Book IV, Chapter VII, 10

In England, by contrast, the natural benefits of colonial trade, assisted by other causes, have largely overcome the harmful effects of the monopoly. These causes appear to be the general freedom of trade, which, despite some restrictions, is at least as great as, and perhaps greater than, in any other country; the freedom to export, without duty, almost every kind of domestically produced good to almost any foreign country; and, perhaps more important still, the unlimited freedom to transport such goods from one part of our own country to another, without reporting to any public office or facing questioning or inspection of any kind. Above all, they include an equal and impartial administration of justice that makes the rights of the humblest British subject respected by the greatest and, by securing to everyone the fruits of his own industry, provides the strongest and most effective encouragement to every kind of industry.

Although colonial trade has certainly advanced the manufactures of Great Britain, it has done so not through the monopoly but despite it. The monopoly's effect has been not to increase the quantity of British manufactures, but to change the kind and form of some of them, adapting to a market whose returns are slow and distant what would otherwise have been adapted to one whose returns are frequent and near. It has consequently diverted some British capital from an employment that would have supported more manufacturing industry to one that supports much less, thereby diminishing, rather than increasing, the total manufacturing industry supported in Great Britain.

Thus the monopoly of colonial trade, like all the other petty and malicious devices of the mercantile system, depresses the industry of every other country, especially that of the colonies, while doing nothing to increase—and actually diminishing—the industry of the country it is designed to favor.

Whatever the size of that country's capital at any particular time, the monopoly prevents it from supporting as much productive labor, and providing as much revenue to its industrious inhabitants, as it otherwise would. Since capital can grow only through savings from revenue, by reducing the revenue it provides, the monopoly necessarily prevents capital from growing as fast as it otherwise would, and hence from supporting a still greater quantity of productive labor and providing still more revenue to those inhabitants. Thus the monopoly must always have made one great original source of revenue, the wages of labor, less abundant than it would otherwise have been.

By raising the rate of mercantile profit, the monopoly discourages improvements to land. The profit from improvement depends on the difference between what land actually produces and what it can be made to produce through the investment of a given capital. If this difference yields more profit than an equal capital could earn in any mercantile employment, land improvement will attract capital away from all such employments. If it yields less, mercantile employments will draw capital away from land improvement. Anything that raises the rate of mercantile profit therefore either diminishes the advantage or deepens the disadvantage of the profit from improvement: in the first case it prevents capital from going into improvement, and in the second it draws capital out of it. By discouraging improvement, the monopoly necessarily slows the natural growth of another great original source of revenue, the rent of land. By raising the rate of profit, moreover, it necessarily holds the market rate of interest higher than it otherwise would be. But the price of land relative to the rent it yields—the number of years' purchase commonly paid for it—necessarily falls as interest rises and rises as interest falls. The monopoly therefore injures the landlord's interest in two ways: by slowing the natural increase first of his rent and then of the price he could obtain for his land relative to the rent it yields.

The monopoly does raise the rate of mercantile profit and so increases our merchants' gains somewhat. But because it obstructs the natural growth of capital, it tends to reduce rather than increase the total revenue that the country's inhabitants derive from the profits of stock: a small profit on a large capital generally yields more revenue than a large profit on a small capital. The monopoly raises the rate of profit but keeps the total sum of profit from rising as high as it otherwise would.

The monopoly makes all the original sources of revenue—the wages of labor, the rent of land, and the profits of stock—much less abundant than they would otherwise be. To advance the small interest of one small group of men in one country, it harms the interests of every other group there and of everyone in every other country.

Only by raising the ordinary rate of profit has the monopoly proved, or could it prove, advantageous to any particular group. Beyond all the harmful effects on the country at large already described as necessary consequences of a higher rate of profit, there is one more destructive, perhaps, than all the others combined and, if experience is any guide, inseparable from it. A high rate of profit seems everywhere to extinguish the frugality otherwise natural to the merchant's character. When profits are high, that sober virtue appears unnecessary, and costly luxury better suited to his wealth. Yet owners of great mercantile capitals necessarily lead and direct the industry of every nation, and their example influences the habits of its industrious people far more than that of any other group. If an employer is careful and frugal, his worker is likely to be so as well; but if the master is dissolute and disorderly, the servant who works according to the pattern his master sets will model his life on his master's example too. Accumulation is thus prevented among precisely those who are naturally most inclined to accumulate, and the funds intended to support productive labor receive no addition from the revenues of those best placed to increase them. Instead of growing, the country's capital gradually dwindles, and the productive labor it supports decreases day by day. Have the exorbitant profits of the merchants of Cadiz and Lisbon increased the capital of Spain and Portugal? Have they relieved the poverty or encouraged the industry of those two impoverished countries? Merchants in those two cities have spent so lavishly that their exorbitant profits seem barely to have sufficed to maintain even the capitals that earned them, let alone increase the country's capital as a whole. Foreign capitals are entering the trade of Cadiz and Lisbon more and more every day, if I may put it that way. To drive foreign capital out of a trade for which their own capital grows more insufficient every day, the Spaniards and Portuguese try every day to tighten the galling bonds of their absurd monopoly still further. Compare the commercial habits of Cadiz and Lisbon with those of Amsterdam, and you will see how differently high and low profits of stock affect merchants' conduct and character. London's merchants, to be sure, have not generally become such magnificent lords as those of Cadiz and Lisbon; neither, however, are they usually such careful and frugal citizens as those of Amsterdam. Many of them are thought to be considerably richer than most of the former, and not quite so rich as many of the latter; but their rate of profit is commonly much lower than that of the former and considerably higher than that of the latter. Easy come, easy go, as the proverb says; and the ordinary standard of spending everywhere seems governed less by people's actual ability to spend than by how easily they think they can get money to spend.

Thus the single advantage the monopoly gives one group of men harms the general interest of the country in many different ways.

To found a great empire solely to create a nation of customers might at first seem a scheme fit only for a nation of shopkeepers. Yet it is wholly unsuitable for a nation of shopkeepers, but perfectly suited to a nation whose government is influenced by shopkeepers. Only statesmen of that kind could imagine any advantage in spending their fellow citizens' blood and treasure to found and maintain such an empire. Tell a shopkeeper, "Buy me a good estate, and I shall always buy my clothes at your shop, even if I have to pay somewhat more than they cost elsewhere," and you will find him in no hurry to accept. But if someone else buys you such an estate, the shopkeeper will be deeply grateful to that benefactor if he orders you to buy all your clothes at his shop. England bought a great estate in a distant country for some of her subjects who were uneasy at home. The price was very small: instead of thirty years' purchase, the usual price of land today, it was little more than the cost of the successive expeditions that first discovered the country, surveyed the coast, and took fictitious possession of it. The land was good and extensive. Its cultivators had plenty of fertile ground to work and were for a time free to sell their produce wherever they pleased. In little more than thirty or forty years (between 1620 and 1660), they became so numerous and prosperous that England's shopkeepers and other traders wished to monopolize their custom. Without claiming to have paid any part of the original purchase price or the subsequent cost of improvement, they petitioned parliament to confine America's cultivators to their shop from then on: first, to buy all the European goods they needed there; and second, to sell there all the parts of their own produce that those traders found it convenient to buy. They did not find it convenient to buy all of it. Some products, if imported into England, might interfere with their own trades at home. They were willing, therefore, to let the colonists sell those particular products wherever they could—the farther away, the better—and accordingly proposed limiting their market to countries south of Cape Finisterre. A clause of the famous act of navigation made this truly shopkeeper's proposal law.

Maintaining this monopoly has so far been the chief—or, perhaps more accurately, the sole—purpose of Great Britain's dominion over her colonies. The supposed great advantage of these provinces, which have never yet provided either revenue or military force to support the civil government or defend the mother country, lies in their exclusive trade. The monopoly is the principal mark of their dependence and the only fruit so far harvested from it. Whatever Great Britain has spent to maintain that dependence has really been spent to sustain the monopoly. Before the present disturbances began, the ordinary peacetime establishment of the colonies cost the pay of twenty regiments of foot; the cost of artillery, stores, and extraordinary provisions needed to supply them; and the cost of a substantial naval force kept constantly on duty to guard the immense coast of North America and our West Indian islands against the smuggling ships of other nations. The entire cost of this peacetime establishment was charged to the revenue of Great Britain, yet was the smallest part of what dominion over the colonies has cost the mother country. To find the full amount, we must add to its annual cost the interest on the sums Great Britain has spent at various times defending the colonies because she considers them provinces under her dominion. In particular, we must add the entire cost of the late war and much of the cost of the war before it. The late war arose entirely from a colonial quarrel; its entire cost, wherever in the world it was incurred, in Germany or the East Indies, should rightly be charged to the colonies. It exceeded ninety millions sterling, including not only the new debt contracted but the additional land tax of two shillings in the pound and the sums borrowed each year from the sinking fund. The Spanish war that began in 1739 was chiefly a colonial quarrel. Its principal object was to prevent searches of colonial ships engaged in contraband trade with the Spanish Main. All this expenditure was in reality a bounty paid to sustain a monopoly. Its professed purpose was to encourage manufactures and increase British commerce. Its actual effect has been to raise the rate of mercantile profit and enable our merchants to direct more of their capital than they otherwise would into a branch of trade with slower and more distant returns than most others. If a bounty could have prevented those two effects, it might well have been worth paying.

Under the present system of management, then, Great Britain gains nothing but loss from the dominion she exercises over her colonies.

In England, by contrast, the natural benefits of colony trade have largely overcome the harm from the monopoly, with help from other causes. One is the general freedom of trade, despite some restrictions, which is at least as great as, and perhaps greater than, in any other country. Another is the freedom to export almost every kind of domestically produced good to almost any foreign country without paying a duty. Perhaps still more important is the unlimited freedom to move these goods from one part of our country to another. No one has to report to a public office or undergo any questioning or inspection. Above all, justice is administered fairly and impartially. It makes the rights of the poorest British subject respected even by the most powerful. By securing to everyone the fruits of their work, it gives the strongest and most effective encouragement to every kind of industry.

Colony trade has certainly advanced British manufacturing. But it has done so despite the monopoly, not because of it. The monopoly has not increased the amount manufactured. It has changed the kind and form of some British manufactured goods, fitting them to a market whose payments arrive slowly and from far away. Otherwise they would have served a market with frequent, nearby returns. The monopoly has thus drawn some British capital away from a use that would support more manufacturing labor into one that supports much less. It has reduced, rather than increased, the total amount of manufacturing labor supported in Britain.

Like all the other petty and harmful devices of the mercantile system, the monopoly of colony trade holds back industry in other countries, especially the colonies. Far from increasing industry in the country it favors, it reduces it.

Whatever the amount of that country's capital at a given time, the monopoly prevents it from supporting as much productive labor or yielding as much revenue to its industrious people as it otherwise could. Capital grows only through savings from revenue. So by reducing revenue, the monopoly also slows the growth of capital. That in turn prevents it from supporting still more productive labor and yielding still more revenue to the country's industrious people. The monopoly must therefore always have reduced one major original source of revenue: wages of labor.

By raising merchants' profit rates, the monopoly discourages improvement of the land. The profit from improvement depends on the difference between what land now produces and what an investment of capital could make it produce. If that difference yields a higher profit than the same capital could earn in any mercantile occupation, capital will flow from those occupations into improving land. If it yields less, capital will move the other way. Anything that raises mercantile profits therefore either reduces improvement's advantage or increases its disadvantage. In the first case it keeps capital from flowing into improvement; in the second it draws capital away from improvement. By discouraging improvement, the monopoly slows the natural growth of another major original source of revenue, rent from land. It also raises profit rates and therefore keeps the market interest rate higher than it would otherwise be. The price of land relative to its rent—the number of years' rent usually paid to buy it—falls when interest rates rise, and rises when interest rates fall. The monopoly thus harms landowners in two ways. It slows the natural growth of both their rent and the sale price of their land relative to that rent.

The monopoly does raise mercantile profit rates and somewhat increases our merchants' gains. But by obstructing the natural growth of capital, it tends to reduce rather than increase the total revenue residents earn as profits of stock. A small profit on a large capital generally produces more revenue than a large profit on a small one. The monopoly raises the profit rate but prevents total profit from growing as high as it otherwise would.

The monopoly makes all three original sources of revenue—wages of labor, rent of land, and profits of stock—much smaller than they otherwise would be. To promote the narrow interest of one small group in one country, it harms every other group there and everyone in every other country.

Only by raising the usual profit rate has the monopoly benefited, or could it benefit, any particular group. A higher profit rate has all the harmful effects on the country already described. But it seems inseparably linked, if experience is a guide, with another effect perhaps worse than all the others combined. High profits seem everywhere to destroy the thrift normally found among merchants in other circumstances. When profits are high, thrift looks unnecessary, while costly luxury appears better suited to a merchant's wealth. Yet the owners of large mercantile capitals direct and lead a nation's industry. Their example influences the habits of industrious people much more than the example set by any other group. If an employer is careful and thrifty, workers are likely to be the same. If the employer lives extravagantly and without discipline, employees who follow the employer's direction at work will also follow that example in their lives. The people most disposed to accumulate capital thus fail to do so. Those who should add the most to the funds supporting productive labor add nothing from their revenue. Instead of growing, the country's capital gradually shrinks, and the amount of productive labor it supports declines day by day. Have the enormous profits of merchants in Cadiz and Lisbon enlarged the capital of Spain and Portugal? Have they eased the poverty or encouraged the industry of those two impoverished countries? Spending among merchants in those two trading cities has been so lavish that their huge profits seem barely enough to preserve the capital that earned them. Foreign capital is taking an ever greater part in the trade of Cadiz and Lisbon. Spanish and Portuguese merchants' own capital is increasingly inadequate to carry on that trade. Yet they try each day to tighten the painful restraints of their absurd monopoly to drive out foreign capital. Compare the habits of merchants in Cadiz and Lisbon with those in Amsterdam. You will see how differently high and low profits affect merchants' conduct and character. London merchants have not generally become such grand lords as the merchants of Cadiz and Lisbon. But they are not generally as careful and thrifty as Amsterdam's merchants either. Many London merchants are thought much richer than most merchants in Cadiz and Lisbon, though not quite as rich as many in Amsterdam. Their profit rate, however, is commonly much lower than the former's and considerably higher than the latter's. As the proverb says, easy come, easy go. People's usual spending habits seem to reflect not so much what they can actually afford as how easily they think they can earn money to spend.

So the one benefit the monopoly gives one group harms the country's general interest in many different ways.

At first, founding a great empire just to create a population of customers might seem an idea only a nation of shopkeepers would propose. But it makes no sense for a nation of shopkeepers. It makes perfect sense for a nation whose government is influenced by shopkeepers. Only statesmen of that kind could imagine a benefit in spending their fellow citizens' blood and money to found and maintain such an empire. Tell a shopkeeper, “Buy me a good estate and I will always buy my clothes from you, even if you charge more than other shops.” The shopkeeper is unlikely to accept. But if someone else buys you the estate, the shopkeeper will thank that person for ordering you to buy all your clothes at the shop. England bought a large estate in a distant country for some subjects who were unhappy at home. Its price was very low. Instead of the thirty years purchase ordinarily paid for land now, it cost little more than the equipment used to discover the place, survey the coast, and claim a fictitious possession of the country. The land was good and extensive. Its cultivators had plenty of good land and, for a time, were free to sell their produce wherever they liked. In little more than thirty or forty years (between 1620 and 1660), they became so numerous and prosperous that England's shopkeepers and other traders wanted exclusive rights to their custom. The traders did not claim to have paid any of the original purchase price or the later cost of developing the land. Even so, they petitioned parliament to require America's cultivators to deal only with their shop: first, to buy all the European goods they needed there; second, to sell there whatever produce the traders wanted to buy. The traders did not want to buy everything. Some colonial goods, if imported into England, would compete with trades they themselves conducted at home. They were happy for colonists to sell those goods wherever they could—the farther away, the better. They therefore proposed restricting their market to countries south of Cape Finisterre. A clause of the famous act of navigation made this truly shopkeeper's proposal into law.

The main purpose, or perhaps the sole purpose, of Britain's rule over its colonies so far has been to maintain this monopoly. Their exclusive trade is thought to be the main benefit of provinces that have never contributed either revenue or military forces to support the government or defend the mother country. The monopoly is the chief sign of their dependence, and so far the only benefit gained from it. Whatever Britain has spent to maintain that dependence has really been spent to support the monopoly. Before the present disturbances began, the regular peacetime costs of the colonies included the pay of twenty regiments of foot soldiers, plus the artillery, stores, and extra provisions they needed. They also included a very large naval force kept constantly in service to guard the immense coast of North America and the West Indian islands against smugglers from other nations. All these peacetime costs fell on British revenue. They were also the smallest part of what ruling the colonies has cost the mother country. To calculate the total, add the interest on sums Britain spent at various times to defend the colonies because it regarded them as provinces under its rule. In particular, add the entire cost of the recent war and much of the war before it. The recent war was entirely a dispute over colonies. Its whole cost should fairly be charged to them, wherever in the world the money was spent, whether Germany or the East Indies. It came to more than ninety millions sterling. That includes not only the new debt but the additional land tax of two shillings in the pound and the sums borrowed each year from the sinking fund. The Spanish war that began in 1739 was mainly a dispute over colonies. Its principal aim was to stop searches of colonial ships carrying on illegal trade with the Spanish Main. This entire expense is really a bounty paid to support a monopoly. Its supposed purpose was to encourage British manufacturing and expand British commerce. Its actual effect was to raise mercantile profit rates. It allowed our merchants to put more of their capital than they otherwise would into trade with slower, more distant returns than most other trades. If a bounty could have prevented those two outcomes, it might well have been worth paying.

Under the present system, then, Britain gains nothing but losses from the rule it claims over its colonies.