Taxes on commodities may be considered in the following way. Suppose that a commodity is capable of being made by two different processes. It is the interest of the community that of the two methods producers should adopt that which produces the best article at the lowest price. Suppose, however, that a tax is laid on one of the processes, and no tax at all, or one of lesser amount, on the other. If the tax falls, as it is, of course, intended to do, upon the process which the producers would have adopted, it creates an artificial motive for preferring the untaxed process though the inferior of the two. If, therefore, it has any effect at all it causes the commodity to be produced of worse quality, or at a greater expense of labour; it causes so much of the labour of the community to be wasted, and the capital employed in supporting and remunerating the labour to be expended as uselessly as if it were spent in hiring men to dig holes and fill them up again. The loss falls on the consumers, though the capital of the country is also eventually diminished by the diminution of their means of saving, and in some degree of their inducements to save. Taxes on foreign trade are of two kinds: taxes on imports and on exports. On the first aspect of the matter it would seem that both these taxes are paid by the consumers of the commodity. The true state of the case, however, is much more complicated. By taxing exports we may draw into our coffers, at the expense of foreigners, not only the whole tax, but more than the tax; in other cases we shall gain exactly the tax; in others less than the tax. In this last case, a part of the tax is borne by ourselves, possibly the whole, even more than the whole. If the imposition of the tax does not diminish the demand it will leave the trade exactly as it was before. We shall import as much and export as much; the whole of the tax will be paid out of our own pockets. But the imposition of a tax almost always diminishes the demand more or less. It may therefore be laid down as a principle that a tax on imported commodities, when it really operates as a tax, and not as a prohibition, either total or partial, almost always falls in part upon the foreigners who consume our goods. It is not, however, on the person from whom we buy, but on those who buy from us that a portion of our custom duties spontaneously falls. It is the foreign consumer of our exported commodities who is obliged to pay a higher price for them because we maintain revenue duties on foreign goods. * * * * * We now reach the consideration of the grounds and limits of the principle of _laisser-faire,_ or non-interference by government.