“The ordinary expense of the greater part of modern governments in time of peace being equal or nearly equal to their ordinary revenue, when war comes they are both unwilling and unable to increase their revenue in proportion to the increase of their expense. They are unwilling, for fear of offending the people, who by so great and so sudden an increase of taxes, would soon be disgusted with the war; and they are unable, from not well knowing what taxes would be sufficient to produce the revenue wanted. The facility of borrowing delivers them from the embarrassment which this fear and inability would otherwise occasion.... In great empires, the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war, but enjoy at their ease the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory.”
Indeed, he adds, the return of peace seldom relieves a nation from the greater part of the taxes imposed during the war. They are still required to pay the interest on the newly created debt.
Of all Smith’s theories, or rather opinions—for after all, the question is a mixed one of morals and expediency which cannot be answered by abstract formulas of right or rules of logic—not the least important or characteristic is his doctrine of empire and imperial expenditure. The view now cherished and practised in the great bureaucracies of Europe, and often advanced by socialists under the plausibly scientific phraseology of a theory of consumption, that national profusion is a good thing in itself, was not then propagated or defended by responsible persons. But, though thrift was on their lips, their hands were often in the public purse; and it could not be said that warnings against the outlay of national resources upon useless or mischievous objects were unneeded. Appropriately enough, the very first time, so far as we know, that the Wealth of Nations was cited in Parliament, it was cited as an authority against the policy of accumulating armaments in time of peace. In his speech on the address (November 11, 1783) Fox is reported to have said: “There was a maxim laid down in an excellent book upon the Wealth of Nations, which had been ridiculed for its simplicity, but which was indisputable as to its truth. In that book it was stated that the only way to become rich was to manage matters so as to make one’s income exceed one’s expenses. The proper line of conduct, therefore, was by a well-directed economy to retrench every current expense, and to make as large a saving during the peace as possible.”[31]
But Smith took no narrow or penurious view of national economy. He did not prize thrift for its own sake. Such a charge might possibly be brought by an unfriendly critic against Ricardo or Joseph Hume, but assuredly not against Adam Smith. Like Burke and Cobden, he valued frugality in nations as a safeguard against wrong-doing, a prime source of security and independence, and a perpetual check upon the lust of conquest and aggrandisement that so often lurks under the respectable uniform of a missionary civilisation. As he describes the discoveries of the New World and the beginnings of modern empire, a poignant epithet or a burning phrase tells the lesson of many a romantic scramble for the fleece that was so seldom golden, of many a credulous hunt for a fugitive Eldorado.
After showing that the gold and silver mines of their colonial empires had neither augmented the capital nor promoted the industry of the two “beggarly countries” of Spain and Portugal, he carefully distinguishes between the natural advantages of a colonial trade and the artificial disadvantages caused by the policy of monopoly, that is by the endeavours of the mother country to restrict that trade to her own merchants. If the governments of Europe had been content to found colonies, and see that they were well and justly administered, the full benefit of opening up new countries, and of interchanging their products, would have been felt. But unhappily every country that had acquired foreign possessions sought to engross their trade, thus injuring its own people and the colonial or subject race by checking the natural growth of commerce, and forcing it into unnatural channels. This so-called mercantilist policy was therefore just as disastrous to commerce as to morals.
“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.”
Far worse in their results than the regular conquests of government, were the irregular acquisitions of companies formed for trading purposes; and one of the masterly chapters added to the third edition of his book (1784) traces the misery, injustice, and commercial failure which had attended the rule of the East India Company.
“It is a very singular government, in which every member of the administration wishes to get out of the country, and consequently to have done with the government, as soon as he can, and to whose interest, the day after he has left it, and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up by an earthquake.”
What, then, was the practical policy which Smith recommended to the British Government? It had two main ends in view. First, to pay off the debt; secondly, to lessen and gradually remove all taxes which raised the prices of articles consumed by the labouring classes, or interfered with the free course of trade. Writing as he did, in 1775, on the eve of war, his thoughts naturally turned to the colonies, then so rich and prosperous, which had contributed nothing to the income but so heavily to the expenditure and debt of the British crown.
Smith would have liked the British Government to renounce its authority over the colonies, and so not only relieve the revenue from a serious annual drain, but at the same time convert the Americans from turbulent and fractious subjects to the most faithful, affectionate, and generous allies. But seeing that neither people nor government would brook such a mortification, he suggested that to save the situation they should try, by a scheme of union, to break up the American confederacy and reconstitute the empire on a fair basis. Let us give, he said, to each colony which will detach itself from the general confederacy a number of representatives in parliament proportionate to its contribution, and so open up a new and dazzling object of ambition to the leading men of each colony. If this or some other method were not fallen upon of conciliating the Americans, it was not probable that they would voluntarily submit, and “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.” The leaders of the Congress had risen suddenly from tradesmen and attorneys to be statesmen and legislators of an extensive empire “which seems very likely to become one of the greatest and most formidable that ever was in the world.” Nay, if the union he suggested as an alternative to peaceful and friendly parting were constituted, he predicted that in the course of little more than a century the empire would draw more revenue from America than from the mother country; and “the seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defence and support of the whole.” It was such a scheme as this that Burke ridiculed when he pictured “a shipload of legislators” becalmed in mid-Atlantic.