Eighteenth-century economics

The phrase ‘eighteenth-century economics’ is a barbarism that we would do well to leave behind. It inescapably imports presentist assumptions to the task of reading early modern writings on trade and money, namely, that they are proto-versions of an economics to come and therefore take as their constitutive questions the same questions that occupy contemporary economists.Footnote ⁸ This pitfall can be sidestepped if we orient our reading by a number of points that will place this genre of texts in their intellectual context, starting with how these writers understood their genre. Three of its essential themes then need to be brought to mind: the balance of power; the strength-wealth relation; and circulation as an analytical category.

When eighteenth-century writers in Britain reflected on what they were doing when they wrote about trade, money, and commerce, they typically called it political œconomy, and the titles of their pamphlets and treatises used words such as ‘trade’, ‘commerce’, ‘money’, and ‘wealth’. The fundamental obstacle to reading these writings as early economics is that a notion of the economy as something separate from the state or society is alien to them. As the Greek root of political œconomy (oikonomia) indicates, the analogy is between state management and the management of a patriarchal household, with the statesman acting as the head of a household that encompasses the entire polity.Footnote ⁹

The figure of the statesman is most clearly seen in James Steuart's An Inquiry into the Principles of Political Oeconomy:

The statesman ‘may not simply establish what plan of oeconomy he thinks fit’ and he is reliant on good counsel if his management is to be effective: ‘when principles are well understood, the real consequences of burdensome institutions are clearly seen […] the abuse of the statesman's administration appears palpable’.Footnote ¹¹

It is through the notion of counsel that the genre of political œconomy can be related to cognate genres. For example, in chapter twenty five of Hobbes's Leviathan, ‘Of Counsell’, counsel is said to be necessary because ‘no man is presumed to have experience in all those things that to the Administration of a great Common-wealth are necessary to be known’.Footnote ¹² These include the nature of man, the rights of government, equity, law, justice, honour, strength, the strength of neighbours and enemies.

In a similar vein, Adam Ferguson's An Essay on the History of Civil Society is in large measure concerned with how European states differ from non-European states and from each other. Yet, Ferguson insisted, ‘there are certain objects that claim the attention of every government, that lead the apprehensions and the reasonings of mankind in every society, and […] furnish an employment to statesmen’.Footnote ¹³ These objects are given as national defence, the distribution of justice, and the preservation and internal prosperity of the state. Despite their divergent orientations – republican historiography of virtue as against natural law theory of sovereignty – Ferguson and Hobbes offered similar lists of national concerns. Similar, too, is the role Ferguson assigned to counsel in the proper administration of these concerns:

So identified as a species of public counsel, we can now turn to some of the recurring themes of this genre. The balance of power was a practical-theoretical surface where the concern with the security of the state could emerge.Footnote ¹⁵ This was a system of diplomacy, treaties and wars that regulated the power of the European states system to ensure no one power could preponderate. Charles Davenant's long essay on this topic was published in 1701, when France was aspiring to ‘universal monarchy’, or European empire. Davenant traced the origins of this danger to Louis XI, who consolidated power to the throne and away from the nobility. This was necessary since ‘a Free People are not easily brought to follow the mad Sallies of a Prince's wild Ambition’, an ambition spurred by the prospect of France and Spain being united through the House of Bourbon.Footnote ¹⁶

With the intentions of France discerned, Davenant then judged the strength of contemporary France under Louis XIV as formidable – she has ‘a Powerful Navy’ and ‘he has render'd his whole People Warlike, insomuch that he is able to raise three hundred thousand fighting men’. More alarmingly, France had established her ‘Revenue into so good a method, that he could maintain the Expence of such Fleets and Armies’ that were marshalled during the last war. As a result, the French have it ‘in their Power to oppress the whole’, and so ‘seem the People most likely to invade the liberties of Europe’.Footnote ¹⁷ With France's intentions and capacities now assessed, Davenant concluded that England and her allies must act immediately, for France ‘twill soon be an over-match either for any single, or indeed for any Confederate Opposition’. Hence, ‘common Interest may unite his Neighbours in a common danger’. If such action is not taken, however, Louis will ‘in no long course of time have the whole World Slaves either to his Fortune, or to his Power’.Footnote ¹⁸

Davenant's portrayal of the threat France represented is an example of what Hobbes termed ‘the strength of neighbours and enemies’, and it can be understood in terms of three assessments. The first involves determining the intentions of France, the second her power, or capacity to pursue those intentions, and finally in deciding on the best course of action to preserve the state. Note that war was not always the necessary option. Later in his career Davenant authored two reports on the nature of the trade between Britain and various nations, and identified the Dutch as England's ‘most dangerous Rivals in Trade’, who required ‘a watchful Eye over all their Proceedings’ in trade.Footnote ¹⁹ But for the Dutch, unlike the French, the appropriate response was not in the order of ‘an open Breach’, but ‘strong and steady Councils’. Davenant offered some prosaic examples of what these might be, such as lifting prohibitions and erecting public granaries. More interesting was his reason why this was the appropriate form of competition with the Dutch: ‘the Common-Concerns of Religion, which should always link together Great Britain and the United Provinces’.Footnote ²⁰

Here we see the connection between politics and economics, or, the way trade was understood in connection with state strength and, therefore, with what we now call geopolitics. To understand this connection it is crucial to recognise the intimate and complex relationship between strength and wealth. Strength and power were used interchangeably to refer to the status of the state relative to other states in the context of war. More explicitly, these terms signify the capacity of the state to defend itself against other states, which depends on its stock of those things necessary for war and its ability to generate a continuous flow of them.

John Law's definition demonstrates how strength and wealth were treated together. He claimed that ‘NATIONAL Power and Wealth consists in Numbers of People, and Magazines of home and Foreign Goods. These depend on Trade, and Trade depends on Money’.Footnote ²¹ So, too, did William Webster when he suggested that ‘the Riches of a Nation are the Strength of it’, and defined the strength of a nation as ‘the Number of its People, and its Ability to maintain Fleets and Armies’.Footnote ²² In this vein, William Revolution assessed Spain as a formidable adversary because ‘we have seen her sending out vast and surprising Armaments frequently, for fifteen Years together, which is an undeniable Proof that she is not less powerful in Treasure, the Nerves of War, than she is in Ships and Troops’.Footnote ²³

Bullion as the ‘nerves of war’ or similar is a common metaphor. Bullion derives this privileged status from the accepted role of gold and silver as the mediums of exchange, and this

This is why Simon Clement claimed that the trading nations have never before been as powerful as they are now – having never had as much bullion, they could never support such great armies and for so long. Accordingly, the relevant maxim is ‘he that hath the longest Purse, will certainly have the longest Sword’.Footnote ²⁵

The final point to fix in this discursive constellation is the way money, men and things were conceived as circulating in a polity. Circulation denotes ‘the successive transition of money, or transferable commodities, from hand to hand, and their return, as it were in a circle, to the point from which they set out’.Footnote ²⁶ The entry for ‘circulation’ in A New and Complete Dictionary of Trade and Commerce also money moving in a circuit:

Political œconomists studied circulation as taking place between segments of the population in this fashion, yet several sources could be identified, thereby providing the rationale for differing policies intended for its care. Labour, trade and agriculture were all regularly nominated as the source of circulation; at the same time, two anxieties were regularly expressed about a nation's circulation – that it might become stagnant, and that some of the circulating material might perish or be consumed. In the following description from Locke, stagnancy is an inevitable fact of circulation:

William Paterson argued that one way a Bank of England could ‘facilitate the circulation of Money’ was by minimising the accumulation of such stagnant pools, including its own. That is, the Bank would ‘circulate their Fundation of Twelve hundred Thousand Pounds, without having more than Two or Three Hundred Thousand Pounds lying dead at one time’. This would also have the effect of lowering the rate of interest – a sure indicator and benefit of a plentiful circulation of money.Footnote ²⁹

Next to water, the other favoured metaphor for circulation is the body and its circulating blood that nourishes the various parts, such that it is the body politic that is given strength by the movement of trade and money. A typical example is found in Davenant, who bemoaned the effect of clipping (trimming metal) on the national coin:

The corruption of coined money is ‘like a dangerous Ulcer’ because, as Locke put it in the earlier passage, money drives ‘the wheels of trade’. Bullion is given this crucial role in facilitating and fostering a large circulation not only because of its role as a medium of exchange, but also because of its non-perishable character. Being non-perishable, bullion lasts forever and so permanently augments the circulation. Read in its own terms, the supposed ‘mercantilist’ confusion between wealth and money dissolves.Footnote ³¹

Old Empire

The Navigation Acts represent the most familiar way the colonies were managed for trade in the interests of imperial power. Yet the colonies themselves were read in ‘politico-commercial’ terms,Footnote ³² understood as elements in broader strategies, the balance of power in particular. To see this, consider Paterson's A Proposal to Plant a Colony in Darien. In his address to the King, Paterson described his proposal as an attempt to open a ‘door of commerce’, and he claimed that ‘both worlds, the new as well as the old, do at this time implore your protection’.Footnote ³³ The security issue to which Paterson referred, and which his new trade would be used to address, was the conjoining of the interests of Spain and France through the House of Bourbon, particularly in regard to Spain's colonies in the Indies.

Paterson argued that if it was true that ‘the fruits of those new discoveries of the Spaniards have, within the last two ages, made far greater alteration in Christendom than the sword’, the impetus that the French would give to the cultivation of those fruits should be cause for alarm, since it would create the conditions for universal monarchy.Footnote ³⁴ Paterson suggested that England could be thankful for the Spanish approach to the Indies, which he derided as ‘lazy, negligent, and untoward’. For if another nation had managed them, one ‘only as industrious as that of the English or Dutch’, he estimated that the quantity of commodities produced from them would have been treble. Such a competent state would be in ‘a condition not only to conquer, but even to buy what was valuable of the rest of Christendom’.Footnote ³⁵

This was exactly where the danger of such a union lay, for the ‘people, arts, manufactures, and shipping of France’ would see to the ‘best and most advantageous means of employing and improving’ the Indies.Footnote ³⁶ As a result, the union has given France and Spain the chance of

Since this trade was the source of the threat for Paterson, his proposed remedy was for a countervailing trade.

The specifics involved establishing two or three ‘posts’ at certain sites in Darien (located on the isthmus of Panama), each assessed in terms of various factors, such as access to seas, freshwater, and climate.Footnote ³⁸ These sites would be secured by a military and naval force, yet they were to permit a relatively free trade – lightly taxed and open to all. This freedom was even extended, as far as Paterson could recognise, to indigenous populations. From today's perspective Paterson's freedom still looks like colonial administration:

This two-tiered system of regulation was the central means for securing the Indies. On the one hand, the ‘advantageous principles of a general naturalisation, liberty of conscience, and a permission to trade’ would attract the trade of the Indies, since it compared so well with the high level of restraints and prohibitions employed by the Spanish. This would be a large trade and, even when lightly taxed, it would furnish the monies necessary for a navy to protect it. On the other hand, the ‘natives’ would be enabled to ‘break and shake off the unjust and tyrannical yoke of the Spaniards’.Footnote ⁴⁰

The Spanish and French could be brought to a lasting peace in this way, since both powers would be denied the increase of strength needed to achieve universal monarchy at the same time as Britain gained in strength.Footnote ⁴¹ Britain would gain not only from the augmentation of her revenues, people, and navy, but also from the allegiances it would gain from other European nations as they became dependent on her for access to the trade of the Indies. And this would be a strong allegiance, underwritten by ‘having their ships, merchants, and other effects, as it were, in hostage’.Footnote ⁴² Ultimately, then, Paterson's colony is a means for securing an imperial polity against its rivals, by managing its own trade and the trade of friends and enemies.

The Union of 1707 created the United Kingdom of Great Britain by joining England and Scotland in a single crown and common legislature. It thereby entrenched unequal relations in the empire, from the ‘semi-colonial dependency of Ireland to the colonial semi-autonomy enjoyed by the American and Caribbean colonies’.Footnote ⁴³ An enabling distinction for the English and British empires was between colonies for trade and colonies for empire, where only the latter required standing armies while the former could be managed by the navy and trade.Footnote ⁴⁴ Darien is a failed Scottish example of a colony for trade, but what it nicely illustrates is the way trade and geopolitics were fused together by the immanence of strength in wealth, and by the balance of power as the program for managing International Relations. War and trade are different elements of the same diplomatic-military-commercial assemblage that the balance of power concept gave theoretical expression to. It is this assemblage that Smith deals a radical blow to when he separates the analysis of strength and wealth by redefining wealth.

Smith and the de-politicisation of international trade

Smith's decisive break is seen early in Wealth of Nations, in the first paragraph of the Introduction, in fact, where wealth is defined in terms of a homogeneous category:

The nation's annual labour constitutes its wealth, which are now necessaries and conveniences, not the elements of strength, such as men, money, and munitions.

The annual labour is then divided into two categories: productive and unproductive. Productive labour adds to the value of the materials it is bestowed upon while unproductive labour does not. For example, the labour of a manufacturer usually adds to the value of the materials that are worked on, while the labour of a servant does not.Footnote ⁴⁶ Labour in Smith's sense is like a ‘subtle or imponderable fluid’ that can implant itself in objects for later extraction.Footnote ⁴⁷ For this reason, the proportion between productive and unproductive labour is one of the two great factors that condition the size of the annual labour in every country.

The other and more significant factor that determines the wealth of nations is the ‘skill, dexterity, and judgment’ with which the labour of a nation is applied.Footnote ⁴⁸ And the greater part of this level of skill, dexterity, and judgement is the result of the division of labour, which primarily involves the increasing sub-division of tasks in the production of a certain good. It is in this context that the famous pin-maker is encountered, who alone ‘could scarce, perhaps, with his utmost industry, make one pin in a day’. When this task is appropriately divided into its individual operations (eighteen we are told), each person, on a pro rata basis, can ‘be considered as making four thousand eight hundred pins in a day’.Footnote ⁴⁹

Two limits to the division of labour are also discussed in WoN. The first is the nature of agricultural labour, which offers narrow scope for the division of labour, such that it cannot normally be carried out to the same degree as in manufacturing.Footnote ⁵⁰ The second limit owes to its very origin: ‘it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power […] by the extent of the market’.Footnote ⁵¹ The ‘extent of the market’ – and therefore the division of labour – can be extended by accessing foreign markets, as we will see.

When the two factors just considered are held constant – the ratio of productive to unproductive labour, and the division of labour – the wealth of nations is then determined by two more concerns: one, the uses of capital that sets labour to productive work (book II); and two, the policy of nations that influences these uses (book III). I focus on the uses of capital, since book III is an historical explanation of Europe's retrograde development path, one that sets the analysis of book II to work.Footnote ⁵²

Smith distinguished between four general uses of capital.Footnote ⁵³ One, in procuring raw material for either use or consumption; two, in the manufacture of this raw material; three, in transporting the raw or manufactured material; and finally, in the retail trade. Each of these uses is essential to the operation of the others, in the straightforward sense that they are practical steps in the production process, and because in each step the capital of the previous step is replaced. It is this second link that provides the basis for evaluating the contribution of a given quantity of capital to national wealth.

For example, the capital of the retailer

More precisely, the retail trade only employs one productive labourer, the retailer, and that retailer's profits are the only value added to national wealth. Given this mode of evaluation, Smith is justifiably almost as unenthusiastic about the contribution of capital employed in the next step – the wholesale trade. In fact, the wholesaler receives their greatest praise for replacing the capitals of the manufacturer and the farmer, where more significant contributions to national wealth are found.

Smith's essential claim is that although all capital, by definition, maintains productive labour, not all uses of capital maintain the same quantity of it, and neither do all identical quantities of labour make the same contribution to the annual produce. It follows that there is an optimal and natural development path for nations to pursue that will maximise their wealth and its increase through capital accumulation. This path is to first exhaust the opportunities for directing capital to agriculture – the most productive sector, to use contemporary terms – and only then move to manufacturing and other uses.Footnote ⁵⁵

This analysis is starkly opposed to those found previously in political œconomy. In the first place, particular trades are privileged not for their ability to supply conscriptable labour or sailors or war supplies, but for their contribution to the accumulation of productive labour, which has no straightforward connection with military strength. Further, sailors and manufacturers are now only species of labour connected with one employment of capital or another, which in turn can be more or less productive. In other words, it has become possible to evaluate negatively in economic terms those trades that add to the military might of the state.

On this point, note that, excepting some brief and scattered comments throughout the text (in particular in book V on the necessity of debt in times of war), in a 900 page work the strength of the state is given a sustained treatment of less than 10 pages. The reason is clear in the passage below:

Strength has become a function of tax: strength and wealth are no longer immanent in one another; they no longer criss-cross and imply one another at diverse points, and calculating how to maximise their interrelations is no longer the stuff of analysis. Instead, strength is now mildly implied by taxation, such that in WoN the analysis of wealth can only treat strength indirectly through this proxy. Once twins, strength and wealth now enjoy a mere family resemblance.

This conceptual shift is projected into the international with profound effects. To grasp how the international was intellectually reconfigured two additional details of Smith's schema for evaluating the different uses of capital need to be brought to mind. First, there is a geographical element to the analysis. Not only is the quantity of productive labour a certain capital sets to work important, but the location of that labour is also relevant. For example, capital employed in the agriculture of a nation must necessarily reside in that nation; the capital employed in wholesale trade, by contrast, can ‘wander about from place to place, according as it can either buy cheap or sell dear’.Footnote ⁵⁷

Second, Smith's third use of capital, the wholesale trade, can be broken down into three different varieties. (1) The home trade, where the produce of one part of a nation is sold in another part of the same nation; (2) the foreign trade of consumption, where foreign goods are purchased for home consumption and, (3) the carrying trade, where one nation transports goods that are both produced and sold in foreign nations.Footnote ⁵⁸

Viewing this second typology in terms of the first allows the different varieties of the wholesale trade to be given divergent evaluations. Smith's example of home trade sees Scotch manufactures sent to London and returning with English manufactures for Edinburgh. In this case, the trade ‘replaces, by every such operation, two British capitals’.Footnote ⁵⁹ But in Smith's example of the foreign trade of consumption, a home manufacture is traded for a Portugese one, so that only one of the capitals replaced is British – the ‘wandering’ capital above. Finally, the carrying trade also replaces two capitals, but neither belong to the home nation.Footnote ⁶⁰

Smith also noted that the time it takes for each capital to be replaced varies with the employment – capital employed in the home trade is ‘sent out and returned’ more rapidly than in the foreign or carrying trades, and therefore makes a greater contribution to the annual produce and the wholesaler's profits.Footnote ⁶¹ As a result, there is a clear hierarchy between these three sub-divisions, just as there is between the general divisions of agriculture, manufacturing, wholesale and retail trade. In this hierarchy, overseas trade (the foreign and carrying trades) is identified as the least valuable variety of the least valuable employment of capital.

This is not to say that overseas trade is an evil. Quite the contrary. This employment of capital is a natural outcome of the progress of opulence, and always performs two important services for a nation: (1) It permits the exchange of the surplus from the nation's more productive employments and, in doing so, gives the surplus a value it would not otherwise have – the enjoyment of the goods it is traded for and, (2) overseas trade means ‘the narrowness of the home market does not hinder the division of labour […] from being carried to the highest perfection’, which was seen earlier to be fundamental to increasing a nation's annual produce.Footnote ⁶²

While overseas trade is given this positive role, it retains its lowly place in the hierarchy of capital employments. The wise nation will not, therefore, give

This analysis sets Smith against what he calls the ‘mercantile system’ of political œconomy: ‘force and allure’ are exactly what are rife in Britain thanks to the influence of this system.Footnote ⁶⁴ It is a system built on two great errors: first, a mistaken association of money and wealth, with a favourable balance of trade the means to ensure both; and second, the idea that a large war chest is crucial for supporting armies overseas.Footnote ⁶⁵ Two practices are used to pursue these goals. The first is restraints on imports, of which there were two kinds, and the second is encouragement to exports, of which there were four kinds. An examination of each of these six practices makes up most of book IV, but considering three will suffice here.

The first practice considered is to restrain imports of foreign goods that can be produced locally, by using either high duties or outright prohibitions. The result of these restraints is to engross a larger share of the local market for whatever goods are protected to domestic production, which then employs ‘a greater share of both the labour and stock of the society than would otherwise have gone to it’.Footnote ⁶⁶

This outcome is clearly undesirable in view of the analysis above, since capital and labour have not been directed in the ideal manner – by liberty. Regulation of trade cannot increase its total level, only ‘divert a part of it into a direction into which it might not otherwise have gone’.Footnote ⁶⁷ The consequences of this diversion will be, at best, to leave the annual produce unimproved, as when capital is transferred between equally valuable uses, but more likely it will have been diminished, as when capital is diverted from a more to a less valuable use.

It is only ‘folly and presumption’ that allows a statesman to think that he either needs to or could successfully direct the capital of individuals. The far more prudent approach for a nation is simply to mimic the master of a family, who does not ‘make at home what it will cost him more to make than to buy’.Footnote ⁶⁸ This maxim is translated into the national context as follows:

There are four exceptions to this general predilection for free trade, and they are worth considering for the insight they offer into how the mode of argument regarding overseas trade has shifted in WoN.

The first exception is for giving encouragements to those domestic industries which are ‘necessary for the defence of the country’. The Navigation Acts, which limited the trading access that would be given to non-British ships, are identified as a clear example of such a valid exception, since the defence of Great Britain ‘depends very much upon the number of its sailors and shipping’.Footnote ⁷⁰ The second exception is to tax foreign goods when there is a tax on the equivalent domestic good, so as to ‘leave the competition between foreign and domestick industry, after the tax, as nearly as possible upon the same footing as before it’.Footnote ⁷¹

Unlike these first two exceptions, identifying when the final two apply requires more careful judgement. As will be seen, this is not an immaterial point. One exception relates to laying retaliatory restraints on the importation of a nation's goods when that nation has first taken similar actions. The purpose of such retaliation, however, must be to ultimately achieve a mutual repeal of restraints, since the ‘recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time’.Footnote ⁷² This takes œconomy into a murky business, since

The final exception relates to the return to free trade from a situation of protection and, in particular, where domestic manufactures have, as a result of protection, been ‘so far extended as to employ a great multitude of hands. Humanity may in this case require that the freedom of trade should be restored only by slow gradations’.Footnote ⁷⁴ And humanity here would have concern for two groups: first, for those who would lose their employment, and so also their means of subsistence; and second, for those manufacturers who could only transform much of their fixed capital into another employment at a loss.Footnote ⁷⁵

Smith then examined the balance of trade doctrine using his own principles, where the claim that trade between two nations must necessarily favour one at the expense of the other is denied. Instead, trade that is ‘naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both’.Footnote ⁷⁶ Here, advantageous refers to the contribution a trade makes to a nation's annual reproduction, which occurs by definition, since capitals that set labour to work are replaced through trade. Though as was seen, not all capitals are equally productive, such that if England were to trade wheat for East-India goods carried by France, more English than French capital is replaced because of the nature of the different uses.

The old rivalry between France and England is recast in this new logic: because of the proximity of these two nations, the time taken for the replacement of capitals in overseas trade is greatly reduced, so that a trade with France would be ‘three times more advantageous, than the boasted trade with our North American colonies’.Footnote ⁷⁷ While a free trade is then the ‘real interest’ of these two nations it is unlikely to be realised, because as neighbours ‘they are necessarily enemies’.Footnote ⁷⁸ In these passages Smith acknowledged the validity of the old analysis of external rivalry, but divorced it from his analysis of wealth.

Divested of geopolitics in this way, the analysis of wealth can now analyse and configure the external anew. Instead of the balance of trade, the new criterion for judging the decay or growth of a nation is the balance of produce and consumption. That is, when the annual produce is greater than the annual consumption the ‘society in this case lives within its revenue, and what is annually saved out of its revenue, is naturally added to its capital, and employed so as to increase still further the annual produce’.Footnote ⁷⁹ Unlike the balance of trade, which refers only to the situation of an individual nation, Smith's balance

The concept of the annual produce permits the accumulation of wealth to be projected onto an international context, which provides a hitherto unavailable perspective for assessing trade practices – from the point of view of the world's wealth. The possibility for making assessments from this perspective registers the constitution of an international economy as a theoretical-political object.

Now consider how colonies feature in this new international setting, most notably as places that advance in wealth rapidly:

The key reason for this relates to the optimal development path identified earlier – colonies can direct their capital to agriculture, which makes the greatest contribution to raising the annual produce, and they are typically abundant in ‘new’ lands. Furthermore, colonies benefit from modern techniques of cultivation, and can avoid institutional obstacles such as the concentration of land ownership and primogeniture, telling in the case of Europe.Footnote ⁸²

In addition to this empirical status as rapid-growers, in WoN colonies represent an extension of the market.Footnote ⁸³ This function had not been fully realised, however, because of the effects of the mercantile system. There are a slew of practices which are criticised in this context, including granting exclusive trading rights with a colony to a private company (the most disastrous of all measures), limiting the colonial trade to ports in the mother country, and imposing restrictions on which nations may carry colonial produce.Footnote ⁸⁴

Predictably, at the general level the harm of these policies arises from the capital and labour of a nation being directed by force, not liberty. For Great Britain, establishing a monopoly on the trade of her colonies saw the withdrawal of those foreign capitals formerly employed in it. As a result, British capital had to supply the entire trade, and so received superior profits, drawing capital from other branches where the profits were lower. Typically, Smith claimed, these new capitals were diverted from a foreign trade of consumption with a neighbouring nation. Given the effect of distance on the frequency of returns, and the importance of this frequency in determining how much domestic labour can be supported, this is a clear loss, as is shifting capital from the foreign trade of consumption to the carrying trade.Footnote ⁸⁵

Smith also noted two further disadvantages in addition to the misdirection of capital. First, the creation of a monopoly has taken Britain's capital from many small channels and concentrated it into one great channel. Consequently, the body politic is like ‘one of those unwholesome bodies in which some of the vital parts are overgrown’, and is susceptible to disorders caused by the loss of these enlarged channels of circulation.Footnote ⁸⁶ (The purely descriptive role of the circulation metaphor can be noted here.) Second, the high rate of profits created by monopoly ‘seems every where to destroy that parsimony which in other circumstances is natural to the character of the merchant’.Footnote ⁸⁷ And the merchant's decadence can cause the capital and productive labour of a nation to dwindle away.Footnote ⁸⁸

Notwithstanding these negative consequences arising from the mismanagement of Britain's colonies, it is important to note that the net result (the benefits of the extension of the market minus the costs of the mis-direction of capital) is a ‘greatly advantageous’ colonial trade. At least for Great Britain; the outcome of this calculation will vary from nation to nation. For example, in Spain and Portugal a more rigorous – and therefore more harmful – system of mercantilist practices, coupled with the still greater negative effects of an irregular system of justice, sees their colony trades make near negative contributions to the annual produce of both nations.Footnote ⁸⁹

In view of the arguments so far, it is clear why Smith advocated the abandonment of Britain's colonies. Smith acknowledged, however, that pride and the interest of the governing class made such actions impossible. In principle, the benefits to Britain of abandoning the colonial relation with her dependents would be ‘favour in war as well as in trade’. Or, a natural military alliance arising out of ‘filial respect’, and a free trade.Footnote ⁹⁰ As a practicable proposal, Smith advocated for a union with the colonies, based on the claim that an

More radically still, and in regards to taxation, Smith suggested that because of America's rapid progress to opulence their contribution to the Empire's taxes might in ‘little more than a century’ eclipse Britain's, in which case the ‘seat of the empire would then naturally remove itself’ to America.Footnote ⁹²

In sum, the external in WoN is primarily known through the category of wealth. Smith even suggested that the discovery of America, and of a passage to the East Indies by the Cape of Good Hope, together constituted ‘the two greatest and most important events recorded in the history of mankind’. While he noted that the full consequences were at that stage unknown, it was nonetheless clear that, by uniting distant parts of the world, these discoveries had enabled nations to ‘relieve one another's wants, to increase one another's enjoyments, and to encourage one another's industry’.Footnote ⁹³

Yet the enormous injustices suffered by indigenous populations had to be placed against these commercial benefits. More hopefully, though, one could expect the communication of knowledge and various arts, which is normally achieved by commerce, to ultimately establish an equality of military force between the new world and the old. An equality of this kind ‘can alone overawe the injustice of independent nations into some sort of respect for the rights of one another’.Footnote ⁹⁴ It would seem, then, that with trade comes an international destiny of opulent, powerful, and therefore mutually-regulating nations.

This new object and its telos engendered a redistribution of what counts as a problem in international affairs. In WoN colonies are significant because they increase the extent of the market, for all nations, regardless of who trades with them directly; and because their discovery may usher in a desirable telos for the world. Yet in their current form the colonies are a problem, primarily because they foster the misallocation of capital, at times in a way that not only retards the growth of the world's annual produce, but that even diminishes it. For political reasons the colonies cannot be abandoned easily, hence Smith's middle ground proposal for a union, with the attendant difficulties of such a remedy noted. Colonies, then, are an inherited problem with no immediate solution.

Paterson's A Proposal to Plant a Colony in Darien, considered earlier, is a call to establish a new colony in part to manage a balance of power threat. Here, colonies are known in terms of their strategic importance, as determined by a set of complicated judgements regarding external rivalries. Although Smith is hardly any better in balking at colonisation, in WoN a colony is primarily known in terms of its rate of progress to opulence, which in turn presupposes a knowledge of the extent of its mismanagement and certain institutions. In other words, in WoN a new typology of colonies overlays the external.Footnote ⁹⁵

A new typology of Western European nations emerges in parallel. This typology categorises a nation on the basis of whether its annual produce is increasing or decreasing, at what rate, how far the management of a nation's trade derogates from a system of liberty, and certain institutional features, for example, how strictly the rule of law is enforced.

The quantity of men and money do not feature in WoN as key variables through which a state can be known. This shift correlates directly with the analytical separation of strength and wealth, a move intended to make a whole machinery of tactics for managing trade in view of external rivalries look obsolete. The new arguments assess the employment of capital. Overseas trade is the least important employment, to which capital is ideally directed by self-love alone, but in reality by a mix of mercantile policies too. Foreign trade is no longer the means to make nations strong or weak, and no longer a hands-on task for the statesman.

Mill, Torrens, and the economic attack on war

The crucial shift to treating labour as the source of wealth, and as a generalised homogeneous category, was reproduced after Smith by both James Mill and Robert Torrens. As a consequence, both could also repeat – with minor variations – Smith's analysis of international trade as a benign and natural process. This makes it possible to forcefully claim that this process is damaged by the war-like nature of international politics, such that international historical processes begin to be set against the narrow self-interest of individual states, a refrain we are familiar with today.

The central architecture of Mill's argument is adapted from Smith. A nation ‘is poor or is rich according as the quantity of property which she annually creates, in proportion to the number of her people, is great or is small’.Footnote ⁹⁶ This annual property is the product of the different species of labour in a nation, and agricultural labour is privileged as the most productive source of wealth: ‘of all species of labour, that which is bestowed upon the soil, is in general rewarded by the most abundant product’.Footnote ⁹⁷ The division of labour is said to be crucial to the accumulation of wealth even as a caveat is registered against agriculture in favour of manufacturing:

Thus, the same tension that appeared in Smith – between the position of agriculture as the most rewarding species of labour yet the least susceptible to improvement by the division of labour – also appears in Mill. This tension is ultimately resolved in favour of agriculture through the analysis of the employments of capital, just as it is in WoN.

Torrens similarly contracted a number of debts to Smith. He defined wealth as the stock of those articles that fulfil wants and desires, and its source is labour, which ‘creates wealth in three ways; by appropriating; by preparing; and by augmenting the productions of the land and water’.Footnote ⁹⁹ Because the land and water are not subject to increase, only labour can be increased, through the division of labour, of which there are two kinds. The first kind is termed mechanical, and it refers to the division of labour between discrete tasks; the second is territorial, and refers to the division of labour between locations.Footnote ¹⁰⁰

No qualifications are made regarding the applicability of these two divisions to different employments of capital. The extent of the market, though, sets a limit to how far the division of labour can progress, and the extent of the market is a function of the quantity of stock in a nation. As a consequence, in ‘countries where stock is deficient, each person is obliged to divide his attention among a variety of occupations’, but where stock is abundant, ‘a more perfect division of labour obtains’.Footnote ¹⁰¹ Smith's argument about the extent of the market is therefore substantially reproduced and, as will be seen, this opens the door to similar claims about the nature of overseas trade.

In addition, Torrens can now mobilise a version of Smith's mode of evaluating different uses of capital based on their contribution to accumulation. For example, the home trade is designated as the most important trade because of its size, and therefore the magnitude of the division of labour it engenders, and because all those divisions occur in Britain. In the overseas trade, by contrast, a ‘part of the benefit goes to enrich foreigners’.Footnote ¹⁰²

A similar adaptation of Smith is used by Mill. Capital is likewise acknowledged as what sets labour to work and, as a result, overseas trade is relatively unimportant in engaging only a fraction of the capital and labour that domestic agriculture and manufacturing do. Mill also acknowledged that ‘agricultural industry is not at the same height in England as commercial and manufacturing industry’. His explanation amounts to a one page summary of Smith's nuanced historical account, in which he cites the distribution of land, taxes, and prestige as the relevant factors.Footnote ¹⁰³

For both Mill and Torrens, then, the assessment of different employments of capital is central to the analysis of wealth accumulation, and both have mobilised variations of Smith's arguments. As a consequence, the separation between strength and wealth became entrenched in the newly forming science and, at the same time, international trade is affirmed as a benign natural process.

Now to trade between nations. Smith's forms of argument produce an international economy, understood as a terrain of mutually advantageous exchange that is apprehended by an analysis independent of geopolitical concerns. The existence of this object permits the evaluation of national trade practices from its own perspective – the perspective of an international economy that is affected by the practices of states.

Torrens claimed that by creating a surplus of those articles it is well suited to produce and trading them for surplus articles from another nation Britain can ‘obtain such articles in greater abundance than if our labour and capital were employed to supply them directly’.Footnote ¹⁰⁴ Consequently, the relevant maxim is: ‘prohibit foreign trade, and the foreign divisions of labour […] must be discontinued; restore it, and these divisions of labour will be re-established’.Footnote ¹⁰⁵ In view of this maxim, the colonial trade is evaluated as beneficial, since distant colonies will ordinarily be suited to producing different articles than Britain is, and so permit a mutually beneficial division of labour.Footnote ¹⁰⁶ However, the misguided policy requiring that all colonial produce first be shipped to Britain ‘withdraws capital and labour from other employments’ and, as a result, the ‘wealth of the nation will be diminished’.Footnote ¹⁰⁷

Torrens then considered a possible objection to this argument – that the restriction on the colonial trade is justifiable because it supports Britain's maritime superiority. This argument is rejected on the grounds that the restriction increases the price of the colonial produce, thereby reducing demand, such that the level of shipping would be the same with or without the restriction. What is significant is Torrens's qualifying claim – that if the restrictions were beneficial to shipping, then ‘the friend of British glory will wish to see them continued, however injurious they may be to British wealth’.Footnote ¹⁰⁸ Thus, here, as in WoN, the analysis of wealth must be suspended to enter the analysis of strength.

Turning to Mill, and as for Torrens, the division of labour is the primary means by which overseas trade is configured as mutually advantageous. We are told that ‘the commerce of one country with another, is in fact merely an extension of that division of labour’. It follows that the human race is a ‘great empire, of which the different kingdoms and tribes of men may be regarded as the provinces’.Footnote ¹⁰⁹ Mill suggested that the gains to nations from trade should be understood as the value of the articles that are additional to what could be produced domestically, less transport costs.Footnote ¹¹⁰

Mill was not silent on the vagaries of the international economy. In particular, he noted that there is no guarantee that the relative values of tradable goods in other nations will be so arranged as to give rise to gains from trade. For example,

The point to note is that the question of whether or not overseas trade is advantageous is decided purely with reference to economic conditions, ones that do not come within the remit of the statesman.

Mill explicitly rejected circulation as a category of analysis. He insisted that the only important distinction to be made between different commodities is ‘between the commodities which are destined to serve for immediate and unproductive consumption’ and those that will ‘operate as the instruments or means of production’.Footnote ¹¹² Similarly, the idea of wealth as a stock of certain goods is also rejected; instead, wealth is the ‘powers of annual production’.Footnote ¹¹³ And this is the same conception found in WoN – a conception that splits the analysis of strength from the analysis of wealth. This split underwrites Mill's arguments about the merits of peace or war with Napoleon.

Given his distinction between goods destined for consumption and those for reproduction, Mill claimed that the advance of prosperity is a function of the proportion between these two uses of the annual produce. Thus the tragedy of war is that

Balance of power calculations are derided in the second sentence. Formerly, these calculations conditioned the analysis of trade between nations, but this connection is severed by the new categories. Indeed, now that the analysis of strength and wealth are separate, they can do battle, casting each other in alien terms, as in Mill's call for the estimated gains of another year of war to be weighed against its costs:

Wars have finally become expensive, thanks to an argumentative apparatus that portrays war as wasteful and contrary to the economic interests of a nation and, indeed, the world. Trade is no longer an element in a broader strategy to manage international relations: now it is the basis of a rival strategy that produces a different understanding of the international sphere. This rival strategy has consistently been activated against its political-military rival since its emergence at the turn of the nineteenth century.