Natterings From Nepantla

Have I mentioned yet that The Wealth of Nations was published in 1776? Well, I'd better mention it now. Parts of this section seem to have been written in late 1775, especially where Smith has Thoughts regarding the latest developments in North America.

Chapter I: As mentioned before, hard currency is merely a proxy for the concept of money. Hoarding gold and silver, apparently a popular national policy at the time, is less useful than letting it circulate. Looting is a poor substitute for what could have been achieved by simply trading with the established civilizations in the New World.

Chapter II: Restricting imports distorts the market and is therefore stupid, except for a couple cases. Smith approves of the Navigation Acts on the grounds that increased shipbuilding is vital for maintaining the British nation. Import duties are also deemed acceptable if equivalent taxes are paid on domestic goods.

Chapter III: Stop freaking out about trade imbalances.

Chapter IV: Rebates on import duties should only be applied when the goods are intended for re-export.

Chapter V: Subsidies are pointless market distortions as well.

Chapter VI: Treaties where nations grant each other exclusive rights to provide goods make things even worse.

Chapter VII, Part First: The practice of colonization goes back to the time of the Greeks and Romans, except the Greeks and Romans had good reasons for creating them, in Smith's mind, as opposed to modern colonies which had largely been started for treasure hunting. He also has approximately zero time for Christianizing the natives as an excuse for looting and subjugating them.

Chapter VII, Part Second: The proper way to build wealth from colonies is to cultivate and populate them, thus allowing greater and greater trade. Forming an exclusive company or requiring colonies to trade with only their founding country will hinder this. While the British colonies in America are subjected to trade restrictions on some goods, Smith feels they still have a better deal than anyone else's colonies, and that the restrictions should not cramp the colonies' style for some time to come.

Starting to muse about colonial government, Smith has a thought about how democracy plus slavery is the worst possible combination:

The law, so far as it gives some weak protection to the slave against the violence of his master, is likely to be better executed in a colony where the government is in a great measure arbitrary, than in one where it is altogether free. In every country where the unfortunate law of slavery is established, the magistrate, when he protects the slave, meddles in some measure in the management of the private property of the master; and, in a free country, where the master is perhaps a member of the colony assembly, or an elector of such a member, he dare not do this but with the greatest caution and circumspection. The respect which he is obliged to pay to the master, renders it more difficult to protect the slave. But in a country where the government is in a great measure arbitrary, where it is usual for the magistrate to intermeddle even in the management of the private property of individuals, and to send them, perhaps, a lettre de cachet if they do not manage it according to his liking, it is much easier for him to give some protection to the slave; and common humanity naturally disposes him to do so.

Chapter VII, Part Third: Even though its regulations are mild compared to other colonial power, England's monopoly on some of the colonial trade produces market distortions that it would be better off without. Independence for the colonies would be nothing but beneficial from a strictly economic perspective.

On the other hand, Smith thinks the colonial assemblies are amateur hour and the continental congressmen are a bunch of wannabes. To keep them on the side of Britain, he proposes feeding their egos by bringing them into an expanded Parliament, with the promise of increasing their representation over time in proportion to the taxes the colonies are able to pay. In a century or so, he thinks, the colonies may be able to contribute more than England itself, at which point perhaps the seat of the empire could be moved to America.

Worse problems are in store for the exclusive-company model of colonial management, which encourages trade by countries that have no business being there and unnecessarily restricts trade from countries with a strong maritime presence. As for India:

It is a very singular government in which every member of the administration wishes to get out of the country, and consequently to have done with the government, as soon as he can, and to whose interest, the day after he has left it and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up in an earthquake.

Chapter VIII: In conclusion, restrictions drool, free trade rules.

Chapter IX: Agriculture is the only thing that really creates new wealth, although business and manufacturing do some useful things. Free trade is necessary to keep the more merchant-dependent nations afloat.

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Popping up here and there throughout this section are mentions of a recent war, which my in-house history expert identifies as the Seven Years' War. This turns out to be the same thing that manifested in North America as the French and Indian War. I remember hearing in history class that this was part of the overall competition between the colonial powers, but I never knew it was a small piece of a much bigger conflict that also included Spain vs. Portugal in South America, Prussia vs. most of its neighbors in Europe, multiple colonial powers and assorted Mughal successor states in India, and Britain vs. France pretty much everywhere. Apparently some historians call it World War Zero, which would be a great title for the blockbuster pop-history book about it that I desperately want to read now.

Chapter I: When people have more stuff than they can use, they will try to make money off the excess somehow. Having a stable government helps.

Chapter II: Money is not really tokens of precious metal, but the incorporeal value represented by them. Thus, there is nothing wrong with using banknotes as money instead. Smith does not quite talk himself into supporting fiat money, but he sees nothing wrong with banks issuing more paper than they have gold and silver in reserve, on the grounds that conserving use of metal money frees up metal for other uses. Futhermore, he strongly supports government regulation of the supply of paper money.

Chapter III: Labor and the use of capital are divided into productive and unproductive uses, defined by whether they generate profits directly or not. Pains are taken to emphasize that some resource sinks provide a benefit to society, such as maintaining a government. Employing servants is categorized as both unproductive and useless, an odd moment in a book which is otherwise in favor of the specialization of labor.

Chapter IV: Sometimes people lend out their stuff to make a profit on the interest. Governments which ban it (this was at a time when many people considered the Bible to be strictly against it) are simply encouraging a black market, but governments should put caps on it. What's a good cap?

In a country, such as Great Britain, where money is lent to the government at three per cent. and to private people on good security at four, and four and a half, the present legal rate, five per cent., is perhaps, as proper as any.

The legal rate, it is to be observed, though it ought to be somewhat above, ought not to be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, was fixed so high as eight or ten per cent., the greater part of the money which was to be lent, would be lent to prodigals and projectors, who alone would be willing to give this high interest.

Chapter V: Capital is used in many different industries, at home and abroad. It will naturally find its way into foreign markets if there is an imbalance, and governments should not force it into being used for imports and exports.