Here we begin what seems to be Smith’s major campaign: to prove that anything that restrains trade (with a very few exceptions) is bad for society as a whole. The difficulty with this proposition appears in the very formulation: society “as a whole” consists of divisions whose interests are opposed to each other; thus to prove that something is bad for society “as a whole” is, to say the least, ambitious. Let’s see how he does.
This chapter focuses on laws that restrict the importation into a country of goods that can be produced in that country. He makes the point, on page 349, that “The general industry of the society never can exceed what the capital of the society can employ.” This is obviously true, though it is worth bearing in mind that this amount of capital is constantly changing–to be precise, it is generally growing–so we ought not to treat it as a fixed sum. Further down the page, he observes that anyone with capital to invest is always looking for the most profitable way to invest it. “But the study of his own advantage, naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.” He then goes on state that home-trade is more profitable than foreign trade of consumption, and that the latter is more profitable than the carrying trade (ie, investing in ships, rather than in their cargo).
On page 350 he observes that those in the carrying trade, in order to have greater control over the goods they transport, tend to establish markets in their home ports. “…and it is in this manner that every country which has any considerable share of the carrying trade, becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on.” This makes sense; I wonder to what extent it is still true.
Page 351: “But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value.” And so each person attempts to maximize the profit of his capital. “…he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” And here we find the famous “invisible hand” which, I have no doubt, Mr. Smith would have preferred to amputate if he knew the use to which it would later be put.
How true is it? I think there is certainly an element of truth here–human beings are forced by their own self-interest to move in certain directions that will have a profound effect on the nature of their society; this is part of what Marx meant when he said, “Men make history, but not just as they please.” I think Smith’s confusion comes, in part, from failing to understand the nature of the State as the servant of a definite class. When he objects to government passing laws in the interest of manufacturers at the expense of “society as a whole” he is not seeing that this government is, in fact, the representative of the manufacturers, and thus the laws in the interest of manufacturers are in fact a very part of that same “invisible hand” that he opposes to them.
Page 353: “The industry of the society can augment only in proportion as its capital augments, and its capital can augment only in proportion to what can be gradually saved out of its revenue.” Unless I’m missing something, he is observing that the development of capital comes from a portion of the surplus value created by production. If so, it seems hard to argue with.
My argument above, about Smith failing to understand the nature of the State(which, really, he couldn’t given that he lived in a period where the State was in the process of transition), is bolstered by a comment on 358, comparing the country gentlemen to the manufacturers: “Country gentlemen and farmers, dispersed in different parts of the country, cannot so easily combine as merchants and manufacturers, who being collected into towns, and accustomed to that exclusive corporation spirit which prevails in them, naturally endeavor to obtain against all their countrymen, the same exclusive privilege which they generally possess against the inhabitants of their respective towns. They accordingly seem to have been the original inventors of those restraints upon the importation of foreign good which secure to them the monopoly of the home-market.” The point is, after cutting off the head of Charles I and politically emasculating Charles II (in spite of promises to the contrary), the bourgeoisie had gone a long way toward taking power from the landed aristocracy. To be sure, not fully: the corn-laws weren’t settled for most of another century, and the House of Lords retained some power even later than that; but the balance had been tipped.
On page 361-62 he contends that taxes on the necessities of life, by raising the cost of labor, raise the cost of all commodities. He is correct, I think, in objecting to taxes upon necessities of life because they hurt the most those who can least afford them; but they do not raise the cost of labor; at least, not in the direct manner he implies. The cost of labor is determined socially, in the constant struggle between employer and employee for how much of the surplus value each will get; it doesn’t simply rise (unfortunately!) as the cost of living rises.
I rather enjoyed seeing M. Colbert discussed on page 364, as he’s in important character in The Vicomte de Bragalonne by Dumas.
Also delightful and interesting is this comment on 364-365: “To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of the legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a stateman or politician, whose councils are directed by the momentary fluctuations of affairs.” Now there is a distinction I’ve never come across before. I wonder if, at one time, there was truth in it.
On page 367 he compares the habits of the soldier with those of the manufacturer (by which I believe he means laborer in this context), which ties in nicely to some of my own theories about peace-time or professional soldiers, but I don’t think has anything to do with this investigation.
Going back to my earlier criticism of Smith, I have to mitigate it at least somewhat because he, himself, clearly recognizes it to at least some degree. On page 368: “To expect, indeed, that freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it.” True; and it also goes a long way toward undermining the latter-day beliefs (not Smith’s) about the “invisible hand.” It leaves open the question of whether that mythical beast, completely free trade, is even something to strive for. In my opinion, it is silly to even address the question before defining what “completely free trade” even means. It would seem to mean free from interference–but doesn’t every individual “interfere” with free trade according to his own needs and to the extent of his influence? If what is being traded is private property, then this implies a State controlled by the property owners (there can be no private property without a State to define and defend it), and how can there by a State controlled by property owners without it exerting it’s influence in their behalf; it is as absurd as to suggest that a fish, in order to preserve it’s body of water, refrain from swimming.