Capitalism-and-Its-Critics-A-History-From-the

In 1776, the year the thirteen American colonies declared their independence, Smith finally published his book: An Inquiry into the Nature and Causes of the Wealth of Nations. Usually referred to by the last four words of its title, it was a landmark in economic thought. In the opening chapters, Smith argued that the key to rising productivity and economic growth is “the division of labor,” in which production is split up into a number of different tasks, with each worker concentrating on an individual one. To illustrate his point, he described how a workshop that made metal pins divided production into “about eighteen distinct operations,” including drawing out the wire, straightening it, cutting it, grinding it, and attaching the pin head to it. If ten workers carried out all these tasks themselves, they could each make at most twenty pins a day, Smith said. By having them concentrate on individual tasks, the workshop produced forty-eight thousand pins each day—a truly massive increase in productivity.3

Smith’s famous description of a pin workshop is a reminder that manufacturing was common in Britain well before the opening of Cromford Mill, but it was mostly small-scale manufacturing. Foreshadowing a debate that continues to this day, Smith insisted that the fruits of increased production and higher productivity trickled down to everybody, including the poor. “It is the great multiplication of the productions of all the different arts,” he wrote, “in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”4 Smith said the key to achieving this outcome was to rely on a competitive market system, which coordinated production without any central control and prevented any individual, or group, from hogging all the gains. In a competitive market of this nature, he wrote, the pursuit of profit by a businessman or tradesman guides his actions and investments in a direction “which is most agreeable to the interest of the whole society,”5 as if he were “led by an invisible hand to promote an end which was no part of his intention.”6

Based upon Smith’s exposition of the division of labor and the invisible hand, he is usually portrayed as an enthusiastic proponent of free market capitalism, or what he referred to as “commercial society.” Broadly speaking, this characterization is accurate. Years before Smith published The Wealth of Nations, he wrote elsewhere: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course  … are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”7 In his 2023 book, Visions of Inequality, the economist Branko Milanović, a leading scholar of global income disparities, pointed out that Smith’s faith in the free market was partly based on a conviction that it led to high incomes and wages, which Smith called “the very essence of public opulence.”8 As Milanović also emphasized, Smith’s emphasis on raising wages and living standards marked a major break with prior economic doctrines, which regarded wealth and treasure, particularly gold and silver bullion, as the main measure of a country’s strength and well-being.

But though Smith certainly believed in the power of free commerce and competitive markets to generate growth and prosperity, there was another side to him that often gets overlooked. Even as he defended the general principle of organizing society on the basis of private enterprise and profit-seeking, he was deeply suspicious of individual business owners and tradesmen because of their tendency to eliminate competition and stiff their customers whenever they could. “People of the same trade seldom meet together,” he wrote, “even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”9

Smith was even more dubious about large-scale businesses, particularly merchant capitalist enterprises like the East India Company, which had been founded on the basis of royal monopoly grants. In trying to justify the privileged and protected status that these businesses enjoyed, their defenders argued it would enable Britain to run a positive trade balance and build up its wealth. Although the trade monopolies were privately owned and operated, they were viewed, effectively, as arms of the state. During the early seventeenth century, Thomas Munn, a merchant who became a director of the East India Company, had expressed these arguments in a pair of books. Smith referred to the economic philosophy Munn expounded as “mercantilism,” and one of his goals in writing The Wealth of Nations was to challenge it. In a letter he wrote several years after the book’s publication, he described it as a “very violent attack  … upon the whole commercial system of Great Britain.”10 If mercantilism was a form of capitalism—and it surely was—Smith was a noted critic of capitalism as well as its greatest philosopher.

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Smith’s treatment of mercantilism and colonialism was largely confined to the second half of The Wealth of Nations, books four and five. Many readers don’t get that far, which is a pity. Smith wasn’t entirely opposed to colonialism. He admired the rapid economic progress of the North American colonies, which he attributed to “plenty of good land, and liberty to manage their own affairs their own way,” which included encouraging free trade among themselves and with the British colonies in the Caribbean.11 “All of them taken together,” Smith wrote, “they make a great internal market for the produce of one another.”12 But all too often, he believed, colonialism had failed to adhere to liberal trading principles and descended into monopoly and plunder, which ended up imposing large costs on British consumers and taxpayers. Challenging the basic mercantilist claim that establishing colonies generated large economic benefits, Smith wrote, “no country has yet been able to engross itself anything but the expense of supporting in time of peace and of defending in time of war the oppressive authority which it gains over them. The inconveniences resulting from the possession of its colonies, every country has engrossed to itself completely.”13

The main objects of Smith’s criticism were the great colonial trading houses, particularly the East India Company. Before the creation of the company and its Dutch counterpart, the VOC, Smith pointed out, Portugal had “enjoyed almost the whole of [the East Indies trade] for more than a century together without any exclusive company.”14 By replacing competition with state-sponsored monopolies, Smith argued, the Dutch and British governments effectively granted these companies the power to raise the prices of the items that they sent back to their home countries. In the case of the East India Company, British consumers and taxpayers had been forced to pay “not only for all the extraordinary profits” that the company made at various times, but also “for all the extraordinary waste which the fraud and abuse, inseparable from the management of the affairs of so great a company, must necessarily have occasioned.”15

There doesn’t seem to be any evidence that Smith read William Bolts’s exposé of the East India Company. But in describing the company’s parasitic presence in India, he covered some of the same ground. In one passage, he focused on the company’s exports of opium, which was largely produced in the eastern state of Bihar, then part of Bengal, to other Asian countries. “It has not been uncommon, I am well assured, for the chief, that is, the first clerk of a factory, to order a peasant to plough up a rich field of poppies, and sow it with rice or some other grain,” Smith wrote. “The pretence was, to prevent a scarcity of provisions; but the real reason, to give the chief an opportunity of selling at a better price a large quantity of opium, which he happened then to have upon hand.”16 Far from being atypical, Smith said, these types of actions were inherent in the extractive business model that the East India Company and other chartered trading monopolies relied on. “In the spice islands,” he wrote, “the Dutch are said to burn all the spiceries which a fertile season produces beyond what they expect to dispose of in Europe, with such a profit as they think sufficient.” On some of the islands, he went on, the VOC’s policies had virtually destroyed the local vegetation and led to depopulation. The English “have not yet had time to establish in Bengal so perfectly destructive a system,” Smith added. “The plan of their government, however, has had exactly the same tendency.”17

As well as criticizing the practices of the East India Company as a whole, Smith discussed the lucrative private trading that its employees engaged in, and he expressed skepticism about the ability of senior executives, particularly those based in London, to curtail it. Virtually all the Company men in India traded on their own account, he pointed out. Given the riches they could accumulate, “it is in vain to prohibit them from doing so,” he argued. Nothing could be more foolish “than to expect that the clerks of a great counting-house at ten thousand miles distance, and consequently almost quite out of sight, should upon a simple order from their masters, give up at once doing any sort of business upon their own account, abandon for ever all hopes of making a fortune, of which they have the means in their hands.”18

Smith’s account of how the Company operated was at least partly based on personal knowledge. One of his cousins, Patrick Ross, served as chief engineer in its Madras factory. While Smith was writing The Wealth of Nations, his biographer Ian Simpson Ross reports, he offered to recommend a former student of his, an impecunious minor member of the Scottish gentry, to his cousin for employment.19 (There is no record of whether the young man did join the Company.) In 1773, Smith’s name was put forward for a parliamentary commission that had been set up to investigate how the company ended up needing a bailout. Rather than taking up this post, Smith expressed his thoughts in his book.

In another unconscious echo of Bolts, he argued that the fundamental issue with the Company wasn’t the poor character of its employees, but the conflicts created by their accession to political power in Bengal. As effectively the rulers, their interests should be wholly aligned with the interests of the territory that they governed, Smith pointed out, but “as merchants their interest is directly opposite to that interest.”20 Their goal was to make as large a profit as they could in the shortest time possible. “It is a very singular government in which every member of the administration wishes to get out of the country  … as soon as he can,” Smith wrote scathingly, “and to whose interest, the day after he has left it and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up by an earthquake.”21

Although Smith focused on the East India Company, he extended his criticisms to other chartered trading monopolies. “Such exclusive companies  … are nuisances in every respect,” he wrote, “always more or less inconvenient to the countries in which they are established, and destructive to those which have the misfortune to fall under their government.”22 Entrenched by fiat, the trading monopolies could expand at will, without fear of competition or effective oversight. In describing the consequences of this system, Smith used a medical metaphor: “Great Britain resembles one of those unwholesome bodies in which some of the vital parts are overgrown, and which, upon that account, are liable to many dangerous disorders.”23

While Smith emphasized the economic costs of mercantilism, his critique went beyond dollars and cents. He also emphasized the link between mercantile capitalism and war. During the second half of the seventeenth century, Parliament had introduced the Navigation Acts, which limited imports to Britain from foreign suppliers, required almost all items involved in the colonial trade to be transported on British ships, and forced colonies like India to obtain almost all their supplies from Britain. To enforce this protectionist legislation, the government built up the Royal Navy, which engaged in a series of wars with Britain’s trading rivals, particularly the Dutch. “Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity,” Smith remarked. He also lamented the emergence of an early military-commerce complex, which dominated colonial policy and resisted efforts at reform. Representatives of colonial interests, he noted, had long served as the “principal advisers”24 to the politicians and officials who set up and sustained the mercantile system. Consequently, government policy often reflected the “the mean rapacity, the monopolising spirit of merchants and manufacturers.”25

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For all his criticism of mercantilism, Smith was a big supporter of developing global commerce on the basis of free trade. He described Columbus’s journey to the Americas and Magellan’s journey around the Cape of Good Hope as “the two greatest and most important events ever recorded in the history of mankind.” In opening up the possibility of trade between Europe and distant continents, these voyages created the potential for both sides to make huge gains “by enabling them to relieve one another’s wants, to increase one another’s enjoyments, and to encourage one another’s industry.” But the plunder carried out by the European colonizers, particularly the Spanish in Latin America, had squandered this historic opportunity and created disastrous results, especially for the Indigenous peoples. “At the particular time when discoveries were made,” Smith wrote, “the superiority of force happened to be so great on the side of the Europeans that they were enabled to commit with impunity every sort of injustice in those remote countries.”26

Another great injustice, of course, was the transatlantic slave trade. Between 1501 and 1866, according to the latest scholarly estimates, roughly 12.5 million Africans were forcefully transported to the Americas, about half of them to the Caribbean and roughly another 40 percent to Brazil.27 The profit motive and demand for labor drove this dreadful phenomenon. In the fifteenth century, Portuguese colonists established sugar plantations in some islands they occupied off the west coast of Africa, including Madeira, Cape Verde, and São Tomé and Príncipe. By 1500, these plantations were exporting sugar to Holland, France, and Britain, where the population was rapidly developing a sweet tooth. Making sugar was very lucrative but also very labor intensive. Clearing fields, planting sugarcane, harvesting it, crushing it, and refining it into the finished product took many hours of arduous work. Cut off from the African mainland, the plantation owners faced an endemic shortage of workers. To relieve it, some of them started to import enslaved workers from Kongo (Congo) and Ndongo (Angola).

In the 1530s the Portuguese moved this business model across the Atlantic and established sugar plantations in coastal regions of Brazil. Initially, they forced local people to work the fields. But mortality rates among the Indigenous workers were very high, and before long the plantation owners began importing enslaved Africans. Between 1600 and 1625, according to the SlaveVoyages Database, Portuguese slave ships carried an estimated 180,000 Africans to Brazil, which became the world’s largest sugar producer.28 (By 1866, the cumulative number of Africans transported to Brazil would climb to an astonishing 5.5 million, of whom about 4.9 million disembarked alive.)29

Seeing the commercial successes that Portugal was enjoying, some of its European rivals sought to mimic them. Spain established sugar plantations on the island of Hispaniola, which today comprises the Dominican Republic and Haiti. France set up plantations on Martinique and Guadeloupe and in the western parts of Hispaniola, which it acquired from Spain in 1697. Britain established plantations in Barbados and Jamaica and also in the smaller Leeward Islands of Antigua, St. Kitts, Nevis, and Montserrat. Some of the British plantations were initially staffed by indentured British workers who, in return for their passage, were obliged to toil in the fields for seven years. But these workers struggled to adapt to the tropical conditions, and their mortality rates were high. The British planters started to import enslaved Africans in large numbers, and before very long British traders came to dominate the slave trade. According to one estimate, between 1640 and 1807, British ships transported some 3.1 million enslaved Africans across the Atlantic.30

When the survivors of this transshipment arrived in the Americas, they were sold at auction and transported to their final locations. In the mideighteenth century, the British plantations alone had hundreds of thousands of enslaved workers, including about seventy thousand in Barbados. Each year the plantations exported more than forty thousand tons of sugar to England and Wales.31 By the standards of the time, sugar production was carried out on a very large scale. Some of the plantations owned and employed several hundred enslaved people; as the American historian Joyce Appleby commented in a 2010 book, they were “factories in the fields.”32

Histories of capitalism that focus exclusively on the rise of the factory system in Britain and other Western countries tend to overlook this fact. While plantation agriculture wasn’t directly comparable to industrial capitalism, which relied on wage labor and machinery, it certainly involved large-scale mobilization of capital and production of marketable commodities for profit. Going by the definition that I gave in the introduction, it was a form of capitalism, and an innately global one at that. As the historian Richard Sheridan pointed out in his 1974 book Sugar and Slavery: An Economic History of the West Indies, 1623–1775, “The New World plantation represented a combination of African labour, European animal husbandry, and American soil and climate.”33

Sugar plantations, in particular, generated high rates of profit. In the seventeenth century, economic historians have calculated, the rate of return on capital invested in the British plantations was as high as 30 percent. Even in the middle of the eighteenth century, when there was more competition, the rate of return was in the double digits, whereas the yield on British government bonds was only about 3 percent.34 The British plantation owners repatriated much of the profit they made and built large country estates, many of which still exist. In Parliament, plantation owners were a powerful lobbying force. Like the wealthy retirees from the East India Company, they were known as “nabobs.” Among the eminent English families that owed their fortunes, entirely or in large part, to Caribbean plantations worked by enslaved people were the Baylys, Beckfords, Codringtons, Fullers, Lascelles, Longs, and Pennants.35 In 2013 researchers discovered that the Conservative politician David Cameron, who was then Britain’s prime minister, had a distant relation who owned more than two hundred enslaved people.36

Smith acknowledged the immense profits that the Caribbean plantations generated, but he didn’t dwell on the fact that they were produced by slave labor. Indeed, he suggested that they could have made even more money if they had relied on wage labor, writing: “The experience of all ages and nations, I believe, demonstrates that the work done by slaves, though it appears to cost only their maintenance, is in the end the dearest of any”—meaning the most expensive on a productivityadjusted basis. Since wage workers could earn money and acquire property, they had an incentive to work hard and produce more, Smith argued. The enslaved worker had no rights, received no wages, and had no prospect of acquiring property. Work “can be squeezed out of him by violence only, and not by any interest of his own,” Smith wrote.37

Versions of Smith’s argument have found some modern adherents, particularly in debates about whether slavery in the United States held back or promoted the development of American capitalism. But the argument has a couple of obvious weaknesses. Smith didn’t acknowledge the enormous difficulties plantation owners would have faced in finding enough willing wage workers—the very issue that gave rise to the slave trade in the first place. And he downplayed the role that slavery played in expanding global trade and developing the economies of slave-trading nations. When Smith published The Wealth of Nations, Liverpool was the world’s biggest slave port. In 1776 alone, according to the SlaveVoyages Database, more than seventy slave ships left its docks destined for the Bight of Benin, the Bight of Bonny, Sierra Leone, and other African destinations.38 These vessels were stocked with items that African slave traders valued highly: cotton and woolen textiles, guns, gunpowder, brass wares, earthenware, and alcohol. “Textiles came from Lancashire and Yorkshire, copper and brass goods from Warrington, North Cheshire and Staffordshire, guns and ammunition from Birmingham,” Anthony Tibbles, the former keeper of slavery history at National Museums Liverpool, wrote in a 2000 article. “But the town’s merchants also had to develop wider links to obtain some goods—there was a strong demand for East Indian cloth in West Africa  … They, therefore, had to obtain such goods from London and sometimes Amsterdam.”39 Other British trading ships sailed directly from their home ports to the Americas carrying goods destined for the slave plantations. Among the goods that a typical sugar plantation imported were tools for its field hands, a steam engine to power its cane crushers, guns for its overseers, clothes for its laborers, and sugar sacks to hold its produce.

As this list indicates, the triangular trade was a major intercontinental enterprise, which gave a substantial boost to many ancillary industries, including shipbuilding, merchant shipping, banking, insurance (the slave ships were insured), textiles, armaments, and brass and iron works. The mercantilist writers whom Smith criticized emphasized the broad economic benefits that colonialism and slavery generated for Britain. In a 1745 book defending the triangular trade, Malachy Postlethwayt, an economist and lexicographer, described Britain’s Atlantic empire as “a magnificent superstructure of American commerce and naval power on an African foundation.”40 If the African trade ceased to exist, he argued, “hundreds of thousands of Britons making goods for the triangular trade will lose their jobs and go a begging.” Moreover, “we can have no sugar, tobacco, rum etc. Consequently the public revenue, arising from the importation of plantation produce, will be wiped out.”41

In 1767 Sir James Steuart, a countryman of Smith, published An Inquiry into the Principles of Political Economy, in which he advocated the standard suite of mercantilist policies: protecting domestic industry, subsidizing exports, and engaging in state-sponsored colonialism. Steuart’s analysis of slavery was more nuanced than Postlethwayt’s. He said its usefulness depended on the conditions in which it was applied. Enslaving workers had the effect of “discouraging invention and ingenuity,” he wrote, foreshadowing Smith. For this reason, Steuart recommended banning slavery from manufacturing industries. But he also argued that in conducting “laborious operations which are of a simple nature,” such as plantation agriculture in tropical climates, slave labor was the only viable option. “Could the sugar islands be cultivated to any advantage by hired labour?” Steuart asked.42