The Wealth of Nations_ Books 4-5 - Adam Smith [12]
The doctrines which Smith associated with the ‘pretended doctors’ of the system were first, their alleged belief that wealth consisted in money, and second, the associated belief that the purposes of the state could best be secured by attaining a positive balance of trade. Smith dismissed the first thesis as ‘ridiculous’75and the doctrine of the positive balance as ‘absurd’.76Elsewhere, he referred to ‘that most insignificant object of modern policy, the balance of trade’.77He concluded: ‘National prejudice and animosity, prompted always by the private interests of particular traders, are the principles which generally direct our judgment upon all questions concerning it.’78It was this prejudice and animosity which prevented France and Great Britain from enjoying the mutual benefits of free trade.79Smith’s argument, which echoes that associated with David Hume, had already been forcibly expressed in his Lectures:
From the above considerations it appears that Great Brittain should by all means be made a free port, that there should be no interruptions of any kind to forreign trade… and that free commerce and liberty of exchange should be allowed with all nations, and for all things.80
A. W. Coats has recently suggested that even Smith’s admirers have been embarrassed ‘by the decidedly “polemical tone”’ of these sections of The Wealth of Nations, citing Hecksher’s judgement that the whole was ‘an emphatic piece of free trade propaganda’.81While there is truth in such assessments, and real inadequacies in the account of the mercantile system that Smith provided, nonetheless these sections of The Wealth of Nations are informative with respect to the message which Smith sought to convey.
In addressing the mercantile preoccupation with a positive balance of trade, Smith concluded that ‘Its two great engines, for enriching the country… were restraints upon importation, and encouragement to exportation.’82Smith then proceeded to discuss each of the instruments which could be used to support these objectives, adding in a significant passage,
I shall consider each of them in a particular chapter, and without taking much further notice of their supposed tendency to bring money into the country, I shall examine chiefly what are likely to be the effects of each of them upon the annual produce of its industry. According as they tend either to increase or diminish the value of this annual produce, they must evidently tend either to increase or diminish the real wealth and revenue of the country.83
The true purpose of Smith’s argument was to demonstrate the dangers of regulation in so far as it involved distortion in the use of resources, while also affecting the rate of economic growth:
No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.84
In Smith’s eyes, regulation is liable to ‘that general objection which may be made to all the different expedients of the mercantile system; the objection of forcing some part of the industry of the country into a channel less advantageous than that in which it would run of its own accord.’85It was his emphatic belief that ‘All the different regulations of the mercantile system, necessarily derange more or less this natural and most advantageous distribution of stock.’86The language recalls that of the Lectures, where Smith drew attention to the point that intervention with the economic system must disturb the ‘natural balance of industry’ and the ‘natural connection of all trades in the stock’.87But in Book IV of The Wealth