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The Cambridge History of English and American Literature in 18 Volumes (1907–21).
Volume X. The Age of Johnson.

XIV. Philosophers

§ 16. The System of Natural Liberty: Free Trade

Smith, like many other philosophers of the time, assumed that there was a natural identity of public and private interest. It is a comfortable belief that society would be served best if everybody looked after his own interests; and, in an economist, this belief was, perhaps, an inevitable reaction from a condition in which state regulation of industry had largely consisted in distributing monopolies and other privileges. In Smith’s mind, the belief was also bound up with the view that this identity of interests resulted from the guidance of “the invisible hand” that directs the fate of mankind. But the belief itself was incapable of verification, and subsequent industrial history refutes it. Indeed, in various places in his work, Smith himself declines to be bound by it. He thinks that the interests of the landowners and of the working class are in close agreement with the interest of society, but that those of “merchants and master manufacturers” have not the same connection with the public interest. “The interest of the dealers,” he says, “is always in some respects different from, and even opposite to, that of the public.” The harmony of interests, therefore, is incomplete. Nor would it be fair to say that Smith had relinquished, in The Wealth of Nations, his earlier view of the social factor in human motive. What he did hold was, rather, that, in the pursuit of wealth, that is to say, in industry and commerce, the motive of self-interest predominates; in famous passages, he speaks as if no other motive need be taken into account; but he recognises its varying strength; and it is only in the class of “merchants and master manufacturers” that he regards it as having free course: they are acute in the perception of their own interest and unresting in its pursuit; in the country gentleman, on the other hand, selfish interest is tempered by generosity and weakened by indolence.

From the nature of man and the environment in which he is placed, Smith derives his doctrine of “the natural progress of opulence.” Subsistence is “prior to conveniency and luxury”; agriculture provides the former, commerce the latter; the cultivation of the country, therefore, precedes the increase of the town; the town, indeed, has to subsist on the surplus produce of the country; foreign commerce comes later still. This is the natural order, and it is promoted by man’s natural inclinations. But human institutions have thwarted these natural inclinations, and, “in many respects, entirely inverted” the natural order. Up to Adam Smith’s time, the regulation of industry had been almost universally admitted to be part of the government’s functions; criticism of the principles and methods of this regulation had not been wanting; the theory of “the balance of trade,” for instance, important in the doctrine of the mercantilists, had been examined and rejected by Hume and by others before him. But Smith made a comprehensive survey of the means by which, in agriculture, in the home trade and in foreign commerce, the state had attempted to regulate industry; these attempts, he thought, were all diversions of the course of trade from its “natural channels”; and he maintained that they were uniformly pernicious. Whether it acts by preference or by restraint, every such system “retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour.” When all such systems are swept away, “the obvious and simple system of natural liberty establishes itself of its own accord.”

The ideas and arguments of Adam Smith were influential, at a later date, in establishing the system of free trade in Great Britain; and, perhaps, it would be not far wrong to say that a generation of economists held his views on this question to be his most solid title to fame. He regarded liberty as natural in contrast with the artificiality of government control; and the term “natural” plays an ambiguous part in his general reasonings, changing its shade of meaning, but always implying a note of approval. In this, he only used the language of his time—though Hume had pointed out that the word was treacherous. But it has to be borne in mind that, while he extolled this “natural liberty” as the best thing for trade, he did not say that it was in all cases the best thing for a country. He saw that there were other things than wealth which were worth having, and that of some of these the state was the guardian. Security must take precedence of opulence, and, on this ground, he would restrict natural liberty, not only to defend the national safety, but, also, for the protection of individual traders.