Adam Smith's Simplified Wealth of Nations, Book 4, Chapter 7h: The Effects of Monopoly -- Spain and Portugal

Chapter 7h: The Effects of Monopoly -- Spain and Portugal

127The monopoly of the colony trade forced some British capital from all foreign trade of consumption to a carrying trade.

128 For example, the goods purchased with the great tobacco surplus of 82,000 hogsheads are not all consumed in Great Britain.

129The monopoly of the colony trade broke that natural balance of British industry.

  • British industry was turned to suit one great market instead of many small markets.
  • Her commerce ran principally in one great channel instead of running in many small channels.
  • Her industry and commerce was made less secure.
  • Her whole political body was made less healthy.
  • In her present condition, Great Britain resembles an unwholesome body with some overgrown vital parts.
  • If we were totally excluded from the colony market just for a few years:
  • A rupture with any of our European neighbours will cause some stop or interruption in the employments of some of these orders of people.
  • If blood circulation is stopped in the smaller vessels, it easily disgorges itself into the greater vessels without creating any dangerous disorder.
  • Its overgrown manufactures were artificially raised through bounties or the monopoly of the home and colony markets.
  • How great would be the disorder and confusion caused by a sudden and entire stop in the employment of so many of our principal manufacturers?
  • 130A moderate and gradual relaxation of the British exclusive trade to the colonies, until it is rendered free, is the only expedient which can deliver her from this danger in the future.

  • By gradually reducing one industry and increasing the rest, this relaxation can restore her industry to that natural and healthy proportion which perfect liberty necessarily establishes.
  • Opening the colony trade all at once to all nations might create some temporary inconvenience.
  • "Such are the unfortunate effects of all the regulations of the mercantile system!"
  • We must leave the following to the wisdom of future statesmen and legislators to determine:
  • 131 Great Britain has now been excluded from the trade with the 12 North American provinces for more than a year (from December 1, 1774).
    1. The North American colonies prepared themselves for their non-importation agreement.
      • They drained Great Britain completely of all the commodities fit for their market
    2. This year, the extraordinary demand of the Spanish Flota drained Germany and the North of many commodities which competed with British manufactures.
      • Linen was one of such commodities
    3. The peace between Russia and Turkey created an extraordinary demand from the Turkey market
      • Turkey was very poorly supplied during its distress while a Russian fleet was cruising in the Archipelago
    4. The rising year on year demand of Northern Europe for British manufactures
    5. The late partition and consequential pacification of Poland.
      • It opened the market of that great country
      • This year it added an extraordinary demand for British manufactures.
  • In the meantime, Great Britain's industry and capital may find new employment and direction to prevent this distress from rising.
  • 132 In all cases, the colony trade monopoly turned British capital from a foreign trade of consumption with a neighbouring country to a more distant country.

    133"We must carefully distinguish between the effects of the colony trade and those of the monopoly of that trade."

  • The effects of the colony trade are always beneficial.
  • The effects of the monopoly of the colony trade are always hurtful.
  • The colony trade is so beneficial even if it were subject to a monopoly with its hurtful effects.
  • 134 The effect of the colony trade in its natural and free state is to open a great, distant market for British industry which may exceed the demand at home, Europe, and the Mediterranean. 135 The colony trade monopoly, on the contrary, excludes foreign competition.
  • The avowed purpose of the monopoly is to increase our share of the colony trade beyond the natural.
  • More capital of the country is unnaturally forced into a trade where the returns are slower and more distant.
  • 136The natural good effects of the colony trade more than counterbalance the bad effects of the monopoly on Great Britain.

    137 It for the manufactured than for the rude produce of Europe that the colony trade opens a new market. 138 The monopoly of the trade of populous and thriving colonies is not alone sufficient to establish or maintain manufactures in any country. 139 The bad effects of the monopoly in Spain and Portugal were aggravated by other causes. 140 In England, on the contrary, the natural good effects of the colony trade are assisted by other causes which conquered the bad effects of the monopoly.

    141 If British manufactures were advanced by the colony trade, it was not by its monopoly but in spite of its monopoly.

    142 The colony trade monopoly is like all the other mean and malignant expedients of the mercantile system.

    Next: Chapter 7i: Other Monopoly Effects