“In consequence of the representations of Columbus, the council of Castile determined to take possession of countries of which the inhabitants were plainly incapable of defending themselves. The pious purpose of converting them to Christianity sanctified the injustice of the project.” (WN, IV.vii.a.15)

Adam Smith explores the economics of colonialism in Book IV, Chapter 7 of The Wealth of Nations. In summary, Smith divides this chapter into three distinct and separate subsections as follows:

• Part 1 is the shortest subsection of this chapter (it contains only 22 paragraphs) and is titled “Of the Motives for establishing new Colonies.” (WN, IV.vii.a)
• Part 2 is titled “Causes of Prosperity of New Colonies” and contains 64 paragraphs. (WN, IV.vii.b)
• Part 3, by far the longest subsection of this chapter, consisting of 108 paragraphs in all, is titled “Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope.” (WN, IV.vii.c)

Let’s begin with Part 1. Here, Smith surveys the history of colonialism — beginning with ancient Greece and Rome up to the “discovery” of the Americas by Christopher Columbus — and concludes that “[t]he interest which occasioned the first settlement of the different European colonies in America and the West Indies was not altogether so plain and distinct as that which directed the establishment of those of ancient Greece and Rome.” (WN, IV.vii.a.1) So, what is this common motive or common thread? According to Smith, it is one of two motives: an “irresistible necessity” or a “clear and evident utility.” (WN, IV.vii.a.3)

More specifically, it was population growth that drove many small Greek city states to establish colonies overseas: “All the different states of ancient Greece possessed, each of them, but a very small territory, and when the people in any one of them multiplied beyond what that territory could easily maintain, a part of them were sent in quest of a new habitation in some remote and distant part of the world.” (WN, IV.vii.a.2) In the case of ancient Rome, by contrast, the main motive for the establishment of new colonies was land scarcity: “The people became clamorous to get land, and the rich and the great, we may believe, were perfectly determined not to give them any part of theirs. To satisfy them in some measure therefore, they frequently proposed to send out a new colony.” (WN, IV.vii.a.3) But in the case of the Americas, it was greed — plain and simple — that motivated the Spanish colonial system:

“It was the sacred thirst of gold that carried Oieda, Nicuessa, and Vasco Nugnes de Balboa, to the Isthmus of Darien, that carried Cortez to Mexico, and Almagro and Pizzarro to Chili and Peru. When those adventurers arrived upon any unknown coast, their first inquiry was always if there was any gold to be found there; and according to the information which they received concerning this particular, they determined either to quit the country or to settle in it.” (WN, IV.vii.a.17)

More importantly, as Smith goes on to show, it was the theft of these riches that ultimately led to Spain’s economic decline and downfall! For starters, from a “micro” or individual perspective, this greedy quest, this “sacred thirst of gold”, bankrupted most of the Spanish adventurers who went to the Americas in search of gold and silver:

“Of all those expensive and uncertain projects, however, which bring bankruptcy upon the greater part of the people who engage in them, there is none perhaps more ruinous than the search after new silver and gold mines. It is perhaps the most disadvantageous lottery in the world, or the one in which the gain of those who draw the prizes bears the least proportion to the loss of those who draw the blanks: for though the prizes are few and the blanks many, the common price of a ticket is the whole fortune of a very rich man.” (WN, IV.vii.a.18)

More importantly, from a “macro” or global perspective, this avaracious and unholy quest also ended up bankrupting the entire kingdom of Spain! Or in the immortal words of Adam Smith:

“The same passion which has suggested to so many people the absurd idea of the philosopher’s stone, has suggested to others the equally absurd one of immense rich mines of gold and silver. They [the Spanish colonizers] did not consider that the value of those metals has, in all ages and nations, arisen chiefly from their scarcity ….” (WN, IV.vii.a.19)

Thus far, Smith’s main focus has been on his fellow European colonizers. What about the colonized? (To be continued …)