Adam Smith, Mercantilism, and the Caricature of Locke (on the origins of liberalism)

As regular readers know (recall); recall) after William Robertson (who together with Adam Smith coined the modern use of ‘liberal’), the Scottish historian, read Adam Smith’s Wealth of Nations, he wrote Smith the following:

“You have formed into a regular and consistent system one of the most intricate and important parts of political science, and if the English be capable of extending their ideas beyond the narrow and illiberal arrangements introduced by the mercantile supporters of Revolution principles, and countenanced by Locke and some of their favourite writers, I should think your Book will occasion a total change in several important articles both in police and finance.” (emphasis added.)---William Robertson, letter to Adam Smith of 8 April 1776, Smith’s Correspondence, p. 192

Robertson clearly treats Locke as the target of liberalism he shares with Smith. (Daniel B. Klein has also noticed this.) This is, in part, a question of economic doctrine (liberal vs mercantilism), but for Robertson nor for Smith this wasn’t merely a matter of economics (it was a whole set of contrasts between war/imperialism on one side and peace the other; the spirit of monopoly vs free trade).

Historians of economics have, of course, been alert to the fact that Locke is Smith’s target in the long chapter on mercantilism. But to the best of my knowledge the significance of this has escaped notice of philosophers. Of course, political philosophers and historians of philosophy recognize that Smith has a different moral theory from Locke and that Smith (echoing Hume) deviates from Locke’s ‘social contract’ or ‘natural rights’ theory.* But they are usually thought of as being on the same ‘liberal’ team.

Before I get to my main point today, it’s worth noting that even Marx and Engels do not tend to lump Locke and Smith together. To the best of my knowledge Marx fundamentally treats Locke as a follower of William Petty.

So much for set up. Much of Book IV of Wealth of Nations (on rival “systems of political economy”), is devoted to mercantilism. As my colleagues, Paul Raekstad and Enzo Rossi, have noted the whole treatments is a kind of ideology critique. Smith starts his first chapter (IV.i) on mercantilism, with diagnosing a kind of popular misconception, one shared by different cultures and learned man: “"THAT wealth consists in money, or in gold and silver.” (4.1.1, p. 429) Smith implies, as the polemic unfolds, that this misconception is at the root of a set of views he will characterize as a system of mercantilism.

In the third paragraph (so 4.1.3), Smith mentions Locke prominently. (I will quote the whole paragraph.) At that point, no other British thinker has been mentioned, and no other is mentioned until the seventh paragraph (Mun). The next one to be named specifically is Hume (in 4.1.30), but in context he is probably not treated as a mercantilist (but rather as a source of evidence). At 4.1.34, Smith mentions “some of the best English writers” without naming them.

So, at the end of the first long chapter on mercantilism, it is natural for the reader to identify Locke and Mun with the doctrine. Robertson’s reading of Wealth of Nations ought not be a surprise. Now in his Lectures on Jurisprudence Smith has a lot more to say about who the intellectual ‘players’ of mercantilism are (and unsurprisingly Locke and Mun figure prominently there, too—but that’s for another time).

Here’s what Smith writes on Locke:

Mr. Locke remarks a distinction between money and other moveable goods. All other moveable goods, he says, are of so consumable a nature that the wealth which consists in them cannot be much depended on, and a nation which abounds in them one year may, without any exportation, but merely by their own waste and extravagance, be in great want of them the next. Money, on the contrary, is a steady friend, which, though it may travel about from hand to hand, yet if it can be kept from going out of the country, is not very liable to be wasted and consumed. Gold and silver, therefore, are, according to him, the most solid and substantial part of the moveable wealth of a nation, and to multiply those metals ought, he thinks, upon that account, to be the great object of its political oeconomy.--WN 4.1.3

Now, the best historians of economics argue that this is a “caricature” of Locke. (See for example, Salim Rashid (1980)” Economists, economic historians and mercantilism,” Scandinavian Economic History Review, 28:1: p. 2, and also follow his citation to one of the best editors of Wealth of Nations, Cannan.)

However, in Rashid’s illustration that Locke did not held the caricature, we do begin to understand what’s lurking behind Robertson’s (and I think correct) understanding of Smith’s polemics with Locke. (Nothing I will state is at odds with Rashid’s analysis of mercantile sophistication.) Rashid writes, “As for gold being necessary for foreign wars, Locke states quite clearly why he considers plenty of money relative to one's neighbours to be of importance.” Rashid goes on to claim (correctly) that for Locke, “Plenty of coin is seen here to be a weapon - money is not simply a passive instrument of commerce. Many of the leading economists of the seventeenth and early eighteenth century emphasised the importance of the precious metals in fighting wars.” I return to this below.

But before I do that, it’s worth quoting Locke (as quoted by Rashid):

Money also is necessary to us, in a certain proportion to the plenty of it amongst our neighbours. For, if any of our neighbours have it in a much greater abundance than we, we are many ways obnoxious to them. 1. They can maintain a greater force. 2. They can tempt away our people, by greater wages, to serve them by land or sea, or in any labour. 3. They can command the markets, and thereby break our trade, and make us poor. 4. They can on any occasion engross naval and warlike stores, and thereby endanger us.

Notice that Locke intertwines economic and strategic considerations in his argument. In addition, he views economic and political relations in zero-sum terms. And he clearly implies that having more money is a strategic asset. It is quite clear that economic relations and warfare entail each other. This is, in fact, also clear in the Second Treatise, in the crucial section on the art of government (added to the final position), chapter V, section 42.

So, while Locke does not articulate the explicit caricature of him that Smith presents in WN 4.1.3, Locke’s analysis is paradigmatic of the mercantile spirit that Smith attacks throughout Book IV. As Rashid correctly argues, Locke’s writings were required reading for all eighteenth century political economists and pamphleteers who often cite him. And one can discern in these how coin is to be weaponized in foreign affairs. This (the “narrow” views Robertson laments) is precisely Smith’s underlying target.

Thus Smith could assume familiarity with Locke’s views and associate them with the richer picture of mercantilism that Smith develops. In mercantilism the economy is subservient to the spirit of war. Informed readers like Robertson had no trouble making the identification.

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*The scare quotes are present because I increasingly doubt these characterizations do justice to Locke’s position.