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.