The Wealth of Nations_ Books 4-5 - Adam Smith [18]
Book V further extends the argument, in discussing the positive role of the state. There are two dimensions to Smith’s argument: first, the treatment of those services without which society could not subsist, and second, the analysis of the need to establish services ‘of such a nature, that the profit could never repay the expence to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain’.127While the two cases are distinct, they are linked by a common emphasis on the problems of market failure, and by certain principles of public finance. Smith typically explains the nature of each service and why it is required. He also argues that, wherever possible, public services should be paid for by those who benefit from them (although not necessarily at an economic rate) and that they should be organized in such a way as to ensure efficient delivery – the problem of induced efficiency.
Defence
The treatment of defence is clearly related to Smith’s discussion of the stages of history in Book V,128an important part of the argument being that a gradual change in the economic and social structure had necessitated the formal provision of an army. In this context, the form of economic organization, the greater complexity of modern war129and the high costs associated with the introduction of firearms led to a situation where the ‘wisdom of the state’130must arrange for provision.
Of the options open to government, Smith preferred a standing army to a militia, judging it likely to be more effective, while admitting the political dangers which such armies present.131Having determined the preferred form of organization, Smith concluded that this essential service would have to be paid for. Since the expense involved was laid out ‘for the benefit of the whole society’ it ought to be defrayed ‘by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities’.132(The canons of taxation are discussed in Book IV, Chapter 2.)
Justice
As far as the organization of the essential service of justice is concerned, it was Smith’s contention that the separation of the judicial from the executive power was a basic prerequisite for effective and equitable provision.133However, Smith’s efficiency criteria are clearly distinguished from the basic issue of organization, his argument being, in effect, that the services provided by attorneys, clerks or judges should be paid for in such a way as to encourage productivity. Indeed, Smith ascribed the ‘present admirable constitution of the courts of justice in England’ to the use of a system of court fees which had served to encourage competition between the Courts of King’s Bench, Chancery and Exchequer.134A further interesting and typical feature of the discussion is found in Smith’s argument that although justice is a service to the whole community, the costs of handling specific causes should be paid for by those who give occasion to, or benefit from, them. He therefore concluded that the ‘expense of the administration of justice… may very properly be defrayed by the particular contribution of one or other, or both of those two different sets of persons, according as different occasions may require, that is, by the fees of court’,135rather than by a charge on the general funds.
Public Works
As in the case of justice, Smith considered that public works such as highways, bridges and canals should be paid for by those