Reading the Wealth of Nations: MORE Book 4

colonies chattel slavery east india company taxes

Matt Bufton for AdamSmithWorks


[Smith] points out that free men have an incentive to devise better ways of doing their work, while a slave has much less incentive. In fact, Smith goes so far as to say that a slave who proposed a labour-saving device would be whipped for laziness!  
This fall, the Institute for Liberal Studies is hosting an online reading group for the Smith’s most famous book, An Inquiry into the Natures and Causes of the Wealth of Nations. Once a week, for eight weeks, we meet online to help each other better understand this important book with help from discussion leaders Amy Willis, Andrew Humphries, and Janet Bufton.

This week we continued our discussion of Book IV, and our conversation included colonies and colonialism, farming and manufacturing, and the importance of institutions in Smith’s time and our own.

Smith speaks of the perceived prosperity of the colonies, which he attributes to the abundance of fertile land. (He points out that the South American colonies were seen as greater prizes due to the amount of gold and silver, yet it is the British colonies in North America which have become powerful.)

Of course, the physical land itself is not enough to create a prospering society – modern economists speak of a “resource trap” which can actually be an impediment to development. Smith recognizes the institutional factors by also crediting the liberty to manage their own affairs as fundamental to the success of the colonies which would become the United States of America. 

Smith also credits low taxes for the prosperity of the British colonies. Colonists do not contribute to the expense of the British fleets and armies, which cost much more to maintain than civil government. Even the cost of civil government in British North America is modest. Meanwhile, Spain and Portugal impose high taxes on their colonies with the aim of enriching themselves.

As one participant noted, Smith again returns to the idea of productive and unproductive labour, this time with regard to farming. Smith sees the agriculture systems of the English colonies as beneficial, as they encourage the development and improvement of the land. Smith credits this, in part, to the more equal division of land between heirs, as opposed to Spanish and Portuguese systems which stipulate that estates be passed on to the eldest son. 

Smith is also alert to the benefits to productivity that come from the work of free men rather than slaves. He points out that free men have an incentive to devise better ways of doing their work, while a slave has much less incentive. In fact, Smith goes so far as to say that a slave who proposed a labour-saving device would be whipped for laziness!  Our group thought it was perhaps more likely that the slave would be told to make the device, and to work the number of hours as before, with no reward for the increased production. One group member suggested the slave might now be forced to work even more hours, as their potential productivity is even higher!

Smith does include India in his discussion of the colonies. One point of interest was that, after discussing some of the problems with the trade of the East India Company, he concludes with a paragraph to make it clear he does hold any of the individuals who make up the East India Company to be at fault for any bad things they may have done. Instead, Smith says these were institutional problems, and that the individuals acted as they would have been expected to. Yet, as one of our members pointed out, institutions are made up individuals who are not mindless automatons.  A person has moral agency, even though their actions may be shaped by the institutions they belong to. 

Next week we’ll be heading into the first of two discussions of Book V, as we enter the home stretch of our Wealth of Nations reading group!



Related Links
Read Bufton's posts on Book I, Book II, and Book III, and Book IV Part 1
Jack Weinstein, Adam Smith on Slavery
An Animal That Trades video series, Part 2: The Free Market
David Henderson, Adam Smith's Economic Case Against Imperialism

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