MORAL PHILOSOPHY
The second, and more important, inspiration for Smith’s work stemmed from the philosophical literature sparked in part by Thomas Hobbes’s Leviathan in 1651. Hobbes argued that self-interest ruled the passions of men and was essentially destructive and chaotic. Men, consulting their reason, however, would delegate authority to a powerful state that could rein in these harmful tendencies for the common good. Hobbes’s work sparked a wide debate with philosophers and others striving to refute or support his theory about the destructive nature of self-interest.
One opponent, the English theologian Richard Cumberland ([1672] 1727), argued instead that self-interest was tempered by benevolence and a constructive materialism that enabled the voluntary actions of social individuals to promote the public welfare.6 Other opponents in the early eighteenth century included Lord Bolingbroke, Joseph Butler, and the Earl of Shaftsbury, who envisioned a self-governing order in which the designer of the universe arranged for there to be harmony between the various elements of social interaction. In this debate about the nature of self-interest, these thinkers began to resolve the conundrum of how the economic self-interest of individuals could conform to the best interests of the greater society. In so doing, they provided a key to uncovering the origins of Smith’s thought, as well as creating a rich intellectual debate discussed in more detail by Albert Hirschman (1977) and Milton Meyers (1983).
Early eighteenth-century philosophers addressed the motivational psychology of man and asked whether certain passions should be suppressed or given free reign, but did not always relate these questions to economic behavior. This link became more explicit in Bernard Mandeville’s controversial Fable of the Bees, first published in 1714 with the suggestive subtitle “Private Vices, Publick Benefits.” Mandeville argued that the pursuit of luxury and self-love made for an industrious society and a flourishing economy. Though he described the economic benefits of vice and self-interest in what was then a provocative way, Mandeville was not quite an early laissez-faire theorist and he made no direct contribution to the free trade doctrine. Mandeville ([1714] 1924, 1: 111–12) eloquently described the exchange nature of trade: “Buying is bartering and no nation can buy goods of others that has not of her own to purchase them with . . . if we continue to refuse taking their commodities in payment for our manufactures, they can trade no longer with us, but must content themselves with buying what they want of such nations as are willing to take what we refuse.” But his thoughts on commercial policy were entirely conventional:
Every government ought to be thoroughly acquainted with, and steadfastly to pursue the interests of the country. Good politicians by dexterous management, laying heavy impositions on some goods, or totally prohibiting them, and lowering the duties on others, may always turn and divert the course of trade which way they please, . . . so they will always carefully prevent the traffic with such nations as refuse the goods of others, and will taking nothing but money for their own. (115–16)
Another philosopher who bridged the gap between moral philosophy and economic behavior, and had a direct association with Adam Smith as his teacher, was Francis Hutcheson. Hutcheson drew upon the natural law tradition of Grotius and Pufendorf and provided Smith as a student with a rich intellectual background from which to help build his economic system.7 Hutcheson disputed the central place of “self-love” in Mandeville’s discussion of human motivation, arguing that natural feelings for others provided a moral sense that tempered self-interest. He linked the eighteenth-century notion of “virtue” to commercial activity in this way and embedded it in a natural law framework. According to Hutcheson (1755, 1: 293–94), “As nature has implanted in each man a desire of his own happiness, and many tender affections toward other in some nearer relations of life . . . tis plain each one has a natural right to exert his powers, according to his own judgment and inclination, for these purposes, in all such industry, labour, or amusements, as are not hurtful to others in their persons or goods, while no more public interest necessarily requires this labours, or requires that his actions should be under the direction of others.” “This right,” he wrote, “was called natural liberty” and should not be deprived as “it would generally create more misery to deprive men of it, because of their imprudence, than what is to be feared from their imprudent use of it.”
Hutcheson made a very basic but powerful case for economic freedom, but he completely failed to employ this logic in favor of free trade. In part because a country achieving an export surplus “must increase in its wealth and power,” Hutcheson (1755, 2: 318–19) argued that “foreign manufactures and products ready for consumption, should be made dear to the consumer by high duties, if we cannot altogether prohibit the consumption.” Exports should be free of hindrances, except when the country had market power to exploit in foreign markets: “Where one country alone has certain materials, they may safely impose duties upon them when exported; but such moderate ones as shall not prevent the consumption of them abroad.” Smith was clearly influenced by Hutcheson’s ideas about natural liberty in the economic realm, but was not attracted to his conventional treatment of commercial policy.
Lord Kames (Henry Home) (1774, 1: 496), a jurist and philosopher of the Scottish Enlightenment, also approved of government regulation of trade, warning that “nor ought we ever to rely entirely on our natural advantages [in trade]; for it is not easy to foresee what may occur to overbalance them.” After noting that “all nations should benefit by commerce as by sunshine,” Kames proposed a system of export bounties and import restraints in part because there “is no cause more cogent for regulating importation, than an unfavorable balance [of trade]” (81, 498). He also welcomed protection for domestic industries: “To favour a new manufacture of our own, it is proper to lay a duty on the same manufacture imported.” But Kames warned that “measures of government ought to be sparingly exercised, for fear of retaliation” and that government promotion efforts “ought to be taken with great circumspection, lest it recoil against ourselves” (498–99).
Josiah Tucker, a prolific economic and religious writer, also played an important role in describing the harmony of private and public interests in the economic arena. In one manuscript Tucker (1755, 4ff) described the philosophical precepts of his economic doctrine, “setting forth the natural disposition, or instinctive inclination of mankind towards commerce.” Tucker took “self-love” as the “greater mover of human nature” and argued that it was essentially selfish: “Self-Love is narrow and confined in its views, and admits of no sharers or competitors.” Tucker conceded that “the social instinct of benevolence is some check upon this selfish monopolizing principle; but it is so very feeble, that it would be quite ineffectual to prevent the mischiefs arising from inordinate self-love, were there no stronger curb to rein it in: For the love of self is implanted in mankind much more strongly than the love of benevolence.”
But there should be no effort to weaken the power of self-love because it provides the motivation for improvement and exertion. Therefore, “the main point to be aimed at, is neither to extinguish nor enfeeble self-love, but to give it such a direction, that it may promote the public interest by pursuing its own: and then the very spirit of monopoly will operate for the good of the whole.” Thus the public wisdom of the state and community can “divert . . . the pursuits of self-love from vicious and improper objects, to those that are commendable and virtuous; grant no privileges to indolence and ignorance; give no assistance to the ingrossing schemes of monopolists; but raise a general emulation among all ranks and professions in things relating to the public good.” Then the “country will be blessed by plenty, and abound in commerce.” Tucker does not advocate laissez-faire; the proper role of government is neither to repress nor to ignore self-interest, but to harness and channel it into socially desirable directions.8 This belief, combined with Hutcheson’s view that natural liberty should permit all actions that are not harmful to others, very much represents Smith’s conceptual approach.
On commercial policy, Tucker was a vitriolic opponent of monopoly trading companies and therefore made a strong case for “a free trade.” But when it came to import duties, Tucker adhered to conventional mercantilist thinking, as the following passage illustrates:
Let him suppose the state to be a living personage, standing on the key of some great seaport and examining goods as loading or unloading. In the former case, if the goods to be exported are completely manufactured, having undergone the full industry and labor of his own people, he ought to lay no embargo whatever upon them, but to show exporters all the favor he can and to protect them in that good work. Whereas, if the goods are only manufactured in part, or, what is worse still, if they are absolutely raw materials, he should lay such taxes upon them to check and discourage their going out of the kingdom in that condition as may be proportionate to their unmanufactured or raw-material state. That is, if they are absolutely raw materials, they ought to have the highest tax laid upon them, and, in some cases, even such as may amount to a prohibition. But if they are partly manufactured and partly otherwise, the tax should be lessened in proportion as they recede from the state of raw materials and approach to complete manufactures. In regard to goods imported, his conduct ought to be just the very reverse of the former; that his, he ought to lay the highest and most discouraging taxes upon foreign complete manufactures, in order to prevent their being worn or used in his kingdom, a less discouraging upon others that are incomplete, and still less upon those that are but little removed from raw-material state. As to raw materials themselves, they ought to be admitted into every port of the kingdom duty-free, unless there are some very peculiar circumstances to create an exception to this general rule. Now, the grounds or foundation of all this reasoning is national industry and labor, because these are the only riches of a kingdom. [Tucker (1758, 58–59)]9
Tucker (1749, 63–64) opposed as too hazardous Matthew Decker’s proposal for free trade: “Were we to abolish all duties on French goods, and they to do the same on English . . . the consequence would be . . . that England would be overrun with French silks, laces, wines, brandies, cloths, stuffs, ribbands, fans, toys, &c. And the French would take very little or nothing in return.”
Thus far, we have briefly considered how the economic implications of the late eighteenth-century debate over self-interest affected conventional views on commercial policy, and the answer is very little. Hutcheson, Tucker, and others described a system of natural liberty in which the public interest would be served by private interests. But they could not see private self-interest operating entirely to the benefit of the public interest in international trade and consequently they never advocated free trade. Yet a coherent intellectual framework is in evidence: the natural liberty view dictating that freedom be given wide reign in the economic realm is supported by the view that commerce, although driven by self-interested participants, can ultimately perform a public service. Adam Smith used this framework to advance the case for free trade and fill the incongruous void that his predecessors had failed to close.
A slightly different intellectual tradition also appeared in mid-eighteenth-century France and Britain that led to pervasive liberal views on trade. The European enlightenment as an intellectual movement was accompanied by a greater cosmopolitan outlook, although it remained more a political doctrine than an economic one.10 David Hume, the eminent philosopher and Smith’s close friend, eloquently set forth this perspective in a series of essays on economic themes. In “Of Commerce,” Hume (1752, 15–16) praised foreign trade (as the mercantilists before him had) for “augmenting the power of the state, as well as the riches and happiness of the subject . . . a kingdom, that has a large import and export, must abound with more industry, and that employed upon delicacies and luxuries, than a kingdom which rests contented with its native commodities. It is, therefore, more powerful, as well as richer and happier.”11
Hume’s cosmopolitan outlook came to the fore in the essay “Of the Balance of Trade,” a sharp retort against trade restrictions bred by national antagonisms. All this would seem to lead to a free trade conclusion, but Hume (1752, 98) spoke of tariffs as a convenient revenue-raising device and also hedged in this way: “All taxes, however, upon foreign commodities, are not to be regarded as prejudicial or useless, but those only which are founded on the jealousy above-mentioned. A tax on German linen encourages home manufactures, and thereby multiplies our people and industry. A tax on brandy encreases the sale of rum, and supports our southern colonies.” However cosmopolitan in outlook, the Hume who speaks favorably of tariffs to encourage home manufactures is not the Hume that influenced Adam Smith’s views on trade policy.
About five years later, however, Hume to some extent withdrew or compensated for these views in an essay “Of the Jealousy of Trade,” published around 1758. Here he (1955, 78–82) opposed the “narrow and malignant opinion” that looked upon the economic success of neighbors with jealousy. What if foreign products arose to compete with those produced at home? “I answer, that, when any commodity is denominated the staple of a kingdom, it is supposed that this kingdom has some peculiar and natural advantages for raising the commodity; and if, notwithstanding these advantages, they lose such a manufacture, they ought to blame their own idleness, or bad government, not the industry of their neighbours.” If the industry does shrink, opportunities are always available in other sectors: “If the spirit of industry be preserved, it may easily be diverted from one branch to another; and the manufacturers of wool, for instance, be employed in linen, silk, iron, or any other commodities, for which there appears to be a demand.” No nation should fear being locked out of the international market: “Nature, by giving a diversity of geniuses, climates, and soils, to different nations, has secured their mutual intercourses and commerce, as long as they all remain industrious and civilized.”
This passage is more in tune with Adam Smith’s later writings, and in fact may have been written as a result of a controversy with Tucker (described in chapter 10 below). But despite his well-articulated writings in favor of a liberal view of trade, Hume’s case for free trade reflects more a moral and philosophical temperament than an acute or novel economic analysis.12
This exceedingly brief synopsis of the physiocratic and moral philosophic contributions bearing on commercial policy illustrates Jacob Viner’s (1937, 92) conclusion that “certain elements of doctrine tending to lead to free-trade views were fairly widely prevalent before the publication of the Wealth of Nations.” Free trade sentiment in the form of calls for greater liberty in commerce flourished among intellectuals in France and Britain. But this opinion did not have a particularly strong economic basis and was sometimes founded upon a vague cosmopolitanism that had little economic content and therefore could be easily dismissed. Most remarkably, even those who argued that suitably tempered private interests promoted the public welfare failed to reach the conclusion that free trade was warranted. Adam Smith’s stupendous accomplishment was in providing a more soundly based economic logic to accompany the philosophically derived compatibility of private interests and public benefits. With this combination in hand, he could speak in a more compelling way on the issue of free trade.
1 Quoted in Lionel Rothkrug (1965, 231–32).
2 For a fuller discussion of Boisguilbert, see Hazel Roberts (1935) and Terence Hutchison (1988, 107–15).
3 Quoted in Hutchison (1988, 111).
4 “External trade should always be quite free, cleared of all encumbrances and exempted from all impositions, because it is only by means of the communication between nations which it maintains that we can make sure of always having the best possible price for the territory’s products in internal trade, and the highest possible revenue for the sovereign and the state” Quesnay ([1766] 1963, 163).
5 For more details on the intellectual relationships between the physiocrats and Smith and the physiocrats and the classical economists, see Ian Ross (1984) and Ronald Meek (1951), respectively. A.R.J. Turgot, another well-known free trade advocate in France but not a physiocrat, made few substantial contributions to the economic analysis behind free trade. His principal work in economics, Reflections on the Formation and Distribution of Wealth (1766), neglects international trade almost completely. But Turgot wrote policy-oriented letters calling for free trade in grain and a noted letter to L’Abbé Terray on the “Marque des Fers” opposing import duties for iron manufacturers. In this letter, as he had elsewhere, Turgot ([1773] 1977, 182–88) called for complete liberty in commerce because “this forced increase in price for all buyers necessarily diminishes the sum total of enjoyment, the amount of disposable revenues, the wealth of the proprietors and of the sovereign, and the amount of wages to be distributed to the people.” Peter Groenewegen (1969) discusses Turgot’s relationship with Adam Smith.
6 See Linda Kirk (1987) for a discussion of Cumberland’s thought.
7 These connections are explored most recently by Richard Teichgraeber (1986).
8 “The great view of the divinely inspired legislator, Moses, seems to have been, to turn the principle of self-love into such a channel that it should always operate for the public good. And, indeed, this ought to be the sole aim of every government, if either good morals or national prosperity are expected.” See Tucker (1753, 37n).
9 Tucker (1755, 96) also had stated: “But of all taxes, this is the worst and most pernicious in its consequences; for a tax upon the exportation of our own manufactures, is a tax upon our own industry and labour; and a tax upon the importation of raw materials, is no other than a method of tying men’s hands behind them, lest they should do themselves and the country service.—The only tax of this nature that is justifiable is that which our East India Company lays upon tea, and such other articles and foreign manufactures as do not promote general industry at home.”
10 The cosmopolitanism of the enlightenment is examined by Thomas Schlereth (1977).
11 “[P]erhaps . . . the chief advantage which arises from a commerce with strangers,” Hume added, is that it “rouses men from their indolence.” They “become acquainted with the pleasures of luxury and the profits of commerce; and their delicacy and industry, being once awakened, carry them on to farther improvements, in every branch of domestic as well as foreign trade.”
12 Hume’s development of the automatic price-specie-flow mechanism, as noted in the previous chapter, did much to undermine certain mercantilist predilections about the balance of trade, but as argued previously, these views are conceptually distinct from those relating to free trade.