Nature's Evil

His celebrated book

An Inquiry into the Nature and Causes of the Wealth of Nations

is constructed like an optical instrument that gradually shifts its focus from the most minute details of the local economy to the panorama of global trade. Every value is created by labour. The wealth of a country can only be created by the labour of its people. The division of labour is the key to the wealth of nations. In a Scottish workshop Smith had observed the eighteen operations that were needed to make a pin – a shiny little item made of pure steel. On the receiving end of the same trade, the Russian poet Alexander Pushkin described how the wealthy connoisseurs of St Petersburg relished the fruits of British industry:

Whatever clever London offers

For those with lavish whims and coffers,

And ships to us by Baltic seas,

In trade for tallow and for trees …

Steel files and combs in many guises,

Straight scissors, curved ones, thirty sizes

Of brushes for the modern male –

For hair and teeth and fingernail.

Eugene Onegin, the ‘modern male’ depicted in this Russian verse novel, read Adam Smith while sauntering between other fashionable preoccupations. 6 In contrast, the workers in London or Glasgow who made all these pins and scissors were trained to repeat one and the same operation many times a day. The manufacturers protected their commercial secrets so that their products would not be copied elsewhere, though one of them did demonstrate his eighteen operations to Smith. As long as such secrets were not cracked, these masters kept their temporary monopolies and the workers kept their jobs.

Significantly, Smith does not tell us where the steel to make the pin came from. Glasgow had its own ore, but there is a good chance that iron bars came to Glasgow across the sea from Sweden or Russia. The rarer a raw material, the less its price reflects the labour expended on it, because it is then a product of monopoly. But this monopoly of extraction is very different from a monopoly of knowledge: the former is enduring, the latter temporary. Trading in raw materials, monopolistic companies owned cargo vessels, ports, canals, wharves; they were protected by naval warships; and they were the dominating influence in the establishment of prices, taxes and duties. According to Smith, the mercantile system preferred the interests of producers over the interests of consumers, and all those interests were sacrificed in favour of the merchant seafarers. Hobbes saw the state as a clumsy landlubber. Smith returned to Leviathan its initial meaning of a sea monster.

In Smith’s optimistic view of the markets, monopoly was an aberration, an improper and temporary deviation. He did not create a sound theory of monopoly; this honour fell to Bentham. Monopoly allowed great fortunes to be created, but over time the invisible hand would eliminate all these undeserved advantages. This regularly happened to commercial secrets – the key to the success of small manufacturing monopolies. Labour is based on knowledge; this knowledge spreads unevenly, but competition smooths out these differences. However, most powerful monopolies were built not on commercial secrets but, rather, on the means of transportation. Smith describes how quarries on the outskirts of London produced a good profit but in Scotland made no income at all. The same went for forestry: in the south of England regular felling was profitable; in Scotland trees were left to rot. Coal mines near Oxford were lucrative, but in Scotland many mines remained idle. All these examples had nothing to do with commercial secrets – they are closer to Pushkin’s ‘tallow and trees’ than to Smith’s pins. Producing sophisticated devices such as pins, Scotland was losing bigger money on its natural riches, because the distances were long, transportation was expensive, and the resources were diffused.

Smith’s magisterial idea of free trade was devised to overcome the hostile principle of monopoly. The ‘invisible hand’ was improving the valuable products of labour, but its relation to the rare fruits of nature remained unclear. Smith believed in labour and did not appreciate nature – neither the romantic Scottish lochs and mountains which would become fashionable among the next generation nor the tropical islands with their tobacco and sugar. Trade in such things meant the power of the monopoly and unearned profits for merchants and shopkeepers. For the same reason, Smith had nothing to say about coal: as a fuel for stoves, firewood was healthier, he wrote. Unlike Cantillon, who was much more forward-looking, Smith couldn’t see any other future for coal. But the Industrial Revolution had already begun in Glasgow; Smith and the inventor of the steam engine, James Watt, were friends.