War, Trade, and Mercantilism: Reconciling Adam Smith's Three Theories of the British Empire
29 Pages Posted: 14 Feb 2017 Last revised: 16 Sep 2018
Date Written: September 6, 2018
Adam Smith proposed three contradictory theories of the British Empire in the Wealth of Nations. The first view holds that the empire was created for merchants eager to monopolize the colonial trade. Smith concludes that “Great Britain derives nothing but loss” from the colonies. In the second view, Smith celebrates the European discovery of the new world, opening up non-incremental increases in division of labor, specialization and exchange. The empire thus fostered the economic growth of both sides of the British Atlantic, net of the costs of monopoly. Smith’s third argument is the least developed. It holds that many mercantile restrictions had a direct purpose in improving Britain’s security given its more than century-long military conflict with France.
How do we reconcile the incompatibility of Smith’s three views of the British Empire? Smith provides little guidance. I argue that, to understand the British Empire, we must view it from the perspective of a long-term military rivalry with France. Many of the navigation regulations were designed to advantage Britain vis-a-vis France. Smith argues, for example, that the harm to France from prohibiting trade in military stores more than compensated for the loss in wealth due to the restrictions. I demonstrate the logic of these claims using tools from modern political science.
Keywords: War, Mercantilism, Adam Smith, Theories of Empire
JEL Classification: B15, B31, D72, D78, F11, F54, H11, H21, H56, N4, P16
Suggested Citation: Suggested Citation