Unproductive labor, the reader should observe, is not useless labor; it may, indeed, be very useful[1]; but it does not produce any durable material product, and for that reason Smith does not consider it productive. Parsimony, or saving, leads to an increase of the capital available for the employment of productive labor; while spending consumes funds which otherwise might have been given such employment.
Private frugality, due to the desire to better one's condition, is the cause of the growth of capital and the increase of national opulence; while government can do nothing more than protect the individual and allow him liberty to act in the manner he finds most advantageous. Finally Smith considers the different employments of capital. Agriculture gives more employment to productive labor than manufactures, and both are superior, in this regard, to transportation and trade. Domestic trade gives more employment than foreign, and foreign trade gives more than the carrying trade.
All these employments are useful; but a country with insufficient capital to engage in all of them will increase in opulence most rapidly if it employs its capital in agriculture first of all, then engages in manufactures and the home trade, and refrains from entering upon foreign commerce and the carrying trade until the natural increase of capital makes such a course advantageous. If governments merely withhold their hands, this is the course that industrial development will actually follow under the free play of individual self-interest. Smith's argument at this point is exceedingly important, for it lays the foundation for his doctrine of freedom of trade.
HIS THEORY OF TRADE
After examining in the third book the various policies of restriction and preference adopted by the countries of Europe, Smith in the fourth book launches into the famous polemic against the so-called mercantile system of political economy. Smith shows that the restrictive measures of the mercantilists tended rather to prevent men serving each other than to promote public opulence. He assailed the theory of the balance of trade, much as David Hume had done. Everywhere he vindicated the system of natural liberty, and
- ↑ See "The Wealth of Nations," H. C., x, 258, 259.
