“No two characters seem more inconsistent than those of trader and sovereign.”[215] Governments are “always, and without any exception, the greatest spendthrifts in the society.”[216] The reasons for this are numerous. In the first place, they employ money which has been gained by others, and one is always more prodigal of the wealth of others than of one’s own. Moreover, the Government is too far removed from the centres of particular industries to give them that minute attention which they deserve if they are going to prosper. “The attention of the sovereign can be at best but a very general and vague consideration of what is likely to contribute to the better cultivation of the greater part of his dominions. The attention of the landlord is a particular and minute consideration of what is likely to be the most advantageous application of every inch of ground upon his estate.”[217]
This necessity for a thorough cultivation of the soil and for the best employment of capital, for direct and careful superintendence, is an idea to which he continually reverts. He regrets, among other things, that the growth of public debts causes a portion of the land and the national capital to pass into the hands of fund-holders, who are doubtless interested in the good administration of a country, but “are not interested in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock.”[218]
Lastly, the State is an inefficient administrator because its agents are negligent and thriftless, not being directly interested in administration, but paid out of public funds. Should the administration of the land pass into the hands of the State he exclaims that not a fourth of the present produce would ever be raised, because of “the negligent, expensive, and oppressive management of his factors and agents.”[219] On the contrary, he proposes that the remainder of the common land should be distributed among individuals. On this point European Governments have followed his advice somewhat too closely.[220] For the same reason—the necessity for stimulating personal interest wherever possible—he commends, instead of a fixed salary for public officers, payment by those who benefit by their services, such payment in every case to be in strict proportion to the zeal and activity displayed. This was to apply, for example, to judges and professors.[221]
State administration is accordingly a pis aller, and intervention ought to be strictly limited to those cases in which individual action is impossible. Smith recognises three functions only which the State can perform, namely the administration of justice, defence, “and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.”[222]
We must beware, however, lest we exaggerate this point. Although Smith, in the majority of cases, preferred individual action, we must not conclude from this that he had unlimited confidence in individuals. Smith’s individualism was of a particular kind. It was not a mere blind preference for every private enterprise, for he knew that industry frequently falls a prey to the spirit of monopoly. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”[223] In order that a private enterprise may be useful for the community two conditions are necessary. The entrepreneur must be: (1) actuated by personal interest; (2) his actions must by means of competition be kept within the limits of justice. Should either of these two conditions be wanting, the public would run the risk of losing as much by private as they would by State enterprise.
Thus Smith throughout remains very hostile to certain collective enterprises of a private nature, such as joint-stock companies,[224] because of the absence of personal interest. The only exceptions which he would tolerate are banks, insurance companies, and companies formed for the construction or maintenance of canals or for supplying great towns with water, for the management of such undertakings can easily be reduced to a kind of routine, “or to such a uniformity of method as admits of little or no variation.”[225]
His opposition to every kind of monopoly granted either to an individual or to a company is even more pronounced. A whole chapter is devoted to an attack upon the great trading companies of the seventeenth and eighteenth centuries, which were created with a view to the development of colonial trade, and of which the East India Company was the most famous.
One other observation remains to be made. Non-intervention for Smith was a general principle, and not an absolute rule. He was no doctrinaire, and he never forgot that to every rule there are some exceptions. An interesting list could be made, giving all the cases in which, according to Smith, the legitimacy of State intervention was indisputable—legal limitation of interest,[226] State administration of the post-office, compulsory elementary education, State examinations as a condition of entry into the liberal professions or to any post of confidence whatever, bank-notes of a minimum value of £5, etc.[227] In a characteristic phrase he gave expression to his feeling on the question of restricting the liberty of banks. “Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole of society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical.”[228] Despite these reservations it is still very evident that the whole of Smith’s work is a plea for the economic freedom of the individual. It is an eloquent appeal against the Mercantilist policy and a violent attack upon every economic system inspired by it.
On this point there is absolute agreement between the work done by Smith in England and that carried on at the same time by the Physiocrats in France. Both in foreign and domestic trade producers, merchants, and workmen were hemmed in by a network of restrictions either inherited from the traditions of the Middle Ages or imposed by powerful party interests and upheld by false economic theories. The corporations still existed in the towns; although their regulations could not be applied to industries born after the passing of Elizabeth’s famous law concerning apprenticeship. The Colbertian system, with its mob of officials entrusted with the task of superintending the processes of production, of examining the weight, the length, and the quality of the material employed, was still a grievance with the woollen manufacturers.[229] The fixing of the duration of apprenticeship at seven years, the limitation of the number of apprentices in the principal industries, the obstacles put in the way of the mobility of labour by the Poor Law and by the series of statutes passed since the reign of Elizabeth, fettered the movement of labour and the useful employment of capital. Smith opposed these measures with the whole of his energy. England, unlike France, had fortunately escaped internal restrictions upon trade, but the restraints placed upon foreign trade still kept England and Ireland commercially separated. These checks upon foreign trade proved as irksome in England as they did everywhere else. Manufactured goods from foreign countries were heavily taxed or were prohibited entrance altogether. Certain natural products, e.g. French wine, were similarly handicapped; the importation of a number of commodities necessary for national industry was banned; a narrow and oppressive policy regarded the colonies as the natural purveyors of raw materials for the mother-country and the willing buyers of its manufactured goods. Against all this mass of regulations, destined, it was thought, to secure the supremacy of England among other commercial nations, Smith directed his most spirited onslaughts. The fourth book of the Wealth of Nations is an eloquent and vigorous attack upon Mercantilism, admirable alike for the precision and the extent of its learning. It was this section of his work that interested his contemporaries most. For us it would have been the least interesting but for its theory of international trade and its criticism of Protection in general. On this account, however, it is of considerable importance in the study of economic doctrines.