The System of Values of Exchange (Falsely Termed by the School, The'Industrial' System) -- Adam SmithAdam Smith's doctrine is, in respect to national andinternational conditions, merely a continuation of the physiocraticsystem.Like the latter, it ignores the very nature ofnationalities, seeks almost entirely to exclude politics and thepower of the State, presupposes the existence of a state ofperpetual peace and of universal union, underrates the value of anational manufacturing power, and the means of obtaining it, anddemands absolute freedom of trade.
Adam Smith fell into these fundamental errors in exactly thesame way as the physiocrats had done before him, namely, byregarding absolute freedom in international trade as an axiomassent to which is demanded by common sense, and by notinvestigating to the bottom how far history supports this idea.
Dugald Stewart (Adam Smith's able biographer) informs us thatSmith, at a date twenty-one years before his work was published in1776 (viz.in 1755), claimed priority in conceiving the idea ofuniversal freedom of trade, at a literary party at which he waspresent, in the following words:
'Man is usually made use of by statesmen and makers ofprojects, as the material for a sort of political handiwork.Theproject makers, in their operations on human affairs, disturbNature, whereas people ought simply to leave her to herself to actfreely; in order that she may accomplish her objects.In order toraise a State from the lowest depth of barbarism to the highestdegree of wealth, all that is requisite is peace, moderatetaxation, and good administration of justice ; everything else willfollow of its own accord in the natural course of things.Allgovernments which act in a contrary spirit to this natural course,which seek to divert capital into other channels, or to restrictthe progress of the community in its spontaneous course, actcontrary to nature, and, in order to maintain their position,become oppressive and tyrannical.'
Adam Smith set out from this fundamental idea, and to prove itand to illustrate it was the sole object of all his later works.Hewas confirmed in this idea by Quesnay, Turgot, and the othercoryphaei of the physiocratic school, whose acquaintance he hadmade in a visit to France in the year 1765.
Smith evidently considered the idea of freedom of trade as anintellectual discovery which would constitute the foundation of hisliterary fame.How natural, therefore, it was that he shouldendeavour in his work to put aside and to refute everything thatstood in the way of that idea; that he should consider himself asthe professed advocate of absolute freedom of trade, and that hethought and wrote in that spirit.
How could it be expected, that with such preconceived opinions,Smith should judge of men and of things, of history and statistics,of political measures and of their authors, in any other light thanas they confirmed or contradicted his fundamental principle?
In the passage above quoted from Dugald Stewart, Adam Smith'swhole system is comprised as in a nutshell.The power of the Statecan and ought to do nothing, except to allow justice to beadministered, to impose as little taxation as possible.Statesmenwho attempt to found a manufacturing power, to promote navigation,to extend foreign trade, to protect it by naval power, and to foundor to acquire colonies, are in his opinion project makers who onlyhinder the progress of the community.For him no nation exists, butmerely a community, i.e.a number of individuals dwelling together.
These individuals know best for themselves what branches ofoccupation are most to their advantage, and they can best selectfor themselves the means which promote their prosperity.
This entire nullification of nationality and of State power,this exaltation of individualism to the position of author of alleffective power, could be made plausible only by making the mainobject of investigation to be not the power which effects, but thething effected, namely, material wealth, or rather the value inexchange which the thing effected possesses.Materialism must cometo the aid of individualism, in order to conceal what an enormousamount of power accrues to individuals from nationality, fromnational unity, and from the national confederation of theproductive powers.A bare theory of values must be made to passcurrent as national economy, because individuals alone producevalues, and the State, incapable of creating values, must limit itsoperations to calling into activity, protecting, and promoting theproductive powers of individuals.In this combination, thequintessence of political economy may be stated as follows, viz.: