The Wealth of Nations_ Books 4-5 - Adam Smith [11]
The ‘agricultural system’ of the French economists was a ‘system’ in Smith’s sense of the term: ‘an imaginary machine, invented to connect together in the fancy those different movements and effects which are already in reality performed’.63The teaching of the physiocrats had a theoretical basis which permitted them to make a series of policy recommendations in the circumstances which faced them. As R. L. Meek put it,
with the Physiocrats… we find a firm appreciation of the fact that areas of decision open to policy makers in the economic sphere have certain limits, and that a theoretical model of the economy is necessary to define these limits.64
Mercantilism, or the ‘system of commerce’, to use Smith’s term, was quite different. To begin with, it was essentially policy-oriented, although even here it is necessary to avoid undue generalization. As the economic historian P. J. Thomas put it,
Mercantilism has often been described as a definite and unified policy or doctrine, but that it has never been. In reality it was a shifting combination of tendencies which, although directed to a common aim – the increase of national power – seldom possessed a unified system of policy, or even a harmonious set of doctrines.65
A common view, associated with Gustav Schmöller’s The Mercantile System and its Historical Significance (1896), is that ‘in its innermost kernel it is nothing but state-making’.66This view was echoed by Eli Hecksher in his classic study, Mercantilism (1955). Writing in the same vein, P. W. Buck observed, ‘Regarded as economic strategy, aimed at the achievement of political objectives in a world of competing national states, the policies of mercantilism exhibit logical consistency.’67A. W. Coats recently offered this summary of objectives as the means of attaining the desired end of an increase in national power:
• the accumulation of treasure,
• the promotion of national wealth and economic growth,
• securing a favourable balance of trade,
• maximization of employment,
• the protection of industry,
• the encouragement of population, and
• state unification.68
But it should be noted that if the strategy embraced a single end, the means of attaining it would inevitably vary with circumstances. The validity of the choice of policy has to be seen, therefore, against the historical circumstances which happened to prevail at the time. The strategy is consistent with regulation, but also with more liberal policies, depending on the situation confronted. Hecksher quotes a passage from Colbert, the great Minister of Finance in the reign of Louis XIV:
His majesty has long been aware, on account of his great experience, that liberty is the soul of trade and desires that merchants should have complete freedom to do as they wish, that they may be induced to bring thither their foodstuffs and merchandise.69
Smith’s assessment of Colbert was that while ‘a man of probity, of great industry and knowledge of detail’, he had ‘unfortunately embraced all the prejudices of the mercantile system, in its nature and essence a system of restraint and regulation, and such as could scarce fail to be agreeable to a laborious and plodding man of business.’70Such a judgement lacks a degree of objectivity and is essentially a-historical, in that Smith does not provide the reader with the means of judging the circumstances which Colbert actually confronted. As D. C. Coleman has noted, an ‘understanding of the contemporary economic situation may be a better guide to contemporary recommendations than a criticism of policy’;71a point echoed by A. V. Judges, writing in the same volume.
In a letter to Andreas Holt, dated October 1780,72Smith himself referred to ‘the very violent attack I had made upon the whole commercial system of Great Britain’ – and the reader will find ample evidence in Book IV of The Wealth of Nations. For example, Smith drew attention to the key role of merchants in defining policy, referring to arguments ‘addressed by merchants to Parliaments, and to the Councils of Princes… by those who were supposed to understand