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Adam Smith on the “liberal system” of free trade (1776)

One of the earliest uses of the word “liberal” to describe a society in which there was individual economic liberty was Adam Smith’s phrase “liberal system” which he used to describe free trade in contrast to the “mercantile system” of restrictions and laws:

Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided.

Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided. The larger the continent, the easier the communication through all the different parts of it, both by land and by water, the less would any one particular part of it ever be exposed to either of these calamities, the scarcity of any one country being more likely to be relieved by the plenty of some other. But very few countries have entirely adopted this liberal system. The freedom of the corn trade is almost every where more or less restrained, and, in many countries, is confined by such absurd regulations, as frequently aggravate the unavoidable misfortune of a dearth, into the dreadful calamity of a famine. The demand of such countries for corn may frequently become so great and so urgent, that a small state in their neighbourhood, which happened at the same time to be labouring under some degree of dearth, could not venture to supply them without exposing itself to the like dreadful calamity. The very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another. The unlimited freedom of exportation, however, would be much less dangerous in great states, in which the growth being much greater, the supply could seldom be much affected by any quantity of corn that was likely to be exported. In a Swiss canton, or in some of the little states of Italy, it may, perhaps, sometimes be necessary to restrain the exportation of corn. In such great countries as France or England it scarce ever can. To hinder, besides, the farmer from sending his goods at all times to the best market, is evidently to sacrifice the ordinary laws of justice to an idea of public utility, to a sort of reasons of state; an act of legislative authority which ought to be exercised only, which can be pardoned only in cases of the most urgent necessity. The price at which the exportation of corn is prohibited, if it is ever to be prohibited, ought always to be a very high price.

The laws concerning corn may every where be compared to the laws concerning religion. The people feel themselves so much interested in what relates either to their subsistence in this life, or to their happiness in a life to come, that government must yield to their prejudices, and, in order to preserve the public tranquillity, establish that system which they approve of. It is upon this account, perhaps, that we so seldom find a reasonable system established with regard to either of those two capital objects.

About this Quotation:

This passage on the benefits of free trade in agriculture is noteworthy for several reasons. Firstly, it is an early example of Smiths’s use of the word “liberal” in its more modern sense of economic liberty instead of its more traditional meaning of “liberality” or generosity of spirit. Second, it is interesting to see that he uses it in contrast to another system, that of the “mercantilist system” of trade regulations and restrictions. One tends to associate Smith with strong criticisms of “men of system” who wished to impose their vision of a future society on their fellow citizens. Here he seems to accept the idea that there is another “system” which is not necessarily harmful to the liberty of others but which in fact defends it vigorously. Third, he grounds his defence of free trade in grain firmly on utilitarian arguments not upon any right to liberty or property held by the would-be traders. He states that regulating the grain trade may in fact turn a local shortage of food into a more serious famine. And fourthly, he makes a very interesting argument about the similarities between regulating the grain trade and regulating religion. Since people are passionately interested in the things that concern them most, such as food for the body and food for the soul, they put pressure on governments to regulate these matters. Smith however warns that this is not always wise as experience has shown that “we so seldom find a reasonable system established with regard to either of those two capital objects.”

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