Adam Smith, Book 4, Ch. 7, Of Colonies

TL;DR

Smith critiques economic justifications for colonies, favoring free trade.

Transcript

Now let's turn to the very lengthy book 4, chapter 7 of Wealth of Nations. This chapter is called "of colonies," it's divided into three parts, and it's quite far ranging. Overall, Smith is setting out to debunk most of the economic reasons given for holding colonies. For instance, Smith notes that precious metals are a reason for some colonies, es... Read More

Key Insights

• Smith debunks economic reasons for holding colonies, viewing them as based on mercantilist fallacies, particularly criticizing the focus on precious metals.
• He highlights the benefits of free land in new world colonies, noting it leads to rapid economic growth and better treatment of workers due to labor scarcity.
• Smith criticizes Spanish colonial governance for being expensive and arbitrary, contrasting it with England's more liberal approach to its colonies.
• He argues that free trade would be more beneficial than colonial trade, as colonies distort economic relationships by concentrating trade.
• Smith suggests that Britain might consider releasing its colonies and acknowledges North America’s potential desire for independence.
• He views the creation of a colonial empire as economically unfit for nations, benefiting merchants but not the nation as a whole.
• Smith proposes a political union between Great Britain and North America, though history took a different path.
• Overall, Smith presents an early critique of the economics of empire, challenging mercantilist justifications for colonies.

Questions & Answers

Q: What is Adam Smith's main critique of colonies?

Adam Smith's main critique of colonies is that the economic justifications for holding them are based on mercantilist fallacies. He argues that the focus on acquiring precious metals and concentrating trade with colonies distorts economic relationships and does not benefit the nation as a whole. Instead, he advocates for free trade as a more beneficial approach.

Q: How does Smith view the governance of Spanish colonies?

Smith criticizes the governance of Spanish colonies as being expensive and arbitrary, often involving arbitrary taxes. He contrasts this with England's more liberal approach to its colonies, which he views more favorably. Smith believes that the Spanish approach is less efficient and more burdensome for the colonies and the mother country.

Q: What does Smith suggest about the future of British colonies?

Smith suggests that Britain might consider releasing its colonies in the future, as he believes that they do not provide real economic advantages to the mother country. He also acknowledges that North America may seek independence for its own reasons. While he proposes a political union between Great Britain and North America, he does not expect it to happen.

Q: What are the benefits of free land in colonies according to Smith?

According to Smith, the availability of free land in colonies leads to rapid economic growth and better treatment of workers. This is because labor is relatively scarce while land is plentiful, creating favorable conditions for economic development. Smith sees this as a key difference in how new world colonies are being run compared to those in the old world.

Q: How does Smith view the relationship between colonies and trade?

Smith views the relationship between colonies and trade as distorted due to the concentration of economic activities towards the colonies. He argues that this concentration limits the potential benefits of trade by directing it away from a more diversified and safer global market. Smith believes that free trade would be a more effective way to gain the benefits of trading with colonies.

Q: What is Smith's opinion on the economic benefits of empires?

Smith is skeptical about the economic benefits of empires, arguing that they primarily benefit merchants rather than the nation as a whole. He describes the creation of a colonial empire as a project unfit for a nation, as it requires significant resources to maintain and does not provide sufficient returns to justify the investment.

Q: Does Smith believe in the potential independence of North American colonies?

Yes, Smith believes in the potential independence of North American colonies. He acknowledges that North Americans, for their own reasons, may someday want independence. Although he was writing during the early stages of the American Revolution, he seems to anticipate that the colonies may eventually seek to separate from British rule.

Q: What alternative does Smith propose to colonial rule?

Smith proposes an alternative to colonial rule by advocating for free trade and suggesting the possibility of a political union between Great Britain and North America. He believes that free trade would bring more benefits than maintaining colonies, as it would allow for a more diversified and safer economic relationship. However, he acknowledges that this is unlikely to happen in practice.

Summary & Key Takeaways

• Adam Smith critiques the economic justifications for colonies, suggesting they are based on mercantilist fallacies, particularly the focus on precious metals. He argues that free trade would be more beneficial than colonial trade, as colonies distort economic relationships by concentrating trade.

• Smith highlights the benefits of free land in new world colonies, noting it leads to rapid economic growth and better treatment of workers due to labor scarcity. He contrasts Spanish colonial governance with England's more liberal approach, suggesting Britain might consider releasing its colonies.

• Smith proposes a political union between Great Britain and North America, though history took a different path. He presents an early critique of the economics of empire, challenging mercantilist justifications for colonies, and suggests that North America may seek independence.