Book III: Of the Different Progress of Opulence in Different Nations
Of the natural progress of opulence
What Smith refers to as the country and the town, or rural and urban areas, are closely intertwined: the inhabitants of the country exchange objects of rude produce for the manufactured commodities of the town. Though the town depends upon the country for its subsistence, the exchange cannot be said to occur at the loss of the country. The town affords a market for the surplus of the country. The gains of both sides are therefore mutual and reciprocal.
As subsistence is prior to luxury, the cultivation and improvement of the country are prior to the development and growth of the town, which, with its industry, furnishes mostly convenience and luxury. When things are left to their natural progression, people will only prepare goods for distant sale when as much capital as possible has been used at home. Therefore, according to the natural course of things, the greatest part of the capital of a growing society is first directed toward agriculture, then toward manufactures, and only last of all toward foreign commerce. Though this is the natural progression of things, which has, on the whole, been the course of most societies, there are many examples in the Europe of Adam Smith’s time where this was not the case. He details these exceptions in later chapters.
Of the discouragement of agriculture in the ancient state of Europe, after the fall of the Roman Empire
In this chapter, Smith criticizes the law of primogeniture. This rule, which became popular in Europe after the fall of the Roman Empire, allowed lands to pass undivided from person to person through many generations. He argues that great proprietors of land are generally not great improvers of the land. Often the expense of the house and property exceeded its revenue, leaving the proprietor devoid of stock to reinvest in improvements to his land. Smith criticizes the system of primogeniture for encouraging a certain class of people to live beyond their means and not contribute to progress through investment and improvement. The laborers who worked on the land of these proprietors were not so far removed from slaves, so they were also not in a position to improve upon the land. Even if the serfs and laborers did have the means to make improvements, they could not enjoy them, as the land as well as the instruments of its cultivation were owned by the landowner, and could not be possessed by the laborers.
Smith goes on to demonstrate that slaves or serfs, so long as they will never see the benefits of improvements to the system of cultivation or increased productivity, will not be compelled to work harder or more efficiently in order to accumulate a surplus. The system of serfdom, which still existed in certain areas at the time of Adam Smith’s writing, had largely been succeeded by a system in which farmers cultivated the land with their own stock, paying rent to a landlord. This system was far superior to the former one, in that people could directly benefit from their own labor, and thus were encouraged to work harder and more efficiently. However, in the case that the leases issued by the landlords were short (a few years), farmers were discouraged from laying out stock in improving the land because they feared that they might no longer be on the property when long term investments came to fruition.
In short, the ancient land policies of Europe were wholly unfavorable to the improvement and cultivation of land. They maintained a separation between those who worked the land, and those who enjoyed the benefits of that work.
Of the rise and progress of cities and towns, after the fall of the Roman Empire
The inhabitants of towns immediately following the fall of the Roman Empire were largely tradesmen and mechanics living in very servile conditions and traveling from place to place and fair to fair, paying taxes for use of various roads, bridges, or toll-bearing passages. However, their freedom seemed still to exceed that of the people who occupied land in the country.
The relative freedom of the original townspeople, or burghers, as Adam Smith terms them, came from the tendency of sovereigns of a particular country to rent the land of a town to its inhabitants, and for those tenants to pay the rent in common. This rent, unlike that of the serfs or occupants of farmland, was often offered at a fixed rate. The burghers went on to establish corporations and laws of local government. Being unable to erect armies for their own defense and unlikely to be protected by the great lords, who envied and despised them due to their wealth, the burghers established relationships with their neighbors in order to better resist threats or attacks.
Because of the hostility of the great lords, the burghers were disposed to support the sovereign. The sovereign supported the burghers in return, aiming to undermine the great lords. This support amounted to granting the burghers their own magistrates, building walls for their security, and granting them the best defense he could. Often, burghs developed their own militias for this latter purpose. In this manner, order and good government were established in the cities while, in the country, people were still exposed to violence and disorder. This imbalance in general security interrupted the natural progression of opulence in Europe, in that manufacturing was encouraged before the land had been completely improved. In the case of Italy, Adam Smith points out, foreign commerce became a very early priority, due both to the overwhelming opulence of Italian cities and their access to trade routes.
How the commerce of towns contributed to the improvement of the country
The increase and riches of commercial and manufacturing towns contributed to the improvement and cultivation of the countries to which they belonged, in three different ways:
Firstly, by providing a market for the rude produce of the country, they gave encouragement to its cultivation and further improvements. The benefit extended to all the countries with which the merchants selling produce of a particular place had any dealings.
Secondly, the wealth acquired by the inhabitants of cities was frequently employed in purchasing lands previously uncultivated. Merchants, Adam Smith writes, are fond of becoming country gentleman, and are more likely to improve their land through brave innovations than a true country gentleman, who had not the income.
Thirdly, commerce and manufactures gradually introduced order and good government, and with them the liberty and security of individuals. Previously, many lived in an almost continual state of war with their neighbors, and therefore in continual dependence upon their superiors.
In this chapter, Adam Smith argues that the extravagant lifestyle of great proprietors is ultimately unsustainable. The trappings of wealth and privilege are enormously expensive, and have a price that increases over time. Policy for owning land and keeping serfs was designed to grant mere subsistence, which meant the great proprietors could not maintain their lifestyle, and their numbers decreased over time. Adam Smith remarks that, in commercial countries, there are very few old landed families, while countries in which there is little commerce there are many such families. Adam Smith goes on to contrast the growth rate of the North American colonies to that of Europe—in North America, population doubles every generation, while in Europe, such growth requires five hundred years. Adam Smith attributes this in part to the negative effects of the law of primogeniture, which suppresses efficiency, improvement and productivity.
This section is a brief summary of the history of the development of economic relations. Smith begins with agricultural society, and describes how urban towns came to be developed, and how they relate to and depend upon rural areas. Once a town develops, it relies on the country, but the country relies on the town as well, as a market for its surplus goods.
Smith goes on to explain how the feudal order in Europe was broken down over time, and how a system of great trading cities developed to replace the small towns with their limited markets that preceded them. In the feudal order, wealth resided in the great landlords, or the noble class. This wealth eroded when the law was changed and when the tenants of the land gained more power and began making more demands for security.
The feudal system, in which law applied differently to people of differing social class, was abandoned in favor of a system in which people were more or less equal under the law. This was an important development because it signaled a separation of the legal code from the seat of political power, which, in turn, helped to encourage a system of civil justice. It takes a strong legal system for capitalism to flourish, because those who are prepared to invest must have the confidence that their capital will be protected. However, by looking out for laws that protect their own capital and self-interest, a situation is created in which all citizens enjoy a fairer and more just legal system.
Smith's history of Europe is also a history of the development of cities. He demonstrates that the growth of cities has often signaled the progression of economies. While cities depend on rural areas for their livelihoods as the major producers of raw materials, it is cities that have acted as the major progressive force in the history of Europe, both economically and politically. For Adam Smith, cities and successful city-dwellers represent forces of trade and industry, while the estates and the lifestyle of landed nobles represent economic stagnation and political oppression. It is merchants and industrialists that are responsible for the growth and progression of the economy and therefore of society, while the landed nobles contribute to a system of stagnation at best, and unsustainable economic practice at worst. Smith comes down clearly against a certain social class in favor of another, pointing clearly to a certain conception of social, political, and economic progress.
Smith makes an important claim by criticizing the landed gentry and arguing, against mercantilist theory, that trade is not a zero-sum game, and that people involved in agriculture benefit just as much as city-dwellers from the trade that occurs between them. Adam Smith is laying the basis for the assertion that people, regardless of their social class, are equally deserving of prosperity, provided they are industrious. This debunking of classist thinking and of a social narrative that championed nobility as the seat of virtue was certainly of extreme importance in Smith's era. This idea is supported by Smith's suggestion that the development of cities does and should lead to increased political freedom, stability and equality.