If we look for the fundamental ideas of Adam Smith,those which distinguish him most clearly from earlier writers,we are first struck by his cosmopolitanism.He was the precursor of Cobden in his belief that commerce is not of one nation,but that all the nations of the world should be considered as one great community.We may see how widely he had departed from the old national system of economy,by contrasting the mere title of his book,The Wealth of Nations,with that of Mun's treatise,England's Treasure in Foreign Trade.This cosmopolitanism necessitated a detailed refutation of the mercantile system.He had to prove that gold and silver were not more important than other forms of wealth;and that if we wanted to buy them,we could always do so,if we had other consumable goods to offer in exchange.But it might be objected:'What if a nation refuses to take your other goods,and wants your gold?'Adam Smith replied:'in that case,gold will leave your country and go abroad;as a consequence,prices will fall at home,foreigners will be attracted by the low prices to buy in your markets,and thus the gold will return.'I can give you an actual example from recent history to prove the truth of his deduction.During the potato famine of 1847,we had to import enormous quantities of grain from America,and as a consequence had to send there *16,000,000worth of bullion.Immediately prices rose in America and fell in England,English merchants discontinued buying in America,while American merchants bought largely in England,so that in the following year all the gold came back again.
Equally prominent in Adam Smith is his individualism,his complete and unhesitating trust in individual self-interest.He was the first to appeal to self-interest as a great bond of society.As a keen observer,he could point to certain facts,which seemed to bear out his creed.If we once grant the principle of the division of labour,then it follows that one man can live only by finding out what other men want;it is on this fact,for instance,that the food supply of London depends.This is the basis of the doctrine of laisser faire.It implies competition,which would result,so Adam Smith believed,in men's wants being supplied at a minimum of cost.In upholding competition he was radically opposed to the older writers,who thought it a hateful thing;but his conclusion was quite true.
Again it implies the best possible distribution of industry;for under a system of free competition,every man will carry on his trade in the locality most suitable for it.
But the principle of laisser faire breaks down in certain points not recognised by Adam Smith.It fails,for instance,in assuming that it is the interest of the producer to supply the wants of the consumer in the best possible manner,that it is the interest of the producer to manufacture honest wares.It is quite true that this is his interest,where the trade is an old-established one and has a reputation to maintain,or where the consumer is intelligent enough to discover whether a commodity is genuine or not.But these conditions exist only to a small extent in modern commerce.The trade of the present day is principally carried on with borrowed capital;and it may be a clever man's interest to sell as large a quantity of goods as possible in a few years and then throw up his business.Thus the interests of producer and consumer conflict,and it has been found necessary to pass Adulteration Acts,which recognise the non-identity of interest of seller and buyer.It was argued,indeed,in Parliament,when these acts were proposed,that consumers ought to take care of themselves,but the consumers are far too ignorant to do so,especially the poor who are the great consumers of the articles protected against adulteration.Adam Smith,moreover,could not foresee that internal free trade might result in natural monopolies.A conspicuous feature of our times is the concentration of certain industries in the hands of a few great capitalists,especially in America,where such rings actually dictate the prices of the market.Eighty-five per cent.of the Pennsylvania coal-mines,for instance,are in the hands of six or seven companies who act in combination.The easiest remedy for such monopolies would be international free trade;with international competition few could be maintained.Finally,in the distribution of wealth there must necessarily be a permanent antagonism of interests.Adam Smith himself saw this,when he said that the rate of wages depended on contracts between two parties whose interests were not identical.This being granted,we see that in distribution the 'harmony'of the individual and the public good is a figment.At the present day each class of workmen cares only for the wages of its own members.Hence the complete breakdown of the laisser faire system in the question of wages.We have been driven to attempt the establishment of Boards of Conciliation all over the country,thus virtually surrendering the principle.Nor is it true that self-interest tends to supply all our wants;some of our best institutions,such as hospitals,owe their existence to altruistic sentiment.These antagonisms were to come out more strongly than ever after Adam Smith's time.
There were dark patches even in his age,but we now approach a darker period-a period as disastrous and as terrible as any through which a nation ever passed;disastrous and terrible,because,side by side with a great increase of wealth was seen an enormous increase of pauperism;and production on a vast scale,the result of free competition,led to a rapid alienation of classes and to the degradation of a large body of producers.
