Adam Smith concludes Part #12 of his 1784 pamphlet (paragraphs 49 to 54 on pp. 45-47) with a series of timeless observations that are worth quoting in full. First and foremost (para. 49), Smith puts his cards on the table:

“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.” (Smith 1784, p. 45, my emphasis)

In other words, the economy should serve the people who buy goods, not the firms who make goods. Furthermore, Smith elevates this general principle into an economic axiom: “Th[is] maxim is so perfectly self-evident that it would be absurd to attempt to prove it.” (Id.)

But in light of his comprehensive survey of Britain’s protectionist laws (see, for example, my previous posts from this week), Smith concludes that “the mercantile system” inverts this “perfectly self-evident” axiom in the most perverse way imaginable. (See the rest of para. 49 as well as paras. 50 & 51.) Or in the immortal words of Adam Smith:

“But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

“In the restraints upon the importation of all foreign commodities which can come into competition with those of our own growth or manufacture, the interest of the home-consumer is evidently sacrificed to that of the producer. It is altogether for the benefit of the latter that the former is obliged to pay that enhancement of price which this monopoly almost always occasions.

“It is altogether for the benefit of the producer that bounties are granted upon the exportation of some of his productions. The home-consumer is obliged to pay, first, the tax which is necessary for paying the bounty, and secondly, the still greater tax which necessarily arises from the enhancement of the price of the commodity in the home market.” (Id.)

Smith then dons his historian’s cap to provide a specific example of this perverse mercantile inversion (para. 52), the 1703 Methuen Treaty between England and Portugal:

“By the famous treaty of commerce with Portugal, the consumer is prevented by high duties from purchasing of a neighbouring country a commodity which our own climate does not produce, but is obliged to purchase it of a distant country, though it is acknowledged that the commodity of the distant country is of a worse quality than that of the near one. The home-consumer is obliged to submit to this inconveniency in order that the producer may import into the distant country some of his productions upon more advantageous terms than he would otherwise have been allowed to do. The consumer, too, is obliged to pay whatever enhancement in the price if those very productions this forced exportation may occasion in the home market.” (Id. at p. 46)

Next (para. 53), Smith not only unleashes another powerful barrage against British mercantilism (cf. his 26 October 1780 letter to Andreas Holt, where Smith describes the first two editions of The Wealth of Nation as “the very violent attack I had made upon the whole commercial system of Great Britain”); he launches a frontal assault against the pro-business logic of British colonialism. Smith’s attack against colonialism is so sweeping that it is worth quoting in full:

“But in the system of laws which has been established for the management of our American and West Indian colonies, the interest of the home-consumer has been sacrificed to that of the producer with a more extravagant profusion than in all our other commercial regulations. A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expence of maintaining and defending that empire. For this purpose, and for this purpose only, in the two last wars, more than two hundred millions have been spent, and a new debt of more than a hundred and seventy millions has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit which it ever could be pretended was made by the monopoly of the colony trade, but than the whole value of that trade, or than the whole value of the goods which at an average have been annually exported to the colonies.” (Id.)

But Smith saves his best for last! He identifies the “contrivers of this whole mercantile system”, the economic and political swindlers for whose benefit this perverse colonial/mercantile system was erected and is still kept in place. Stay tuned, for we will reveal these con men by name in my post! (To be continued …)