engaged the defence of their colonies has generally occasioned a very considerable distraction of the military force of those countries. In this respect, therefore, all the European colonies have without exception been a cause rather of weakness than of strength to their respective mother countries." So much for the increase of military power. As regards revenue, "the colonies of Spain and Portugal only have contributed any revenue towards the defence of the mother country or the support of her civil government. The taxes which have been levied on those of other European nations-upon those of England in particular-have seldom been equal to the expense laid out upon them in time of peace, and never sufficient to pay that which they occasioned in time of war. Such colonies, therefore, have been a source of expense and not of revenue to their respective mother countries."

As is shown at the conclusion of Book V., in the two wars against Spain and France, the American colonies cost Great Britain much more than double the sum which the national debt amounted to before the commencement of the first of them (1739). "Had it not been for those wars the debt might and probably would by this time (1776) have been completely paid ; and had it not been for the colonies the former of these wars might not, and the latter certainly would not, have been undertaken." This short commentary has been developed in Seeley's popular essay on the ✓ Expansion of England, and it is hardly necessary to point out, with the South African addition to the

V

national debt still unpaid, that it is the colonies and dependencies which still form the great source of expense to Great Britain. At the conference of colonial premiers in London in 1897 Mr. Chamberlain, as Colonial Secretary, is officially reported as saying: "You will find that every war, great or small, during the reign of Victoria, in which we have been engaged has had at bottom a colonial interest, that is to say, either of a colony or of a great dependency like India. This is absolutely true, and is likely to remain true to the end of the chapter. If we had no empire there is no doubt that our military and naval resources would not require to be maintained at anything like the present level."1

Reverting to the main argument of Adam Smith, it is clear that when he wrote the great colonising nations of Europe, and notably England, had gained nothing either in military strength or in revenue from the possession of colonies, but on the contrary had suffered loss and accumulated debt.

§ 9. Supposed Advantage of the Monopoly of
the Colonial Trade examined.

But at that time it was firmly believed that each particular colonising country had gained a special and peculiar advantage from the monopoly of its colonial trade.

The greater part of the remainder of Adam Smith's chapter on colonies is devoted to an examination of this contention; and the general result of the examina1 Report of Proceedings, C—8596.

tion is that this boasted monopoly had itself also been a source of loss to the mother country on the whole. England, for example, in Adam Smith's opinion had, it is true, by the maintenance of the monopoly against foreign countries gained over them a certain relative advantage in that branch of commerce; but his main point is that, in securing this relative advantage, an absolute advantage of greater magnitude had been sacrificed.

The revolt and subsequent separation of the American colonies was the beginning of the total abandonment of the monopoly of the colonial trade, and in the course of time the self-governing colonies have acquired the right, and exercised it, of imposing protective duties against the mother country.' The absolute change in policy is shown specially in the case of manufactures. Under the old system the colonies, with few exceptions, were not even allowed to manufacture for themselves if they had the means or the inclination; they were regarded as the great closed market for the manufacturers of the home country. At the present time the manufactures of the mother country are subject to very heavy import duties, and the utmost relaxation consists in a preferential duty as compared with nations politically foreign.

§ 10. Present Importance of the Argument.

Adam Smith's argument on the monopoly of the colonial trade is intricate and difficult, but it is well 1 See below, Chapter XV.

worthy of careful study, for two reasons. In the first place, at the present time, the idea is again beginning to find favour that in the interests of the mother country, and the empire, the system of monopoly as against foreign countries ought to be partially restored. It ought, therefore, to be of interest and of utility to consider the effects of the monopoly when in its full vigour. In the second place, the argument of Adam Smith rests almost entirely on those principles on the relative advantages of employing the capital of the country which he always considered fundamental, and which after being lost sight of or ignored for a long period are again reasserting their practical importance.

Whether Adam Smith's diagnosis of the actual effects of the old system was correct or not is for the present purpose of less importance than the consideration how far the ideas which he applied are applicable to our present case.

§ 11. Effects of Monopoly must be separated from the Natural Effects.

In treating of the economic effects of the colonial monopoly Adam Smith always distinguishes between the effects of the natural trade and the effects due solely to the monopoly. In his judgment the former are, in general, always advantageous, in the latter the total effect is injurious to the nation as a whole and to the great classes of which it is composed. The natural trade was also of advantage to the colonies, and in their case there were compensating advantages

from the monopoly, and most of the oppressive regulations were inoperative.1

It is to be observed that Adam Smith, having already disposed of the political aspects of the question relating to military power and revenue, is now concerned solely with the commercial aspects.

Throughout the argument it is taken for granted that for the home country it is advantageous that its capital should be employed, first of all, in home industries, but that the surplus may with advantage be sent into these distant colonial trades; also, capital may be turned with advantage into these distant places if in return the home country obtains valuable products, especially raw materials, which it could only acquire for itself, if at all, at a much greater cost. If at any time under natural conditions the rate of profits in the colonial trade was unduly high that would show that in the circumstances of the society the people were obtaining these colonial products at an excessive cost. If the cost fell by the development of the trade the cost of manufactures in the home country would fall, and the exports to other markets would be increased, and in this way indirectly the home country would obtain more capital and give greater employment to home labour. So far, of course, the argument would apply equally to the development of any foreign trade through which we gained an increase either in consuming or in productive power.

This consideration is of great importance in the examination of the effects at present of foreign

1 See below, § 15.