4.7 Colonies
The establishment of colonies dates back to the classical era. The Greeks resided in small city-states in close proximity to contentious neighbors. There was little arable land, and some difficulty in developing farmlands further from cities, where the farmer and his crops would be vulnerable. This limited the size of nations to that of a city and the surrounding countryside. While some would leave their cities to find land elsewhere, the result was not the expansion of the city-state, but the establishment of an entirely new one.
The Romans too a different approach: the land close to Rome being collected in the hands of a small number of wealthy families and farmed by slave labor, there was no opportunity to other citizens to obtain land near Rome. To alleviate the problem, Rome established outposts in more remote locations, called "colonia" (roughly translated, "plantation"), to increase the agricultural product to meet the needs of the growing body of citizens. These outposts would be safeguarded by a garrison of Roman troops and the individuals who settled in these locations remained citizens of Rome. An outpost could be founded in this way at some great distance from the Roman nation.
While it can be said that the establishment of European colonies was not driven strictly by necessity, it remained true that there remained no "free" land to be claimed in Europe, and that those who held land would not be parted of it. And while it was possible to trade with the savage peoples in the more remote locations of the world, such trade was not stable or dependable.
The American Gold Rush
Smith provides a fairly detailed overview of discovery and exploration in the Asian subcontinent, the pacific islands, and the Americas that, for a few hundred years, yielded little in the may of merchantable goods. The exotic plants and animals of newly discovered lands were a matter of curiosity, but seldom constituted much volume of trade. The discovery of gold, however, aroused no small interest in claiming ownership of lands in the new world, and resulted in undertaking projects of considerable size and duration in exploration for the sake of acquiring gold from the new world.
Smith refers to the search for gold in the new world as "the most disadvantageous lottery in the world," as many fortunes were squandered on expeditions and mining operations to reap a bounty that turned out to be a great deal less convenient to obtain than was purported.
Once the gold had been looted from the natural inhabitants, they found no gold or silver mines that were "worth the working." It was more than a century after the first settlement of Brazil before any gold or silver mines were discovered there, and in all the other expeditions of the English, French, and Dutch, none have ever yet been discovered.
On the other hand, the settlements that sprang up in support of gold expeditions thrived, providing by means of a fertile land more provisions than were needed to support the expeditions as well as themselves, and found in this the real wealth available in the new world.
Colonial Progress Toward Prosperity
European settlers to the new world found a land sparsely populated, rich in resources, and well removed from the concerns of the established societies from which they departed. Whereas the savage peoples of a largely vacant land do not develop economically, being able to sustain themselves with simple tools and a nomadic lifestyle, colonists arrived from lands that have been more densely populated for centuries bring with them the knowledge of agriculture and the practical arts. Given a new land with more resources than they were capable of putting to productive use, and no taxes or government to obstruct them from being productive, they proved capable of great feats of productivity, progressing rapidly to "wealth and greatness."
Even for the common laborer, the new world promised a great bounty: the population of colonists being sparse, there was great need for labor to clear and cultivate the land, which continues to attract population in search of higher wages than can be had at home. The combination of high wages and cheap land made for rapid progress for the common farm laborer to become master of his own estate.
This pattern has some historical precedent. Reflecting again on the classical age, the progress of many of the ancient Greek colonies is reported to have been very rapid, and in the course of a few centuries they rivaled or surpassed their mother cities in the productivity and wealth of their people, not only in the practical trades, but also in the "arts of refinement" such as philosophy and poetry. The colonists had plenty of good land, and being independent of their mother cities, were at their liberty to manage their own affairs to suit their own interest and benefit. This history of Roman colonies, however, is somewhat less brilliant - while equal in the availability of land and resources, they were managed and controlled by Rome, which prevented them from achieving prosperity.
The progress of colonies of various sates can be considered in terms of the Greek and Roman models, in that the degree to which the mother country refrained from imposing its rule on the colonies, the greater the prosperity of colonies, not merely from the relief of heavy taxes, but in that the lack of a threat to commandeer their profits made them more industrious in pursuing development and undertaking risk.
The crown of Spain has, among colonial powers, most demanding of its colonies, the primary interest being the pursuit of gold and silver. It might be more accurate to take the perspective that Spain had no intention of colonization - it sent forth men to fetch back gold sand had little interest in developing the land for any other purpose. As such, their colonies were not intended to be self-sustaining communities, but more in the nature of military encampments, for the provisioning of expeditions. Cultivation of the land was not a means to export crops, but merely a way of generating provisions more cheaply than shipping them from Europe.
In spite of Spain's intentions, the progress of the Spanish colonies was still very rapid and great - though it is suspected that the progress largely occurred after the destruction of the Spanish Armada rendered it unable to be as consistent and effective in the suppression of its territories. The city of Lima, founded as a raiding base, has grown to fifty thousand inhabitants, and Quito "which had been a miserable hamlet of the native population" is represented as being equally as populous. While there is no direct evidence of this, the influence of European agriculture is likely to be credited, the population of a nation being determined entirely by its ability to feed its citizens. So in spite of the "cruel destruction of the native" during the initial conquest, Spain left its colonies far more prosperous than they had been before.
The Portuguese settlement of Brazil has fared far worse, though not entirely of the same causes: the ongoing conflict between the Portuguese and Spanish at home left the Brazilian colonies unprotected, against the attacks of the Dutch who gained possession over half the land. When the Spanish incited the Dutch, they became friends to the Portuguese, but continued in their oppression against the Portuguese colonists, who eventually rebelled and overtook their oppressors and regained possession of Brazil. The perpetual conflict was devastating to the development of the colony.
The small islands of St. Thomas and Santa Cruz are the only territories in the new world ever to be possessed by the Danes, and purpose toward which they were directed were entirely commercial: these were ports of trade to supply the goods needed by colonies, in exchange for their local goods to be traded back to Europe. While the islands were originally run by a government-established mercantile company, the King of Denmark later dissolved the company and left the colonists to manage their own affair - and since that time, these colonies have enjoyed great prosperity.
The French approach to the management of Canada was similar to the approach taken by the Spanish: in effect, they sought to strip the land of its natural resources while undertaking as little effort as possible to foster the growth and development of it colonies, and inflicted upon its colonists so unfavorable an administration as to thwart production and discourage emigration. However, the few French colonies that were founded in the Caribbean for the purpose of cultivating sugar were maintained with much more gentle authority - largely out of necessity, as the "French" colony of St. Domingo was established by pirates and smugglers who neither required the protection nor acknowledged the authority of France, and had good means to resist oppression. As such, it was necessary for France to treat with its Caribbean colonies with greater reluctance and diplomacy, and with a lack of such interference, some of them grew to great prosperity.
Of all the colonies in America, those established by the English experienced the most rapid and sustainable progress. The primary reasons for the prosperity were (1) the consideration of colonies as a land to develop for the purpose of agriculture rather than merely to be looted of natural resources and (2) the degree of liberty granted to colonists to manage their affairs in their own way. The latter, more than the former, is credited for the success of the American colonies, as the lands claimed by the English were in many ways inferior to those of the Spaniards, French, and Portuguese yet, by virtue of the willingness of the colonists to labor for their improvement, provided much more abundant yields than any of the other three nations.
Smith enumerates some of the specific ways in which the English were less oppressive of their colonists:
- The grant and sale of uncultivated land came with the obligation to improve and cultivate it, and failure for doing so would result in any neglected lands being grantable to another person.
- There were no restrictions on the transference of land, such that a landowner could parcel out his land to give or sell to anyone who could make productive use of it - as opposed to restrictions that would cause parcels of land to remain intact in the hands of fewer owners.
- England left the government of the colonies to the colonists. Of particular note is that, there being no nobility, most holders of public office were elected and salaried, and stood to gain no personal profit by the implementation of harsh taxes or the manipulation of trade.
- While the other colonial powers required a monopoly of its colonies, compelling the colonists to trade only with their mother country, generally to the disadvantage of the colony. England permitted its colonies to conduct commerce at their own discretion, importing and exporting to their greatest advantage.
There follows a fairly lengthy "enumeration" of commodities produced in the colonies (EN: I had meant to condense it, but even the condensed version seemed to contribute little of value - it's a simple enumeration of goods of various kinds, comments on the vast quantity and quality, as well as of goods uniquely produced in America. Suffice to say it was an immense volume of a wide variety of things, likely difficult for the readers of Smith's time to conceive, but which would not be surprising to those in the present day.)
The main exception to the liberal attitude of the English toward the production of America was in manufactured goods. The American colonists could trade in raw cotton and thread, but were forbidden to export finished cloth or even to trade it among themselves. The colonies were greatly encouraged to produce pig iron, but it was forbidden to erect a smeltery or furnace.
It was in this manner that England engaged in the economic exploitation of its colonies: to require the colonists to deal only in crude materials, and to sell back to the colonies finished goods made in England. In this way, a shipment of cotton from Georgia would arrive in England, be woven into cloth, then sold back to the very farmers who had grown the cotton at considerable mark-up.
Smith asserts that "to prohibit a people from making all they can of every part of their own producer ... is a manifest violation of the most sacred rights of mankind." In more practical terms, it was plain to those in the colonies that they were being exploited, and recognized it was only English law that prevented them from manufacturing goods of their materials, which contributed to resentment of English rule in the colonies. (EN: Smith stops short of mentioning the revolution in his work, which likely was unknown to him when the first edition was published, and likely unwise of him to discuss in the years shortly afterward. Even to suggest that it was the "right" of Americans to have control of their own manufacture was likely risking charges of treason.)
Value of Colonies to Europe
The surplus product of the colonies provided Europeans with a breadth of commodities they could not have otherwise possessed. Aside of the unique product of the new world - the produce of plants that do not grow and cannot be cultivated in the European climate - there came also the great surplus of common goods, such as cotton, wheat, and timber in excess of what could be produced domestically.
Some of these goods were consumed, contributing to the quality of life of the European people, others contributed to the industry, providing crude materials for manufacture of other goods, which could also be consumed to contribute to quality of life or traded back to the American market to obtain wealth - and wealth is but a means to ensure future prosperity.
Nations that established colonies benefited directly, but there was also an indirect benefit to European nations (such as Hungary and Poland) that did not have any colonies abroad. Even where direct trade did not occur, they would trade indirectly through the colonizing nations, and the prices of commodities dropped considerably for all consumers in the European market.
Naturally, this did not occur in equal measure. While the other countries of Europe paid a lower price for imported commodities and a higher price for exported manufactures, it was generally not as beneficial to them as it was to the nations that established colonies. Especially in the case of indirect trade, the European mother country would profit from exchange by adding a margin of its own profit to the trade of goods with the new world.
Colonizing nations also benefited from significant tax revenue from their colonies, some in greater degree than others, which enabled their princes to provide more services to their subjects and burden them with less taxes at home.
Smith also mentions military forces, though he acknowledges that colonies did not furnish any soldiers to defend their mother countries (EN: a situation that would change significantly a few generations later), but provided supplies that enabled more Europeans to participate in military service (goods from America enabling more of the population to abandon their civilian occupation to serve), provided materials and supplies in support of European armies, provided taxes to fund military payrolls, and other benefits that supported European military forces.
England profited most greatly from agricultural production in the colonies, by virtue of general trade as well as monopoly control over certain commodities, which were both consumed domestically and re-exported to other nations of Europe at substantial profit.
Specific attention is given to the tobacco of Maryland and Virginia, superior in quality to that grown in other parts of the world, and available in great abundance. By restricting trade, England became a wholesaler of tobacco to Europe, such that the product was more expensive in other countries than in England, but still cheaper and better than domestic alternatives. But in so doing, England robbed America of the profits of free trade, and robbed Europe of their ability to have tobacco at a fair price.
It's also suggested that the availability of cheap materials caused a general decay in domestic production. While it was immediately of benefit to England to migrate its population from the farms to the factories, this degraded the domestic productive capabilities. In effect, a greater proportion of citizens ceased farming cotton and became mill-workers, to their greater profit - but any interruption in trade that deprived England of American cotton resulted in widespread unemployment, with no domestic crop to feed the mills.
Later, through the "Act of Navigation," England took a monopoly on the trade of all goods from the colonies by prohibiting by varying degrees the transportation of American cargo on any but English ships. While the Americas were free to trade with other nations of Europe, the British had control of the channels of transport, enabling them to control the flow of goods to their liking and to enjoy monopoly profits (and impose monopoly prices) on the transportation of goods.
Thus, by degrees, the Economy of England shifted from a producer of wheat and wool to an economy of manufacturing and trade, and gained the most powerful naval forces of Europe, enjoying greater power not only t o control its own trade with its colonies, but to meddle in the trade between other nations and their own colonies.
This also led to the significant increase in the price of labor and materials in England, as much of the population became engaged in manufacture of goods from materials from the colonies for export to the colonies or other nations of Europe. As such, the cost of goods in England, and the wages of the people, rose sharply. Merchants were known to complain much about the cost of goods and labor, as compared to other nations, but were silenced by the high profits of their own businesses.
Detrimental Effects of the Monopoly of Colony Trade
The benefits of colonization to trade are purchased at a significant cost of investment. A new colony is entirely under-stocked, having a wealth of uncultivated land and no means to immediately improve upon it but by borrowing on the wealth of their mother nation. It may take some five years for a new plantation to become developed enough to repay the costs of founding it, during which time the debt to its financiers remains outstanding, the capital thus being removed from domestic employment. The debt to his creditors may be temporary, but the disadvantage of the loss of capital to the nation from which is diverted has a more lasting effect on the retardation of domestic industry.
Trade in foreign goods is likewise a method of generating wealth without contributing to the prosperity of the people. The example of tobacco is given, in which only 15% of the export of Virginia is consumed domestically in England, the other 85% being exported to other nations. While a great profit is reaped by the merchants involved in trade, this likewise saps funds that would otherwise be spent on domestic product, a greater share of which would benefit a greater number of people were the same goods produced by farmers and workers in Britain.
There is also the matter of capital investment as a result of trade. When Britain trades in American grain, there is no investment in the betterment of domestic agriculture - no lands are cultivated and improved, and the productive capacity of the nation remains unchanged by the act of trading goods produced in colonies.
Colonial trade also introduces a significant risk. Prior to colonization, the industry of Britain was diversified among many small markets. The failure of one or more of these markets would be easily absorbed by the continuing business of the rest. But after colonization, the trade of Britain has been restructured to make efficient use of one great market, and failure of that single market would be disastrous to the whole of the nation.
Sustainable Colonial Trade
Smith stresses the importance of separating the concepts of colony trade and the monopoly of that trade: the former is always beneficial, the latter always necessarily detrimental. The two should not become so muddled as to suggest that all colonial trade is detrimental.
In a "natural and free" state, colonial trade can increase the welfare and surplus of a nation without significantly altering the nature of its domestic economy. That is to say that Britain could carry on its agriculture, manufacturing, and foreign trade as usual, with the addition of volume from the bounty of its colonies. Should the colonies be lost, the surplus of goods and trade would likewise be lost, but the economy of the nation would be left intact.
Implementing a monopoly on foreign trade, especially when it is abused to gain short-term advantages, brings with it the aforementioned harms to the domestic economy of a nation. The price of crude materials being kept unnaturally low, the capacity to produce those same goods domestically diminishes. The profit of exporting finished goods to a colony being kept unnaturally high, the trade with other nations likewise atrophies.
It is the avarice of the state, and of the merchant class, that results in undertaking a course of action that produces the greatest short-term benefit in spite of its doing the greatest degree of long-term harm.
The prohibition against the manufacture of finished goods in America, a source of great irritation to the colonists, is necessary only because of the monopolization of trade to the advantage of the British. Smith reasons that, had the British been more fair in their dealings with the colonists, such a prohibition would scarce have been necessary: the abundance of arable landing the colonies would naturally make agriculture the most productive use of capital, and manufacturing operations would be been less profitable by comparison, were it not for the unnaturally low prices paid for crude materials and the unnaturally high price demanded for finished goods by virtue of monopoly over trade.
The exploitation of the New World have had entirely the opposite effect on Spain and Portugal. While these nations developed into manufacturing economies prior to their encounter with the new world, they have since reverted to a state of agriculture - a combination of the effect of their failure to cultivate agriculture in the new world, the need of their expeditions to be provisioned with food grown at home, and the refusal of their governments to part with gold and silver taken from the new world in exchange for provisions that could have been had of other countries.
England's saving grace has been that, thus far, the benefits gained by having colonies have counterbalanced the harm that has arisen from their monopolization. The cause of this is reasoned to be that there has been little interference in matters of trade among the colonies themselves, and a general neglect of their operations by the British crown, leaving the colonists to enjoy the fruit of their own labors, which encourages productivity. The low price given for American materials has not been so low, nor the high price of British manufactures exported there so high, that the people have suffered much for their exploitation, but by their industry and thrift have generated sufficient wealth and prosperity to soothe the level to which they are exploited.