FREE TRADE
One of the least edifying features of modern controversy, and
particularly of political and economic controversy, is the habit of
appealing to precedents and authorities which, if honestly cited, would
militate against the opinions of the controversialist. No great writer
has suffered more of late years from this species of misrepresentation
than Adam Smith; yet his contemporaries and immediate successors both in
England and abroad perfectly understood his drift. When Pitt and
Shelburne declared themselves disciples of Smith, they thereby declared
themselves free traders, and Pitt’s commercial policy from 1784 to 1794
was simply an attempt to carry out Smith’s views. Resolute retrenchment,
customs’ reform, the commercial treaty with France, reduction of debt,
were all projected under the inspiration and countenance of Mr.
Commissioner Smith.
Nor did the English economists, from Ricardo to Mill, ever suggest that
Adam Smith had doubts about the main doctrine of his book. In France and
Germany his opinions were eagerly embraced. To translate, interpret, and
systematise the _Wealth of Nations_ was the main function of continental
economists in the early years of the nineteenth century; and its
influence was seen in a rapid and radical modification of commercial
policy. Internal barriers were swept away, feudal restrictions
abolished, and tariffs reduced. When the waves of reaction—political
rather than economic—began to roll in, and “national” economists tried
to reconstruct the case for protection, they paid Smith the compliment
of a violent onslaught. “Smithianismus” then became a term of abuse in
protectionist circles, and so remained until it was superseded by the
equally cacophonous “Manchesterthum.” It was in England that the idea
was started of dressing up Adam Smith as a protectionist. While List was
inveighing against “cosmopolitical economy,” our own free traders in
their agitation against the corn laws found themselves confronted with a
new interpretation of their prophet. At one of the League meetings (July
3, 1844) Cobden gave a humorous description of the way in which some
protectionist pamphleteers tried to adapt Adam Smith’s opinions to their
own views. “They have done it in this manner: they took a passage, and
with the scissors snipped and cut away at it, until by paring off the
ends of sentences and leaving out all the rest of the passage, they
managed to make Adam Smith appear in some sense as a monopolist. When we
referred to the volume itself, we found out their tricks, and exposed
them. I tell you what their argument reminds me of. An anecdote is told
of an atheist who once asserted that there was no God, and said he would
prove it from Scripture. He selected that passage from the Psalms which
says, ‘The fool hath said in his heart there is no God.’ He then cut out
the whole passage, except the words, ‘there is no God,’ and brought it
forward as proof of his statement.”
If these false notions about Adam Smith’s economic opinions had died
with the pamphlets of obscure protectionists sixty years ago, no more
need have been said. But as they have been revived again and again in
England, Germany, and the United States, and solemnly adopted with all
the plausibility of seemingly circumstantial moderation by persons of
European repute, we shall examine the passages in the original, in order
to settle the question whether Smith can be made to serve as “the
spiritual father” of a commercial policy not essentially different from
the one his criticism destroyed.
By a policy of free trade, which Adam Smith said was the best means a
statesman could adopt of promoting national wealth and commerce, he
meant a policy that would relieve commerce and industry from all
internal dues and all external duties or prohibitions. Anything that
would bring other nations into line commanded his warm sympathy and
support. But what he desired as a patriot was a policy of free imports
irrespective of what other countries might do. The object of a national,
as of an individual policy in trade, should be to buy in the cheapest
and sell in the dearest market.[35] This will appear at once from the
so-called exceptions or limitations by which Smith is supposed to have
watered down what Cobden’s biographer has called “the pure milk of the
Cobdenic word.”
The Act of Navigation is the first of “the two cases in which it will
generally be advantageous to lay some burden upon foreign for the
encouragement of domestic industry.”[36] But by “advantageous” Smith
does not mean “likely to enrich.” It is a measure of defence, and is
unfavourable to trade.
“The defence of Great Britain,” he says, “depends very much upon the
number of its sailors and shipping. The Act of Navigation, therefore,
very properly endeavours to give the sailors and shipping of Great
Britain the monopoly of the trade of their own country.” The Act is
justified as a pure measure of defence, though it aims at monopoly, and
offends against the principles of free trade. Lest, however, there
should be any doubt upon the point, he goes on to make it quite clear
that, while he praises the Act, as he might praise the building of a
man-of-war, he condemns it as an economic measure. In the passage
immediately following there are two sentences which exactly give the
point of view, and should help to dissipate the false impression
(accepted and circulated by authorities like Hasbach, who ought to know
better) that Smith’s doctrines are very different from Cobden’s:—
“The Act of Navigation is not favourable to foreign commerce, or to
the growth of that opulence which can arise from it.... As defence,
however, is of much more importance than opulence, the Act of
Navigation is, perhaps, the wisest of all the commercial regulations
of England.”
How completely the Navigation Act failed as a commercial measure appears
from a number of passages in the _Wealth of Nations_ which together
completely refute the fallacy, so generally adopted by English
historians, that it ruined the Dutch, enriched England, and gave her a
commercial and naval supremacy which she could not otherwise have
achieved. Holland, he says, is richer than England; she gained the whole
carrying trade of France during the late war; she still remains “the
great emporium of European goods,” and so forth. All that Smith claims
for the Act is that it helped to secure the country a sufficient supply
of seamen for the navy in time of war.
Further, as there are two cases (the necessity of defence and the
propriety of countervailing an excise duty) “in which it will
_generally_ be advantageous to lay some burden upon foreign for the
encouragement of domestic industry, so,” continues Smith, “there are two
others in which it may _sometimes_ be a matter of deliberation”: in the
one, how far it is proper to continue the free importation of goods from
a particular foreign country; in the other, how, and how far, free
importation, after it has been interrupted for some time, should be
restored. The first case of doubt is that of doing evil by retaliation
in order that good, in the shape of freer trade, may come. Occasionally,
he writes, it may be wise to retaliate, “when some nation restrains by
high duties or prohibitions” the importations of our manufactures. After
giving some examples of commercial retaliation, one of which ended in
war, Adam Smith lays down the cautious rule that there may be good
policy in retaliations of this kind, but only where there is a
probability that retaliatory duties will procure the repeal of the high
duties or prohibitions complained of. “The recovery of a great foreign
market will generally more than compensate the transitory inconvenience
of paying dearer during a short time for some sorts of things.” He leans
strongly against the policy, partly because he is unwilling to trust
“that insidious and crafty animal vulgarly called a statesman” to use
such a weapon wisely; partly because you rarely benefit the sufferers
and always injure other classes of your own citizens, than those whom
you are trying to assist.
The second case of doubt was merely one of expediency—whether free trade
should be introduced quickly or slowly. “In what manner the natural
system of perfect liberty and justice ought gradually to be restored”
Smith left to the wisdom of future statesmen and legislators to
determine. But he maintained that the evils attending the remedy were
usually exaggerated, and this view proved to be correct when Sir Robert
Peel and Mr. Gladstone effected the transformation by five mighty
strokes of the fiscal axe.
We have now examined all the passages which could give colour to the
impression that Smith was only a free trader—on conditions. That part of
the task is easy enough. The difficulty begins when we seek positive
arguments against protective or differential taxation. The woodman of
Mount Ida was not more embarrassed in choosing a tree to fell. The
_Wealth of Nations_ is a forest of full-grown arguments for free trade.
The more one reads it, the more irresistibly is one driven to the
conclusion that the science of political economy, as established in this
masterpiece, is inextricably bound up with the doctrine of free trade.
Every assumption and conclusion, his criticisms of previous and existing
theories, laws, customs, and opinions, his surveys of the commercial and
colonial policy of Europe, all bear us directly or indirectly to the
same goal. Yet there is one principle which seems to take precedence in
the argument. In the division of labour, Smith found a key to the growth
of wealth and to the enlargement of the material comforts that are
necessary to the progress of refinement and civilisation. The division
of labour is therefore his starting-point, and instead of leaving it
where Plato and Aristotle let it rest—a barren formula of economic
society—he sets it vigorously in motion, and converts it, as it were,
from a slumbering lake into a vast reservoir that irrigates and
fertilises the whole plain of inquiry. And had he been confined to one
argument for free trade, this is probably the one he would have adopted.
If we were asked to select that passage in the _Wealth of Nations_ which
gives most succinctly the broad objections to a protective policy, we
should turn to the second chapter of the fourth book, “Of restraints
upon the importation from foreign countries of such goods as can be
produced at home.” He begins by admitting that high duties or
prohibitions can secure to home producers a monopoly of the home market.
At that time British graziers enjoyed the monopoly of providing the home
market with butcher-meat. The manufacturers of wool and silk were
equally favoured, and the duties on foreign linen, for which Hume had
pleaded in one of his commercial essays, had lately been raised.
Smith thereupon asks whether these protective measures, by giving an
artificial direction to industry, are likely to be of general benefit to
society. The first answer is that in business every man seeks his own
advantage, that every man knows his own business best, and that “the
study of his own advantage naturally, or rather necessarily, leads him
to prefer that employment which is most advantageous to society.” Though
intending only his own gain, he is “led by an invisible hand to promote
an end which was no part of his intention.” Indeed the selfish
trader—the economic man, if you like—promotes the interest of society
far more effectually than those who affect to trade for the public good.
Is it not evident that the individual himself, though he may make
mistakes, can judge best how and where to employ his own labour or
capital? The statesman or lawgiver who attempted to direct private
people how to manage their business and spend their money would not only
be overloaded with work, but would be assuming an authority “which could
safely be trusted, not only to no single person, but to no council or
senate whatever.” From this consideration we pass almost insensibly into
the argument from the division of labour.
“It is the maxim of every prudent master of a family never to attempt
to make at home what it will cost him more to make than to buy. The
taylor does not attempt to make his own shoes, but buys them of the
shoemaker. The shoemaker does not attempt to make his own clothes, but
employs a taylor. The farmer attempts to make neither the one nor the
other, but employs those different artificers. All of them find it for
their interest to employ their whole industry in a way in which they
have some advantage over their neighbours, and to purchase with a part
of its produce, or what is the same thing, with the price of a part of
it, whatever else they have occasion for.
“What is prudence in the conduct of every private family, can scarce
be folly in that of a great kingdom. If a foreign country can supply
us with a commodity cheaper than we ourselves can make it, better buy
it of them with some part of the produce of our own industry, employed
in a way in which we have some advantage.”
Capital and industry are certainly not employed to the greatest
advantage when they are directed to objects which under natural
conditions could be bought cheaper than they could be made. It is true,
he adds, anticipating the infant industry argument of Alexander
Hamilton, List, and Mill, that “by means of such regulations a
particular manufacture may sometimes be acquired sooner than it could
have been otherwise, and after a certain time may be made at home as
cheap or cheaper than in the foreign country.” But _cui bono_? Even in
this case “it will by no means follow that the sum total either of its
industry or of its revenue can ever be augmented by any such
regulation.” One immediate effect of such regulations must be to
diminish the revenue of the society, “and what diminishes its revenue is
certainly not very likely to augment its capital faster than it would
have augmented of its own accord had both capital and industry been left
to find out their natural employments.”
But though reason led him by every road to a complete system of liberty
as the true end of commercial policy, he despaired of its adoption. “To
expect indeed that freedom of trade should ever be entirely restored in
Great Britain, is as absurd as to expect that an Oceana or Utopia should
ever be established in it.” Even if public prejudice were overcome, the
resistance of private interests would be unconquerable. The landlords
indeed had not yet acquired a strong interest in protection. At that
time the home supply of wheat and oats in ordinary years was sufficient,
or nearly so, for the requirements of the population, and prices were
much about the same in England as in other European countries. The
moving spirits of protection were master manufacturers, who, “like an
overgrown standing army,” had begun to intimidate the legislature.
“The member of parliament who supports every proposal for
strengthening this monopoly, is sure to acquire not only the
reputation of understanding trade, but great popularity and influence
with an order of men whose numbers and wealth render them of great
importance. If he opposes them, on the contrary, and still more, if he
has authority enough to be able to thwart them, neither the most
acknowledged probity, nor the highest rank, nor the greatest public
services, can protect him from the most infamous abuse and detraction,
from personal insults, nor sometimes from real danger, arising from
the insolent outrage of furious and disappointed monopolists.”
Under these circumstances it is very surprising that Adam Smith should
have chosen to submit the corn laws to so long and destructive an
analysis. He seems to have foreseen that the great battle for which he
was sounding the advance would ultimately rage round a question then
almost academic, and that cheap food would be the keystone of the free
trade argument.
After several years’ experience as a customs official, Adam Smith took
the opportunity in his third edition (1784) of considerably enlarging
the _Wealth of Nations_; and, among other important additions, he
inserted at the end of Book IV. a new chapter, entitled “Conclusion of
the Mercantile System.” It is a deeply instructive recital of the
extremities of absurdity into which the British legislature had suffered
itself to be led blindfold by a false theory and powerful interests. The
encouragement of exportation, and the discouragement of importation,
were the two great engines by which the mercantile system proposed to
enrich every country; but with regard to some particular commodities, it
followed an opposite plan: discouraging exports, and encouraging
imports. Thus it penalised or prohibited the exportation of machinery,
wool, and coal; nor was the living instrument, the artificer, allowed to
go free. Two statutes had been passed in the reigns of George I. and II.
to prevent any British artificer going abroad under penalty of being
declared an alien, and forfeiting all his goods and chattels. “It is
unnecessary, I imagine, to observe how contrary such regulations are to
the boasted liberty of the subject, of which we affect to be so very
jealous; but which, in this case, is so plainly sacrificed to the futile
interests of our merchants and manufacturers.” Smith is very sarcastic
about regulations whose “laudable motive” was to extend British
manufactures, not by improving them, but by depressing those of our
neighbours, and by putting an end as much as possible to the troublesome
competition of such odious rivals. He then lays down a maxim “so
perfectly self-evident, that it would be absurd to attempt to prove
it”:—
“Consumption is the sole end and purpose of all production; and the
interest of the producer ought to be attended to, only so far as it
may be necessary for promoting that of the consumer.”
This golden rule was everywhere violated by the mercantile system, which
seemed to consider production the ultimate object of all industry. But
the worst of all its inventions was the colonial monopoly. “In the
system of laws which has been established for the management of our
American and West Indian colonies, the interest of the home consumer has
been sacrificed to that of the producer with a more extravagant
profusion than in all our other commercial regulations.” If there was
anything more odious to Adam Smith than a protective duty, it was the
discriminating or preferential duty which had been invented for the
purpose of tying up the trade between Great Britain and her colonies.
Both his “Utopias” were projected for the express purpose of putting an
end to a colonial system which he regarded as a dead weight upon both
the mother country and her dependencies.
The theory that Smith grew more protectionist as he grew older might be
dismissed now that we have considered the lectures, and compared the
first and third editions of the finished work. But it is possible that a
very desperate casuist might still find one more plea to urge. He might
say: granted that Smith remained to the last a theoretical free trader,
yet he frankly admitted it to be a Utopian project, and he would not, as
a responsible official, have advised its adoption. Did he not accept a
Crown appointment under Lord North’s protectionist administration, and
did he not spend the last years of his life as a principal instrument in
collecting the proceeds of a highly protectionist tariff? Nay, further,
did he not take a carnal satisfaction in the leaps and bounds by which
the revenue under his charge was at that time advancing? In December
1785 he wrote to William Eden:—
“It may perhaps give that gentleman [Mr. Rose of the Treasury]
pleasure to be informed that the net revenue arising from the customs
in Scotland is at least four times greater than it was seven or eight
years ago. It has been increasing rapidly these four or five years
past, and the revenue of this year has over-leaped by at least one
half the revenue of the greatest former year. I flatter myself it is
likely to increase still further.”
Whatever force the _argumentum ad officium_ might have in a country (if
such there be) where customs officials are sworn supporters of the
commercial policy of the Government, it has none in reference to Great
Britain, and less than none if regard be had to the circumstances of
Smith’s appointment. There is no reason for supposing that Lord North
had any particular liking for protection, though as the instrument of
the king’s war policy he had an insatiable craving for revenue, and in
pursuit thereof adopted, as we shall see, several taxes of a
non-protective character suggested by Smith in the first edition of his
treatise. Further, when the above letter was written Pitt was already,
under the inspiration of this very customs official, initiating a free
trade policy, and was actually preparing the great commercial treaty
with France which he was to carry into effect a few months later. A
patriotic Scotsman might well delight in his country’s rapid recovery
from the disastrous effects of the war, and the author of Pitt’s policy
would naturally anticipate an increase of prosperity with an expansion
of imports and a growth of the revenues under his charge.
Moreover, there is happily extant a relic of the correspondence which
Smith carried on as financial adviser to ministers. In the year 1778
Ireland was in a terrible plight. In addition to all the evils of a
minority rule, she suffered as a whole from a commercial persecution by
the predominant partner. Her trade had been deliberately and
malevolently throttled by the superior legislature of Great Britain. At
that time Irish wool could be exported to no country save Great Britain.
Irish woollens could only be exported from specified ports in Ireland to
specified ports in Great Britain. All export of Irish glass was
absolutely prohibited. Worst of all, she was not allowed to send her
staple article—cattle—or even salt provisions to the English market. And
she was excluded from the colonial trade.
Even so cool a political hand as Henry Dundas (then Lord Advocate),
writing to Smith at the end of October 1779, confessed that he has been
shocked at the tone and temper of the House of Commons in its dealings
with Ireland’s prayers for elementary justice. But the Irish Parliament
was now demanding free trade in tones too peremptory to be ignored, for
they were backed by a threatening display of armed force. Dundas saw
little objection to acceding to some of the requisitions; but he had no
very clear grasp of the economics of the situation, and being in
correspondence with Eden, the Secretary of the Board of Trade, he wanted
an expert opinion from the Seer of Edinburgh. Smith replies that the
Irish demand should be satisfied, first, because it is just; second,
because it will be for the benefit of English consumers; and lastly,
because English manufacturers will suffer so much less than the nation,
and the national revenue, will gain. Dundas had seemed to be rather
afraid that with cheaper labour and lower taxes the Irish manufacturers
might be able to undersell their British competitors. Smith pointed out
that they had neither the skill nor the stock [capital] to enable them
to do so; “and though both may be acquired in time, to acquire them
completely will require more than a century.” Besides, Ireland had
neither coal nor wood; “and though her soil and climate are perfectly
suited for raising the latter, yet to raise it to the same degree as in
England will require more than a century.”
Before he can say precisely what the Irish Parliament means by a free
trade, he must see the heads of the proposed bill. If it is only freedom
to export, nothing could be more just and reasonable. If it is freedom
to import, subject only to their own customs’ duties, that again is
perfectly reasonable, though it would “interfere a little with some of
our paltry monopolies.” If they wish to be allowed to trade freely with
the American and African plantations, that also should be conceded. It
would interfere with some monopolies, but would do no harm to Great
Britain. Lastly, they might mean to demand a free trade with Great
Britain. “Nothing, in my opinion, would be more highly advantageous to
both countries than this mutual freedom of trade. It would help to break
down that absurd monopoly which we have most absurdly established
against ourselves in favour of almost all the different classes of our
own manufacturers.” Dundas had hinted that the two Parliaments might be
reconciled by a proper distribution of loaves and fishes. Smith did not
shrink at all from promoting a good policy by what was then the ordinary
method of promoting a bad policy:—
“Whatever the Irish mean to demand in this way, in the present
situation of our affairs I should think it madness not to grant it.
Whatever they may demand, our manufacturers, unless the leading and
principal men among them are properly dealt with beforehand, will
probably oppose it. That they may be so dealt with I know from
experience, and that it may be done at little expense and with no
great trouble. I could even point to some persons who, I think, are
fit and likely to deal with them successfully for this purpose. I
shall not say more upon this till I see you, which I shall do the
first moment I can get out of this Town.”
A week later Smith repeated his argument with some additions and
modifications in a letter of November 8th to Lord Carlisle, who then
presided over the Board of Trade. He maintains that “a very slender
interest of our own manufacturers is the foundation of all these unjust
and oppressive restraints,” and ridicules “the watchful jealousy of the
monopolists, alarmed lest the Irish, who have never been able to supply
completely even their own market with glass or woollen manufactures,
should be able to rival them in foreign markets.”
When he passes from commercial considerations to the larger aspects of
freedom and good government, his wisdom is no less manifest. What
Ireland most wants, he writes, are order, police, and a regular
administration of justice, both to protect and to restrain the inferior
ranks of people: “articles more essential to the progress of industry
than both coal and wood put together, and which Ireland must continue to
want as long as it continues to be divided between two hostile nations,
the oppressors and the oppressed, the Protestants and the Papists.” He
then points out that what the monopolists dread (the prosperity of
another country) is not an evil but a good:—“Should the industry of
Ireland, in consequence of freedom and good government, ever equal that
of England, so much the better would it be not only for the whole
British Empire, but for the particular province of England. As the
wealth and industry of Lancashire does not obstruct but promote that of
Yorkshire, so the wealth and industry of Ireland would not obstruct but
promote that of England.” For exactly the same reasons he wanted free
trade with France, and with the whole world. If it is good for one man
to trade freely with another, for a town with a town, and for a county
with a county, how can it be otherwise than good for countries to trade
freely together? An economist who strikes at the last proposition should
hail Smith’s humorous project of a tariff which would secure Scotland a
vintage as well as a harvest.
Much more might be said upon a subject that enters into the politics of
every State, and vitally affects the welfare of every struggling toiler
in the universe. But the purpose of this chapter will be fulfilled if it
restores to Adam Smith his identity as the protagonist in a great
contest, as the champion of the right to trade with all the world,
against those who stand for privileges, monopolies, and tariffs.
According to Bagehot, Smith’s name can no more be dissociated from free
trade than Homer’s from the siege of Troy. “So long as the doctrines of
protection exist—and they seem likely to do so, as human interests are
what they are, and human nature is what it is—Adam Smith will always be
quoted as the great authority on Anti-Protectionism, as the man who
first told the world the truth, so that the world could learn and
believe it.”