Sometimes, when I recommend that people read
Adam Smith's Wealth
of Nations (the full title is An Inquiry into the Nature and Causes
of the Wealth of Nations), I am met with a supercilious snort, as if nothing
that was written in 1776 could be relevant to today. A very common attitude
seems to be, "That is sooo 18th-century." I think what it really
shows is that the "snorter" has simply not read Adam Smith. Smith's
book is chock-full of insights: that when competitors get together they often
collude; that governments can't stop such collusion but should refrain from
facilitating it; that countries with private property, free trade, and low taxes
are the ones that do well; that the incentives of universities are so messed
up (yes, even back then) that much less learning takes place than could; and,
of more immediate interest, that imperialism doesn't work.
You read it right. Adam Smith was one of the most outspoken, clear-thinking,
and well-reasoning spokesman against imperialism in the 18th century. One particular
imperialist this Scotsman took on was Britain, and one particular instance was
Britain's trying to hold on to the 13 colonies. Smith didn't chant some 18th-century
version of "No blood for oil." Instead, he calmly and numerately toted
up the costs of imperialism to the British people, estimated the benefits to
Britain, and concluded that the costs greatly exceeded the benefits.
The benefits, in Smith's estimate, were the monopoly profits that British merchants
had on sales to consumers in the colonies. The costs that Britons bore were
the costs of using the military to defend that monopoly. Here's an excerpt from
"The maintenance of this monopoly [on trade with the American colonies]
has hitherto been the principal, or more properly perhaps the sole end and purpose
of the dominion which Great Britain assumes over her colonies. … The Spanish
war, which began in 1739, was principally a colony quarrel. Its principal object
was to prevent the search of the colony ships which carried on a contraband
trade with the Spanish Main. This whole expence is, in reality, a bounty which
has been given in order to support a monopoly. The pretended purpose of it was
to encourage the manufactures, and to increase the commerce of Great Britain.
But its real effect has been to raise the rate of mercantile profit. … Under
the present system of management, therefore, Great Britain derives nothing but
loss from the dominion which she assumes over her colonies." 1
Later, Smith elaborated, showing that the costs to the British government of
defending the 13 colonies were greater than the benefits to the British. He
"A great empire has been established for the sole purpose of raising
up a nation of customers who should be obliged to buy from the shops of our
different producers all the goods with which these could supply them. For the
sake of that little enhancement of price which this monopoly might afford our
producers, the home-consumers have been burdened with the whole expence of maintaining
and defending that empire. For this purpose, and for this purpose only … a new
debt of more than a hundred and seventy millions has been contracted over and
above all that had been expended for the same purpose in former wars. The interest
of this debt alone is not only greater than the whole extraordinary profit which
it ever could be pretended was made by the monopoly of the colony trade, but
than the whole value of that trade…." 2
That's not all. Smith pointed out that the costs and benefits of maintaining
the colonies were not symmetrically distributed and that this accounted for
why the British wouldn't give up their colonies voluntarily. Consider this justly
"To found a great empire for the sole purpose of raising up a people
of customers may at first sight appear a project fit only for a nation of shopkeepers.
It is, however, a project altogether unfit for a nation of shopkeepers; but
extremely fit for a nation whose government is influenced by shopkeepers. Such
statesmen, and such statesmen only, are capable of fancying that they will find
some advantage in employing the blood and treasure of their fellow-citizens
to found and maintain such an empire. Say to a shopkeeper, 'Buy me a good estate,
and I shall always buy my clothes at your shop, even though I should pay somewhat
dearer than what I can have them for at other shops'; and you will not find
him very forward to embrace your proposal. But should any other person buy you
such an estate, the shopkeeper would be much obliged to your benefactor if he
would enjoin you to buy all your clothes at his shop." 3
In other words, Smith is saying, the costs of maintaining colonies in order
to maintain a preferential trade arrangement exceeded the benefits – thus his
statement that the project is unfit for a nation of shopkeepers. But the cost
to the shopkeepers is a small fraction of the cost to Britain – they pay only
their pro rata share – whereas the shopkeepers get the lion's share of the benefits.
If the shopkeepers had to bear the whole cost of the arrangement, the benefits
would not be worth it. Thus his analogy to the sucker deal that someone hypothetically
offers a shopkeeper: buy me a house and I'll promise to buy all my goods from
you from now on. The shopkeeper would quickly reject such a deal. But if the
shopkeeper can find others to pay for the house and he pays only a fraction,
the deal might be in the shopkeeper's interest. Using the asymmetric distribution
of costs and benefits to explain why governments take actions that are not in
the general interest – whether the special interest benefited be farmers, seniors,
or Northrop Grumman – has become part of the tool kit of the modern economist,
due to the "public
choice" revolution started by James Buchanan and Gordon Tullock. But
notice that Smith had the idea two centuries earlier.
Smith believed the British government would try to hang on to colonies by force.
"To propose that Great Britain should voluntarily give up all authority
over her colonies, and leave them to elect their own magistrates, to enact their
own laws, and to make peace and war as they might think proper, would be to
propose such a measure as never was, and never will be adopted, by any nation
in the world. No nation ever voluntarily gave up the dominion of any province,
how troublesome soever it might be to govern it, and how small soever the revenue
which it afforded might be in proportion to the expence which it occasioned.
Such sacrifices, though they might frequently be agreeable to the interest,
are always mortifying to the pride of every nation, and what is perhaps of still
greater consequence, they are always contrary to the private interest of the
governing part of it…." 4
Smith even predicted the Revolutionary War and implicitly predicted its
outcome. He wrote:
"[I]t is not very probable that they will ever voluntarily submit to
us; and we ought to consider that the blood which must be shed in forcing them
to do so is, every drop of it, blood either of those who are, or of those whom
we wish to have for our fellow-citizens. They are very weak who flatter themselves
that, in the state to which things have come, our colonies will be easily conquered
by force alone." 5
Wise words from a wise man.
1. From Adam Smith, An Inquiry into the Nature and Causes
of the Wealth of Nations, ed. Edwin M. Cannan, Chicago: University of Chicago
Press, 1976, Volume Two, Book IV, Chapter VII, Part III, pp. 130-131. Available
online at: http://www.econlib.org/library/Smith/smWN.html.
2. Ibid., Volume Two, Book IV, Chapter VIII, p. 180.
3. Ibid., Volume Two, Book IV, Chapter VII, Part III, p.
4. Ibid., Volume Two, Book IV, Chapter VII, Part III, p.
5. Ibid., Volume Two, Book IV, Chapter VII, Part III, p.
Copyright © 2005 by David R. Henderson. Permission automatically granted
to use in whole or in part as long as publication, author, and title are attributed.