As it is conventionally dated, the Industrial Revolution took effect within Adam Smith's active lifetime, and some of its more significant beginnings passed immediately under his eyes; indeed, it is related that he took an active personal interest in at least one of the epoch-making mechanical inventions from which the era of the machine industry takes its date. Yet the Industrial Revolution does not lie within Adam Smith's "historical present," nor does his system of economic doctrines make provision for any of its peculiar issues. What he has to say on the mechanics of industry is conceived in terms derived from an older order of things than that machine industry which was beginning to get under way in his own life-time; and all his illustrative instances and arguments on trade and industry are also such as would apply to the state of things that was passing, but they are not drawn with any view to that new order which was then coming on in the world of business enterprise.
The economic situation contemplated by Adam Smith as the natural (and ultimate) state of industry and trade in any enlightened society, conducted on sane and sound lines according to the natural order of human relations, was of a simple structure and may be drawn in few lines, -- neglecting such minor extensions and exceptions as would properly be taken account of in any exhaustive description. Industry is conceived to be of the nature of handicraft; not of the nature of mechanical engineering, such as it has in effect and progressively come to be since his time. It is described as a matter of workmanlike labor, "and of the skill, dexterity and judgment with which it is commonly applied." It is a question of the skilled workman and his use of tools. Mechanical inventions are "labor-saving devices," which "facilitate and abridge labor." The material equipment is the ways and means by manipulation of which the workman gets his work done. "Capital stock" is spoken of as savings parsimoniously accumulated out of the past industry of its owner, or out of the industry of those persons from whom he has legally acquired it by inheritance or in exchange for the products of his own labor. Business is of the nature of "petty trade" and the business man is a "middle man" who is employed for a livelihood in the distribution of goods to the consumers. Trade is subsidiary to industry, and money is a vehicle designed to be used for the distribution of goods. Credit is an expedient of the needy; a dubious expedient. Profits (including interest) are justified as a reasonable remuneration for productive work done, and for the labor-saving use of property derived from the owner's past labor. The efforts of masters and workmen alike are conceived to be bent on turning out the largest and most serviceable output of goods; and prices are competitively determined by the labor-cost of the goods.
Like other men Adam Smith did not see into the future beyond what was calculable on the data given by his own historical present; and in his time that later and greater era of investment and financial enterprise which has made industry subsidiary to business was only beginning to get under way and only obscurely so. So that he was still able to think of commercial enterprise as a middle-man's traffic in merchandise, subsidiary to a small-scale industry on the order of handicraft, and due to an assumed propensity in men "to truck, barter, and exchange one thing for another." And so much as he could not help seeing of the new order of business enterprise which was coming in was not rated by him as a sane outgrowth of that system of Natural Liberty for which he spoke and about which his best affections gathered. In all this he was at one with his thoughtful contemporaries.
That generation of public-spirited men went, perforce, on the scant data afforded by their own historical present, the economic situation as they saw it in the perspective and with the preconceptions of their own time; and to them it was accordingly plain that when all unreasonable restrictions are taken away, "the obvious and simple system of natural liberty establishes itself of its own accord." To this "natural" plan of free workmanship and free trade all restraint or retardation by collusion among business men was wholly obnoxious, and all collusive control of industry or of the market was accordingly execrated as unnatural and subversive. It is true, there were even then some appreciable beginnings of coercion and retardation -- lowering of wages and limitation of output -- by collusion between owners and employers who should by nature have been competitive producers of an unrestrained output of goods and services according to the principles of that modern point of view which animated Adam Smith and his generation; but coercion and unearned gain by a combination of ownership, of the now familiar corporate type, was virtually unknown in his time. So Adam Smith saw and denounced the dangers of unfair combination between "masters" for the exploitation of their workmen, but the modern use of credit and corporation finance for the collective control of the labor market and the goods market of course does not come within his horizon and does not engage his attention.
