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(Interpolation from Notes.)—I now proceed to trace, in as few words as possible, the outline of that practical doctrine, concerning the freedom of trade, which it was the great scope of Mr. Smith's work to establish; combining together, in one point of view, various speculations, which his comprehensive plan necessarily led him to state under different titles.

I have observed, in my Account of the Life and Writings of Mr. Smith, "that the great and leading object of Mr. Smith's speculations is to illustrate the provision made by nature in the principles of the human mind, and, in the circumstances of man's external situation, for a gradual and progressive augmentation in the means of national wealth, and to demonstrate, that the most effectual plan for advancing a people to greatness, is to maintain that order of things which nature has pointed out, by allowing every man, as long as he observes the rules of justice, to pursue his own interest in his own way, and to bring both his industry and his capital into the freest competition with those of his fellow-citizens.

"Every system of policy which endeavours, either by extraordinary encouragements to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it, or, by extraordinary restraints, to force from a particular species of industry some share of the capital which would otherwise be employed in it, is, in reality, subversive of the great purpose which it means to promote.

"What the circumstances are, which, in modern Europe, have contributed to disturb this order of nature, and, in particular, to encourage the industry of towns, at the expense of that of the country, Mr. Smith has investigated with great ingenuity, and in such a manner as to throw much new light on the history of that state of society which prevails in this quarter of the globe. His observations on this subject tend to shew, that these circumstances were, in their first origin, the natural and the unavoidable result of the peculiar situation of mankind during a certain period; and that they took their rise, not from any general scheme of policy, but from the private interests and prejudices of particular orders of men.

"The state of society, however, which at first arose from a singular combination of accidents, has been prolonged much beyond its natural period, by a false system of Political Economy, propagated by merchants and manufacturers; a class of individuals whose interest is not always the same with that of the public, and whose professional knowledge gave them many advantages, more particularly in the infancy of this branch of science, in defending those opinions which they wished to encourage. By means of this system, a new set of obstacles to the progress of national prosperity has been created. Those which arose from the disorders of the feudal ages, tended directly to disturb the internal arrangements of society, by obstructing the free circulation of labour and of stock, from employment to employment, and from place to place. The false system of Political Economy which has been hitherto prevalent, as its professed object has been to regulate the commercial intercourse between different nations, has produced its

effect in a way less direct and less manifest, but equally prejudicial to the states that have adopted it."*

According to this view of the subject, the doctrine of the freedom of trade appears to me to divide itself naturally into two articles. The one relates to those restraints which check the free circulation of labour and stock among the members of the same community, the other, to the restraints on the commercial intercourse of different nations. I shall consider these two articles separately, beginning with the restraints on domestic commerce. What I have to offer on this subject, I must again remind you, will be little more than an abridgment of Mr. Smith's argument, which, indeed, it is absolutely necessary to introduce in order to prepare the way for the discussions which still remain.

[SUBSECT. I.-Of Restraints on Domestic Commerce and


I had occasion before to mention Mr. Smith's analysis of the component parts of the price of commodities. The same author observes, that "as the price or exchangeable value of every particular commodity, taken separately, resolves itself into some one or other, or all of those three parts; so that of all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be parcelled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land. .

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"When those three different sorts of revenue belong to different persons, they are readily distinguished; but when they belong to the same, they are sometimes confounded with one. another, at least in common language.

"A gentleman who farms a part of his own estate, after paying the expense of cultivation, should gain both the rent of the landlord and the profit of the farmer. He is apt to deno

* [Sect. iv., infra, Vol. X. pp. 60, 61.]

See above, Political Economy, Vol. I. (Works, Vol. VIII.) p. 391.]

minate, however, his whole gain profit, and thus confounds rent with profit, at least in common language."

In some of Mr. Smith's illustrations of this subject, there are principles involved which have a connexion with those definitions of national wealth and of productive labour, on which I formerly hazarded some criticisms. But to these it is not

necessary for me to attend at present. Nor, perhaps, will it be possible for me to avoid some other peculiarities of expression connected with his system, which I should not voluntarily have adopted if I had followed the train of my own thoughts in stating the doctrines now to be explained. I cannot help adding, that the result of Mr. Smith's speculations respecting the component parts of price, although sufficiently accurate for our present purpose, is by no means unexceptionable in point of distinctness.

It appears from a manuscript of Mr. Smith's, now in my possession, that the foregoing analysis or division was suggested to him by Mr. Oswald of Dunnikier. It is somewhat remarkable, that the very same division is hinted at by Sir William Petty, who states it as an impediment to national prosperity, that taxes should be levied on lands alone, and not on land, stock, and labour.

In the very slight view of the subject to which I am obliged to confine my attention, I shall have little or no occasion to touch on the rent of land, the political regulations I have in view tending chiefly to affect wages and profit in the different employments of labour and stock. In order to convey a distinct idea of the manner in which these regulations operate, it is necessary for me to premise a few other general considerations, in addition to those which have been already suggested. It is necessary, in particular, for me to give a short recapitulation of Mr. Smith's doctrines concerning the natural price of commodities, as distinguished from that which they actually bear in the market. Some of these principles I have had occasion to state already; but they are so intimately connected with the subject now in view, that I shall again recall them to your attention.

* [Wealth of Nations, Book I. chap. vi. ; Vol. I. p. 78, seq., tenth edition.]

"When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price." This is frequently different from the market price, which depends upon the proportion which is actually brought to market, and the extent of the demand. With respect to the market price of commodities, it is very justly observed by Mr. Thornton, that "it is formed by means of a certain struggle which takes place between the buyers and the sellers. It is commonly said, that the price of a thing is regulated by the proportion between the supply and the demand. This is, undoubtedly, true; and for the following reason:-If the supply of an article, or the demand for it, is great, it is also known to be great; and if small, it is understood to be small. When, therefore, the supply, for example, is known to be less than the demand, the sellers judge that the buyers are in some degree in their mercy, and they insist on as favourable a price as their power over the buyers is likely to enable them to obtain. The price paid is not at all governed by the equity of the case, but entirely by the degree of command which the one party has over the other. When the demand is less than the supply, the buyers, in their turn, in some degree, command the market, giving not that sum which is calculated to indemnify the seller against loss, but so much only as they think that the seller will accept rather than not sell his article. The question of price is, therefore, in all cases, a question of power, and of power only. It is obvious, that a rise in the price of a scarce commodity, will be more or less considerable in proportion as the article is felt to be one of more or less strict necessity."†

Of this remark of Mr. Thornton's, a very striking illustration is afforded by our immense importations from the north of

* [Wealth of Nations, Book I. chap. vii.; Vol. I. p. 82, tenth edition.]

t[Inquiry into the Nature and Effect of the Paper Credit of Great Britain, Chap. viii. p. 193, seq.]

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