Now if we find Adam Smith tripping here, if we find him basing his arguments on the stick, and supporting them by mixing up temporary Politics and half truths of Political Economy in a confused conglomerate, while announcing his conclusions and deductions as laws of Political Economy alone; if we find him confusing the laws of wealth of the world as a single whole with the laws of wealth of a particular nation standing in trade relations with other nations; then all his arguments and conclusions must fall to the ground, and with them the 'Wealth of Nations' itself, on which is built the whole of the modern Political Economy. Nor need we fear much difficulty in extricating and unravelling his fallacies from out of the wide range of his discussions, for his belief in the symbol of a stick as the true symbol for all deductions as to the laws of the increase of wealth is so transparent and sincere, and his assumption of it so open and undisguised in every argument he uses; his assumption, too, that the acquisition of wealth by an individual or a nation in trade relations with other individuals or nations is identical with the acquisition of wealth by the world as a whole, (or a nation regarded as a single isolated unit), is so assured and unquestioning; that if we are right in our previous demonstrations that these general presuppositions of his are wrong, nothing more than a slight re-arrangement of the order of the positions he takes up on this question of the Colonial trade will be necessary to exhibit their inherent weakness and insufficiency.

Starting with the doctrine of the Physiocrats that in Agriculture Nature gives her gratuitous assistance to man, but that in Manufactures man has to do everything by his own unaided powers, Adam Smith begins by arranging the industrial assets of nations in a hierarchy according to the amount of their wealth-producing capacities. At the top of the scale stands the land, which having the powers of Nature to assist it, yields the greatest amount of wealth in a given time in proportion to the labour expended on it; next below it comes the manufacturing industry, which, although it receives no assistance from the powers of Nature, takes a second place because it keeps and employs a greater amount of productive labour than any other, and has a quicker 'turnover' of its capital; then comes the wholesale home trade, which although it employs less labour and has a slower turnover than manufactures, has the advantage over a foreign trade both in the quickness of its turnover and in the fact that it employs two home capitals and yields two home profits, whereas one of the profits of the foreign trade goes to the foreigner; and lastly, of all the foreign trades the roundabout carrying trade is the least wealth-producing of all, inasmuch as it employs the fewest labourers, gives up more of its profits to the foreigners whose produce it carries, and takes the longest time for the profits of its own capital to come home.

His law, accordingly, for the most remunerative employment of capital in a country that is increasing its wealth is quite simple. It is to invest as much of it in land as the land will absorb, then when it has increased so much as to begin to overflow, to invest the overflow in manufactures; when it has increased still more, and outrun the capability of manufactures to take it up, to invest the excess in the home wholesale trade; then, any still further excess, in the direct foreign trade: and if any still remains uninvested, to put it into the roundabout carrying trade; precisely as a man invests as much of his capital as he can in the safest and most profitable securities, then when these can absorb no more of it he puts the balance in the next less profitable, and so on until it is all invested. This is when the capital is sufficient and more than sufficient for all these different investments. Bat now suppose that the capital of a country is insufficient for more than a few of them; then, says Adam Smith in effect, it would be as foolish for a nation to invest its savings in manufactures while profitable farming was still available, or in the wholesale trade when manufactures could still absorb more, or in foreign trade when there was an opening in home trade, or in the Colonial trade when any or all of these others were insufficiently capitalised, as it would be for a man to pass over a safe investment of ten per cent, for one of five, or over one of five for one of four, and so on.

Now at the time of which Adam Smith was writing, England, he declared, had not sufficient capital, great as it was, to do full justice to all these different investments; and her conduct, therefore, in creating such a monopoly of the Colonial trade as to draw nearly the whole of the available capital of the countrv from the land and from the home manufactures and the direct foreign trade into it, was economically most reprehensible, inasmuch as it directly lessened the otherwise possible increase of wealth of the country. He frankly admitted that the profits from this Colonial trade, owing to the monopoly, were greater than could be made at that time from an equal amount of capital invested in any other employment either at home or abroad. And he further admitted that the profits of all other employments were not less, as might be imagined, but greater than they otherwise would have been, owing to the lessening competition to which they were subject as capital was more and more withdrawn from them into the Colonial trade, and the consequent diminution of output and the scarcity rise of price which the bleeding them of their capital had caused.