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October 2013

The Other Adam Smith, Part 4

George Smith explores Adam Smith’s views on Columbus, smuggling, and education.

Yesterday was Columbus Day, so it is fitting that we consider what Adam Smith had to say about Christopher Columbus. Then we shall turn to Smith’s views on two other topics: smuggling and education.

1) “As historians have continued to learn and write more about the real life of Christopher Columbus, controversy has arisen over the validity of honoring the explorer as a hero.” This statement from History.com is misleading; the basic facts have been known for centuries, as illustrated by Adam Smith’s skewering of Columbus in Wealth of Nations (IV.vii.a). Columbus was no hero, according to Smith, who was highly critical of the first European explorers of the Americas.

Folly and injustice seem to have been the principles which presided over and directed the first project of establishing those colonies; the folly of hunting after gold and silver mines, and the injustices of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality.

In 1492, Columbus, with backing from the Spanish Crown, sailed west in the hope of finding a shorter route to the Far East. But the islands he happened across (later called the West Indies) bore no resemblance to the object of his quest. Nevertheless, Columbus refused to confront reality, fastening instead on some coincidences to buttress his “favourite prepossession, though contrary to the clearest evidence”—as when he called attention to the similarity between the names “Cibao” (a mountain in St. Domingo) and “Cipango” (the name given by Marco Polo to Japan). Later, when it became evident even to Columbus that he had failed to reach his intended target, “he still flattered himself that those rich countries were at no great distance.”

Columbus faced a potentially serious problem with the Spanish Crown. Finding nothing substantial in the way of riches that would impress Isabella and Ferdinand, he needed some way to represent his discoveries “as of very great consequence.” He therefore used the “little bits of gold with which the inhabitants ornamented their dress” to convince himself—and, he hoped, his sponsors as well—that the mountains of St. Domingo “abounded with the richest gold mines,” a treasure that would provide “an inexhaustible source of real wealth to the crown and kingdom of Spain.” Thus:

When Columbus, upon his return from his first voyage, was introduced with a sort of triumphal honours to the sovereigns of Castile and Arragon the principal productions of the countries which he had discovered were carried in solemn procession before him. The only valuable part of them consisted in some little fillets, bracelets, and other ornaments of gold, and in some bales of cotton. The rest were mere objects of vulgar wonder and curiosity….

As a result of this exhibition,

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. But the hope of finding treasures of gold there, was the sole motive which prompted to undertake it; and to give this motive the greater weight, it was proposed by Columbus that the half of all the gold and silver that should be found there should belong to the crown. This proposal was approved of by the council.

This critical account of Columbus should be viewed in the broader context of Smith’s opposition to the widespread belief (and mainstay of mercantilism) that a nation’s real wealth consists of its stock of gold and silver, instead of an abundance of affordable commodities that will improve the lives of consumers. It is foolish for a government to sponsor expeditions in search of precious metals.

Of all those expensive and uncertain projects…which bring bankruptcy upon the greater part of the people who engage in them, there is none perhaps more perfectly 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.

2) Since the eighteenth-century British government depended on import duties for much of its revenue, Adam Smith and many other proponents of free trade did not advocate abolishing all such duties. Rather, they distinguished between moderate duties needed to fund a government, and excessive duties designed to inhibit foreign trade and thereby establish monopolies for domestic industries. Although all duties, whatever their intended purpose, will affect commerce to some degree, Smith believed that some duties are more harmful than others; so he devoted a substantial part of Book V of Wealth of Nations (“Of the Revenue of the Sovereign or Commonwealth”) to exploring this problem.

Since Book V discusses sundry details about the finances of the British government in Smith’s day, modern readers may find it the least interesting part of Wealth of Nations. This is understandable, but as with other parts that may strike us as unappetizing—for example, the lengthy digression on the history of silver prices (in Book I)—we sometimes find fascinating tidbits buried in mountains of details. Two such tidbits in Book V are Smith’s comments about smuggling and his observations about education.

According to Smith, “the mercantile system [has] taught us, to employ taxation as an instrument, not of revenue but of monopoly.” Smith points out that high duties are typically advocated by commercial interests who wish to eliminate competition by pricing foreign commodities out of the market. Earlier in Wealth of Nations, he argued that consumers are invariably harmed by these monopolistic practices, and now, in Book V, he maintains that governments are also harmed, in the sense that their total revenue will decrease, not increase, with high duties. One reason for this counter-intuitive outcome is that prohibitive duties and taxes will spawn a thriving smuggling industry.

The high duties which have been imposed upon the importation of many different sorts of foreign goods, in order to discourage their consumption in Great Britain, have in many cases served only to encourage smuggling; and in all cases have reduced the revenue of the customs below what more moderate duties would have afforded. The saying of Dr. Swift, that in the arithmetic of the customs two and two, instead of making four, make sometimes only one, holds perfectly true with regard to such heavy duties….

Smith’s sympathy for smugglers is apparent. Although he did not condone breaking the laws of his government, Smith notes that a smuggler is frequently a good person who would never contravene the laws of “natural justice” by violating the rights of others. The average smuggler “would have been, in every respect, an excellent citizen, had not the laws of his country made that a crime which nature never meant to be so.”

The laws of “corrupted governments” command little respect. As the public comes to understand that some revenue laws serve special interests rather than the common good, disobedience is widely tolerated, even encouraged. This is typically the case with smuggling, which only becomes profitable when revenue laws become excessive and unreasonable. “Not many people are scrupulous about smuggling, when, without perjury, they can find any easy and safe opportunity of doing so.” Smith continues with a fascinating observation about people who claim to be offended by this widespread practice, and who refuse to purchase smuggled goods, when it is clear that the laws being violated were designed to line the pockets of special interests.

To pretend to have any scruple about buying smuggled goods, though a manifest encouragement to the violation of the revenue laws, and to the perjury which almost always attends it, would in most countries be regarded as one of those pedantic pieces of hypocrisy which, instead of gaining credit with any body, serve only to expose the person who affects to practise them, to the suspicion of being a greater knave than most of his neighbours.

Backed by public opinion, “the smuggler is often encouraged to continue a trade which he is thus taught to consider as in some measure innocent.” Thus, when government officials catch up with him, the smuggler views the use of violence as a legitimate way to defend his “just property.” Though initially more imprudent than criminal, the smuggler’s defensive actions may spiral out of control until “he at last too often becomes one of the hardiest and most determined violators of the laws of society.” This is the normal process that transforms many nominal criminals into real criminals. And after the capital of a smuggler has been confiscated by government, it is no longer used for productive purposes but is “absorbed either in the revenue of the state or in that of the revenue-officer, and is employed in maintaining unproductive [labor], to the diminution of the general capital of society, and of the useful industry which it might otherwise have maintained.”

3) Consult a general account of the history of education—the sort of text used in college classrooms– and you will probably find a brief discussion of Adam Smith. And in that account you will probably learn that Adam Smith advocated government schooling for poor children. In addition, you will probably learn that such education was regarded as necessary by Smith because of the effects of specialization in a free market. Repetitive, tedious jobs, Smith believed, can stunt one’s intellectual development, so public education should be available to poor children as a means of broadening their intellectual horizons.

The impression given in such selective overviews is that Smith understood the value of state education and was therefore a forerunner of later movements for state education in Britain, America, and elsewhere. This is the same treatment often afforded to Thomas Jefferson and his views on education. But, as I discussed in two previous essays, there is no doubt that Jefferson would have severely criticized the type of state education that we have today.

The same is true of Adam Smith, who repeatedly emphasized the role that market competition should play in education. Although the standard textbook account, summarized above, is true, it is also misleading if taken as representative of Smith’s general views on education. Textbook accounts rarely mention that, according to Smith, even schools for the “common people” should not be financed entirely (or even principally) at public expense. As Smith wrote in Wealth of Nations regarding “the most essential parts of education”—i.e., the ability “to read, write, and account”—for the common people:

The public can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate, that even a common labourer may afford it; the master being partly, but not wholly paid by the public; because if he was wholly, or even principally paid by it, he would soon learn to neglect his business.

Much more needs to be said about Adam Smith’s views on the relationship between education and competition, so I will continue this discussion in the final part of this series.

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