Superphysics Superphysics
Chapter 7l

The Effects of Monopoly -- Spain and Portugal

by Adam Smith Icon
11 minutes  • 2144 words

127 The monopoly of the colony trade forced some British capital from all foreign trade of consumption to a carrying trade. It forced it from supporting British industry towards supporting the industry of the colonies and other countries.

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

Part of them such as linen from Germany and Holland are returned to the colonies for their consumption. The British capital which buys the tobacco which is exchanged for linen is withdrawn from supporting British industry. It instead supports the industry of the colonies and the industry of Germany and Holland.

129 The 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.

  • Her body is liable to many dangerous disorders which affect unproportioned bodies.
  • Her blood vessel was artificially swelled beyond natural by the industry and commerce forced to circulate in it.

A small stop in that great blood-vessel will very likely bring the most dangerous disorders on the whole political body.

The expectation of a rupture with the colonies has struck the British with more terror than the Spanish armada or a French invasion.

This terror rendered the repeal of the stamp act a popular measure among the merchants, at least.

If we were totally excluded from the colony market just for a few years=

Most of our merchants foresee an entire stop to their trade Most of our master manufacturers foresee the entire ruin of their business Most of our workmen foresee an end of their employment

A rupture with any of our European neighbours will cause some stop or interruption in the employments of some of these orders of people.

It is foreseen,without any such emotion.

If blood circulation is stopped in the smaller vessels, it easily disgorges itself into the greater vessels without creating any dangerous disorder.

“but, when it is stopped in any of the greater vessels, convulsions, apoplexy, or death, are the immediate and unavoidable consequences.”

Its overgrown manufactures were artificially raised through bounties or the monopoly of the home and colony markets.

If one of those overgrown manufactures is interrupted, it frequently causes:

  • A mutiny and disorder alarming to government
  • An embarrassment to the deliberations of the legislature.

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?

130 A 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.

Only this can enable her to withdraw some of her capital from this overgrown employment.

It can turn her capital towards other employments, though with less profit.

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.

Perfect liberty can alone preserve this natural balance.

Opening the colony trade all at once to all nations might create some temporary inconvenience.

It might create a great permanent loss to most of those presently engaged in it. Even the sudden loss of the employment of the ships which import the surplus tobacco might alone be felt very sensibly.

“Such are the unfortunate effects of all the regulations of the mercantile system!”

They introduce very dangerous disorders into the political body Those disorders are often difficult to remedy without creating greater short term disorders.

We must leave the following to the wisdom of future statesmen and legislators to determine=

How the colony trade should be gradually opened

Which restraints should be taken away first and which one taken away last.

How the natural system of perfect liberty and justice should be gradually restored.

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).

Five unforeseen events have very fortunately concurred to hinder Great Britain from feeling this total exclusion from the colony trade:

The North American colonies prepared themselves for their non-importation agreement.

  • They drained Great Britain completely of all the commodities fit for their market

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

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

The rising year on year demand of Northern Europe for British manufactures

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.

All these events, except the fourth, were transitory and accidental.

The continued exclusion from the colony trade may still create some distress.

This distress will come gradually.

It will be felt much less severely than if it came all at once.

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.

In many cases, it turned British capital from a direct foreign trade of consumption into a round-about one. In some cases, it turned British capital from a foreign trade of consumption into a carrying trade. In all cases, it turned British capital from a direction where it could maintain more productive labour into one where it can maintain fewer.

By suiting only to one market so much of British industry and commerce, the monopoly rendered them less secure than if they were accommodated to more markets.

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.

In its natural and free state, the colony trade= Encourages Great Britain to continually increase the surplus by continually presenting new equivalents to be exchanged for it. It does not draw produce from those markets previously sent to them. Increases the quantity of productive labour in Great Britain. It does not alter the direction of the labour previously employed there. Allow competition from other nations. It would hinder the profit rate from rising above the common level in the new market or new employment. The new market would not draw produce from the old market. It would create a new produce for its own supply. That new produce would be a new capital for carrying on the new employment. The new employment would draw nothing from the old market.

135 The colony trade monopoly, on the contrary, excludes foreign competition.

It raises the profit rate in the new market and the new employment.

It draws produce from the old market and capital from the old employment.

The avowed purpose of the monopoly is to increase our share of the colony trade beyond the natural.

If our share were no greater than without the monopoly, there could be no reason for establishing the monopoly.

More capital of the country is unnaturally forced into a trade where the returns are slower and more distant.

It renders all the productive labour and national produce less than they otherwise would be. It keeps down the revenue of the inhabitants of that country below what it would naturally rise to. It reduces their power of accumulation. It hinders, at all times, their capital from maintaining productive labour as it would otherwise maintain. It hinders their capital from increasing so fast as it would otherwise increase to maintain more productive labour.

136 The natural good effects of the colony trade more than counterbalance the bad effects of the monopoly on Great Britain.

The colony trade becomes greatly advantageous even with the monopoly. The new market and new employment opened by the colony trade are wider than the old market and old employment lost by the monopoly. The new produce and the new capital created by the colony trade maintain more productive labour in Great Britain than what was thrown out of employment by the revulsion of capital from other trades with more frequent returns. If the colony trade is advantageous to Great Britain, it is in spite of the monopoly, not because of the monopoly.

137 It for the manufactured than for the rude produce of Europe that the colony trade opens a new market.

Agriculture is the proper business of all new colonies. The cheapness of land renders agriculture more advantageous than any other business. They abound in the rude produce of land. They generally have a large surplus to export. In new colonies, agriculture= Draws hands from all other employments or Keeps them from going to any other employment There are few hands to spare for the necessary manufactures and none for the ornamental ones. They find it cheaper to purchase of manufactures of other countries than to make it themselves. The colony trade indirectly encourages its agriculture by encouraging European manufactures. The colony trade gives employment to European manufactures, which become a new and most advantageous market for rude produce. The trade to America greatly extends the home market for corn, cattle, bread and meat of Europe.

138 The monopoly of the trade of populous and thriving colonies is not alone sufficient to establish or maintain manufactures in any country.

This is demonstrated by Spain and Portugal. “Spain and Portugal were manufacturing countries before they had any considerable colonies.” They were once the richest and most fertile in the world but not anymore.

139 The bad effects of the monopoly in Spain and Portugal were aggravated by other causes.

These causes perhaps overbalanced the natural good effects of the colony trade= Other monopolies The degradation of gold and silver value below its value in most other countries The exclusion from foreign markets by improper taxes upon exportation The narrowing of the home market by more improper taxes on the transportation of goods Above all, that irregular and partial administration of justice which protects the rich and powerful debtor from his injured creditor. It makes the industrious afraid to prepare goods for those haughty and great men. The industrious dare not refuse to sell on credit despite being uncertain of repayment.

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.

These causes seem to be= The general liberty of trade which is at least equal or perhaps superior to any other country. The liberty of exporting, duty free, almost all sorts of domestic goods to almost any foreign country. More importantly, the unbounded liberty of transporting them from our own country to any other without= Being obliged to give any account to any public office Being liable to question or examination of any kind Above all, that equal and impartial administration of justice which renders the meanest British subject respectable to the greatest. This justice secures to every man the fruits of his own industry It gives the greatest and most effectual encouragement to every sort of industry.

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

The monopoly altered the quality and shape of some of British manufactures It accommodated to a market where the returns are slow and distant, instead of a market where the returns are frequent and near. It turned a part of British capital from an employment where it would have maintained more manufacturing industry to one where it maintains a much smaller. It diminished the whole quantity of manufacturing industry maintained in Great Britain.

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

It depresses the industry of all other countries and chiefly that of the colonies. It reduces the industry of the country for which is it is established.

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