A demonstration of a somewhat similar character has been attempted by the Hedonistic school. They have shown how free competition always tends to direct production into such channels as will result in maximum utility, or, in other words, that it affords the best method of satisfying the actual demands of the market. But they have been very careful to note that social utility and ophelimity are two very different expressions that must never be confused, and that they have failed to find any scientific test of social utility.
Smith’s argument is unsatisfactory, and its foundation untrustworthy. We do not forget that his optimism is based not so much upon this specious demonstration as upon the great number of observations which he had occasion to make in the course of his work. This idea of a harmony between private interest and the general well-being of society was not put forward as a rigidly demonstrable a priori theory, open to no exceptions. It was rather a general view of the whole position—the conclusion drawn from repeated observations, the résumé of a detailed inquiry which had covered every corner of the economic field. A particular process of reasoning may have helped to confirm this conclusion, but the reasoning itself was largely based upon experience, the universal experience of history. It was the study of this experience that led to the discovery of a “vital” principle of health and progress in the “body social.” Smith would have been the first to oppose the incorporation of his belief in any dogma. He was content to say that “most frequently” and in a “majority of cases” general interest was satisfied by the spontaneous action of private interest. He was also the first to point out instances—in the case of merchants and manufacturers, for example—where the particular and the general interest came into conflict. We might cite many characteristic passages in which he takes pains to qualify his optimism.
Absolute his optimism was not, neither was it universal. In fact, it would not be difficult to prove that it was never intended to apply to anything other than production. Nowhere does the great Scotch economist pretend that the present distribution of wealth is the justest possible—a trait that distinguishes him from the optimists of Bastiat’s school. His optimism deserted him when he reached that portion of his subject. On the contrary, he showed that landed proprietors as well as capitalists “love to reap where they have not sown,” that inequalities in social position give masters an advantage in bargaining with their men.[210] In more than one passage he speaks of interest and rent as deductions from the produce of labour.[211] Smith, indeed, might well be regarded as a forerunner of socialism. There is no difficulty in believing, so far as the experience of old countries goes, that “rent and profit eat up wages and the two superior orders of people oppress the inferior one.”[212]
It is especially important that we should make a note of the opinions of those people who think that Smith intended his optimism to extend to distribution as well as to production. As a matter of fact he was too level-headed to entertain any such idea. Even Say himself in the last edition of his Treatise expresses some doubts as to the equity of the present system of distribution.[213] Smith was not really concerned with the question at all. It is only at a much later date, when the socialists had demonstrated the importance of the problem, that we hear of this belief in the beneficence of economic institutions. It really represents a reaction against the socialistic teaching and an attempt at a justification of the present methods of distribution.
We must beware of confusing Smith’s optimism with that of modern Hedonism, or of identifying it with Bastiat’s answer to the socialists. It lacks the scientific precision of the one and has none of the apologetic tone of the other. It is little more than a reflection prompted by the too naïve confidence of the eighteenth century in the bounty of “nature,” and an expression of profound conviction rather than the conclusion of a logical argument.
III: ECONOMIC LIBERTY AND INTERNATIONAL TRADE
The practical conclusion to which naturalism leads and to which Smith’s optimism points is economic liberty. So naturally does it proceed from what we have just said that the reader finds himself quite prepared for Smith’s celebrated phrases: “All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” As to the Government, or “sovereign,” as Smith calls him, “he is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interests of the society.”
Smith, following the Physiocrats, but in a more comprehensive and scientific fashion, finds himself driven to the same conclusion, namely, the wisdom of non-intervention by the State in matters economic.[214]
But here, as elsewhere in his work, the sense of the positive and the concrete, so remarkable in Smith, prevents his being content with a general demonstration. He is not satisfied with proving the inefficiency of intervention as compared with the efficiency of those institutions which are spontaneously created by society itself, but he attempts to show that the State, by its very nature, is unfitted for economic functions. His arguments have been the arsenal from which the opponents of State intervention have been supplied with ammunition ever since.
Let us briefly recall them.
“No two characters seem more inconsistent than those of trader and sovereign.”[215] Governments are “always, and without any exception, the greatest spendthrifts in the society.”[216] The reasons for this are numerous. In the first place, they employ money which has been gained by others, and one is always more prodigal of the wealth of others than of one’s own. Moreover, the Government is too far removed from the centres of particular industries to give them that minute attention which they deserve if they are going to prosper. “The attention of the sovereign can be at best but a very general and vague consideration of what is likely to contribute to the better cultivation of the greater part of his dominions. The attention of the landlord is a particular and minute consideration of what is likely to be the most advantageous application of every inch of ground upon his estate.”[217]
This necessity for a thorough cultivation of the soil and for the best employment of capital, for direct and careful superintendence, is an idea to which he continually reverts. He regrets, among other things, that the growth of public debts causes a portion of the land and the national capital to pass into the hands of fund-holders, who are doubtless interested in the good administration of a country, but “are not interested in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock.”[218]
Lastly, the State is an inefficient administrator because its agents are negligent and thriftless, not being directly interested in administration, but paid out of public funds. Should the administration of the land pass into the hands of the State he exclaims that not a fourth of the present produce would ever be raised, because of “the negligent, expensive, and oppressive management of his