"free trade" assumed a dogmatic simplicity and universality not recognised by Adam Smith; and it is the popular recognition of the reality of these distinctions that gives strength to the present attack on "free trade."1

1 See next chapter.

CHAPTER V

OF THE DIFFERENT EMPLOYMENTS OF CAPITALS

§ 1. Four Modes of Employing Capital.

UNDER the above title Adam Smith first of all discusses the different employments of capital in the home country. Four methods are cited. First, capital may be applied to agriculture and the extractive industries for the production of food and the raw materials of manufacture; secondly, to manufactures in the widest sense of the term implying the adaptation of these materials for consumption; thirdly, the capital may be applied to the distribution of these finished products by wholesale trade; and lastly, capital may be devoted to the retail trade.

"Each of these four methods of employing a capital is essentially necessary, either to the existence or the extension of the other three, or to the general conveniency of society. Unless capital were employed in transporting rude or manufactured produce from places where they abound to places where they are scarce, no more of either could be produced than

1 This is the title of Book 11. chap. v. of the Wealth of Nations; and might now be called the "forgotten chapter."

was necessary for the consumption of the immediate neighbourhood."

§ 2. Trade Part of Production.

In this way the persons whose capitals are employed in any of these four ways are themselves productive labourers.

The necessity of trade-both wholesale and retail -for completing the act of production is always emphasised by Adam Smith. He shows in the chapter on division of labour that by means of water carriage trade is carried on more easily than by land, and therefore markets grow up on the banks of rivers or on the sea-coast; and with the growth of the markets there is the growth of industry and of towns and cities. One of the best-known generalisations of commercial geography is that the cities of the world have grown up mainly through trade, and since Adam Smith wrote the cities of America have confirmed the induction. The great cities are the great centres of trade.

At the beginning of the third book he shows that the great commerce of every civilised society is that carried on between the towns and the country, and the gains of both are mutual and reciprocal. The nearer it is to the town so much greater is the improvement of the country; and that, in general, the improvement of the commerce of the towns has led to the improvement of the country, is the main argument of one of the best chapters in the Wealth of Nations.1

1 Book III. chap. iv.

In the chapter1 on rent we read: "Good roads, canals, and navigable rivers, by diminishing the expense of carriage put the remote parts of the country more nearly upon a level with those in the neighbourhood of the town. They are upon that account the greatest of all improvements." They are advantageous both to the towns and to the country; even to the country near the towns in spite of the increased competition.

§ 3. Capital employed in Agriculture most

advantageous to the Society.

It seemed desirable to notice once more Adam Smith's views on the importance of trade in order to put in a proper perspective his views on agriculture. No proposition has been more criticised than that in which he says that "of all the ways in which a capital can be employed, the employment in agriculture is by far the most advantageous to the society." And most of all objection is raised to one of the principal reasons assigned. "No equal capital puts into motion a greater quantity of productive labour than that of the farmer. Not only his labouring servants but his labouring cattle are productive labourers. In agriculture, too, nature labours along with man; and though her labour costs no expense its produce has its value, as well as that of the most expensive workmen." But with Adam Smith, as so often pointed out already, we ought always to apply the test of experience and not to consider how far his reasoning

1 Book 1. chap. xi.

2 Book II. chap. v.

may conform to later abstract propositions carefully guarded by hypotheses. The main contention is true not only of agriculture but of all the extractive industries in which "nature labours with man," and confirmation is found in the progress of the United States and the more recent expansion of Canada. In the controversy on the relative merits of the policy of the United Kingdom and the United States, we are always told to remember that the latter has the immense advantage of superior natural resources which is only another way of saying that in America nature labours with man to a greater extent than in England. And even as regards Great Britain the labour of nature or the aid of nature is one of the main causes of our industrial prosperity.

§ 4. Other Social Advantages of Agriculture. Adam Smith, however, considered agriculture to be of special advantage to the nation on several other grounds, all of which seem reasonable and have weight in the present policy of various nations. He bestowed the highest praise on the qualities of labour that are called forth by agriculture. "After what are called the fine arts and the liberal professions, however, there is perhaps no trade which requires so great a variety of knowledge and experience.'

He refers to the innumerable volumes which have been written in all languages as well as to the knowledge that must be possessed by the common farmer. And recent experience confirms the view that of all the practical sciences that of agriculture