a criticism of mercantilism and physiocracyfollows; and the last book deals with public finance.

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A.SA.S )ealth of *ation+ division of labor

Book one, chap 1,begins with an analysis of the causes

of improvement in the productive powers of labour

He identified improvement as the main Condition for

the growth of real wealth.

The greatest improvement in the productive powers of labor, and

the greater part of the skill, dexterity, and judgment with

which it is anywhere directed, or applied, seem to have been

the effects of the division of labor [Smith, 1776, 1:5]

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Thedivision of laboris a process by which a particular

productive operation is subdivided into a certain

number of separate operations, each of which is

carried out by a different person.

Example:- pin-making in a pin factory

Smith then goes on to argue on the consequence

of the division of labor: it

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is owing to three different circumstances: first, the increase

of dexterity in every particular workman; secondly, to the

saving of time which is commonly lost in passing from onespecies of work to another; and lastly, to the invention of a

great number of machines which facilitate and abridge labor,

and enable one man to do the work of many.

increase in skill, labor time savedandtechnical

progressincreases the production of output.

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Comments on division of labor

Adam Smith, following the tradition of the eighteenth-

century enlightenment, and following Locke in this

particular respect, thought that we all come into the world

with, roughly speaking,equal potentiality,and what

happens afterwards is a matter ofeducation and

experience.

compare it with plat's idea of division of labor.

dose genetics and territorial division of labor matter?

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While recognizing the benefits of division of labor, he

also perceived some serious social costs.

One social disadvantage of the division of labor is thatworkers are given repetitious tasks that soon become

monotonous.

Human beings become machines tied to a production

process and are dehumanized by the simple, repetitive,

boring tasks they perform.

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In the progress of the division of labour, the employment of the far greaterpart of those who live by labour . . . comes to be confined to a few verysimple operations. . . . But the understandings of the greater part of menare necessarily formed by their ordinary employments. The man whosewhole life is spent in performing a few simple operations, of which theeffects too are, perhaps, always the same, or very nearly the same, has nooccasion to exert his understanding, or to exercise his invention in findingout expedients for removing difficulties which never occur. He naturallyloses, therefore, the habit of such exertion, and generally becomes as stupidand ignorant as it is possible for a human creature to become. The torpor of

his mind renders him, not only incapable of relishing or bearing a part inany rational conversation, but of conceiving any generous, noble, or tendersentiment, and consequently of forming any just judgment concerningmany even of the ordinary duties of private life. 2:262

Samuel s. HET, WLDU 2015

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In chapter 2of wealth of nation he goes to say DL

arises from a propensity in human nature- a

propensity to truck, barter and exchange one thing for the

other.smith 1:15

And then he brings the idea ofself-love (self-interest)

in play to say it is the impersonal relationship of

exchange which provide the incentive to division of

labor.

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Whoever offers to another a bargain of any kind, proposes to do

this. Give me that which I want, and you shall have this which you

want, is the meaning of every such offer; and it is in this manner

that we obtain from one another the far greater part of those good

offices which we stand in need of. It not from the benevolence of the

butcher, the brewer, or the baker, that we expect our dinner, but

from their regard to their own interest. We address ourselves, not to

their humanity but to their self-love, and never talk to them of our

own necessities but of their advantages. [Smith, 1776, 1:16]

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Pose and ask

Is all actions in the society were conducted on the bases of

self-interest only?

In chapter 3 he discuss how the extent of market

determines the level of exchange.

The larger the market, the greater the volume that can besold and the greater the opportunity for division of labor.

A limited market, on the other hand, permits only limited

division of labor.

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Hence Smiths economic liberalism: whatever is an

obstacle to commerce, also constitutes an obstacle to

the development of the division of labour, and so to

increases in productivity and the increase in the

welfare of the citizens, or in other words to the wealth

of nations. In the latter years of economics this thought of smith

develops toincreasing returns( a down ward supply

curve with in a firm.

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A.SA.S )ealth of *ation+ Value

In chapter 5of wealth of nation smith distinguishes

the real and nominal price of commodities.

price in money is a nominal price of a commodity whilstprice in labor is real price of a commodity.

Labor, therefore, is the real measure of the exchangeable value of

all commodities. The real price of everything, what everythingreally costs to the man who wants to acquire it, is the toil and

trouble of acquiring it (smith pp. 133)

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A.S..A.S..)ealth of *ation+alue

The word value [. . .] has two different meanings, andsometimes expresses the utility of some particular object,and sometimes the power of purchasing other goods whichthe possession of that object conveys. The one may be calledvalue in use;the other,value in exchange. The thingswhich have the greatest value in use have frequently little orno value in exchange; and, on the contrary, those whichhavethe greatest value in exchange have frequently little or no value

in use. Nothing is more useful than water: but it will purchasescarce any thing; scarce any thing can be had in exchange forit. A diamond, on the contrary, has scarce any value in use;but a very great quantity of other goods may frequently be had

in exchange for it. (SmithPP 44-45)

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A.S..A.S..)ealth of *ation..alue

The question ofwhat determines the exchange valueof

a good, or simply itsrelative price, has been one of the

central interests of Adam S. and his followers:

do pearls have value because people dive for them or dodo pearls have value because people dive for them or do

people dive for pearls because they have value?people dive for pearls because they have value?

Smith basically answered that pearls (goods) have valuebecausepeople need to dive to get them;

that is, that the costs of production determine a goods

exchange value or relative price.

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In chapter 6Of component parts of price ofcommodities

Smith first examined exchange value in an economy in

an early and rudestate, which he defined as one in

which labor is the only scarce resource.

Then he developed a theory of value for an advancedeconomy, in which capital had accumulated, and both it

and land commanded a positive price.

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Labor theory of value in a primitive societyLabor theory of value in a primitive society

In that early and rude state of society which precedes both the

accumulation of stock [of capital] and the appropriation of land,

the proportion between the quantities of labor necessary for

acquiring different objects seems to be the only circumstance

which can afford any rule for exchanging them for one another. If

among a nation of hunters, for example, it usually costs twice the

labour to kill a beaver which it does to kill a deer, one beaver

should naturally exchange for or be worth two deer. smith pp 20

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In other words according to Adam S., The value of any

commodity to a person who possesses it,

if he wishes to exchange it for other commodities,isequal to the quantity of labor which it enables him to

purchase or command. Labor, therefore, is the real measure

of the exchangeable value of all commodities. This version of Smiths value theory sometimes is referred

to ashis labor commanded theory of value.

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Note:- under this special stage, therefore, the quantity

of labor commanded coincides with the quantity of

embodied labor.

Labor theory of value in advanced societyLabor theory of value in advanced society

Things change when one passes from a system in which

the whole product of the labor belongs to the worker toone in which the control of the means of production, and

therefore the production, is no longer in the workers

hands.

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In a society where capital investments and land

resources become important, said Smith, goods will

normally be exchanged for other goods, for money, or

for labor at a figure high enough to cover wages, rent,

and profits.

Moreover, profits will depend on the whole value of thecapital advanced by the employer.

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The real value of commodities can no longer be

measured by thelabor contained in them. They still,

however, can be measured by the quantity of labor

which they can, each of them, purchase or command.

The quantity of labor that a commodity can buy

exceeds the quantity of labor embodied in itsproductionby the total profits and rents.by the total profits and rents.

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smith passes to explain the following

Demand, does not influence the value of commodities; the

cost of productionwages, rent, and profitsarethe only

determinants of value in the long run.

This is true based on his implicit assumption that

production will expand or shrink at a constant costper unit of output.

what if this assumption is violated?

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A.S..A.S..)ealth of *ation..Mar'et rice

Like Cantillon, Smith distinguished between the

intrinsic or natural price of a good and its short-run

market price.

According to Smith, there are ordinary, or average, rates of

wages, rent, and profit in every society or neighborhood.

He called these the natural rates of each.When a commodity is sold for its natural price, there will

be exactly enough revenue to pay these natural rates of

wages, rent, and profit.

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Thenatural priceis the long-run price below which

the entrepreneurs no longer would continue to sell

their goods.

The actual price at which any commodity is sold is

called its market price.

The market price of every particular commodity is regulated by

the proportion between the quantity.brought to market, and

the demand of those .willing to pay.

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The market price depends on the aberrations of short-

run supply and demand, and it will tend to fluctuate

around the natural price.

If it is above the natural price, more goods will come to

market, depressing the price.

If it is below the natural price, some productive factorswill be withdrawn, the quantity supplied will fall, and

the market price will rise toward the natural price.

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A.S..A.S..)ealth of *ation..)ages

Smith addressed three facets of wages:

the aggregate level of wages,

the growth ofwages over time

and the wage structure

with respect to the first two he employed the wage

fund theory:

It seldom happens that the person who tills the ground has

wherewithal to maintain himself till he reaps the harvest.

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His maintenance is generally advanced to him from the stock of

a master, the farmer who employs him, and who would have no

interest to employ him, unless he was to share in the produce of

his labor, or unless his stock was to be replaced to him with a

profit. smith

The wages fund idea implies that there is a stock ofcirculating capital out of which present wages are paid.

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Consequently, this fund is fixed in the short run, but it

can be increased from one year to the next.

The average annual wage depends on the size of the wages

fund in relationship to the number of laborers.

The minimum rate of wages must be that which willenable a worker with a family to survive and perpetuate

the labor supply.

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The rate of increase of national wealth determines the

demand for labor and the wage by influencing the size of

the wages fund.

contradicting mercantilists, Adam s. argues the

following

Is this improvement in the circumstances of the lower ranks ofthe people to be regarded as an advantage or as an

inconveniency to the society? The answer seems at first sight

abundantly plain.

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Servants, laborers and workmen of different kinds, make up the far

greater part of every great political society. But what improves

the circumstances of the greater part can never be regarded as an

inconveniency to the whole. No society can surely be flourishing

and happy, of which the far greater part of the members are poor

and miserable. It is but equity, besides, that they who feed, clothe,

and lodge the whole body of the people, should have such a share

of the produce of their own labor as to be themselves tolerably well

fed, cloathed [sic] and lodged. smith

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This explains Smiths emphasis on capital accumulation and

economic growth.

Smith also recognized thatbargainingplays a role in the

process through which wages are determined:

What are the common wages of labor depends everywhere upon the

contract usually made between [workers and employers] whose

interest are by no means the same. The Workmen desire to get as

much, the masters to give as little as possible. The former are disposed

to combine in order to raise, the latter in order to lower the wages of

labor.

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Under theory of equalizing differences, or

compensating wage differentials, actual wage rates for

different jobsthe wage structurewould vary

according to five factors.

Agreeableness of the occupation.The dirtier, the

more disagreeable, and the more dangerous the work, the

higher the wages paid, all else being equal.

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Cost of acquiring the necessary skills and knowledge.

peoples income must pay for the cost of their education

and training and still provide a rate of return on that

investment. { the theory of labor economics}

Regularity of employment.Smith held thatthe less

regular the employment, the higher the wage. Because most

workers prefer regular to irregular work, employers must

pay a compensating wage premium to workers who face

substantial unemployment and employment risk.

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Level of trust and responsibility.Those individuals,

such as goldsmiths, jewelers, physicians, and attorneys, in

whom much trust is given will receive higher pay than

persons who have jobs that entail little responsibility and

accountability to others.

Probability or improbability of success.Those who

are successful in occupations in which there is great risk of

failure will receive higher wages than persons who are

employed in occupations characterized by low failure rates.

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A.S..A.S..)ealth of *ation..ro%t.

Adam smith legitimized profitas a payment to the

capitalist for performing a socially useful function,

namely,

to provide labor with the necessities of life and with

materials and machinery with which to work during the

time-consuming production process.

Labor permits this deduction of profits from its output

because it hasno materials to work with and no

independent means of support.

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A.S..A.S..)ealth of *ation..ro%t

Since investment is exposed to the risk of loss, the lowest

rate of profit must be high enough to compensate for

losses and still leave a surplus for the entrepreneur.

The gross profit includes compensation for any loss and

the surplus.

Net or clear profit is the surplus alone or, in other words,

the net revenue of the business

Profit is composed of two parts: a pure interest return

and a return for risk.

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He predicted that the rate of profit would fall over time

for three reasons:

1.Competition in the labor market. The accumulation of capital will result in competition

among capitalists in the labor market, with the result

that wages will rise. Smith concluded that the increased wages would

bring about a fall in profits.

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2. Competition in the commodity market.

Smith reasoned that as output increased, so would

competition amongproducers, with the consequences

that commodity prices would fall and profits decline.

3.Competition in the investment market.

Smithapparently believed that there were a limitednumber of investment opportunities and that

increased capital accumulation would therefore lead to

falling profits.

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In countries that are advancing rapidly in wealth,

competition among businesses lowers the rate of profit.

When the stocks of many rich merchants are turned into the

same trade, their mutual competition naturally tends to lower

its profit; and when there is an increase in stock in all the

different trades carried on in the same society, the same

competition must produce the same effect in them all.

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A.S..A.S..)ealth of *ation..ent

Rent, said Smith, is the price paid for the use of land.

It is the highest price the tenant can afford to pay after

deducting wages, the wear and tear of capital, average

profits, and other expenses of production.

Rent therefore is asurplus or a residual.

Here Smith was on the same analytical path that Ricardo

later took to develop hisdifferential theory of rent.

What distinguishes the two ideas?

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A.S..A.S..)ealth of *ation..ent

Ricardos theory rested on the law of diminishing returns,

while smith tied it with as a monopoly return and as an

opportunity cost of using the land for one purpose rather

than another.

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A.SA.S )ealth of *ation..Stock of capital

In book 2 Of the Nature, Accumulation and

Employment of Stock,he explained how division of

labor depends on accumulation of stock and its

employment [real capital].

He said that thestock of goods of different kinds . . . must be

stored up . . .sufficient to maintain [those who participate in a

division of labour which is at all advanced, supplying] with the

materials and tools of his work, till such time, at least, as both

these events can be brought about

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A.S..A.S..)ealth of *ation..Stock of capital

Inchapter onehe deals with kinds of stock and its

importance :

It distinguish between two kinds of capital (stocks)

Circulating capital:-is capital which reaps a profit

by being sold.

Fixed capital:-is something like a machine or afactory building which simply facilitates production,

but which is not necessarily sold.

ASAS d ti d

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A.S..A.S..)ealth of *ation..roductive andunroductive /abor

Chapter 3is entitled Of the Accumulation of Capital, or

of productive and unproductive Labor.

He uses the same terms as the physiocrats, but in an

entirely different way. He begins with the following

statement

There is one sort of labour which adds to the value of thesubject upon which it is bestowed: there is another which has

no such effect. The former, as it produces a value, may be called

productive; the latter, unproductive labour

ASAS l h f i d ti d

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And he goes on to sayThe labour of some of the most respectable orders in the society is, likethat of menial servants, unproductive of any value, and does not fixor realize itself in any permanent subject, or vendible commodity,which endures after that labour is past, and for which an equal

quantity of labour could afterwards be procured. The sovereign, forexample, with all the officers both of justice and war who serve underhim, the whole army and navy, are unproductive labourers. They arethe servants of the public, and are maintained by a part of theannualproduce of the industry of other people. Their service, howhonourable, how useful, or how necessary soever, produces nothingfor which an equal quantity of service can afterwards be procured.Smith, 314

ASAS ) l h f * i d ti d

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And he continues

In the same class must be ranked, some both of the gravest andmost important and some of the most frivolous professions:churchmen, lawyers, physicians, men of letters of all kinds;

players, buffoons, musicians, opera-singers, opera-dancers, &c.The labour of the meanest of these has a certain value,regulated by the very same principles which regulate that ofevery other sort of labour; and that of the noblest and most

useful,produces nothing which could afterwardspurchase or procure an equal quantity of labour. Like thedeclamation of the actor, the harangue of the orator, or the tuneof the musician,the work of all of them perishes in thevery instant of its production. [ibid.]

ASAS d ti d

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A.SA.S)ealth of *ation..roductive andunroductive /abor

After labeling labor in these manner he discuses the

proportion and then identified:

productive labor asproductive of capital,

andunproductive labor, while it may produce a

revenue of consumption to those who enjoy it,is not

productive of capital.

And this leads him to expatiate at some length on the

formation of capital

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Capitals are increased by parsimonysavingand

diminished by prodigality and misconduct.

Whatever a person saves from his revenue he adds to his capital,

and either employs it himself in maintaining an additionalnumber of productive hands, or enables some other person todo so, by lending it to him for an interest, that is, for a share ofthe profits. As the capital of an individual can be increasedonly by what he saves from his annual revenue . . . so thecapital of a society, which is the same with that of all theindividuals who compose it, can be increased only in the samemanner. [Smith:320]

ASAS ) l h f * i 0 ti f 1 it l

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Then he reassures that saving does not mean a

diminution of employment, and he says,

What is annually saved is as regularly consumed as what is

annually spent, and nearly in the same time too; but it isconsumed by a different set of people. That portion of his revenuewhich a rich man annually spends, is in most cases consumed byidle guests, and menial servants, who leave nothing behind themin return for their consumption. That portion which he annually

saves, as for the sake of the profit it is immediately employed as acapital, is consumed in the same manner, and nearly in the sametime too, but by a different set of people, by labourers,manufacturers, and artificers, who re-produce with a profit the

value of their annual consumption.[ibid.]

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This remark of Adam Smiths was emulated by the

majority of the classical economists and found further

development in the celebrated, but possibly misnamed,

Says Law.

Bonus: what was the mistake It interlay leave out velocity of money!

as Keynes pointed out, that, provided that the quantity ofmoney,, in a community is constant, attempts to hoard willinfluence simply the volume of production and employment,but they wont diminish the amount of hoarded money in thecommunity. The effect is on the velocity of circulation.

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every individual necessarily labours to render the annual revenue

of the society as great as he can. He generally, indeed, neither

intends to promote the public interest, nor knows how much he is

promoting it.. He intends only his own gain, and he is in this,

as in many other cases, led by aninvisible handto promote an

end which was no part of his intention. Nor is it always the

worse for the society that it was no part of it. By pursuing his

own interest he frequently promotes that of the society more

effectually than when he really intends to promote it.

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In wealth of nation Adam S. also mostly dwells on a

system of government it functions

According to the system of natural liberty, the sovereign has

only three duties to attend to; three duties of great importance,

indeed, but plain and intelligible to common understandings:

first, the duty of protecting the society from the violence and

invasion of other independent societies .

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Secondly, the duty of protecting, as far as possible, every member of the

society from the injustice or oppression of every other member of it, or

the duty of establishingan exact administration of justice. and,

thirdly, the duty oferecting and maintaining certain public works

and certain public institutions, which it can never be for the interest of

any individual, or small number of individuals, to erect and maintain;

because the profit could never repay the expence to any individual or

small number of individuals, though it may frequently do much more

than repay it to a great society.185

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A.SA.S....)ealth of *ation.. ublic %nance

In book five he further elaboratedof the expenditure and

regulations of the State and the various heads that they

fall under, and to take a brief glance at public finance.

Among others let see his canons of taxation.

The first canon is that a tax system should conform to

equality of burden.

He seems to mean proportionality to income

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The second canon of taxation iscertainty.People ought

to know what taxation they are charged, either direct or

indirect.

The third canon isconvenience.Taxation should be

collected in a way which causes least inconvenience.

And the fourthcanon iseconomyin collection.

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chap 4.2 HET

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Transcript of chap 4.2 HET