5.1 The Expenses of the Sovereign or Commonwealth
Smith categorizes the various expenses incurred by governments on various levels.
It is also noted that governments tend to be hierarchical, with some expenses being incurred on the level of an entire nation, others incurred on some subdivision thereof, be it a given county or town, and the decision of what services are provided on what level is inconsistent among nations.
Expenses Related to National Defense
The first duty of the state is to protect the society from the invasion of other nations, which is accomplished by means of a military force. However, what constitutes a "military force" capable of defense differs in the various states of society and the strength and perceived threat of its potential enemies.
(EN: The author goes into quite a lot of detail on this matter, contrasting the armies of a primitive tribe, a feudal estate, and a modern nation. It's interesting reading, but largely historical, and I don't think much is germane, but I'll preserve some basic facts.)
In the most primitive societies of hunter-gathers who live a nomadic existence, there was little need of defense at all. They lived hand-to-mouth and roamed the land, so there was little point in attacking them. "War" consisted of brief tribal skirmishes over territory. There was no need of a standing army or professional soldiers - any able-bodied adult was expected to use his hunting-spear to defend the tribe as needed.
As societies became settled, the threat to their welfare became greater. There is little profit in attacking a nomadic hunter - you reap his personal effects and possibly his latest kill - but by attacking a cow-herd, you gain an entire flock of cows, a barn and stable, a cleared pasture, and other spoils that make it worthwhile to organize an attack.
As such, it is largely agrarian societies that began fielding armies, as early as Greece and Rome and even to the feudal era. Though in these ages, the citizen-soldier was still common (every citizen of Greece served as a soldier for a time, and in feudal Europe the nobility supported themselves and a retinue of their own peasants as soldiers).
A key difference began to emerge in Rome, where an army of professional soldiers or mercenaries would take the field and most of the population would remain at home, supporting the war effort through taxation. This model persists to the present day (EN: the "present day" of Smith was the late eighteenth century, but this remains true even in the early twenty-first that there are professional soldiers and standing armies supported through taxation of a larger civilian population.)
While a "militia" or "reserve" of citizen-soldiers may be called upon in times of extreme need, most routine defense (and routine aggression) is done entirely by a professional army. Some detail is given on the superiority of a standing army to a citizen militia, as evidenced by various battles over the course of history in which a large militia was easily overpowered by a smaller military force.
The technology of warfare also plays a role in its increased cost - while the percentage of a population engaged in soldiering has decreased (20% to 25% of the citizens of Rome were soldiers at any given time, and in the modern age the armies of England and France are less than 1%), the cost to equip a soldier increased significantly. The savage needed but a spear to fight, which he often furnished himself, whereas the modern soldier needs a musket and ammunition, which is considerably more expensive.
Ultimately, the point is that the threat to a society from external forces increases as the wealth of the society increases, and the cost of organizing an adequate defensive force likewise increases in cost.
The Expense of Justice
The second duty of the State is to protect citizens, inasmuch as it is possible to do so, from their fellow citizens. This, too, has increased with the advancement of society.
Among primitives, crimes are more the result of physical assault on one another, o anger or envy or aught, and punishment is meted out directly and swiftly to discourage recurrence. Few primitives have any notion of property, hence there is little incidence of property crimes, and when such does occur, punishment and retribution is likewise swift.
Civilization reduces the incidence of violent crime, but greatly increases the incidence of property crime. This is largely because civilization is based largely on the existence of material property. One cannot engage in an activity as simple as farming if there is no defense of property - one cannot produce if others are permitted to trample crops, kill livestock, and take tools with impunity. And there is little point to undertake the effort of production if one's product can be taken.
(EN: Smith goes off on a bit of a tangent about "natural" causes by which some men are "superior" or "subordinate" to their brethren - which goes on for a while, but seems to be a means of explaining the reasons some are wealthier than others - they may be stronger or smarter, or they may have the advantage of being heir to a fortune - as a means to differentiate the natural causes of wealth from those actions that are inacceptable, and for which citizens may rightly look to their government to remedy.)
It's suggested that the judicial authority of a government was originally a source of greater revenue than expense. Parties seeking an arbitrator for a dispute would offer a gift or a fee to the sovereign to mediate their dispute. Even in "criminal" matters, the punishment for many crimes is an amercement (in modern parlance, a "fine'), paid to the state - though both have been subversive to justice (in a civil case, the party who paid the larger "bribe" to an arbiter would win their case; and in criminal law, a ruler in need of cash would be inclined to invent evidence, or even pass frivolous laws, in order to collect more fines from citizens).
From here, there's quite some consideration of the history of the judicial system and the various measures taken to reform the judicial function of government with an aim toward fairness - the ultimate point of which is that a "fair" court is an expense to the state rather than a source of revenue.
Public Works and Institutions
The "third and last" duty of the State is that of funding and organizing activities that are of benefit to society as a whole, but which no single individual would be expected to willingly undertake the expense of effecting. These may take the form of short-term public works (building a road) or ongoing institutions (running a school). It's noted that the great majority of works and institutions undertaken by government are for the support of commercial activity - that, in effect, government does not provide for the direct welfare of the people, but seeks to provide common resources by which the people may provide for their own welfare.
There is a fairly extensive discussion of infrastructure - roads, bridges, canals, harbors, and the like - the chief benefit of which is to provide for the transportation of goods within a nation (leisure travel is not forbidden, but it is a trifle in terms of the total traffic, such that one cannot reasonably argue roads are for "freedom of movement" for its own sake and commerce is a free rider). Infrastructure consists of both a public work to construct, and a public institution to maintain.
Detail follows quantifying the costs, and examining the way in which use-based costing (such as a toll road, public or private) have been attempted to varying degrees of success. For the most part, it has been accepted that public roads are simply an expense the state must bear for the benefit of the people.
(EN: I'm not sure if this is entirely accurate - where a state funds road construction by taxes on vehicles and gasoline, or out of sales taxes, given that goods are transported by road, some argument can be made that the expense is borne more or less proportionately by those who benefit from the use of public roads, though not be means as immediately evident as a toll for passage.)
It's also noted that not all public works and institutions deliver an immediate benefit to the whole public, but seem to be geared toward a specific group. A vault benefits only those merchants who store wealth, a harbor benefits only those who own ships, etc. Some of the most expensive undertakings provide facilities and accommodations for rather few. In such instances, it is generally more practical to charge a use-based fee to those who avail themselves of such affordances.
It is in some instances suggested that the benefits of having a harbor are not only to the shippers, but to all of a society who benefit from international trade - having access to foreign goods in their local market and the ability to gain employment in a factory whose output is sold aboard. And by this logic, it may rightly be reckoned that their cost is to be borne by the entire public and not merely the immediate users.
Some consideration is given to the establishment in England of "companies" for the purpose of foreign trade: the Africa Company, India Company, Russia Company, Hudson Bay Company, South Sea Company, etc. are all instances in which the government sponsors and empowers a "regulated company" to undertake a risk that no single individual or group of individuals can afford, or would voluntarily undertake given the risk of trade with some "remote and barbarous" part of the world.
Smith provides a fairly extensive account of the various companies of the colonial era, highlighting some great successes and smashing failures, models of efficacy and cesspools of corruption and wastefulness. Ultimately, the point seems to be that no generalization can be made as to whether they are necessary or beneficial to the welfare of the state, though the state has chosen to participate in such ventures.
(EN: much of this content is of historic interest and I don't expect there are many parallels in the modern world, so I'm not sure it's worth preserving much detail. Nowadays, the value of having troops abroad is handled by the government through military basis, and foreign trade offices are operated by the private sector, albeit with some support of the embassy system.)
There's also the notion of setting up sponsored/regulated companies to handle specific jobs that are best done by one firm rather than by several. Smith uses the example of whaling and the transportation of cargo, but in the modern world the equivalents are more along the lines of utilities (power and water to a town) and the postal service.
(EN: Smith does not explore the phenomenon of "natural monopolies" as other economists have, merely observes their history. My own sense is the "need" for government to support a commercial enterprise is temporary in most instances and the private sector can eventually be counted on to more efficiently handle any service that is profitable, as evidenced by deregulation of many government-run monopolies in the late twentieth and early twenty-first centuries: railroads, telephone service, parcel delivery, and electricity are now largely if not entirely private enterprises, though government was necessary to initially establish them. Even that "necessity" is debatable, but I'll argue it no further here.)
Finally, there's an examination of the state's participation in financial services industries such as banking and insurance, cataloging the historical incidence of this as well as the benefits and detriments to commerce (EN: and again, a point that is largely moot to the present age.)
Another lengthy passage follows that explores state support for the institutions of education for youth - the justification for which being that the general education of the people improves their industriousness, and by that virtue the general welfare. Again, historial incidence is considered, along with the positive and negative effects of public education. (EN: And again, it's perhaps interesting from a perspective of politics, but has little bearing on economics.)
Preserving the Dignity of the Sovereign
Smith mentions, in brief, that there is a need for a head of state to maintain "dignity" in order to command the respect of his subjects and interact with his peers - i.e., other heads of state. It is natural for there to be an expectation of "splendor" or majesty in the person of a sovereign, and for the wealth of a sovereign to be a matter of pride to his subjects.
Specific to economics, the sovereign must draw upon his people to provide the trappings of power and success: a stately palace, proper attire, a grand retinue of servants, and the like. The greater the apparent wealth of a sovereign, the greater the apparent wealth of his nation, and the leaders of the greatest nations have more opulent a display than the chiefs of savage tribes.
It is likewise true of the holders or lesser office that they should have the trappings of majesty. At each level of the noble class, an official is expected to display greater wealth than those beneath him, but lesser than those above. And even at the lowest level, a member of the ruling class must project an air of dignity superior than those of the subjects whom he serves.
(EN: This is largely a matter of psychology, and I expect it holds true in Western civilization that a display of wealth garners respect and people disdain rather than respect those less wealthy than themselves. However, the economic consequence of this cultural tendency remains valid.)
Conclusion
The expenses listed above are the principal expenses of government. They are largely considered to be undertaken to the benefit of the whole of society, and it is reckoned just for the whole of society to contribute to their payment. The means by which the state obtains revenue to cover its expense is considered in the chapter that follows.