The Wealth of Nations

Book 4, Chapter 7


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Chapter 7 Summary

Part I

The Motives for Establishing New Colonies

The motives for the establishment of the first European colonies in America and the West Indies were not as plain and distinct as for those in ancient Greece and Rome. States in ancient Greece possessed only small territories, which led to overpopulation, with the result that inhabitants were sent elsewhere.

In response to the large demand for land ownership amongst Roman citizens, Rome assigned people land in the conquered provinces of Italy, where they remained subject to Rome’s legislation. The colony established a garrison in a newly conquered province. A Roman colony was altogether different from a Greek one. Even the word “colony” has a very different meaning in the two languages: the Latin word (colonia) signifies simply “a plantation;” the Greek word (apoikia) signifies “a home far away from home.” Both institutions derived their origin either from necessity or utility.

The European colonies in America and the West Indies were not established out of necessity, although they have since proven highly useful. When they were first established, this was not expected and was not the motive behind their establishment.

The discovery of the West Indies was made by a Genoese sailor, who undertook the daring project of sailing to the East Indies by the west. In letters to Isabella de Castile and Ferdinand of Aragon, he called the countries which he had discovered “The Indies.” The staple diet of the inhabitants of these islands – Indian corn, yams, potatoes and bananas—were vegetables as yet unknown in Europe.

Further voyages of discovery of “the New World” by the Spanish, subsequent to those of Columbus, seem to have been motivated by the thirst for gold. Upon arrival at any unknown coast, the adventurers’ first inquiry was always whether there was any gold to be found there—and depending on the reply, they either left or settled in the newly discovered country. Indeed, the main motivation behind these voyages of discovery was the prospect of gold and silver mines.

The first English settlers in North America offered the king a fifth of all the gold and silver found there, as a motive for granting them their patents. Sir Waiter Raleigh, companies in London and Plymouth, as well as the council of Plymouth also paid this sum. However, these first settlers’ expectations of finding gold and silver mines, as well as of discovering a north-west passage to the East Indies, did not come to fruition.

Part II

Causes of the Prosperity of New Colonies

A colony established by a developed country on land that has few or no inhabitants will grow wealthy more quickly than that of any other type of society.

The colonists bring with them a sound knowledge of agriculture and other useful arts, and a basic knowledge of their country’s governance (the judicial laws and systems in place), which they deploy and establish in the new settlement.

Each colonist gains a greater surface of land than he could possibly ever cultivate and is not weighed down by rent or taxes. With almost the entirety of his produce being for his own benefit, the colonist is motivated to work hard to produce as much and as efficiently as possible.

In fact, the amount of land is generally so vast that he will seldom be able to use it to its maximum potential, often not reaping even a tenth of what it could yield. In order to capitalize as much as possible from his land, a landowner will hire as many workers as possible and generally pay good wages. But these workers tend to leave and become landlords themselves, in turn employing other workers, who soon leave them for the same reason.

High wages tend to go hand in hand with an increased number of marriages, with children often following in their father’s footsteps. In new colonies, productive, fertile land can be bought very cheaply. Consequently, high wages lead to population growth, and the low prices for land encourage cultivation and improvement, enabling the landowner to pay high wages—all of which lead to real wealth and power.

From the time of the earliest settlements, the Spanish colonies were strictly controlled by their mother country, while those of the other European nations were for a long time left to their own devices. Before the Spanish Conquest, there was no cattle fit for draught—the lama was the only animal used for this purpose—and they had no knowledge of ploughs or even the use of iron.

The Swedes established themselves in New Jersey, but, left to their own devices by Sweden, the colony was soon swallowed up by the Dutch colony of New York, which in 1674 fell under the authority of the English. The Dutch settlements were originally governed by a single company. The colony of Nova Belgia, which is divided into two provinces (New York and New Jersey), would probably have prospered even if it had remained under the governance of the Dutch; at present, the company has the monopoly of the direct trade from Africa to America, which consists almost entirely of the slave trade.

The French colony of Canada was controlled by a single company until the English gained possession of this country. But no colonies have progressed more rapidly than the English colonies in North America. Plenty of good land and the freedom to manage their own affairs seem to be two major factors in new colonies’ prosperity. This is demonstrated in the case of Spain and Portugal, which possess a better quality of land than the English colonies of North America, yet the latter prospered more because the English political institutions were more favorable to the improvement and cultivation of land.

Colony law stipulates that each landowner has a limited amount of time during which to cultivate and improve his lands—failing which the land will be granted to another person. In Pennsylvania, there is no right of primogeniture, and land is divided equally among children. In three provinces of New Britain, the oldest child receives only a double share; in the other English colonies, the right of primogeniture follows English law.

For a new colony, the abundance and cheapness of productive land are the main factors behind rapid prosperity. The labor of the English colonies is employed in improvement and cultivation of land, resulting in greater and more valuable produce than that of the other three nations, where labor is diverted to other employment. Due to the moderate taxes, a greater proportion of this produce belongs to the colonies themselves, and can be stored up and used to employ further laborers.

Colonists have never contributed to the defense of the mother country or the support of its civil government. They have been defended at the expense of the mother country. Payments made to their civil government have always been very moderate—generally a minimal amount towards paying the salaries of the governor, judges and police officers, and maintaining a few of the most useful public works.

The most important part of government expenditure – that of defense and protection—has constantly fallen upon the mother country. Civil government ceremonies do not involve any expensive pomp, and ecclesiastical government is equally frugal, with no taxes contributing towards the support of Church and clergy unheard of; clergy are maintained either by means of moderate stipends or voluntary contributions.

With regard to the disposal of surplus produce; i.e. what is over and above their own consumption, the English colonies have been more favored than other European nations since they have been granted the most extensive market for exportation. Every European nation has endeavored to monopolize the commerce of its colonies, by implementing measures such as prohibiting ships from foreign nations from trading with them, and prohibiting the colonies themselves from importing foreign European goods. The manner in which this monopoly has been executed has varied greatly from nation to nation. Some nations handed over the control of their colonies to a single company, from whom the colonists were obliged to purchase the European goods they needed, and to whom they were obliged to sell all of surplus produce.

Other nations limited the commerce of their colonies to a specific port in the mother country, placing restrictions on ships, which were required to purchase an often costly trading license.

Other nations leave their colonies to their own devices, not imposing any restrictions on ports or requirements for trading licenses. In this case, the sheer volume and geographical spread of the traders increases competition and therefore lowers profits. In this free-trade policy, colonies are able both to sell their own produce and buy European goods at a reasonable price. In Britain, this has been the policy since the dissolution of the Plymouth company, in the very early stages of colonization. France, too, has been adhering to this policy since the dissolution of the Mississippi company in Britain. The result is that profits made from trade between France and Britain with the colonies, though higher than they would be in a free competition situation, are far from spectacular—hence prices for European goods are not particularly high in the majority of French and English colonies.

With regard to Britain’s colonies exporting their surplus produce, certain commodities had restrictions on them confining them to the market of the mother country. Some of these commodities were known as “enumerated commodities,” due to the enumeration process used during transportation. The remainder, the “non-enumerated” goods, could be exported directly to other countries, provided they were transported in British or plantation ships of which the owners and three-quarters of the crew were British subjects.

These non-enumerated commodities included some of the most important productions of America and the West Indies: grain, lumber, salt, fish, sugar and rum. Grain is the major culture within all new colonies. By providing an extensive market for it, the law encourages colonies to extend this cultivation beyond just their own consumption needs, with the result that there is always sufficient to provide for a continually growing population.

In a densely forested country, in which timber is plentiful and therefore of little value, the expense of clearing a forest is a major obstacle to improvement. By providing an extensive market for colonies’ timber, the law endeavors to facilitate improvement by raising the price of a commodity which would otherwise be of little value, enabling them to make a profit from something that would otherwise have cost them money.

Countries with a low population density tend to have a surplus of cattle above and beyond their consumption needs, and as such the cattle are of little value. In order for a country to be improved, the price of cattle must be on a par with that of corn; by providing an extensive market for American cattle, the law endeavors to raise its value.

Legislature focused heavily on increasing Britain’s shipping and naval power by extending its colonies’ fisheries. The New Britain fishery was one of the world’s most sizeable fisheries. To this day, the whale fishery in New Britain operates for the most part without any bounties. Fish is a major export commodity from North America to Spain, Portugal, and the Mediterranean.

Sugar was originally an enumerated commodity, which could only be exported to Britain. But after the lobby by sugar-planters in 1751, its exportation was permitted worldwide; however, the restrictions imposed on its exportation, coupled with the high price of sugar in Britain, rendered this measure ineffectual. Britain and its colonies remain to this day practically the sole market for all sugar produced in the British plantations.

Rum is a major export commodity from America to the coast of Africa, where it is traded for Negro slaves.

If America’s entire surplus produce, including grain, salt and fish, had been enumerated and thereby forced into Britain’s market, it would have interfered significantly with the latter’s home industry. Prompted most likely by resentment about this interference, rather than a concern for America’s interests, major commodities were not only kept out of the enumeration process, but the importation into Britain of all grain (with the exception of rice) and all salt provisions was prohibited.

There are two sorts of enumerated commodities. Firstly, those native to America, which cannot be or are not produced in the mother country. These include molasses, coffee, cocoa-nuts, tobacco, pimento, ginger, whale fins, raw silk, cotton, wool, beaver, and other animal pelts of America, indigo, fustic, and other dyeing woods. Secondly, those not native to America, but which are and can be produced in the mother country, though not in sufficient quantities to meet demand, which is principally supplied from foreign countries. These include naval stores, masts, yards and bowsprits, tar, pitch, and turpentine, pig and bar iron, copper ore, hides and skins, pot and pearl ashes.

Even a heavy importation of commodities of the first group would not discourage the growth or interfere with the sale of any of the mother country’s produce. By confining these goods to the home market, it was believed that merchants would be able to buy them for less in the plantations and consequently sell them for a better profit at home; and also that this would establish good trading relations between the plantations and foreign countries, of which Britain was to be the centre or emporium, as the European country into which these commodities were first imported.

The free trade arrangement between the British colonies of America and the West Indies, both in enumerated and non-enumerated commodities, works perfectly, with each finding an extensive market for all of its produce.

Britain's liberal views towards trade by its colonies apply mainly to goods in their crude state or in the first stage of manufacture. More advanced and refined goods were reserved for Britain, and laws were established to prevent their manufacture within the colonies, through measures such as high duties and sometimes prohibition.

Although Britain encourages the manufacture of pig and bar iron in America by exempting these products of import duties, it prohibits the establishment of any steel furnaces or slit-mills in its American plantations, requiring the colonies to purchase these goods from the home country's merchants and forbidding them to work themselves in these more refined industries.

Britain also prohibits the exportation of American produce from one province to another, be it by water, horseback or cart, of hats, wools and woolen goods – a regulation which effectively prevents the manufacture of such commodities for distant sale, confining the colonies’ industry to basic household commodities.

Although these prohibitions may be unjust, they did not negatively affect the colonies. Land there is still so cheap, and consequently labor so costly, that they can import from the mother country almost all of the more refined goods for less than they could produce them themselves.

In everything except foreign trade, the English colonists were free to manage their own affairs, which were conducted in the same manner as business in the mother country, overseen by an assembly of representatives of the people, who are the body responsible for imposing taxes paid to the colony government.

In all European colonies, sugar-cane cultivation is carried out by Negro slaves. The profit and success of the plantations is directly dependent on the good management of these slaves—and in this respect, the French are significantly superior to the English. The law, which provides only weak protection to the slave against violence from his master, is likely to be better adhered to in a colony in which government is arbitrary than in one where it is free. In countries with established laws on slavery, magistrates often intervene in a master’s management of his slaves—whereas in a free country, where the master is perhaps a member of the colony assembly or an elector of such a member, magistrates do not tend to intervene, with this hierarchy making it more difficult for them to protect the slave.

A compassionate approach to managing slaves renders them not only more faithful but more intelligent – and ultimately more useful. Such slaves act more as free servants, often with integrity and concern for their masters’ interests—virtues generally more associated with free servants, and which will never be seen in a slave who is treated as slaves commonly are in countries in which the master is free and secure.

Part III

The Advantages which Europe has derived From the Discovery of America

America’s discovery and colonization provided other countries with an extensive market for their surplus produce.

When trade is limited exclusively to the mother countries, the level of enjoyments and progress of industry is diminished because it decreases consumption, ultimately cramping the industry of the colonies. Consequently, commodities are more expensive for trading partners, which not only excludes other countries from a particular market, but confines colonies to particular markets. There is a great difference between being excluded from a particular market when other markets are open, and being confined to a particular market when others are shut. Colonization has therefore served to increase the enjoyments and progress the industries of Europe, though when trade is limited to the mother countries, the level of enjoyments and progress of industry is decreased below its natural level.

One of the advantages each colonizing country derives from its colonies is the military force they furnish for its defense and the revenue they contribute towards the support of its civil government. America’s European colonies have never yet furnished military support to their mother country, with the result that America’s military power has never been sufficient to guarantee its colonies’ defense. During times of war, the deployment of military forces to defend colonies has historically put a strain on mother countries’ military forces. In this respect, therefore, European colonies have been a cause of weakness rather than of strength to their respective mother countries, with the taxes levied on colonies, of Britain in particular, rarely covering the expense incurred even during times of peace, let alone during wartime. Such colonies, therefore, have been a source of expense rather than revenue for their respective mother countries.

The advantages mother countries derive from their colonies are mainly due to agreements on exclusive trade. The surplus produce of the British colonies that is classed as enumerated commodities can be sent only to Britain. Other countries then purchase from Britain. These commodities must be sold for less, therefore, in Britain than in other countries, and must contribute more to increase the enjoyments of Britain than to those of other countries. They must also contribute more towards the progress of Britain’s industry. Britain must get a better price for these enumerated commodities than other countries could get for the same commodities produced in their countries. Industries in Britain, for example, will be able to purchase a greater quantity of sugar and tobacco from its colonies than the same industries in foreign countries can purchase. Since both Britain’s and other countries’ produce is exchanged for sugar and tobacco produced by British colonies, this higher price guarantee ensures that Britain benefits more from this situation.

Britain’s monopoly on tobacco from Maryland and Virginia means it obtains it at a lower price than, for example, France, to whom Britain sells a considerable part of it. Had France and other European countries had a free trade agreement with Maryland and Virginia, the prices would likely have dropped, both for these European countries and for Britain.

Britain’s monopoly over trade with its colonies, established through the Navigation Acts, meant that foreign capital previously employed in this trade was withdrawn. England’s capital that had previously been employed for just part of it was now to cover the entirety. But this was insufficient, and consequently commodities were sold at very high prices. The capital which had previously bought just part of the colonies’ surplus produce was now employed to buy the entirety—but it could not buy such a volume at anything near the old price, and therefore bought at cheaper prices. The merchants benefited from this, buying cheap and selling for a high price, making a higher profit than the usual rate.

Britain’s monopoly over its colonies’ external trade, and the fact that the country’s capital has not increased in proportion to this trade, has meant that it has had to withdraw from other branches of trade part of the capital previously employed in them, in order to employ it in its colony trade. Consequently, colony trade has increased, while many other branches of foreign trade have diminished. The country’s commodities intended for foreign sale, instead of being traded with neighboring European markets, as was the case prior to the Navigation Acts, have been traded instead with the colonies—the market in which they have the monopoly, rather than to that in which they have many competitors. As such, the demise of foreign trade is a direct result of the extensive growth of colony trade; these other branches of trade have naturally suffered as a result of the country drawing some of its mercantile capital from them and investing it in its colonies.

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