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.

investments of British capital. In the meantime, however, attention must be directed to the effects of interference with this natural trade by means of the various devices summarised under the monopoly of the colonial trade.

§ 12. General Effects of the Monopoly.

Adam Smith's central position is that by this monopoly capital is unduly forced from its natural employment either at home or in more favourable foreign trades (all the circumstances being taken into account) into these colonies. The reason is, that the monopoly gives exceptional profit, and capital always follows profit. The next consequence of this artificial diversion of capital is that there is relatively a deficiency for the home and other natural employments, and accordingly the profit in these employments also rises. The final result is that this rise in profit, now becoming general, raises the cost of production of all other things including our exports. In this way our exports to foreign countries are diminished, and we are undersold in the near and favourable markets in commodities for which we have special aptitudes. Here we have the locus classicus: "Our merchants complain of high wages of British labour as causes of underselling in manufactures, but they are silent about high profits of stock." The essence of the argument is that the natural trade lowers cost, the monopoly raises it.

§ 13. Disadvantage of high rate of Profit.

That the causa causans of the disadvantage of the monopoly is the general rise in the rate of profit is incidentally, at any rate, decisive as to the distinction drawn by Adam Smith between profit and advantage. The great mercantilist writer, Thomas Mun, in his England's Treasure by Foreign Trade, had argued that the more distant trades were more advantageous, simply because they yielded a higher rate of profit. Adam Smith, on the contrary, held that so far as distance was concerned, though the profit might be greater, the advantage to the country was less, because the capital being kept longer out of the country gave less employment to productive labour, and was not to the same extent consumed and reproduced within the country itself.

§ 14. Effects of Monopoly on Rents, Wages,

and Profits.

That there might be no doubt as regards the main contention, Adam Smith shows in detail that all the great classes of the society suffer from the artificial stimulus given to the general rate of profit. Rents are reduced because the farms must get the ordinary rate of profit (allowance being made as before for the amenities of agriculture); the price of land falls doubly, partly from the fall in rent, partly from the rise in the interest on capital in general; labour also suffers doubly, first by lessened employment through the contraction of the home supply of capital; and

secondly, because in the division of the annual produce of the land and labour a greater share goes to capital; and lastly, even the owners of capital suffer as a class because the artificially high rate stimulates extravagance and checks parsimony, so that at the end of any given period the capital of the country is less than otherwise would have been the case, and as shown before, the rise in cost of production hinders the natural development of certain industries. Another point emphasised is that one colonial market is less stable than a number of foreign markets.

§ 15. Effects of the Monopoly in the Colonies.

It has already been pointed out that in Adam Smith's opinion one principal reason why the English colonies prospered more than those of other countries is that in their case the monopoly and consequent restrictions imposed by the mother country were much less stringent.

But from the colonial point of view this artificial diversion of British capital into their lands and extractive industries must also have had its positive advantages; the loss to Britain, so far, must have been a gain to the colonies. This point has been well brought out by Professor Ashley in his essay on "The Relations of England and America, 1660-1760." He quotes from the third book of Adam Smith the fruitful sentence: "The progress of our North American and West Indian colonies would have been

1 Economic Surveys, p. 332.

much less rapid had no capital but what belonged to themselves been employed in exporting their surplus produce." He quotes also from Burke's celebrated speech on American taxation in 1774, in which, after noting that America had tolerated the system of commercial restraint, he says: "They were indemnified for it by a pecuniary compensation. Their monopolist happened to be one of the richest men in the world. By his immense capital (primarily employed not for their benefit but for his own) they were enabled to proceed with their fisheries, their agriculture, their shipbuilding (and their trade, too, within the limits) in such a manner as got far start of the slow, languid operations of unassisted nature. This capital was a hotbed to them. Nothing in the history of mankind is like their progress.' And Professor Ashley also quotes the significant admission by Adam Smith, that unjust as the prohibitions of the monopoly may have been, they have not hitherto been very hurtful to the colonies; and Professor Ashley's own judgment is, that prior to 1760 the English commercial legislation did the colonies no harm, and the English connection did them much good.

At the same time, however, as Dr. Cunningham shows, the restraints, if not a source of material damage, were a source of irritation to the colonies when they approached the age of self-reliance and were seized with the spirit of national independence.1 In the present work of which, as often indicated,

1 Cunningham, vol. ii. p. 583 sq.