The economics of Adam Smith





[THE MERCANTILE SYSTEM - ADAM SMITH - FROM THE WEALTH OF NATIONS]

FROM the mistaken theory that wealth consists in money, or in gold and silver, there has arisen an erroneous and harmful system of political economy and of legislation in the supposed interests of manufacture, of commerce and of the wealth of nations. A rich country is supposed to be a country abounding in money; and all the nations of Europe have consequently studied, though to little purpose, every possible means of accumulating gold and silver in their respective countries. For example, they have at times forbidden, or hindered by heavy duties, the export of these metals. But all these attempts are vain, for, on the one hand, when the quantity of gold and silver imported into any country exceeds the effectual demand, no vigilance can prevent their exportation. The real inconvenience, which is commonly called 'scarcity of money,' is not a shortness in the medium of exchange, but is a weakening and diminution of credit, due to over-trading.

The principle of the 'commercial system or 'mercantile system' is that wealth consists in money, or in gold and silver. It is an utterly untrue principle. But once it had been established in general belief that wealth consists in gold and silver, and that these metals can be brought into a country which has no mines only by the 'balance of trade'--that is to say, by exporting to a greater value than it imports--it necessarily became the great object of political economy to diminish as much as possible the importation of foreign goods for home consumption, and to increase as much as possible the exportation of the produce of domestic industry. Its great engines for enriching the country, therefore, were restraints upon importation and encouragements to exportation.

The restraints upon importation were of two kinds, First, restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported; and, secondly, restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous. These restraints consisted sometimes in high duties, and sometimes in prohibitions.

Exportation was encouraged sometimes by drawbacks, sometimes by bounties, sometimes by advantageous treaties of commerce with sovereign states, and sometimes by the establishment of colonies in distant countries. The above two restraints, and these four encouragements to exportation, constitute the six principal means by which the commercial or mercantile system proposes to increase the quantity of gold and silver in any country by turning the balance of trade in its favour.

The entire system, in all its developments, is fallacious in theory and evil in its practical effect. It is not difficult to determine who have been the contrivers of this whole mercantile system--not the consumers, whose interest has been entirely neglected, but the producers, and especially the merchants and manufacturers, whose interest has been so carefully attended to.

It remains to be said, also, that the 'agricultural system' which represents the produce of land as the sole source of the revenue and wealth of every country, and as therefore justifying a special protection of it, is as fallacious and as harmful as the other.

[THE REVENUE OF THE SOVEREIGN OR COMMONWEALTH]

THE first duty of the sovereign--that of protecting the society from the violence and invasion of other independent societies--can be performed only by means of a military force. This may be effected either by obliging all the citizens of the military age, or a certain number of them, to join in some measure the trade of a soldier to whatever other trade or profession they may happen to carry on; or by maintaining a certain number of citizens in the constant practice of military exercises, thus rendering the soldier's occupation a special profession, distinct from all others. A militia is the less expensive, but a standing army is by far the more efficient defence; and its cost falls to be borne by the sovereign or the commonwealth.

The second duty of government is to protect every member of the society from the violence or injustice of other members; and for this purpose courts and magistrates of justice have to be maintained, and officers must be appointed to preserve the internal peace of the community. Another duty is to maintain the means of education, among which we may include not only the universities, but also the Church. The building and maintenance of roads, bridges, canals and other communications, which cannot be undertaken by private enterprise, must also be reckoned among the duties of the sovereign.

The cost of all these functions of sovereignty is defrayed by taxation; and the great principles of taxation are that the taxes should be proportioned to the means of those who have to pay them, and that the collection of every tax should be as inexpensive and as little irksome or vexatious to the public as possible.





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