The Colonial System & Its Impact – Part 1

Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies. (Wealth of Nations, Book IV, Chapter 7, paragraph 151)

 

             Adam Smith in his seminal work on economic theory, The Wealth of Nations, wrote the above in the 1770’s. He was referring to the cost of nations supporting colonies in general and the American Colonies costs to Great Britain specifically. So why was the British government willing to support the American colonies in such a situation? Colonial expansion traditionally has three things to offer the state (as Smith calls the home country) first, raw land and what it could produce. Second, animal production which he distinguishes from vegetable production but could still in some sense be considered supported from the land. And third, mineral production.

             Smith discusses this three legged stool for supporting colonization in his review of Columbus’s discovery of the new world. He suggests that Columbus entertained the notion that he had discovered the lands of Marco Polo’s travels and all the rich trade long after it became evident that was not the case. Columbus needed to show that his discovery of the America’s, if not the vast hoped for lands did have some considerable value. Columbus could not show vegetable or animal produce that was exceptional at the time so he flattered himself that he had found exception mineral wealth, namely gold and silver. Smith suggests that in consequence of this representation “the Castile determined to take possession of countries of which the inhabitant were plainly incapable of defending themselves. The pious purpose of converting them to Christianity sanctified the injustice of the project. But the hope of finding treasures of gold [or silver] there, was the sole motive which prompted to undertake it.” (Wealth of Nations, chapter VII, prt 1, page 72)

Spain and Portugal scoured most the lands of the Western Hemisphere looking for the mineral wealth and in most cases initially ignored possible land wealth. There were some that were interested in non-mineral opportunities and these people saw early the potential of land. This allowed an opportunity to get something that was not available in populated Europe or Great Britain where serfdom and lifelong servitude with little chance for improvement was much more normal. But land with its possibilities was available in the new colonies of America, especially for British subjects. Smith suggests that agriculture is the proper business of all new colonies because the cheapness of the land gives strong advantages. Cheap land allows the production and sale of cheap produce which, because of the cheapness makes it possible to export. The colonies need manufactured goods which can be imported. So why Smith’s opening statement? He suggests that granted monopolies were a significant problem and one that lead to problems of cost and eventually revolution.
             The shopkeepers and other traders of England wanted to control the power of providing all manufactured and other goods to the colonies so as to capture what they saw as the wealth being generated. If the colonists could only spend their money on England’s goods then all the benefit would flow to England. Further, they enacted that the colonies could only sell their produce to England except in certain rare cases where they had to sell it to faraway lands that British merchants didn’t care about. Thus began early price control. Smith states that the maintenance of this monopoly was perhaps the sole purpose of the control by Great Britain over the colonies. He further suggests that any cost paid to maintain this control has been to maintain the monopoly for British shopkeepers and manufacturing.  To support the monopoly, Smith states that the state was willing to cover the costs of 20 regiments of soldiers and the expense of food, pay and military provisions, the cost of maintaining a naval force sufficient to discourage smuggling along the entire American and West Indies coasts.

Additionally, there was the cost of various conflicts with other nations including the Spanish war of 1739 which should also be included in the tab charged to colonial protection. So, Smith argues that all these costs are not offset by the benefits of monopolized trade gathered from the colonies and including any taxes collected. That is why Smith suggests that the colonies are a loss to Great Britain.
             In following papers I will explore Smith’s comments on alternatives to keeping colonies (and the benefits possible) and the motives of politicians. I think you will find them interesting and provocative.