Recommended resources
The freely available resources this lesson will direct you to.
Hello! Welcome back to our course on rank, wealth, and liberty.
Introduction
In our last lesson, we delved into the philosophy of Edmund Burke, identifying his concept of a "natural aristocracy" as the intellectual foundation for Walter Bagehot's political thought. Both thinkers championed a traditional, property-owning elite as a source of social stability and wise governance, a necessary counterbalance to the disruptive forces of radical democracy and, as Bagehot feared, the "worship of wealth."
Today, we turn to a contemporary of Burke's, Adam Smith, who offers a profoundly different perspective on the rising commercial class. While often celebrated as the father of capitalism, Smith was also one of its most trenchant critics. Our learning outcome is to analyze Adam Smith's arguments in The Wealth of Nations regarding the political influence and social status of the merchant class, contrasting it with Bagehot's concerns.
We will see that while Bagehot was worried about the cultural effects of a general plutocracy, Smith was engaged in a sharp, specific analysis of how one particular group—merchants and manufacturers—actively sought to corrupt the state for their own profit. This lesson will explore the mechanisms of this "state capture" and contrast Smith's proposed solution (competition) with Bagehot's (tradition).
1. The "Sophistry of Merchants"
To begin, it's crucial to understand that Smith's Wealth of Nations was, in his own words, a "very violent attack" on the prevailing "commercial system of Great Britain." He saw this system not as a natural outcome of free markets, but as an artificial construct designed by and for the merchant class.
The historian Emma Rothschild provides a powerful summary of Smith's view on the political maneuvering of this group.
Adam Smith: the first anti-capitalist?
Let's read a section from Emma Rothschild's essay, 'Adam Smith: the first anti-capitalist?'. This passage vividly describes Smith's critique of how merchants use their influence and superior knowledge to manipulate government policy.
Please read the section that begins with the paragraph, 'The third problem goes to the heart of Smith’s system of laissez-faire...'. It ends just before the paragraph starting 'The fourth and final difficulty...'. Focus on the specific tactics Smith accuses merchants of using to influence the legislature.
As Rothschild highlights, Smith's critique is devastating. He argues that the merchant class:
- Possesses a superior understanding of its own interests.
- Uses its wealth and organization to persuade and intimidate the legislature.
- Employs "sophistry" to disguise its narrow self-interest as the "general interest of the whole."
- Is driven by "mean rapacity" and a "monopolising spirit."
For Smith, the problem is one of information asymmetry and organized interests, a concept you'll recognize from modern public choice theory. A concentrated group of merchants, who stand to gain enormously from favorable regulation, will always have a stronger incentive and greater ability to influence policy than the dispersed, unorganized public who bears the cost.
2. Case Study: The Colonial System as a Merchant Project
Smith saw the British Empire as the ultimate expression of this merchant-led state capture. In Book IV of The Wealth of Nations, he dismantles the logic of the colonial system, arguing it was a vast, expensive, and unjust enterprise run for the exclusive benefit of a small class of traders.
The following resource provides a guided tour of Smith's arguments.
Guidebook to the Wealth of Nations: CH 9 Book IV, chapter ...
This 'Guidebook to the Wealth of Nations' clearly summarizes Smith's detailed case against the mercantile system, using the American colonies as his prime example. We'll read a few key sections to see how he builds his argument.
Please read the following three sections from the guidebook: Start in 'Part First: of the motives for establishing new colonies'. Read from the paragraph 'Necessity and utility do not explain the European colonies...' to the end of the part. Focus on Smith's description of the 'avidity' that drove colonization. Next, in 'Second Part: Causes of the prosperity of the new colonies', find the paragraph starting 'But the advisors for regulations of the colony trade are the merchants themselves.' Read from there to the end of the paragraph. Note how Smith explicitly identifies who is shaping policy. Finally, in 'Part Third...', find the paragraph starting 'So Smith accuses the monopoly of colony trade to be “mean and malicious”...'. Read to the end of the paragraph starting 'The maintenance of monopoly is the sole and end of purpose...'. This section reveals Smith's conclusion about the true purpose of the empire.
These passages reveal the core of Smith's indictment:
- Motive: The colonies were not founded out of necessity or for national glory, but out of the "avidity" of merchants seeking monopoly profits.
- Mechanism: The merchants themselves were the "advisors for regulations of the colony trade." They convinced the legislature to enact policies—such as prohibiting manufacturing in the colonies—that were a "manifest violation of the most sacred right of mankind" but which secured their own profits.
- Result: The entire imperial project, with its immense cost in "blood and treasure," was maintained for the "sole and end of purpose" of preserving this monopoly for a select group of "shopkeepers" who had successfully influenced the government. Smith concludes that "our merchants and manufacturers have been by far the principal architects" of this unjust system.
3. Contrasting Smith's Critique with Bagehot's Concerns
Now we can draw a sharp contrast between Smith's analysis and the anxieties of Bagehot, which we discussed in previous lessons. While both are concerned with the power of wealth, they identify different problems and propose different solutions.
| Adam Smith | Walter Bagehot | |
|---|---|---|
| The Problem | State capture by a specific class. The "mean rapacity" of organized merchants and manufacturers who use political influence to create monopolies and subvert the public good. | The cultural rise of a plutocracy. The "worship of wealth" in general, where new money threatens to displace traditional sources of authority and degrade the national character. |
| The Agent of Harm | The merchant class acting as a cohesive, self-interested political lobby. | The "new man" of wealth, who lacks the culture, deference, and sense of duty of the traditional aristocracy. |
| The Mechanism of Harm | Political manipulation. Using "sophistry" and influence to secure favorable legislation, tariffs, and monopolies. | Cultural displacement. Money becomes the sole measure of status, eroding the "dignified" authority of institutions like the monarchy and the House of Lords. |
| The Proposed Solution | Economic competition and limited government. Dismantle the monopolies and regulations that give merchants their power. The best check on the power of one merchant is another merchant. | Traditional institutions of rank. Preserve the "dignified" parts of the constitution (the Crown, the Lords) to provide a non-monetary source of status and a focus for public deference, balancing the power of wealth. |
Smith's diagnosis is fundamentally political and economic. He sees a specific class using the state as a tool for extraction. His solution is to take the tool away by promoting free competition and severely limiting the state's ability to intervene in the economy. He believes that a truly free market is the best defense against plutocracy because it prevents any single interest from entrenching itself.
Bagehot's diagnosis is more cultural and sociological. He sees a status vacuum being filled by "vulgar" new money. His solution is to prop up an alternative, pre-capitalist source of status—the aristocracy and the monarchy—to act as a social and political counterweight. He doesn't seek to dismantle the economic engine of wealth, but to contain its cultural and political influence by shoring up the authority of an older elite.
Conclusion
Today we have complicated the popular image of Adam Smith. Far from being a simple advocate for business interests, he was a profound critic of the political behavior of the merchant class.
Key Takeaways:
- Adam Smith viewed the merchant class as a powerful special interest group that actively sought to capture the state for its own benefit.
- He used the colonial system as his primary example, arguing it was an unjust and wasteful enterprise run to maintain a merchant monopoly.
- Smith's critique focuses on a specific mechanism: the use of political influence by an organized class to subvert the public good. This is a classic public choice problem.
- This contrasts with Bagehot's more general, cultural concern about the "worship of wealth" and the rise of an unrefined plutocracy.
- Their solutions diverge accordingly: Smith advocated for free competition to diffuse economic power, while Bagehot looked to traditional institutions of rank (the Lords) to counterbalance it.
Preview of the Next Lesson:
We have now examined two responses to the rise of commercial society: the traditionalist defense of an inherited aristocracy (Burke/Bagehot) and the free-market critique of merchant cronyism (Smith). In our next lesson, we will introduce a third, highly influential perspective from John Stuart Mill. We will analyze his arguments for meritocracy and individual autonomy, which offer a powerful critique of all forms of unearned status, whether from birth or from monopolistic wealth.