Drawbacks on excise or inland duties for exported domestic goods are, in principle, a reasonable form of encouragement because they merely prevent taxes from disturbing the natural allocation of capital and the natural division of labour, rather than diverting additional capital into export trades.

By Adam Smith, from La Richesse des nations

Key Arguments

  • Merchants and manufacturers cannot obtain foreign monopolies, so they seek 'certain encouragements to exportation,' among which Smith explicitly singles out drawbacks as 'the most reasonable.'
  • Allowing the merchant to draw back, on exportation, the whole or part of excise or inland duties 'can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed,' so it does not artificially expand that line of trade.
  • Such drawbacks '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 thus '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.'

Source Quotes

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.
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.
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.
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.
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.

Key Concepts

  • 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.

Context

Opening of the chapter 'Of Drawbacks,' where Smith defines drawbacks on domestic duties for exports and explains why, unlike many other mercantilist devices, they accord with his principle of the natural allocation of capital and labour.