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An Inquiry Into The Nature And Causes Of The Wealth Of Nations - Chapter 4

1. Introduction And Plan Of The Work

2. Book 1, Chapter 1

3. Chapter 2

4. Chapter 3

5. Chapter 4

6. Chapter 5

7. Chapter 6

8. Chapter 7

9. Chapter 8

10. Chapter 8 continue

11. Chapter 9

12. Chapter 10

13. Chapter 10 continue

14. Chapter 11

15. Chapter 11 continue

16. Chapter 11 continue.

17. Chapter 11 continue..

18. Chapter 11 continue...

19. Conclusion of the Chapter 11

20. Book 2 Introduction

21. Chapter 1

22. Chapter II

23. Chapter II continue

24. Chapter II continue

25. Chapter 3

26. Chapter 4

27. Chapter 5

28. Book 3, Chapter 1

29. Chapter 2

30. Chapter 3

31. Chapter 4

32. Book 4, Chapter 1

33. Chapter 1 continue

34. Chapter 2

35. Chapter 3, Part 1

36. Chapter 3, Part 2

37. Chapter 4

38. Chapter 5

39. Chapter 5 continue

40. Chapter 6

41. Chapter 7, Part 1

42. Chapter 7, Part 2

43. Chapter 7, Part 3

44. Chapter 7, Part 3 continue

45. Chapter 8

46. Chapter 9

47. Book 5, Chapter 1, Part 1

48. Chapter 1, Part 2

49. Chapter 1, Part 3

50. Chapter 1, Part 3 continue

51. Chapter 1, Part 3 continue B

52. Chapter 1, Part 4

53. Chapter 2, Part 1

54. Chapter 2, Part 2

55. Chapter 2, Part 2 continue

56. Chapter 2, Part 2 continue B

57. Chapter 2, Part 2 continue C

58. Chapter 2, Part 2 continue D

59. Chapter 3

60. Chapter 3 continue

Chapter IV. Of Drawbacks.

Merchants and manufacturers are not contented with the monopoly of the
home market, but desire likewise the most extensive foreign sale for
their goods. Their country has no jurisdiction in foreign nations, and
therefore can seldom procure them any monopoly there. They are generally
obliged, therefore, to content themselves with petitioning for certain
encouragements to exportation.

Of these encouragements, what are called drawbacks seem to be the most
reasonable. To allow the merchant to draw back upon exportation, either
the whole, or a part of whatever excise or inland duty is imposed upon
domestic industry, can never occasion the exportation of a greater
quantity of goods than what would have been exported had no duty been
imposed. Such encouragements do not tend to turn towards any particular
employment a greater share of the capital of the country, than what
would go to that employment of its own accord, but only to hinder the
duty from driving away any part of that share to other employments. They
tend not to overturn that balance which naturally establishes itself
among all the various employments of the society, but to hinder it from
being overturned by the duty. They tend not to destroy, but to preserve,
what it is in most cases advantageous to preserve, the natural division
and distribution of labour in the society.

The same thing may be said of the drawbacks upon the re-exportation of
foreign goods imported, which, in Great Britain, generally amount to by
much the largest part of the duty upon importation. By the second of
the rules, annexed to the act of parliament, which imposed what is now
called the old subsidy, every merchant, whether English or alien.
was allowed to draw back half that duty upon exportation; the English
merchant, provided the exportation took place within twelve months; the
alien, provided it took place within nine months. Wines, currants, and
wrought silks, were the only goods which did not fall within this rule,
having other and more advantageous allowances. The duties imposed by
this act of parliament were, at that time, the only duties upon the
importation of foreign goods. The term within which this, and all other
drawbacks could be claimed, was afterwards (by 7 Geo. I. chap. 21. sect.
10.) extended to three years.

The duties which have been imposed since the old subsidy, are, the
greater part of them, wholly drawn back upon exportation. This general
rule, however, is liable to a great number of exceptions; and the
doctrine of drawbacks has become a much less simple matter than it was
at their first institution.

Upon the exportation of some foreign goods, of which it was expected
that the importation would greatly exceed what was necessary for the
home consumption, the whole duties are drawn back, without retaining
even half the old subsidy. Before the revolt of our North American
colonies, we had the monopoly of the tobacco of Maryland and Virginia.
We imported about ninety-six thousand hogsheads, and the home
consumption was not supposed to exceed fourteen thousand. To facilitate
the great exportation which was necessary, in order to rid us of the
rest, the whole duties were drawn back, provided the exportation took
place within three years.

We still have, though not altogether, yet very nearly, the monopoly of
the sugars of our West Indian islands. If sugars are exported within a
year, therefore, all the duties upon importation are drawn back; and
if exported within three years, all the duties, except half the old
subsidy, which still continues to be retained upon the exportation of
the greater part of goods. Though the importation of sugar exceeds a
good deal what is necessary for the home consumption, the excess is
inconsiderable, in comparison of what it used to be in tobacco.

Some goods, the particular objects of the jealousy of our own
manufacturers, are prohibited to be imported for home consumption. They
may, however, upon paying certain duties, be imported and warehoused for
exportation. But upon such exportation no part of these duties is
drawn back. Our manufacturers are unwilling, it seems, that even this
restricted importation should be encouraged, and are afraid lest some
part of these goods should be stolen out of the warehouse, and thus come
into competition with their own. It is under these regulations only
that we can import wrought silks, French cambrics and lawns, calicoes,
painted, printed, stained, or dyed, etc.

We are unwilling even to be the carriers of French goods, and choose
rather to forego a profit to ourselves than to suffer those whom we
consider as our enemies to make any profit by our means. Not only half
the old subsidy, but the second twenty-five per cent. is retained upon
the exportation of all French goods.

By the fourth of the rules annexed to the old subsidy, the drawback
allowed upon the exportation of all wines amounted to a great deal
more than half the duties which were at that time paid upon their
importation; and it seems at that time to have been the object of the
legislature to give somewhat more than ordinary encouragement to the
carrying trade in wine. Several of the other duties, too which were
imposed either at the same time or subsequent to the old subsidy,
what is called the additional duty, the new subsidy, the one-third and
two-thirds subsidies, the impost 1692, the tonnage on wine, were allowed
to be wholly drawn back upon exportation. All those duties, however,
except the additional duty and impost 1692, being paid down in ready
money upon importation, the interest of so large a sum occasioned an
expense, which made it unreasonable to expect any profitable carrying
trade in this article. Only a part, therefore of the duty called the
impost on wine, and no part of the twenty-five pounds the ton upon
French wines, or of the duties imposed in 1745, in 1763, and in 1778,
were allowed to be drawn back upon exportation. The two imposts of
five per cent. imposed in 1779 and 1781, upon all the former duties of
customs, being allowed to be wholly drawn back upon the exportation of
all other goods, were likewise allowed to be drawn back upon that of
wine. The last duty that has been particularly imposed upon wine, that
of 1780, is allowed to be wholly drawn back; an indulgence which, when
so many heavy duties are retained, most probably could never occasion
the exportation of a single ton of wine. These rules took place with
regard to all places of lawful exportation, except the British colonies
in America.

The 15th Charles II, chap. 7, called an act for the encouragement of
trade, had given Great Britain the monopoly of supplying the colonies
with all the commodities of the growth or manufacture of Europe, and
consequently with wines. In a country of so extensive a coast as our
North American and West Indian colonies, where our authority was always
so very slender, and where the inhabitants were allowed to carry out in
their own ships their non-enumerated commodities, at first to all
parts of Europe, and afterwards to all parts of Europe south of Cape
Finisterre, it is not very probable that this monopoly could ever be
much respected; and they probably at all times found means of bringing
back some cargo from the countries to which they were allowed to carry
out one. They seem, however, to have found some difficulty in importing
European wines from the places of their growth; and they could not well
import them from Great Britain, where they were loaded with many
heavy duties, of which a considerable part was not drawn back upon
exportation. Madeira wine, not being an European commodity, could be
imported directly into America and the West Indies, countries which, in
all their non-enumerated commodities, enjoyed a free trade to the island
of Madeira. These circumstances had probably introduced that general
taste for Madeira wine, which our officers found established in all our
colonies at the commencement of the war which began in 1755, and which
they brought back with them to the mother country, where that wine had
not been much in fashion before. Upon the conclusion of that war, in
1763 (by the 4th Geo. III, chap. 15, sect. 12), all the duties except
3, 10s. were allowed to be drawn back upon the exportation to the
colonies of all wines, except French wines, to the commerce and
consumption of which national prejudice would allow no sort of
encouragement. The period between the granting of this indulgence and
the revolt of our North American colonies, was probably too short to
admit of any considerable change in the customs of those countries.

The same act which, in the drawbacks upon all wines, except French
wines, thus favoured the colonies so much more than other countries,
in those upon the greater part of other commodities, favoured them much
less. Upon the exportation of the greater part of commodities to other
countries, half the old subsidy was drawn back. But this law enacted,
that no part of that duty should be drawn back upon the exportation to
the colonies of any commodities of the growth or manufacture either of
Europe or the East Indies, except wines, white calicoes, and muslins.

Drawbacks were, perhaps, originally granted for the encouragement of the
carrying trade, which, as the freight of the ship is frequently paid by
foreigners in money, was supposed to be peculiarly fitted for bringing
gold and silver into the country. But though the carrying trade
certainly deserves no peculiar encouragement, though the motive of the
institution was, perhaps, abundantly foolish, the institution itself
seems reasonable enough. Such drawbacks cannot force into this trade a
greater share of the capital of the country than what would have gone
to it of its own accord, had there been no duties upon importation; they
only prevent its being excluded altogether by those duties. The carrying
trade, though it deserves no preference, ought not to be precluded, but
to be left free, like all other trades. It is a necessary resource to
those capitals which cannot find employment, either in the agriculture
or in the manufactures of the country, either in its home trade, or in
its foreign trade of consumption.

The revenue of the customs, instead of suffering, profits from such
drawbacks, by that part of the duty which is retained. If the whole
duties had been retained, the foreign goods upon which they are paid
could seldom have been exported, nor consequently imported, for want
of a market. The duties, therefore, of which a part is retained, would
never have been paid.

These reasons seem sufficiently to justify drawbacks, and would justify
them, though the whole duties, whether upon the produce of domestic
industry or upon foreign goods, were always drawn back upon exportation.
The revenue of excise would, in this case indeed, suffer a little,
and that of the customs a good deal more; but the natural balance of
industry, the natural division and distribution of labour, which is
always more or less disturbed by such duties, would be more nearly
re-established by such a regulation.

These reasons, however, will justify drawbacks only upon exporting goods
to those countries which are altogether foreign and independent, not
to those in which our merchants and manufacturers enjoy a monopoly. A
drawback, for example, upon the exportation of European goods to our
American colonies, will not always occasion a greater exportation than
what would have taken place without it. By means of the monopoly which
our merchants and manufacturers enjoy there, the same quantity might
frequently, perhaps, be sent thither, though the whole duties were
retained. The drawback, therefore, may frequently be pure loss to the
revenue of excise and customs, without altering the state of the trade,
or rendering it in any respect more extensive. How far such drawbacks
can be justified as a proper encouragement to the industry of our
colonies, or how far it is advantageous to the mother country that they
should be exempted from taxes which are paid by all the rest of
their fellow-subjects, will appear hereafter, when I come to treat of

Drawbacks, however, it must always be understood, are useful only in
those cases in which the goods, for the exportation of which they
are given, are really exported to some foreign country, and not
clandestinely re-imported into our own. That some drawbacks,
particularly those upon tobacco, have frequently been abused in this
manner, and have given occasion to many frauds, equally hurtful both to
the revenue and to the fair trader, is well known.

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