One of the most surprising parts of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations is his Chapter Seven of Book Four, titled “Of Colonies.”In it, Smith discusses the effects of colonization by governments in Europe. Of particular interest is Smith’s discussion of the effects of the British government’s treatment of the thirteen colonies in North America.
It’s all there. Smith did a cost/benefit analysis, with actual numbers, of Britain’s policy of maintaining the colonies, in which he totaled up the costs to Britain and estimated that these were well above the benefits. He then gave a simple explanation, by way of an analogy with shopkeepers, for why the British policy persisted despite the unfavorable cost/benefit ratio. Smith then advised the British government to give up its colonies and predicted that it would not do so without being defeated in war. As a bonus, he predicted that the nation that would arise from those colonies would become the most powerful nation in the world. On top of all this, Smith made a terse but passionate defense of economic freedom.



These are the opening two paragraphs of David R. Henderson, “Adam Smith’s Economic Case Against Imperialism,” published by Liberty Fund on Adam Smith WorksThe whole thing is worth reading. It contains some of my favorite quotes from Smith, some of which I always used my first day of class when teaching economics to persuade the students that people who reject Smith as “so 18th century” did not appreciate either Smith’s analytic ability or his predictive ability.