sympathy. So complete, indeed, is the harmony of views as regards the system of natural liberty in general, that until Dr. Cannan published the notes of the original lectures given by Adam Smith at Glasgow, it was generally supposed that he had derived some of his leading ideas from actual conversations with Quesnay and others during his visit to France.

But in spite of his insistence on the fundamental national importance of agriculture, and his partial acceptance of the idea of a net product arising in agriculture over and above the ordinary profits of industry, Adam Smith comes to the conclusion that it is not desirable to attempt artificially to encourage agriculture. "Those systems, therefore, which, preferring agriculture to all other employments in order to promote it, impose restraints on manufactures and foreign trade, act contrary to the very end which they propose, and indirectly discourage that very species of industry which they mean to promote."

It may be recalled, also, that Adam Smith strongly condemned the bounty on the export of corn, although it was expressly designed to encourage agriculture. It is unnecessary to examine at this place either of these arguments; it is enough to note that in spite of what are generally considered extravagant eulogies of the employment of capital in agriculture, even in this case Adam Smith does not suppose that the encouragement of the state would have the results anticipated. And it is not because he is led away by doctrinaire prejudices against the interference of the

state; for he admits very large exceptions to the general policy of laisser faire, and the principles at the basis of these exceptions are capable of much wider extension under modern conditions.1

Adam Smith sought for the real encouragement to agriculture in freeing land from the restraints of antiquated laws and customs, improving facilities for transfer and increasing the security for the investment of capital-ideas which have been the leading principles of all the reforms of laws affecting agriculture since his time.

§ 10. Present Importance of the Negative Argument.

The negative argument for free trade demands special emphasis at the present time. When Adam Smith wrote, and for seventy years afterwards, the people of this country had before their eyes living examples of the difficulties of putting into practice such theories, for example, as the encouragement to native industry by a mass of protective duties; the effective use of retaliation; the adjustment of reciprocity treaties; the preferential treatment of colonies and other devices of state control. The advocates of free trade could point to the actual inconveniences and imperfections of state interference. The famous report of 1842, on which was based the budget of that year, is in its way as remarkable a document as the report of the poor law commission of 1834. If in either case, owing to change in conditions, we have again to modify the legislation

1 See next chapter.

founded on these reports we ought at any rate to take good care that with new reforms we do not resuscitate old evils. In both cases the fundamental difficulty was unemployment. The old poor law broke down because, with the best of intentions in the desire to cure unemployment, it aggravated the disorder; in the same way the old protective system, with the laudable idea of giving encouragement to the labour of the country checked the expansion of industry and lowered real wages. Every one who has studied the subject is agreed that such was the result of the "bad old system"; no practical statesman would dream of proposing to return to such a system, any more than he would propose to restore the old allowance system and other devices of the old poor law.

The negative argument for free trade founded on history and experience reveals three main dangers in the opposite system. First, there is the danger, so constantly appealed to by Adam Smith, of giving the monopoly of the home market to particular traders against their own countrymen. We think the trusts are wholly modern; that monopoly is the result of modern conditions summarised under the law of increasing return. In fact, as Adam Smith showed, the whole mercantile system was permeated through and through with monopoly. In any departure from free trade we must guard against the recurrence of monopoly. Secondly, there is the danger that though we visibly encourage one or more industries we may impose greater restraints on the whole industry of the country; that the aggregate value of

the annual produce of the land and labour of the country, including what is got in exchange, may become less; and the consuming power of the masses of the people be diminished. And thirdly, there is the danger of losing the advantages of reciprocity or of the most favoured nation clause by the complications introduced through a network of commercial treaties, and attempts at retaliation.

But although the negative argument must be fully considered, it does not follow that under no circumstances is the state to interfere with the natural course of foreign trade. Adam Smith himself admitted exceptions to free trade which are of the greatest range and importance. An examination of these exceptions will throw light both on the negative and the positive arguments for free trade. (See Chapter XI.)

CHAPTER XI

ADAM SMITH'S EXCEPTIONS TO FREE TRADE

§ 1. Meaning of "Exceptions to Free Trade.'

" 1

THE term "Free Trade," as already observed, is sometimes taken in a wide sense as equivalent to the system of natural liberty in general; but in political controversy, if we look to actual history, the term has a much more restricted meaning. It is used specially in reference to foreign trade, and means the absence of differential duties (or bounties) in favour of the home products; it is in this restricted sense that Adam Smith's exceptions to free trade are examined.

"There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry."

§ 2. First Exception: if the Industry is necessary for Defence; the Navigation Act.

"The first is when some particular sort of industry is necessary for the defence of the country. The defence of Great Britain, for example, depends very

1 Book IV. chap. ii.

2 The general relations of the State to commerce are discussed in the next chapter.