3.4 How Commerce Contributed to the Improvement of the Country
Where manufacturing and commerce are established, they increase the wealth not only of those who directly profit from their operations, but to the whole of the vicinity in which they are situated.
Indirect Benefits of Manufacturing and Commerce
Aside of the profit of their operations, they benefit the surrounding area in three significant ways:
- By providing goods that can be acquired in exchange for rude product, those who labor to produce rude product have incentive to produce in excess of their own needs, in order to trade for these goods. While it is possible to trade for rude goods from further locations, it is more convenient and inexpensive for them to be transported from the immediate vicinity.
- Where merchants obtain wealth, it is common for them to invest it in production in the vicinity, and a merchant is accustomed to employing his money in profitable endeavors - he is not, as is the country gentleman, timid of making great investment in the improvement of land because he recognizes it as an investment on which he will earn a return, rather than a needless expense.
- Finally, those who participate in manufacturing and commerce generally recognize the value of "good government," recognizing that prosperity is better served by a situation in which men are at peace with one another and whose efforts can be spent on their own improvement rather than in a continual state of ware with their neighbors and contention with one another.
The Consequences of a Lack of Commerce
The fundamental consequence to a locality in which neither manufacturing nor commerce occurs is stagnation.
Without manufacturing or commerce, the only use have of anything they produce is its immediate consumption. They need produce only that which is sufficient for their own maintenance, as any surplus production is wasted. The traditional festivals of Europe coincide with seasonal harvest, and what is mistaken for acts of celebration were, in more practical terms the gluttonous consumption of surplus. Any goods remaining in storage before the harvest, and any product of the harvest that exceeded the capacity of the storage, was waste - and since it could not be traded, it was immediately consumed. The lavish hospitality of the privileged class was likewise characterized as the disposal of surplus stores of goods that could be used for no other purpose.
Most often, however, the lack of ability to make productive use of surplus was incentive for the people to produce no more than was necessary for their consumption. The idleness of the laborer was promoted not by any flaw of character, though it may have been characterized as such, but by the lack of any incentive to be productive beyond a certain level.
The Manorial System
It is essentially incorrect to regard the feudal system as one in which the king held supreme dominion over all his kingdom. The power in this system rested upon the body of landed lords, who commanded their manors and had power over their armies. A rebel lord might be suppressed by the coordination of several others against him, but where the lords stood united, the king had little power to contradict their will, himself having the direct loyalty of no more significant body of troops than his own manor could provide.
In this way, the greater kingdoms of Europe were no more than a loose federation of manors under the coordination, but not necessarily the command, of higher ranks of nobility who had little inherent power. Though, in the normal course of events, lords of manors granted loyalty to their nobility, each manor was to its inhabitants a kingdom unto itself, and the nobility were unable to interfere in the internal operations of a manor.
It is considered that the commercial system is largely to be credited with the progress of society toward manufacture and trade, coordinating the trade of goods among manors, and the manufacture of goods for trade. This may have been done with the permission of a lord, but it was seldom established at his insistence.
There seems to be some notion here, indirectly expressed, of collectivism in the culture of manors. What the lord required of his peasants was taken from all of them - and while the demands of the lord must be met by all of them, they were not visited on any specific one of them. In this way, there was no incentive for a man who is more able than his neighbors to produce to the level of his ability: the more he produced, the more would be taken, and thus there was no incentive for him to be especially productive.
The Tenant System
As previously noted, land was granted to free men of the towns by the lords of certain estates, in exchange for a fixed sum of rent. Such lands were highly productive in comparison to those worked by feudal serfs that the lords of estates recognized the wisdom of this arrangement. It was likewise amenable to the pleasantly, the alternative being to labor in the fields of the lord with no recompense besides mere sustenance by a portion of their own produce. And as such, the practice of tenancy grew, to the point where it supplanted serfdom.
Extending the length of leases, as previously mentioned, was also necessary to the maintenance of a tenant system, as a tenant faced with the potential to be evicted from land to which he had made improvements had little interest in improving the land at all. A tenant with a long-term lease and the ability to seek reparations for unjust eviction became more productive, and their greater production resulted in surplus of goods to support additional population who produce non-essential goods to trade for rude materials grown on farms.
Redistribution of Wealth
While it does not relate to the present subject, Smith also remarks that the commercialization of a society creates greater social mobility of the people. In countries that have little commerce, dynasties are common, as wealth is maintained within a small number of families and is not redistributed by trade.
In countries where there is considerable trade, wealth passes from one hand to another, and a man may amass and maintain wealth as his productive ability and prudence dictate. As such, it is possible for the idleness and wastefulness of a single generation to squander the fortune of a family that has passed to his hands from previous generations, though the ruin of his own fortune is to the profit of the productive members of society on whom his family fortune is traded for the purposes of serving his own amusement and folly.
Economic Progress of Nations
Smith considers the progress of the several of the nations of his time:
Progress is proceeding most rapidly in North America, largely by virtue of the vast tracts of land that can be "had for almost nothing" and rapidly developed - and the purchase and development of land is "the most direct road to fortune." While growth of population in Europe is such that the population has not doubled for at least 500 years, the population of North America doubles roughly every twenty to twenty-five years. There is virtually no government restriction or imposition to be spoken of, and law is supportive rather than restrictive of production.
England, on account of the natural fertility of the soil and the greater extent of sea-coast and navigable rivers, is perhaps better situated than other countries in Europe for the productive use of land and maritime trade. For the past few centuries, its monarchs have been supportive of commerce and trade, more protective of the rights of tradesman and farmers than other nations of Europe, and has made much progress along the road to prosperity.
The fortunes of France, meanwhile, have been inconsistent: it at one time had a considerable share of foreign commerce and maritime trade, but the cultivation and improvement of France's interior has lagged behind, the law of the country having never been as encouraging of agriculture and commercial development.
Spain and Portugal have made little progress in their own nations in terms of agriculture and commerce. While they are both considerable naval powers and have significant holdings in wealthy lands in the southern part of America, they do not colonize so much as loot the new world of its bounty, incurring the expense of conquest of remote peoples for rewards that, while at times great, are nonetheless inconsistent.
Italy is the only great nation of Europe that has been extensively improved by means of foreign commerce and the manufactures of wares, serving as the gateway to Europe for the agricultural product of the African continent and luxury goods of the East. However, the capital acquired in any country by commerce and manufacture alone is "precarious and uncertain" unless it is supported by the production of raw materials in its countryside, in which Italy is sorely lacking. A merchant can easily move his trade from one country to another, and trade routes can shift, leaving the country bereft of its income and left little improved, but for vacant shops and warehouses.