On the Wealth of Nations

  And yet, as of this writing, America is fighting a war anyway. And it's turned out to be fairly major. And America's helicopter gunships are not being assembled in Guangdong Province.

  Military power depends on economic success. Economic success depends on freedom. 'No regulation of commerce,' Smith wrote, 'can increase the quantity of industry in any society … It can only divert a part of it into a direction into which it might not otherwise have gone.'21 Trust to capitalism that industry would have gone in that direction already, if more economic success was to be found there. Schumer and Graham should shut up. That was Smith's most important public policy recommendation for achieving economic success: 'The law ought always to trust people with the care of their own interest, as … they must generally be able to judge better of it than the legislator can do.'22

  A negative balance of trade, Smith declared, does not invalidate that rule:

  A nation may import to a greater value than it exports for half a century … even the debts too which it contracts in the principal nations with whom it deals, may be gradually increasing; and yet its real wealth, the exchangeable value of the annual produce of its lands and labour, may, during the same period, have been increasing in a much greater proportion.23

  America's would-be neomercantilists might be surprised by the example Smith used to prove his point:

  The state of our North American colonies, and of the trade which they carried on with Great Britain, before the commencement of the present disturbances, may serve as a proof that this is by no means an impossible supposition.24

  In 1776, Britain was the most powerful country on earth. The reason for this, wrote Smith, was plain. 'That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour, is alone sufficient to make any country flourish.'25 Restrictions of this enjoyment – including restrictions about enjoying a weekend on the couch fiddling with the remote for a plasma TV made in China – do not enhance the flourishing.

  In 1776, Britain was so powerful that it could be defeated only by a people intent on establishing laws that would give them even more security for even more enjoyment of all the fruit they could eat.

  CHAPTER 9

  The Wealth of Nations, Book 4, Continued: Adam Smith versus the Ideological Swine When They Were Still Cute, Squealing Piglets

  The mercantilists were not Adam Smith's only target. Book 4 of Wealth also presents a polite (but not very) attack on the French physiocrats. Smith was friends with members of the physiocratic school. He admired their founder, court physician François Quesnay, enough that it was his intention to dedicate The Wealth of Nations to him. But Quesnay died shortly before publication. Maybe it was just as well, considering what was said about the physiocrats in Wealth. Smith also respected the abilities of Quesnay's two most prominent disciples, Anne-Robert-Jacques Turgot, who was Louis XVI's comptroller of finances, and Pierre-Samuel Du Pont de Nemours, who became an economic advisor to the French revolutionary government until he was denounced for being insufficiently radical.

  The principles of the physiocrats were so insufficiently radical that, on first hearing, they sound like those of country club Republicans or provincial Tories. The physiocrats believed in private property, minimal government, and bureaucratic noninterference. A precursor to the physiocrats, Vincent de Gournay – whom they regarded as a sort of John the Baptist of their thinking – coined the term laissez-faire. The physiocrats respected the law. When Louis XVI was the dauphin, Quesnay advised him that, upon becoming king, he should 'do nothing, but let the laws rule'. It was sad advice considering the laws the Jacobins would pass. But, then again, the physiocrats always were skeptical about popular democracy.

  The physiocrats referred to themselves as economists and were the first students of economy to claim that honorific. Until then economist meant someone who was good at scrimping and saving. The physiocrats were also the first to formulate a coherent economic theory. Adam Smith agreed with all the economic deductions the physiocrats made. He agreed with everything concerning their theory, except the theory.

  The physiocrats applied far too much power of ratiocination to the concepts of 'productive' and 'unproductive' labor. The distinction between the two was silly enough in Adam Smith's later and more measured analysis, but the physiocrats were obsessed with the subject. They convinced themselves that, as Smith summarized it, 'The labour of artificers and manufacturers never adds any thing to the value of the whole annual amount of the rude produce of the land,' and 'Mercantile stock is equally barren and unproductive.'1 For increasing the wealth of a nation, farming was all that mattered. However, the physiocrats decided that mining was helpful, too. So they made mining a part of farming, as if French peasants digging turnips could just dig a little deeper and get iron ore and coal.

  To the physiocrats, occupations other than farming were considered 'sterile' and yet, at the same time, 'useful'. They did not propose to restrict trade or manufacturing. The physiocrats held that, again in Smith's words, 'It can never be the interest of the proprietors and cultivators to restrain or to discourage in any respect the industry of merchants, artificers and manufacturers.'2 So the physiocrats recognized the importance of trade and manufacturing, but didn't recognize it. This put them on the same plane of understanding as the mercantilists, who realized 'trade enriched the country … but how, or in what manner, none of them well knew.'

  Smith disproved the physiocrats' theory in several dull pages. He could have saved himself the effort with one well-chosen word, but bullshit didn't come into use as an expletive until the early twentieth century.

  There was something about the physiocrats, however, that bothered Smith more than the fact that they were wrong. Smith believed the economy was shaped by the nature of man. The physiocrats believed the nature of man was shaped by the economy. They thought that trading and manufacturing countries could get richer solely by economics in the older sense – hoarding income to produce more capital – while agricultural countries could get richer by growing more food, making everyone fat and happy with no hoarding necessary. Smith detailed the physiocratic thinking:

  Nations, therefore, which, like France or England, consist in a great measure of proprietors and cultivators, can be enriched by industry and enjoyment. Nations, on the contrary, which, like Holland and Hamburgh, are composed chiefly of merchants, artificers and manufacturers, can grow rich only through parsimony and privation. As the interest of nations so differently circumstanced, is very different, so is likewise the common character of the people. In those of the former kind, liberality, frankness, and good fellowship, naturally make a part of that common character. In the latter, narrowness, meanness, and a selfish disposition, averse to all social pleasure and enjoyment.3

  The passage is a rare example of sarcasm from Adam Smith. He was a Scot, and what prosperity Scotland had it owed to merchants, artificers, and manufacturers. The wholly agricultural areas of Scotland were almost as grim and feudal as they had been at the time of the Highland rising. Smith lived in England for six years while he studied at Oxford. His experience could not be described as one of social pleasure and enjoyment. France was a scene of deprivation, despotism, and intrigue and was rife with the bad fellowship that would lead to the French Revolution. Holland and Hamburg were the wealthiest places in Europe, well populated with comfortable bourgeois famous for their domestic felicities.

  Smith also considered the physiocrats to be too caught up in idealism for their own, or anyone's, good. According to Smith (in a second example of sarcasm) the physiocrats believed that 'the establishment of perfect justice, of perfect liberty, and of perfect equality, is the very simple secret which most effectually secures the highest degree of prosperity.'4 But, wrote Smith, 'If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered.'5

  Adam Smith is commonly treated as if, like the physiocrats, he had an
economic theory. There are many theories in The Wealth of Nations but no theoretical system that Smith wanted to put in place except 'the obvious and simple system of natural liberty [that] establishes itself of its own accord'.6

  The physiocrats not only had a theoretical system but regarded it, the way Marxists would later regard Marxism, as essential. Smith quoted another of Quesnay's disciples, the Marquis de Mirabeau, on the 'three great inventions which have principally given stability to political societies'.7 These the marquis listed as writing, money, and Quesnay's Tableau Économique.

  The danger of theoretical systems was something that Smith addressed with his own theory in part 6 of The Theory of Moral Sentiments. This section of the book was actually written after The Wealth of Nations. Moral Sentiments had been published in 1759 when Smith was teaching at Glasgow. But Smith revised it in 1789. By then he had met the physiocrats and had been exposed to their system of political economy. In part 6, titled 'Of the Character of Virtue', Smith located the evil of political systems in – per the great theme of Moral Sentiments – lack of imagination. Creating a theoretical political system does take imagination, but, Smith argued, there's an unimaginative side to putting it into practice:

  From a certain spirit of system … we sometimes seem to value the means more than the end, and to be eager to promote the happiness of our fellow-creatures, rather from a view to perfect and improve a certain beautiful and orderly system, than from any immediate sense or feeling of what they either suffer or enjoy.8

  Theorizers, Smith wrote, can become 'intoxicated with the imaginary beauty of this ideal system'9 until 'that public spirit which is founded upon the love of humanity'10 is corrupted by a spirit of system that 'inflames it even to the madness of fanaticism'.11

  The physiocrats were moderate, inoffensive, and well meaning. But in the artificiality of their oversystematic system and in their idea that artificial systems change men, were the seeds of a hundred million murders. And their foolish doctrines about agricultural land would drive the colonial atrocities of the Victorian era and abet the kaiser's First World War, the führer's Second, Stalin's ruination of the Ukraine, and Mao's starvation of China. In the two centuries after the physiocrats, more people would die from excesses of theory than had died from excesses of theology in all the centuries before. (And, in another small matter of seed, the son of the mild physiocrat marquis was the French Revolution's fiery Mirabeau.)

  Before totalitarianism had ever been tried, Adam Smith was prescient in his scorn for it:

  The man of system … is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it … He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.12

  Barbed wire always seems to be needed to keep the chessmen on their squares.

  Part 6 of Moral Sentiments is often read as referring to the constitution makers of the National Assembly in the early days of the French Revolution, rather than to the physiocrats. The Tennis Court Oath took place on June 20, 1789. Smith's revisions of Moral Sentiments were supposed to be sent to his publisher the same month. Assuming that Smith was late with his manuscript, as authors sometimes are, there was just time for both readings of part 6 to be true.

  But if Smith was criticizing the French Revolution, he never knew how right he was. Smith died in July 1790, with the beheadings of France's king and queen and the Reign of Terror still in the future. The full ugliness of secular ideology wasn't evident to Adam Smith. Quarrels over 'place' – on earth or in heaven – were still the main worry of sensible eighteenth-century political observers.

  Smith could take a detached view of theoretical political systems and, with no foreknowledge of the League of Nations or the Nazis, declare, 'Even the weakest and the worst of them are not altogether without their utility.'13

  Smith was firm in his contradiction of the physiocratic school but gentle with the physiocrats. In The Wealth of Nations he called their theory 'this liberal and generous system'.14 And declared it to be, 'perhaps, the nearest approximation to the truth that has yet been published upon the subject of political economy'.15 (Smith's own, of course, was still awaiting publication.)

  Smith's approximation to the truth was, mercifully, more approximate. The Wealth of Nations is less an R than a diagnosis. It is mostly free of those perfect abstractions for which men kill and die. It's hard to picture a furious mob mounting the barricades and shouting, as they fall upon the gendarmerie, 'OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS NATURALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE!!!'

  Smith should have been tougher on the physiocrats. He should have heeded his friend David Hume. Hume wanted to 'thunder them, and crush them, and pound them, and reduce them to dust and ashes'.16

  CHAPTER 10

  Adam Smith, America's Founding Dutch Uncle

  Adam Smith didn't live to see the French Revolution. But he witnessed a revolution of a very different kind: 'When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another …' This wasn't really a revolution at all. It was a provincial flare-up between freeborn Englishmen. But it would change human life more, and more hopefully, than all the radical and fanatic revolutions that were to come.

  Smith was interested in the American colonies and the 'present disturbances' there. The index to The Wealth of Nations contains more than a hundred entries under 'America'. Smith devotes a long chapter in book 4 of Wealth to the political philosophy of colonies in general and to the causes of the rebellion in a particular thirteen of them. In book 5, where the ways and means of government were considered, Smith returns to the subject. The last pages of The Wealth of Nations are given over to a consideration of Britain's colonial empire.

  Something should be said about Smith's use of the word empire. Sadly for the history of meaning in language, we owe our present-day definition of imperialism to Lenin. Frustrated by capitalism's continued failure to impoverish its proletariat and then collapse, Lenin decided that capitalism had been 'transformed into imperialism'1 in order to 'plunder the whole world'2 instead of just the local working class.

  Adam Smith's name for this was mercantilism. Smith knew the classics, as did his readers. In Latin, imperator simply means the holder of a chief military command. In the Roman republic it was an honorary title, bestowed on a victorious general by acclamation of his troops. The Roman Empire, as originally conceived, was supposed to have an imperator, not a rex. Julius Caesar accepted the political appointment of emperor but refused the hereditary office of king. There were no 'evil empires' extant in Smith's time, only a couple of decaying and ineffective ones, the Chinese and the Holy Roman. Smith was free to employ the term empire in a neutral or even an optimistically figurative sense, as his friend David Hume did in his essay 'The Sceptic': 'The empire of philosophy extends over a few.'3

  Albeit Smith was not philosophically optimistic about the British Empire, especially not about the colonial American part of it. The ruling classes, he warned, must either understand the proper nature of an empire in North America or suffer the consequences 'in the case of a total separation from Great Britain, which … seems very likely'.4

  Smith was considered enough of an expert on America that in 1778 the British government sought his advice. General John Burgoyne had surrendered at Saratoga the previous fall, and the American war was going poorly or, as an American would say, well. Smith wrote a detailed memorandum to a member of Lord Frederick North's cabinet, Alexander Wedderburn, who had been a friend of Smith's for thirty years.

  Historians did not discover this document until the 1930s. By the time it came to light Smith's comments seemed more pertinent to the too feeble Britain of the twentieth century than
the too masterful Britain of the eighteenth:

  A government which, in times of the most profound peace, of the highest public prosperity, when the people had scarce even the pretext of a single grievance to complain of, has not always been able to make itself respected by them; would have every thing to fear from their rage and indignation at the public disgrace and calamity … of thus dismembering the empire.5

  'Rage and indignation' at the governing classes is probably as good an explanation as any for how Britain, the original laboratory of the obvious and simple system of natural liberty, got itself into the socialist pickle from which it has yet to be fully extracted. But another, larger lab experiment was about to be conducted on the other side of the ocean.

  Smith predicted to Wedderburn that the Americans would reject the type of conciliation with the parent country that Edmund Burke had proposed in 1775. And Smith predicted that if Britain continued the American war it would lose, even if it won: 'A military government would naturally be established there; and the … Americans … will, for more than a century to come, be at all times ready to take arms in order to overturn it.'6 Smith predicted the war's outcome: 'The submission or conquest of a part, but of a part only, of America, seems … by far the most probable.'7 That is, Britain got to keep Canada. And Smith predicted the outcome's outcome: 'yet the similarity of language and manners would in most cases dispose the Americans to prefer our alliance to that of any other nation.'8