Literature Study GuidesThe Wealth Of NationsVolume 2 Book 4 Chapter 7 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 2, Book 4, Chapter 7 : Of Colonies | Summary



In this hefty chapter, Smith lays out his theories concerning the economics of colonialism. He begins by exploring the reasons colonies are established in the first place. In the ancient world, he says, colonies were a way of securing land for a population that had grown too large. Greek colonies were legally independent of their mother country, but Roman colonies were bound by the laws and customs of Rome. Despite their differences, Smith argues, the colonies of both civilizations were established to meet a pressing societal need—unlike the colonies of modern Europe, which were founded by the greed of gold-seeking adventurers.

Smith considers the factors that cause a colony to thrive. He contends that "plenty of good land, and liberty to manage their own affairs ... [are] the two great causes of the prosperity of all new colonies." Consequently, the British colonies in America are doing better than their French and Spanish counterparts, which are subject to much more legal and economic interference from their respective home countries. They would be even more prosperous, Smith suggests, if the British government would remove the various burdensome restrictions on colonial trade.

The last part of the chapter concerns the advantages of colonization for the mother country. Essentially, he argues, colonies benefit Europe's economy because they open a vast new market for trade. In principle, colonies also lend military aid and pay taxes to their home countries, but modern European states have rarely obtained these benefits in practice, especially from their American colonies. This leaves the matter of trade monopolies, widely held to be the biggest advantage to the home country. Turning the conventional wisdom on its head, Smith argues that colonial trade monopolies actually hurt the home country, inasmuch as they redirect its capital away from more productive domestic industries. To derive any real benefit from its American colonies, Smith concludes, Great Britain must either incorporate them fully into the empire's legislative and tax systems—or find a way to peaceably separate from them, creating loyal allies instead of resentful dependents.


"Dump the colonies" may be the last thing one expects to hear from a British economist circa 1776, and Smith admits his recommendation is a long shot: "No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it." His argument, however, is based in the now-familiar mixture of free trade and natural rights, which has informed the book thus far. "The people on the other side of the water," Smith insists, will be better trading partners if free trade is established, and their political rights can only truly be safeguarded through a full union with Great Britain, or a complete (but friendly) separation. This does not, however, mean that Smith sees the American colonists as oppressed—especially in comparison to their counterparts in French, Spanish, and Portuguese territories. To the contrary, Smith insists, "The liberty of the English colonists to manage their own affairs their own way, is complete" in every aspect except that of the trade monopoly. The Americans would—and did—beg to differ. Moreover, although he is writing in the midst of the American Revolution, Smith is not yet convinced a separation is necessary, and he continues to hold out a small hope of reunion. In a gesture of wistfulness unusual for The Wealth of Nations, he even floats the possibility that, if the "disturbances" (i.e., the Revolutionary War) can just be smoothed over, the capital of the empire will one day move to the American continent.

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