Adam Smith and the Origins of American EnterpriseCHAPTER 1ENLIGHTENMENT AND THE NEW ECONOMICSIn 1718, a twenty-four-year-old Frenchman named François Marie Arouet was released from the Bastille, where he had been imprisoned for a year because of satirical remarks critical of the French monarchy and its harsh system of social justice. The fact that someone else, not Arouet, had written the offending words did not matter much, since Arouet, though from a good family and well-introduced into society, was known as a stinging critic who could reliably be counted on to ridicule or satirize French society and its high officials. After the Bastille, he began to publish plays and sharp-tongued works of social criticism under the pen name “Voltaire.” A few years later, in trouble again, he talked his prosecutors into permitting him to go into exile in England instead of returning to prison. As Voltaire, he then lived much of his life outside France, and his wit, insight, and penetrating critiques influenced many throughout Europe to question their society and their assumptions about it.At his death, in 1778, Voltaire was known as the leading literary figure of his time. His works covered wide-ranging fields, topics, and problems. They were generally held to be brilliant and influential, though almost always his viewpoints were critical, cynical, and cutting. He believed in the powers of reason and the ability of the human mind to better understand the world and to deduce explanations and solutions to problems common to all. His ideas were controversial, and often they challenged the authority of authoritarian states. His great popularity was a protection to him, but he was frequently in trouble for his criticism of conventional wisdom and those in power.The life of Voltaire became synonymous with the period—beginning in the early eighteenth century and lasting for a hundred years or so—that is known as “The Enlightenment.” This was an extraordinary time of intellectual awakening and discovery, leading to a reexamination of all that was then known about mans role in civilized society. Since the movement had evolved from the scholarly debates surrounding the Protestant Reformation, it focused on religion and philosophy, but it soon spread beyond those precincts to the natural sciences. By the mid 1700s, the intellectual capital and curiosity needed to investigate and question previous conceptions about life had been assembled. Much of what was known about the world at that time—most of which had been rigidly handed down since the darker days of the Middle Ages—came under the new light of inquiry, and many long-held assumptions, after the usual amount of resistance to the destabilizing effect of new ideas, were forever afterward seen differently.Although Voltaire was devoted principally to philosophy and religion, the Enlightenment released throughout Europe a torrent of intellectual activity in at least three other areas: science and medicine, geography and exploration, and politics and economics. There was an effort to apply methodology and specialization to mathematics, physics, navigation, chemistry, astronomy, geography, botany, zoology, psychology, anatomy and physiology, and the understanding of disease. The efforts resulted in a pace of discovery never before experienced. In philosophy and religion, where Voltaire had a lot of company, “unauthorized” (that is, by the church) investigations into theology in its broadest sense took place. Christian moral and ethical beliefs were examined closely. So were agnosticism, pantheism, and atheism. The ancient strictures, practices, and entitlements of the Christian church and its beliefs were attacked. And there were inquiries into human rights, justice, social order, law, education, and the causes and effects of economic activity. There were no sacred cows. Much of this sudden intellectual energy was also reflected onto the arts, music, and literature. The novel was born, and the theater reborn. Handel and Bach held sway, and Hogarth, a popular satirical engraver, depicted London scenes of daily life in all its sordid detail.Most of the intellectual activity of this time was the product of talented amateurs who painstakingly learned methodology and specialization. Intellectual recognition was open to anyone bright enough to prepare an interesting piece about a new discovery and get it published. Benjamin Franklin, a Philadelphia printer of limited education, became a respected name in Europe by presenting his discoveries in electricity to the Royal Society in 1749. Further, the borders between scientific disciplines were not well defined, and scholars, academics, and curious amateurs seemed comfortable in shifting between subjects. Franklin made important discoveries in oceanography and physiology in addition to electrical science, and invented the iron stove, bifocals, and the lightning rod, among other useful things. He was also a best-selling author of homespun philosophy. Franklins friend, the Scottish philosopher David Hume, was, in addition, a poet, a historian and a theologian. Such polymaths were not at all uncommon in learned circles.Fresh ideas were what counted in the Enlightenment, not ones formal, i.e., old-fashioned, training. Anyone with a theory and a persuasive tongue could be listened to. Certainly a lot of nonsense was published and faddishly admired for a while, but there was a continuous supply of new material and more recent and accurate discoveries. Though the educated public was not large in the eighteenth century, it included the nobility (most of them landowners), government officials and rising politicians, the professional classes, intellectuals, and critics. This group of educated people could and did affect public attitudes and policies. Learned individuals bought a lot of books and kept up with what was going on in various fields. Franklin knew several of the leading European Enlightenment figures, including Voltaire and Hume. He and John Adams and Thomas Jefferson, who had also lived in London and Paris, had standing orders at booksellers in those cities for the latest works on government and economics.One of the most far-reaching influences of the Enlightenment led to the American and French revolutions, each occurring as an expression of the fundamental “rights” of the people. Before the Enlightenment, people knew very little about rights; indeed, they didnt know they had any. Political power and all governing authority were vested in the ruler, and the people had to adapt and obey or suffer the consequences. The common citizen knew only that the system that controlled his daily social and economic life often seemed unsatisfactory, unfair, and after a certain point, intolerable. Beyond this, the American and French revolutions had little in common. The American event was really an act of secession, led by the indigenous wealthy and professional classes in response to the oppressive actions of their sovereign; the French Revolution, in which the mob overthrew and murdered its rulers, was different. But in both cases, economic issues, especially taxation unfairly applied and the allocation of wealth, rank, and privileges to favorites of the king, were among the basic causes of the popular discontent.The European model for the political economy of the eighteenth century was essentially feudal. The king reigned supreme and could allocate properties and economic rights however he chose, as long as he maintained the power to enforce his actions and put down dissenters. The king relied upon a cohort of noblemen and officials to enforce his rules, and accordingly, he shared some of the land, largesse, and glory with them. The noblemen attempted to keep the system intact by extracting as much from those beneath them as they could short of causing insurrection and mutiny. These conditions had existed for a long time, and people had become accustomed to them and knew their “place,” a measure of submission encouraged by the organized church.What every learned person at the time knew of history was that all previous efforts to establish any other system—either through republics or independent city-states—had fallen inevitably to tyranny, revolt, or conquest, usually at great cost to the common people. The trouble was that kings and their governments were rarely good at governing. They got into countless scrapes with neighbors and waged expensive wars to resolve them. There were also expensive royal building projects (like Versailles) to be paid for that helped drain treasuries dry. And when the coffers dried up, they had to be replenished by applying pressure in the usual place—increased taxes levied on ordinary people.These were the realities of European economic life when Adam Smith, son of a minor public official, was born in a small village near Edinburgh in 1723. By the end of his life, in 1790, both the American and French revolutions had occurred, and another revolution—a powerful industrial one—had begun. These events changed economic life in Britain, France, and elsewhere in Europe, but the changes were forced by events—they were not planned—and all of them took place after the Enlightenment began.Adam Smith was not the first person to write about economics, but he was the first to provide a comprehensive picture of a national economic system and how it operated. And (more important to his reputation) he was also the first to present his economic ideas at a time when practical men of affairs would be most likely to read them. His major work, An Inquiry into the Nature and Causes of The Wealth of Nations, was first published in the important year of 1776 and enjoyed five editions, the last appearing in 1789, the year of the French Revolution. The book explored many aspects of how people and countries earned their livelihood. In essence, it described the British economic system and ways in which it might be changed for the better, i.e., to make the country even wealthier. Thus, after a time, he came to be known as the father of modern political economics and the first of the four “classical” economists to form the profession that later emerged. The others were Thomas Malthus, who published Essays on Population in 1798; David Ricardo, author of Principles of Political Economy and Taxation (1817); and John Stuart Mill, author of Principles of Political Economy (1848), which first addressed the distribution of wealth.The Wealth of Nations was widely read in Smiths own time, not only by scholarly colleagues, but also by the rich landowners of England and Scotland, who had great vested interests in the subject of wealth, and by many parliamentarians and rising, ambitious politicians. A lot of what Smith had to say was critical and probably radical, but it was presented in a way that made it acceptable to patriotic Englishmen of his time. Smiths goal was to describe why the British economic system had been so successful relative to other European nations, and how Britains wealth and power could be further increased.At the first treatise of its kind, and widely available, The Wealth of Nations was also read and discussed by those in America seeking to form a new government based on preserving “life, liberty, and the pursuit of happiness,” and an economic system that could assure America of prosperity and self-sufficiency. The founders of the American republic were about to do something never done before, that is, to create a political and economic system that could operate successfully without placing all of its powers into the hands of a single governing ruler. The stakes were high for these founders, who had pledged their “lives, fortunes and their sacred honor” to the cause. They knew, intuitively perhaps, that establishing the ability of a new society to create significant wealth, both public and private, would be the ultimate test of their efforts. Without prosperity and opportunity, the society would likely give up the experiment and call back the king, or use the leverage of democracy to shake itself apart as the French did, thus ending its republican dream.The American founding fathers, therefore, were more than eager to learn what they could about the new field of political economics. And because the country that seemed to have the most successful economy, despite its many faults, was Great Britain, Adam Smiths great work on the subject of the British economy appeared just when the Americans were most receptive to it.WHO WAS ADAM SMITH?Adam Smith was a reclusive, colorless Scottish academic who came to be well known for one great book, but for little else. He was born in Kirkcaldy, a town of twenty-three-hundred inhabitants, located just across the Firth of Forth from Edinburgh, where his father was the local customs collector and clerk. Less than a generation earlier, a much bullied-and-bloodied Scotland had agreed to union with Britain (in 1707), and most of its two million inhabitants were still looking for the benefits, if any.Smiths father died just before his sons birth, so young Adam was raised solely by his mother, whose only child he was. She was a member of the landed family of Douglas, and he was well looked after as a child, though he attended the local schools, which later he declared to have been very good. He left home at fourteen (about the age of most students entering college then) to attend the University of Glasgow on a scholarship. He remained for three years, studying mathematics and natural sciences under strict but dedicated instructors. One of these was Francis Hutcheson, a humanist professor of moral philosophy and an influential mentor not only to Adam Smith, but also to many budding Scottish intellectuals of the time. In 1740, Smith received a coveted scholarship to Balliol College, Oxford, a great opportunity. The future of Scotsmen in the newly united Britain depended upon their ability to demonstrate intellectual acumen and to assimilate with the English. Both of these attributes were available at Oxford, but Smith didnt like the place, or perhaps it didnt like him. He claimed to have gained little at Oxford, where he believed that “the greater part of the public professors have … given up altogether even the pretense of teaching.” 1 However, it is also possible that the attention given at Oxford to politics (including Scottish politics), religious dissent, and public licentiousness made him uncomfortable.Still, after six years he completed his scholarship and returned to Scotland. Two years later, he appeared as a twenty-five-year-old public lecturer in rhetoric in Edinburgh. This was something of an entrepreneurial venture—he advertised his courses publicly and people paid to come to them—as he was not associated with the University of Edinburgh. Even so, he lectured on natural jurisprudence and politics and began to form a theme central to all his subsequent work. He advanced the theory that:
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.2
These lectures, reflecting some of the sentiments picked up from the lectures of his mentor Francis Hutcheson, helped to make his reputation. In 1751, still in his twenties, Smith was appointed to the faculty of the University of Glasgow, first to the Chair of Logic; then soon afterward, on the unexpected death of Professor Hutcheson, he assumed the chair of Moral Philosophy. He threw himself into academic life, which, though demanding, seemed to suit him well. He taught a large “public” class every weekday morning from 7:30 to 8:30, and met this class again at noon to examine it on what he had lectured earlier. Also, from 11:00 A.M. until noon, three days a week, he lectured to a smaller, more advanced “private” class. (Even the most junior American academic today rarely teaches more than eight hours a week.) Moral philosophy was a wide-open subject at the time, and Smith used it to discuss his ideas about the formation of language, jurisprudence, and “natural” laws (i.e., forms of human rights).In 1759, he published his first major work, Theory of Moral Sentiments, in which some of his favorite themes first made their appearance. Among these were the “invisible hand,” the motivational power of ambition and self-interest in determining economic outcomes, and the importance of a fair system of justice in order to preserve social order, a condition necessary to optimize opulence. (For “opulence,” a word common to Smiths writings, one should substitute “national wealth” to make the meaning clearer.) These ideas became building blocks for his theory of the British economy that later appeared in The Wealth of Nations.The first of these building blocks has to do with the unpredictable nature of markets. To begin with, Smith argued, human society is, in “a certain abstract philosophical light, like an immense machine, whose regular and harmonious movements produce a thousand agreeable effects.” To him, a great range of social activity was captured by these machinelike characteristics, in that men pursuing their own objectives in interaction with others seemed frequently to experience outcomes that they did not foresee or expect (but that were nevertheless good for the system as a whole). What we might refer to as a doctrine of unintended consequences, Smith thought of as an “invisible hand,” as in the statement, “Man is led [as if] by an invisible hand to promote an end that was no part of his intention.”3Many people today believe that Adam Smiths invisible hand was the essential defense for laissez-faire economic policies, i.e., those that would steer the economy to a most favorable outcome if only the government would get out of the way and let the markets do their work. It may be convenient to think this, but it is not quite what Smith had in mind. (Nor did he ever use the phrase laissez-faire—the creation of some contemporary French economists—to describe his thinking.) No doubt what Smith did mean was that human intercourse was so extensive and continuous that it established a natural marketplace in which valuable interactions were the result of unpredictable supply and demand. An investor might be motivated to jump in and become active in one area of business, only to find out later that market conditions had changed, and instead, he found himself doing something different, which may or may not produce a better effect.One of the great conservative economists of the twentieth century, the Austrian Friedrich von Hayek, saw Adam Smith as the discoverer of “spontaneous order” (the way social institutions come to life without anyone planning for them), and another, Milton Friedman, one of laissez-faires most dedicated supporters, has noted that there was much in Smiths work that was still important two hundred years after it was published.4Adam Smiths views on ambition and self-interest as expressed in Moral Sentiments were also unusual for his times, when greed (avarice) was a sin and people were supposed to know their place in society and accept it. Ambition and avarice (kept within the bounds of prudence and the law) are not only laudable, Smith said, they are also beneficial for society. If people believed they could get ahead by their own efforts, then they would, in their own self-interest, endeavor to do so. If enough people did this, Smith the economist wrote, markets that followed the principles of maximizing value through incentives would emerge. But Smith the humanist noted that beyond basic needs, the real motivations for self-interest were vanity and the desire to show ones self off to good effect:
For what purpose is all the toil and bustle of this world? What is the end of avarice and ambition, of the pursuit of wealth, or power and preeminence? … From whence arises that emulation that runs through all the different ranks of men, and what are the advantages [to that] great purpose of human life which we call bettering our condition? To be observed, to be attended to, to be taken notice of with sympathy and approbation … . It is the vanity, not the ease or the pleasure, which interests us.5
Beyond self-interest, Smith believed that for any economic system to work its best (in producing opulence), it must also be based on a system of justice that is considered to be fair and effective. It is the “main pillar that upholds the whole edifice,” he said, adding …
“ … as the violation of justice is what men will never submit to from one another, the public magistrate is under a necessity of [judiciously] employing the power of the [state] to enforce the laws. Otherwise, civil society would become a scene of bloodshed and disorder, every man revenging himself at his own hand whenever he fancied he was injured.”6
These words became prophetic as the British governments struggles with its American colonies, already strained, grew contentious. But they also echoed the English history of longstanding struggles between landlords and tenants in Ireland and Scotland, of which Adam Smith was surely well aware.The Theory of Moral Sentiments was a big success. It had six editions, made Adam Smiths name as a scholar, and propelled him into an orbit with other influential figures of the Enlightenment. In it, Smith joined a fairly small, elite group of British intellectuals focusing on social and political issues. The best-known of these were John Locke and David Hume, the latter a fellow Scot and Smiths close friend. He was also a contemporary in Britain of John Wesley (the founder of the Methodist movement), historians Thomas Carlyle and Edward Gibbon, and those wandering, critical men of letters, Dr. Samuel Johnson and James Boswell.In 1760, now well known in philosophical circles, Smith next turned to a series of lectures on jurisprudence at the University of Glasgow, in which he developed ideas about the origins of government, the importance of economics in social and political development, and the role of government in economic life. He started with a big-picture review of the emergence of the modern social economic system that followed the collapse of the western Roman Empire. Some sort of government would have been necessary to hold the society together, he reasoned, and to develop it in competition with other, perhaps more aggressive, predatory societies. He gave much thought to the authority of a governor to govern (he favored older, wealthier people, whom he felt the governed could more readily respect), and divided the evolution of society into four stages. These were the stages of hunters (Indians in North America), nomadic herders (Arabs), agricultural cultivators (Britain and most of Europe), and finally, the attainment of a commercial stage of trading and the use of markets, which had not really emerged by 1760. Smith believed that Britain would be the first country to reach this stage because it alone had escaped political absolutism (thanks to the Magna Carta and Oliver Cromwell) and had a long history of markets and exchanges motivated by merchants seeking to maximize their self-interests.In forming his views, Smith drew extensively on generalizations from classical times (Greek and Roman) and on precedents from British history reaching back to Elizabeth I and earlier. The fourth stage was a goal, still in progress. When and as it was achieved, societies could realize major increases in opulence that would protect them from enemies and give them power to extend their influence elsewhere.Most of his Lectures on Jurisprudence was spent on trying to deduce how this fourth stage would work and how it could be attained. More particularly, he considered the notion of markets; the division of labor between agriculture, manufacturing, and commerce; and prices, wages, and “natural” laws that should apply to them. He also studied the role of money as a medium of exchange for goods and services, and the advantages of free trade. This was a lot of economics for a treatise on jurisprudence. These lectures contained many early sketches of ideas and opinions that appeared later in The Wealth of Nations.Then, in a surprise to his biographers, Adam Smith, in his early forties, left academic life to venture out into the world. He was approached by Charles Townshend, the stepfather of a teenage Scottish duke who needed to make a grand tour of Europe. Townshend, a prominent Tory politician, was a member of the cabinet as chancellor of the exchequer from 1766-1768 and author of the so-called “Townshend Acts,” which played a major part in the early days of the American Revolution.Townshend had read Moral Sentiments and thought Smith would be a good influence on his stepson. Would Smith accompany the duke as his tutor? The patronage and the money were right, so Smith would. The assignment lasted for three years (1764-1767) and was spent living in Paris for two years. There Smith met many of the leading intellectuals in the city, including Rousseau (but not Voltaire), and became familiar with much of the work in economics being done by a variety of amateur scholars, including Charles-Louis de Secondat (Baron de Montesquieu) and a group organized by François Quesnay that called themselves Physiocrats. This group coined the phrase laissez-faire, which meant a sort of utopian natural economic order that if left alone (i.e., unregulated), would develop into an optimally effective free-market system. Otherwise, however, Adam Smith, still a dry, morally correct, abstemious Scottish bachelor, seemed not to have been much impressed by France and its many attractions. After returning to Britain, he never left the country again and spent the next ten years, mainly isolated in Kirkcaldy, working on The Wealth of Nations.Though a practical man who could tolerate the need for national interests to sometimes supersede his economic principles, Smiths The Wealth of Nations was really quite radical, and in that sense, impractical. Though readable today, it is long, sometimes tedious, filled with long-out-of-date references (some of which, economist Charles Kindleberger notes were out of date even in 17767) and much of it arguing now long-settled economic policy disputes. In parts, it is witty, scathing, and whimsical. Smith certainly did not hesitate to say what he thought, and a lot of what he thought was extreme at the time. Many works by the great Enlightenment figures were thought to be radical ; they challenged conventional wisdom head-on and questioned policies and actions that had been bedrock orthodoxy for generations. Today, these ideas do not seem radical at all.The basis for many of Smiths theories was no more than deductive reasoning, not derived from statistical data or other evidence. You either found the reasoning logical and thus hard to refute, or you didnt. Those of Smiths readers who were convinced could warmly accept his ideas, which were scholarly, temperate in language, and persuasive. Those who were not convinced, however, had little grounds on which to take offense. Smith, after all, was a bookish scholar, not a dangerous troublemaker. And no one could quarrel with his patriotic objective, which was to delineate policies that would increase the wealth of Great Britain and enable the nation to draw ahead of its rivals. So, if you found his ideas leading directly to reforms that would threaten your personal wealth and control of it, you might call less attention to his notions by simply suggesting that they were impractical. This, of course, is what most of the landed gentry did do.The genius of The Wealth of Nations was in its extreme simplicity, and its success was facilitated by the work of previous writers who paved the way for its reception, argued Cambridge Professor W. Cunningham in a comprehensive history of English commerce and industry published in 1892. Smith had rivals in Britain, chiefly Joseph Massie and Sir James Steuart, and several in France, including Montesquieu, Condorcet and the philosophes. Massie and Steuart both addressed British mercantilism, but neither suggested any change in the system. Mercantilism had been used by the British since the earliest days of their overseas colonies to ensure, through a series of economic policies, that the colonies would remain dependent upon, and exploitable by, the mother country. Massie wanted more information before suggesting anything concrete. Steuart was mainly an advocate for a central system (such as mercantilism) that could be carried out as national policy. Smith was sufficiently influenced by Montesquieu to attempt to capture his “spirit of the people” for his own system, but he did not know how to go beyond the abstraction. He accepted Condorcets ideas of addressing economic issues with humanistic considerations in mind, but he dismissed the arguments of the other French economists on technical grounds.The simplicity derived from Smiths basic claims that any government-controlled system of commerce was an impediment to the working of the market, and he said therefore that the British system in 1776 was indeed seriously flawed. He was able to reduce all economic considerations into a novel and comprehensive theory of the marketplace, and he expanded his notion of the marketplace to embrace international trade. According to his theory, wealth would result from the production of items that could be sold in markets for money (gold and silver), a commodity like other raw materials. If left alone, free of monopolies and various forms of interference by government-appointed agents, markets would be able to allocate resources optimally, and labor, motivated by wealth-maximizing self-interest and division into efficient specialization, would respond accordingly. Then the marketplace would expand and attract competition and lower prices. The flow of goods and money to pay for them would determine prices and exchange rates, which naturally must adjust to imbalances. Trade, therefore, would benefit all participants, a concept that economists widely believe to be true today, but that consensus was achieved only recently. But if trade was to increase, Smith argued, it must be free—let loose from the shackles of protectionism, the heaviest of which was the time-honored mercantile system.The book that assured Smiths place in history thus contained much of his earlier work interspersed with the timely events that were increasingly of interest to the audience he wanted most to reach—the influential ranks who made the rules in England. The most important event then drawing the attention of Britains most influential people was the development in North America of a strong resistance to British rule and influence. This was a matter of great concern to the British, and considerable debate both favoring and opposing the American position developed in Parliament and outside it. It was the preeminent political-economic issue of the day, and Adam Smith felt he had to address it in his book.The underlying economic system responsible for the American problems was broken and needed to be fixed, many people in government and business argued before 1776. Smith agreed, and he discussed a number of the colonial issues in his book, starting with the idea that the Seven Years War (1755-1763, called the French and Indian War in America) had greatly increased Britains national debt and the Americans ought to be expected to help pay it down. The British defense of America, Smith said, “led to the liberty, security and property which they have since enjoyed.” Thus the Americans could be taxed, he concluded, but added that the taxes should be accompanied by freedom of trade between all parts of the Empire and the admission of the North American colonies into a form of union with Britain, such as Scotland had experienced in 1707. Union would entail representation in Parliament on the basis of the amount of taxes paid as a proportion of the total taxes levied upon Great Britain.These were powerful ideas—ones also proposed by others but not seriously considered during the American crisis—and to understand them better, a review of how the British economic system worked in 1776 will be helpful.THE BRITISH ECONOMIC SYSTEMIn 1884, the historian Arnold Toynbee gave a series of lectures at Oxford on the Industrial Revolution in England. The course was divided into three parts, the first of which was devoted to “Adam Smith and the England of his Time.” This set of lectures included a picture of the economic system about which Smith was writing, the methods of regulation and protection of industry as they existed in 1760, and an outline and review of The Wealth of Nations. Reading these lectures today is as good as taking Toynbees course. They are dynamic, interesting, and filled with provocative personal commentary and opinion. They start with some basic information. Britains economy had never really been studied before Smith, and data were scarce, but it was clear that in 1760, not much was different from earlier times. The country had about 8.5 million people, most of them rural and engaged in agriculture. London was the largest city, holding about one-sixth of the population.Agriculture was becoming more efficient, and food production was better, but Toynbee did not see much evidence yet of the “agricultural revolution” that preceded and enabled the Industrial Revolution. The improvements in agriculture meant that more people could or would have to move to towns and provide the labor supply for the factories. But it also meant that because of the improvements, food production was greater and prices lower, so people had more to eat, were healthier, and had more time and energy to spend on activities other than just staying alive.Toynbee also noted that well before the Industrial Revolution, manufactures (especially those related to the woolen textiles business) were already an important part of the economy, with exports in 1770 accounting for as much as £4 million worth about $480 million today), or between a third and a fourth of all exports. The weaving of woolen cloth had been an important sector of the economy since the 1300s, when the necessary skills were imported from Flanders. Increasing demand for wool led to large enclosures of land (for sheep to graze) and the forced expulsion from it of tenant farmers, who made up a large part of the English and Scottish populations that emigrated to Ireland and North America.After wool, the iron trade was next in importance, though it was considered in Adam Smiths time to be a decaying industry. In 1760, English furnaces produced about twenty thousand tons annually and imported about the same amount. The chief demand for iron was for weapons and armaments, though the hardware trades were starting to flourish. The cotton and linen trades, which would be the principal British industries to benefit from the Industrial Revolution, were just beginning. Some, but only a few, of the important new inventions had come on line.There was enough manufacturing, however, for Adam Smith to develop one of his main themes in The Wealth of Nations, that of the increased efficiency that comes from the division of labor into specialities. Most factory workers then were agricultural laborers employed part-time. Workers ought to be one or the other, Smith said—either farmers or factory men. If so, they would not waste time getting to and from their respective places of work, or have to make themselves available for one or the other work at conflicting times. And they could learn specialized tasks that with repetition they could do efficiently as they moved up the learning curve. Smith illustrates this with a charming report of his observations of a factory that specialized in making pins.Still, according to Toynbee, the market for finished manufactures was rather small because of the many problems with transportation, labor, and finance. Roads were “execrable,” unsafe, and deadly slow, though the first canal appeared in England in 1755. There were many local restrictions on employment and labor mobility, especially through laws related to apprenticeships. Municipal governments could set wages, and they maintained laws that forbade laborers from combining for the purpose of negotiating wages. Finance, too, was very undeveloped. The Bank of England existed, but before 1759, it did not issue any banknotes of less than £20 (about $2,500 today). As late as 1750, there were no more than twelve “bankers shops” in all of London. The capital-intensive portion of the Industrial Revolution clearly began later. But, for all these economic obstacles, British exports were increasing, having doubled since 1700. The colonies were the chief markets, accounting for a third of all exports. Toynbee noted that in 1770, America took three-quarters of all the manufactures of Manchester (wool and cotton) and that exports to Jamaica were nearly as great as they had been to all British plantations in 1704. The shipping trade had, accordingly, also doubled during the century.8The British have been subjects of a monarch since the nations earliest days. Much of the law and many precedents for governing British society were handed down from the feudal system of the Middle Ages, some of them going back before the Norman Conquest in 1066. The British monarch (like those of the rest of Europe) ruled by the divine right of God, and in the beginning, he was all-powerful and not to be challenged. Of course there were contests to see who became monarch, but otherwise, the reigning king or queen was the repository of all economic power. The British Crown, however, required the consent of Parliament to impose taxes, and Parliament did not always go along. Money was needed for wars, for building, and to maintain the splendid appearance of the monarch. The king owned vast amounts of land, from which rents were due him, and had the power to seize land or property belonging to others. The nobility (mainly landowners) was dependent on the king for land, titles, and other favors, and the king was not above finding ways for the nobility to repay the Crown for the largesse. The nobility also had a lot to do with designating who ran for seats in Parliament. Played skillfully, the kings hand held all the necessary cards to make the system work indefinitely.Occasionally, money would run short and extraordinary measures would be presented to Parliament, or taken unilaterally by the king (borrowing, for example), but the system, as poorly refined or controlled as it was, worked for long periods of time. Queen Elizabeth I, who reigned for forty-five years during the sixteenth century, was intent upon expanding Britains ability to generate wealth and frugal with her expenses. She established British preeminence at sea and used it to harass the Spanish and to explore the world. Sea power led to colonizing India and the West Indies and, ultimately, North America.Elizabeth was succeeded by a series of less wise or adept monarchs (the Stuarts), who earned less for the treasury and spent more from it. Charles I was the last British king to insist on absolute power, and he provoked Parliament into the Civil Wars of 1642-1649, and his own overthrow and execution by the Commonwealth government of Oliver Cromwell. In 1658, Cromwell died and the monarchy was restored. Charles II came to the throne only after agreeing to share power with Parliament, and (largely because of this concession) the British monarchy has survived since, unlike the other monarchies of Europe that remained absolutist.Britain, however, by the restoration of Charles II, had become a “constitutional” monarchy (though the British constitution is not a written document per se; it is based on precedent and time-honored ways), and its economic management had to meet certain minimal tests of sensibility to pass the scrutiny of its elected Parliament. After Charles II was succeeded by his incompetent and controversial brother James II, events led rapidly downhill to the “Glorious Revolution of 1688,” after which James II was expelled, Protestantism was restored, and William of Orange and his wife Mary Stuart became co-monarchs. After Queen Marys death (the last of the Stuarts), Parliament consented to offer the Crown to the son of a great-grandson of James I, the son of the Second Elector of Hanover, who, at fifty-four, became George I of Great Britain in 1714. George never understood the English language or the workings of Parliament very well, and took long vacations in Hanover, so the British got what they wanted: a legitimate, unambitious king who could be ruled by Parliament. George I died in 1727, passing the Crown to a son he disliked but who shared many of his personal characteristics. George II was more kingly and learned English, but he abided by the limits on his power and income placed on them by Parliament. He left governing to his cabinet, headed by an able prime minister, Robert Walpole, who for twenty years was able to preserve the peace and increase British prosperity.The king retained the power to make important appointments, but the power of the cabinet and the bureaucracy to distribute contracts, charters, and many other favors grew under the new political spoils system devised by Walpole, a man widely considered to be completely amoral. “Influence” (on the designation of contracts and appointments) was bought and sold. No man was more, or less, than the grand total of the influence he could bring to bear before Walpole and his cohorts. Merit had little to do with most issues. The trading of influence, however, dominated the realpolitik of the day, and almost nothing mattered more. Bribery, payoffs, skimming, and other forms of external payments were common, as was a continuous effort by incumbents to secure appointments for members of their families and friends.These practices placed a heavy drag on the economic system, which accordingly, often produced inferior results. It was not a system designed to maximize output, but instead, one intended to protect and preserve social positions and the economic status quo. It was a poor system for increasing the prosperity of the country as a whole, but it actually achieved that to a greater degree than did most of the rest of Europe, where systems based on absolute powers of monarchies were even less market oriented or efficiency minded.Trade was the growth industry of the eighteenth century. The discovery of precious metals, sugar, and tobacco in the New World, and spices, coffee, and tea in the East Indies, changed the world. Locating these goods and importing them to Europe, as well as organizing the African slave trade to develop plantations in America, offered the potential for huge profits. Nations that secured such overseas resources were assured of national wealth and strategic value for years to come. As a result, the major nations scrambled for colonies in fierce competition with one another. It was nations that competed then, not companies, and governments supplied the means of competition: the merchant ships and crews, the ports and infrastructure to support trading, and the navies to protect them. Monarchs invested in voyages of discovery, but called upon wealthy merchants to acquire charters to develop particular areas, for which the merchants would provide the capital necessary for ships and settlement in exchange for some of the profits, the Crown retaining the rest.Joint stock companies (such as the South Sea Company, the East India Company, and the Virginia Company) raised capital through the worlds first “privatization” issues by selling stock to wealthy speculators on the London Exchange. The Crown and many government officials invested in these deals, and it was generally expected that in one way or another, the government would assure the success of the ventures. It was difficult to tell where the interests of the company ended and those of the state began. Weighted down by patronage, inefficiency, and corruption, these early experiments in monopolies often produced very unsatisfactory results (described in The Wealth of Nations) for both investors and taxpayers. But in a world of limited commercial development, in which neither investment vehicles nor skilled corporate operators existed or competed with one another, this system was probably as good as it could be. The increase in the wealth and colonial possessions of Britain after 1700, especially relative to Spain, France, Holland, and Portugal, was no doubt a direct result of this effort to utilize private capital under royal charters to develop colonial properties.One consequence of the scramble for trade was that the prosperity of one country was thought to be incompatible with that of another. “If one country profited by trade, it seemed to do so at the expense of its neighbors,” noted Toynbee, suggesting the idea that all trade was a zero-sum game. Winners gains came out of the share of the losers. As one country grew in riches at the expense of another, it could capitalize on its gains by committing more to military expense, for conquest or defense, or by having more liquid funds available to dedicate to commercial activity, thus also extending national power.In the eighteenth century, Britain and other countries developed the idea that gold and silver were the most durable parts of a nations wealth and should be accumulated by all possible means and hoarded. They could be accumulated only if exports of goods and commodities exceeded imports, the difference being paid for by a transfer of precious metals. This idea became the economic rationale for mercantilism, and numerous policies were adopted to implement it. To be sure that precious metals remained in Britain, laws were passed that prohibited their export. Adam Smith pointed out that this caused considerable disruption to the normal working of overseas trade and investment needed to pay for goods and services abroad. Smuggling also increased to get around these rules, so the focus of government policy turned to managing the balance of exports and imports, and policies were adopted to restrict imports to necessary raw materials and to promote exports of high value-added manufactured goods or services.These restrictions were enforced by tariffs, quotas, and prohibitions, and by legislation such as the Navigation Acts, first imposed in 1651 and amended many times. The Acts essentially required that British trade be carried in British ships, but they created a monopoly for the British merchant marine that raised shipping costs and ultimately operated against British interests in Europe, the Baltic, and some neutral ports. But the monopoly worked very well for the British in its controlled colonial areas, though these were insignificant when the Navigation Acts were first enacted.British economic policies were openly protectionist, in keeping with the governments understanding of trade economics. They were further defended on the grounds of national defense (for Britannia to rule the seas, it had to have something for her ships to do), and the argument that the stimulus of trade would help overcome the apathy and dullness of a purely agricultural population. The problem was, however, that British exports were some other countrys imports, and Britains principal trade rivals had also figured out the balance-of-payments idea. Tariff wars broke out across Europe and nullified much of the benefits of trade altogether. The real benefits of the British mercantile system, therefore, were to be achieved by trading with primitive, weak economies that had no domestic manufacturing industries to protect and plenty of desirable raw materials for sale cheaply. China, India, and the East Indies were prime prospects, but these were also attractive to other European countries. So deals had to be made to secure colonies with exclusive trading rights. The British and the French struggled over India, Malaya, and Indochina. The British and the Dutch vied over South Africa and the Spice Islands, and China became something of a free-for-all, with everyone getting a bit of something. In the Americas, the Europeans competed with each other for colonies in the Caribbean and on the North American mainland.By Adam Smiths time, it was apparent that of all these colonial efforts, the British had won the jackpot in North America. Its colonies there had become highly fruitful suppliers of valuable raw materials, and also important customers for Britains increasing manufacturing output. British bottoms carried the trade, and its warships could be provisioned with American timber and manned by impressed American sailors. British banks financed and insured the trade, and British agents took commissions at both ends. Rather than be jailed at home, British criminals could be “transported” to America, a land more than large enough to absorb all the excess population of the British Isles. A small number of British-born officials governed the colonies, which for more than a hundred and fifty years were law-abiding and peaceful. The system was self-financing, added greatly to the British balance of payments and accumulation of wealth, and its size and location offered major strategic advantages to Britain in the struggle with its European rivals for power in the western hemisphere.It was certainly a goose that laid golden eggs, and if the British treated the colonies exploitatively, that was only to be expected. Toynbee described their regard for the colonies as little more than the “farms and markets of the mother country.” Most American export goods could not be sold anywhere except in Britain, though the British often resold and reshipped these goods to other countries. Foodstuffs and certain other commodities already produced by British landowners could not be exported from America at all. All imports from other countries in Europe were prohibited to America so that the British might monopolize the American market. American manufacturing was suppressed ; for example, all textile and iron manufacturing was prohibited, even nail making. Unquestionably, the British rule of the American economy was stringent and greatly thwarted its potential development.But it was the only system the colonists knew, and surely the best one to select had there been a choice between similar colonial systems run by the French, Dutch, or Spanish. Without British rule, the unprotected North American colonies would have been exposed to the threat of raids and invasions by other countries, which could have been ruinous. As it was, the colonies were prosperous, lawful, and secure. Land and food were plentiful and cheap, and life was free of many of the religious and class-ridden disadvantages of British society. But the French and Indian War precipitated challenges—economic and political—to Britains rule of these colonies and posed a threat to the immovable wall of the mercantile system that many Britons thought was the secret to its national economic success. As Toynbee pointed out in his lectures, “Nothing contributed more than this commercial system to the Declaration of Independence.”9Toynbee knew that Adam Smith had come to many of the same conclusions. Smith was critical of Britains colonial administration in America. He spent a lot of time, space, and wit in his book addressing the effect of mercantilism on the colonies and the misdirected policies of colonial administration. “A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers … but for the sake of that little enhancement of price which this monopoly might afford producers, the home-consumers have been burdened with the whole expense of maintaining and defending that empire.” Indeed, he added, maintaining the compliance of the Americans had cost hundreds of millions of pounds, and “new debts had been contracted over and above all that had been expended for the same purpose in former wars.”Even so, Smith claimed, there was much more at stake than that. Allowing America to develop into a vast nation of unquestioned economic value, which would transfer much of its trade and need for skills to Britain, would be a far wiser course. And the stupidest course of all was to try to win a commercial war by attacking Britains own customers. If as a result of the war, Britain lost the customers, where would they go but into the arms of Britains economic rivals? How would Britain ever recover from such a self-inflicted economic loss? Smith agreed with Burke that however much offense the Americans had given (and he conceded that they had offended considerably), and no matter how undeservedly, it could not be in Britains interest to go to war with them.Smith, the economist, was not much interested in the constitutional question of the day. Could America be taxed without being represented in Parliament? He thought they could be. But, he said, without offering union (i.e., representation in Parliament), they should not be. What little was gained from the proceeds of taxation would scarcely repay a fraction of the cost of acquiring it by force, or (much worse) of losing the captive American trade altogether. These were concerns that Smith and others in Britain already knew were valid when the Americans instituted boycotts of British goods (their “non-importation” campaign) after the Stamp Tax was imposed in 1765. The boycott had a huge effect on the British merchants and manufacturers engaged in the American trade, who of course carried their concerns to the government. The tax was repealed soon afterward, but ill feeling and distrust germinated on both sides.Within a few months of its publication, Professor Cunningham said that The Wealth of Nations “had become a considerable power.” Seemingly, it had something in it for everyone, and it appeared to gather bipartisan support in the Parliament. In 1777, Lord North borrowed some of its suggestions on taxation, and William Pitt (the elder) openly praised it. North was prime minister during the American Revolution and no friend to the colonists, and Pitt, who had been replaced by George III, had long been an opponent of the governments North American policies. In fact, Americans liked Pitt so much that they renamed Fort Duquesne, captured from the French in western Pennsylvania, Fort Pitt in his honor (it is now Pittsburgh).All of England knew that the American issue was important and might seriously affect Britains future. According to Smith …
In the course of little more than a century, perhaps the produce of America might exceed that of British taxation. The seat of the Empire would then naturally remove itself to that part of the Empire which contributed most to the general defense and support of the whole.
Thus, he was saying, once the Americas reached their peak in a century or so, the British government would earn more in America than it could collect in taxes at home, so it would “naturally” just pack up and move the British capital to someplace like Pittsburgh, to run the Empire from the seat of its economic power. The British Crown and Parliament relocating to Pittsburgh? That would be something!THE AMERICAN QUESTIONThe first successful British colony in North America was established at Jamestown, Virginia, in 1607; the first unsuccessful one was tried at Roanoke Island, North Carolina, by Sir Walter Raleigh in Elizabethan days. The Jamestown expedition was organized by businessmen who obtained a royal charter and financed it by the sale of stock in the Virginia Company. Its purpose was to make money by finding valuable minerals, crops, or other products that could be sold in Europe. The effort got off to a rocky start and was almost abandoned in 1610, but it held together until the introduction of tobacco from the Caribbean in 1613, and it finally prospered.By 1620, when the Pilgrims were making their way to Plymouth Rock, the Jamestown colony numbered about a thousand inhabitants, including a small number of Negro slaves. In 1622, however, an Indian attack, coordinated over a large area, wiped out about a third of the colony, and the financial consequences ruined the company. In 1624, King Charles I canceled the royal charter, and Virginia became a Crown colony governed by a local legislature and headed by a governor appointed in London. Subsequently, other colonies were founded and slowly developed. Though Britain possessed several hugely profitable sugar-growing islands in the Caribbean and a budding empire in India, Africa, and Southeast Asia, the North American colonies became its most valuable overseas possession. For this reason, Adam Smith claimed that the “discovery of North America and that of a passage to the East Indies by the way of the Cape of Good Hope are the two greatest and most important events ever recorded in the history of mankind.” (Emphasis added.)What made North America important to the British was, first, possessing its enormous economic potential, and, second, not having any of its major rivals, France, Spain or Holland possess it instead. After the fall of French Quebec to General Wolfe in 1759, Britain controlled all of North America from the St. Lawrence River to Florida, having banished the Dutch from New York in 1664. The Spanish, however, still controlled Florida, the Caribbean, and much of the Gulf of Mexico, including New Orleans and access to the Mississippi River.By the time of the American Revolution, North America had become Britains largest supplier of raw materials and its biggest market for exported manufactures. Until the middle 1750s, relations between the mother country and the colonies had been without incident. But the French and Indian War changed everything.In 1754, without a declaration of war, hostilities broke out between Britain and France in America. A year later, Britain had signed an alliance with Prussia, and France had made an alliance with Austria. This was historys first global conflict, and much of it was fought at sea in the Caribbean and in North America. The French, allied with various Indian tribes, repeatedly attacked British North America along its frontiers, delaying settlement and threatening to separate its northern and southern colonies by raising havoc between them. The British increased the powers of the colonies governors and dispatched regular troops, commanded by professional officers, to address the issues and sort things out. They expected the Americans to help by contributing men and equipment to the military effort and by absorbing some of the cost of an undertaking that was essentially to protect them from the French.The Americans did cooperate, but the British found the military problems more difficult than they expected. After the humiliating defeat of British General Edward Braddock in Ohio in 1755, the cost and involvement of the British regular army in America rose substantially. So did the efforts of the increasingly arrogant and assertive British to extract an American share, by force if necessary. Orders were issued to draft American troops and impose taxes, and these met resistance from the colonists.It is an infringement of our basic rights as Englishmen, the colonists said, for you to impose such things on us that have not been ratified by our own legislatures. Further, we are not governed by your Parliament, as we are not represented there. We have our own parliaments (legislatures), and just as the British constitution prohibits the imposition of taxes that have not been consented to by Parliament, we believe that the only taxes we are obliged to pay are those imposed by our legislatures, which tax us well enough already, thank you very much!The British brushed this argument aside (it had been heard before from Ireland), but in the end, they found the increasing resistance to their efforts so strong that they agreed to a pragmatic compromise. Instead of imposing new taxes, the British governors would request the colonial legislatures to supply men and money as a “voluntary contribution” to the war effort. The compromise worked for the duration of the war, but the British felt that the unruly colonies had been ungrateful and impertinent, while the Americans continuous exposure to the arrogant, demanding, heavy-handed behavior of British officers and officials greatly strained their relations. The Americans, however, learned after Braddocks and others defeats that the British were not invincible in frontier skirmishes, and indeed, that their own forces had acquitted themselves well. The war ended in 1763, but it had increased the colonial budget tenfold, and the British costs of the war had to be recovered.The British government, annoyed with the uncooperative, unpatriotic conduct of the colonists and facing a tax revolt of its own at the time, decided the best way to proceed was to impose one or more direct taxes on the colonists as part of their share of the “Imperial” cost of the successful war with France. The outcome of the war, after all, had brought many benefits to North America, and if the colonists did not like their share of the cost, too bad. They were British subjects and had to do as they were told. To implement this policy, the British passed the Sugar Act in 1764, which imposed a small tax on molasses imported from the Caribbean.Benjamin Franklin, then serving as agent in London for both Pennsylvania and Massachusetts, was asked at the time to negotiate with the British on behalf of the colonists. He had a long history of negotiating with British officials, beginning in 1754 when at a meeting with royal governors in Albany, New York, he had proposed that the North American colonies be united with Great Britain, as Scotland had been in 1707, and become represented in Parliament. This would bind the colonies with the mother country against the French and Indians, Franklin argued, and render the taxation issues moot. Franklin was ignored then, and he was ignored again in 1765 when he offered the British a distinction between forms of taxation: “external” taxes, such as duties applied to trade, and “internal” taxes, which would be assessed by the British directly to defray non-American, British expenses. Franklin said (ten years before the revolution) that he thought the Americans would accept the former, but not the latter, because such were not only unconstitutional, but they were also likely to be unending—a problem for the British in India, for example, should not be relieved by taxing Americans.Franklins efforts were unsuccessful, and indeed, possibly counterproductive. In 1765, the Stamp Act, levied on all paper transactions and designed to raise about £60,000 per year, ($7.2 million today), met with enormous resistance in America when it was introduced. The Americans, encouraged by Franklin, responded with a boycott of British goods that reduced British-American trade by £300,000 ($36 million, or about 7 percent), the passage of the Virginia Resolves (led by an enraged Patrick Henry asking to be given “liberty or death”), and the formation in Boston of the irrepressible Sons of Liberty. The tax was repealed the following year, but Parliament asserted its “right” to tax the colonies in the future, and bitter feelings remained on both sides.Then, in 1767, came the Quartering Act and the so-called Townshend Acts that involved import duties on everything but tea. (Adam Smiths former patron Charles Townshend, the stepfather of the duke, was chancellor of the exchequer at the time and the duties were named for him. He died later that year.) In 1768, one of John Hancocks ships (named Liberty) was seized for not paying custom duties and a riot ensued in Boston, requiring the British to send two regiments from Halifax. In 1770, the Boston Massacre occurred, and in 1773, the Boston Tea Party. Tensions escalated on both sides and finally, in 1775, a year before the publication of The Wealth of Nations, the Battle of Lexington and Concord erupted, in which shots were fired that were “heard round the world.” The Wealth of Nations was delayed at the printers, no doubt because Adam Smith was making last-minute revisions of his analysis of the British colonial policies and their inherent contradictions.The late Barbara Tuchman offered a poignant analysis of the British loss of North America in her book The March of Folly, published in 1984. The British interest in preserving a benign, peaceful relationship with the colonies was widely evident, she said—
Yet for fifteen years of deteriorating relations … successive British ministries, in the face of constant warnings by men and events, repeatedly took measures that injured the relationship. However justifiable in principle, these measures insofar as they progressively destroyed goodwill and the voluntary connection, were demonstrably unwise in practice, besides being impossible to implement except by force. Since force could only mean enmity, the cost of the effort, even if successful, was clearly greater than the possible gain. In the end, Britain made rebels where there had been none.10
Tuchman goes on to quote Edmund Burke, Americas Irish-born supporter in Parliament, as noting that the “retention of America was worth far more to the mother country economically, politically, and even morally than any sum that might be raised by taxation, or even any principle so-called of the Constitution.” This was Adam Smiths view as well, and it was given wide circulation. Nevertheless, right in the middle of modern historys greatest time of intellectual awakening—much of it happening on Englands very doorsteps—the disastrous British policies in North America were put into effect, placing far more importance on the principle of demanding respect and submission than on the other important issues that were at stake.Ministers were largely of the nobility in Britain. Tuchman noted that the government came from “200 families (inclusive of 176 peerages) in 1760, [who] knew each other from school and university, were related through chains of cousins, in-laws, stepparents and siblings of second and third marriages, married each others sisters, daughters and widows, and constantly exchanged mistresses … appointed each other to office, and secured for each other places and pensions.” Of twenty-seven persons who filled high office from 1760-1780, she calculated that twenty had attended one of two boarding schools and either Oxford or Cambridge, and then gone off on a grand European tour. Further, she noted, two were dukes, two marquises, ten were earls, two were Scottish or Irish peers, six were younger sons of peers, and only five were commoners. Peers, of course, owned most of the land, controlled most of the seats in Parliament, and most of the vast quantity of patronage of the times, and had most of the money. Many peers were perfectly qualified for their duties in government, but according to Tuchman, others were not. Charles Townshend, she points out, was a son of a viscount who, according to one contemporary observer, had the capacity to be “the greatest man of his age, if his faults had only been moderate.” He suffered from an “immoderate passion for fame,” in addition to being “arrogant, flippant, unscrupulous, unreliable and given to reversing himself by 180 degrees when necessary.”11 He was ignorant of issues, studied them not at all, and was mainly known for a sharp, fast wit. In short, Townshend was a man who needed the system of aristocracy that had put him where he was, and he could be expected to defend it unhesitatingly when it was threatened.For many peers, their favorite sport was found in politics and keeping track of who was in or out at court. Presiding over all this was a new king, George III, who ascended to the throne in 1760 at the age of twenty-one and promptly changed prime ministers by dismissing William Pitt, the most able statesman of his time. The search for favor and for favorites had begun anew, and George had a lot of patronage to hand out. But he was adamant about any of his colonies or dominions leaving the Empire without permission. British kings had had enough trouble from the Irish and the Scots, even just since the Hanoverians had arrived, without wanting to see more trouble in America. Powerful rulers did not let valuable territories walk away, nor did they let people of lesser rank treat them with disrespect. These simple Americans were supposed to do as they were told, the king must have thought, and if they did not, they would be taught a lesson. When such thoughts enter the head of the king, it is not a surprise if others in the nobility share it—others such as the dukes, marquises, earls, barons, and those making up the government and controlling the large English system of patronage.After a slow start, Britains prominent overseas possession had become the several separate colonies of North America. These had overtaken the wealthy sugar islands of the Caribbean in importance, as they had become, in aggregate, Britains most important two-way trading partner. But after a long, uneventful relationship, during which the colonies were steadfastly loyal to the Crown, even throughout the English Civil War, relations had soured considerably. By the time Adam Smith sat down to write The Wealth of Nations, a few years after the successful conclusion of the French and Indian War, the colonies began openly to resist British efforts to govern them. Ultimately, this led to war, a seven-year struggle to win the independence that the Americans finally proclaimed in 1776.After the British defeat at the battle of Saratoga in 1777, Smith was turned to for advice on the American issues. He was asked by Alexander Wedderburn, solicitor general in Lord Norths administration, to provide some thoughts based on his studies of the American Question. Webberbum, a Scot and a friend, was no doubt offering Adam Smith a chance to perform before the powerful government leaders in London, and Smith took the assignment seriously.Americans knew Wedderburn as the villain who had savaged their greatest statesman, the elderly, much-respected Benjamin Franklin, before the Privy Council in 1774 over the issue of publication in Boston of some stolen letters of Governor Thomas Hutchinson and others. This was Britains chance to express its true views on the situation in America and those who had lived there loyally for generations. Wedderburn, however, outdid himself in invective, in calumny and insult, to roars of approval from the audience. Franklin stood silent during the attack, inwardly outraged. The incident convinced Franklin that despite his nearly sixteen years of living in England, and the acquisition of many well-placed friends, his efforts to mend colonial relations and keep them on an even keel had been wasted. The British thought little more of Americans than they did of the Irish, a people they had suppressed cruelly for centuries. After Wedderburns attack, Franklin knew that he was an American, not a Briton, and he left the country as soon as he could to join the Continental Congress and assist it in its effort to become independent. Wedderburns moment propelled him further into the circles whose approval he wanted (he later became Earl of Rosslyn), but he certainly failed to attend to his countrys longer-term interests that day.Adam Smiths Scottish biographers, R. H. Campbell and A.S. Skinner, note that his views on the “contest with America exerted little influence on government policy” except in one important case: Ireland was given parliamentary union with Britain in 1800, when the younger William Pitt, who was well schooled in The Wealth of Nations, argued that such an act would increase trade, despite a strong effort to raise the frightening specter of Catholic emancipation by Alexander Wedderburn.THE ENLIGHTENMENT COMES TO AMERICAIt was just the sort of unbending, Old-World system that brought on the American Revolution, one rooted in traditional practices and unwilling to look beyond them that Voltaire and other European Enlightenment figures sought to overturn with their criticism. There were not many Americans other than Franklin who had given the issues much thought until the colonies began to unite in their opposition to the Townshend Acts. Indeed, most of the founding fathers were unknown at the time of the Acts, and came to be regarded as Enlightenment figures only when the Revolution was over.Thomas Jefferson rose to fame as the author of the Declaration of Independence, and he later revealed many other talents and interests beyond politics. Jefferson was a farmer, a scientist, an architect, a social philosopher, as well as a crafty politician. Alexander Hamilton and James Madison became known for leading the debates on the American Constitution, but they also exhibited many other enlightened interests and capabilities later on. However, as their tasks focused on building a new government, many of the founders became acquainted with numerous European Enlightenment intellectuals, whose works they studied carefully. Almost fifteen years after the Declaration was published, John Adams wrote a book called Defense of the Constitutions of Government of the United States of America, which was published in London before he returned from that city to take up the vice-presidency, after the French Revolution had begun. He worked hard on this piece, hoping to convince the skeptical British. He laced it with references to respected contemporary European thinkers who had something useful to say about human nature and affairs; these included Voltaire, Samuel Johnson, Alexander Pope, and Adam Smith.12 He might have also included Americas political allies in England, Edmund Burke and William Pitt, or some of Franklins scientific friends, or the philosophes of Paris, all of whom in some way offered original ideas or encouragement pointing toward a better system of government than the ill-administered one under which the Americans were struggling.But whatever their achievements, even the greatest figures of the Enlightenment, perhaps even all of them taken together, were outweighed in impact and lasting importance by the contribution of a small number of obscure Americans who bravely laid down the design of a new democracy and a new economic system. John Adams, in his Thoughts on Government (1776), said that it was …
the will of heaven that we should be thrown into existence at a period when the greatest philosophers and lawgivers of antiquity would have wished to live … when circumstances provided an opportunity of beginning government anew from the foundation and building as they choose. How few of the human race have ever had an opportunity of choosing a system of government for themselves.13
ADAM SMITH AND THE ORIGINS OF AMERICAN ENTERPRISE. Copyright © 2002 by Roy C. Smith. All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles or reviews. For information, address St. Martins Press, 175 Fifth Avenue, New York, N.Y. 10010.