The Wealth of Nations_ Books 4-5 - Adam Smith [14]
There was a certain ingenuity in these arrangements (no doubt, as Smith suggests, as much the product of accident as design), in that the colonial relationship could be seen to benefit both parties, at least in the short run. The relationship with the colonies, as defined by the Navigation Acts, had the effect of creating a self-supporting economic unit whose main components provided complementary markets for each others’ products, and in addition helped to minimize gold flows abroad.95By the same token, the colonial relationship gave Britain access to strategic materials and thus contributed to national defence,96through the encouragement of the merchant navy.
Smith argued that there were considerable opportunities for economic growth within the framework of the colonial relationship. He placed most emphasis on American experience and drew attention to a number of factors that helped to explain America’s rapid rate of expansion, for example, the economic situation of the colonial territories: ‘A new colony must always for some time be more under-stocked in proportion to the extent of its territory, and more under-peopled in proportion to the extent of its stock, than the greater part of other countries.’97This meant that the rates of both wages and profits were likely to be high, thus contributing to a level of activity that explained the ‘continual complaint of the scarcity of hands in North America. The demand for labourers, the funds destined for maintaining them, increase, it seems, still faster than they can find labourers to employ.’98
Smith also argued that the legislative arrangements governing trade with the mother country had contributed most materially to colonial development, even though that had not always been the motive behind them. He drew attention to the fact that ‘the most perfect freedom of trade is permitted between the British colonies of America and the West Indies’, thus providing a ‘great internal market’ for their products.99In addition, the relative freedom of trade in non-enumerated commodities provided a further market for the primary products involved, while Britain also gave preferential treatment to American goods that were confined to its own domestic market, and provided a large European market (albeit indirectly) for the enumerated items: goods such as tobacco, for example, that were largely re-exported.
Taken as a whole, the colonial policy had the effect of encouraging agriculture, which Smith considered ‘the proper business of all new colonies; a business which the cheapness of land renders more advantageous than any other’.100This point is of great importance since, on Smith’s argument, agriculture was the most productive of all forms of investment, capable of generating large surpluses that could sustain further growth. Indeed, Smith argued that the restrictions imposed on the introduction of manufactures had benefited the colonies by ensuring that they bought from the cheaper European markets and therefore avoided diverting any part of their available capital into less productive employments such as manufactures.101There is no doubt as to the buoyancy of Smith’s tone in describing the growth rate of North America: ‘though North America is not yet so rich as England, it is much more thriving, and advancing with much greater rapidity to the further acquisition of riches’.102
Yet it cannot be said that Smith minimized the benefits to Britain from the standpoint of economic growth. He pointed out that Britain (together with its neighbours) had as a matter of fact acquired, through the control of the colonies, a ‘new and inexhaustible market’ that had given occasion to ‘new divisions of labour and improvement of art’. Smith’s assertion of the