Luxury, Commerce and Economic Development

The moral standing and social effects of “commerce” were a live issue in the eighteenth century, and especially so for the writers of the Scottish Enlightenment, who were in the main committed to an open economy and society, but who were at the same time deeply concerned about issues of moral philosophy.

In modern English, “luxury” is a bland and rather positive word, but that was not so in the early modern period. The basic meaning, that luxuries are things which are desired without being necessary, is the same, but the word then had strongly negative overtones of excess, greed, and the like. Until about the seventeenth century, the literature was almost entirely hostile - in practice, of course, rich people often revelled in what any reasonable person would describe as luxury, but they did not like to say so. The case against luxury was in fact rather vague, though one fairly constant element, going back at least to Plato, was that the desire for luxuries, unlike that for necessities, is in principle unlimited, leading to an unending struggle for increased wealth.

Hostility to luxury, at least in its more extreme forms, is not quite the same as hostil­ity to commerce, but it could not be denied that trade, especially the more profitable forms of long-distance trade, was frequently trade in luxuries. In pre-modern times it was easy to present trade in luxuries as pandering to a minority at the expense of the rest of society. By the seventeenth and eighteenth centuries things were changing, with expanded trade in a wider range of goods and more people able to afford at least some modest luxuries. London was displacing Amsterdam as the primary centre of trade in northern Europe. Small wonder that the old view came under fire in the London-centred pamphlet literature.

The Scottish response was particularly stimulated by Bernard Mandeville’s deliber­ately provocative Fable of the Bees, or Private Vices, Publick Benefits of 1707. Economic success, he claimed, depends on “vice”. The trick is to define vice very broadly and virtue correspondingly narrowly. In particular, any self-interested, market-oriented behaviour, and any consumption over and above bare necessities, were implicitly counted as vice. People were not sure how to react to this. Rousseau, in France, took it seriously and agreed - to him, a commercial society was indeed immoral. Most Enlightenment think­ers, wherever they came from, challenged Mandeville’s definitions of virtue and vice, but the Scots, with their focus on moral philosophy and on social and economic questions, seem particularly to have felt the challenge.

There were two elements to the Scottish response. First, it was argued that spending on luxuries was only a vice if it went beyond the individual’s means. There were differences of emphasis. Hume, for example, robustly dismissed criticisms of luxury. “To imagine, that the gratifying of any sense, or the indulging of any delicacy in meat, drink, or apparel, is of itself a vice, can never enter into a head, that is not disordered by the fren­zies of enthusiasm” (1752 [1987]: 268). Adam Smith, by contrast, described the “baubles and trinkets” of the rich with contempt, but argued that they did no harm.

More important to the history of economics is the second element, the analysis of a commercial society and, in particular, of the economic effects of a demand for luxuries. Francis Hutcheson, Smith’s teacher, sketched an argument which was to be developed by Hume and Smith: if the land were equally divided and used only to produce necessi­ties there would be “no knowledge of arts [and] no agreeable amusements or diversions” (1726 [1971]: 139). Demand for unnecessary but agreeable products and services led to a better society.

This line of argument was developed by Hume, Steuart and Smith into a description of the process of development of commerce, starting from a simple (agricultural) society.

The common-sense case for commerce had been, very reasonably, that it led to an increase in employment and income in urban manufacture and trade. The essential step forward made by the Scots was to bring agriculture into the picture as a neces­sary complement to urban activities. Agriculture is essential because both farmers and non-farmers have to eat. Fortunately, as Hume noted: “The land may easily maintain a much greater number of men, than those who are immediately employed in its culture, or who furnish the more necessary manufactures to such as are so employed” (1752 [1987]: 256).

Steuart had exactly the same idea in different words (for example, 1776 [1966]: 42). This notion is of course a sort of surplus arising in agriculture (though Hume did not use the word “surplus”). It is a marketable surplus of food, and it arises in agriculture simply because agriculture is the sector which produces food. It is not necessarily all available to be paid to landlords or to be taken in taxation (although it sets an upper limit to the amount that can be taken from the sector). It has little or nothing in common with the notion of a “net product” which was developed by the Physiocrats in France a little later. The idea of a marketable surplus arising in agriculture, or more generally of a surplus of necessities, was not entirely new - it is to be found in Petty and Cantillon - but the use Hume made of it was new.

The key point was that farmers could not just produce more food than they need to survive, but that they could produce more than the (perhaps larger?) amount they want to eat.

Where manufactures and mechanic arts are not cultivated, the bulk of the people must apply themselves to agriculture; and if their skill and industry encrease, there must arise a great superfluity from their labour beyond what suffices to maintain them. They have no temptation, therefore, to encrease their skill and industry; since they cannot exchange that superfluity for any commodities... A habit of indolence naturally prevails. The greater part of the land lies uncultivated. (Hume 1752 [1987]: 260-61)

Taken on its own, this might look hypothetical, but Hume’s historical writings show that he was entirely serious. A poor or relatively underdeveloped country may be held back by the absence of attractive goods to stimulate effort, or by habits and tastes that favour leisure rather than purchase of luxuries. “In the first and more uncultivated ages of any state, ere fancy has confounded her wants with those of nature, men, content with the produce of their own fields, or with those rude improvements which they themselves can work upon them, have little occasion for exchange” (Hume 1752 [1987]: 290-91).

Steuart followed the same line of argument and reached much the same conclusions. Considering the effect of an increase in agricultural productivity (“the scheme of agricul­ture”), he claimed:

where the inhabitants are lazy; or where they live in such simplicity of manners, as to have few wants which labour and industry can serve... the laziest part of the farmers, disgusted with a labour which produces a plenty superfluous to themselves, which they cannot dispose of for any equivalent, will give over working, and return to their ancient simplicity.... Thus... a part of the country... will again become uncultivated. (Steuart 1767 [1966]: 41)

Experience every where shews the possible existence of such a case, since no country in Europe is cultivated to the utmost: and that there are many still, where cultivation, and consequently multiplication, is at a stop.

Agricultural development is the key, but it is promoted by the supply of attractive non- agricultural goods. In Hume’s words: “Every thing in the world is purchased by labour; and our passions are the only cause of labour. When a nation abounds in manufactures and mechanic arts, the proprietors of land, as well as the farmers, study agriculture as a science, and redouble their industry and attention” (1752 [1987]: 261).

The overall effects are entirely desirable to a man of the Enlightenment (though one can imagine that many traditional rulers and religious leaders might not agree):

The spirit of the age affects all the arts; and the minds of men, being once roused from their lethargy, and put into a fermentation, turn themselves on all sides, and carry improvements into every art and science. Profound ignorance is totally banished, and men enjoy the privilege of rational creatures, to think as well as to act, to cultivate the pleasures of the mind as well as those of the body. (Hume 1752 [1987]: 271)

How does the process get started? In an isolated agricultural state in which manufac­tures are only produced on a small scale for local use, better products do not come into view and farmers have no incentive to enter the market at all. Hume’s History of England explains the state of Britain before the Romans, and again after the Anglo-Saxon con­quest in those terms. Trade with outsiders is the answer. Imports show what can be done and induce farmers to enter the market as sellers of food and buyers of manufactures, while local manufacturing has something to copy and improve on: “In most nations, foreign trade has preceded any refinement in home manufactures............................................................. Thus men become

acquainted with the pleasures of luxury and the profits of commerce” (Hume 1752 [1987]: 264, original emphasis).

Steuart followed Hume.

Military power was an issue in the eighteenth century. Hume posed the question: was there a conflict between the happiness of individuals and the power of the state? He answered that there was not. Suppose a commercial state with a substantial luxury sector was threatened by a rival. Taxes could be increased and demand for luxuries would fall as a result, forcing those previously employed in luxury production to take new jobs in the army (Hume 1752 [1987]: 261-2). A simple agricultural state, by contrast, could not afford to raise a substantial army since the whole labour force would be needed to grow food at the prevailing low levels of productivity. (This clearly assumes that agricultural methods cannot be changed overnight.) It would admittedly be possible to extract a surplus from peasants by force, but that would be ineffective: “It is a violent method, and in most cases impracticable, to oblige the labourer to toil, in order to raise from the land more than what subsists himself and family. Furnish him with manufactures and commodities, and he will do it of himself” (ibid.: 262).

That said, Hume knew perfectly well that feudal lords had extracted a surplus from their tenants, even if they had done so very inefficiently. Either because there were few luxury manufactures to spend on, or because military strength was more important, feudal lords used their surplus to maintain gangs of retainers and soldiers. As tastes changed and more attractive manufactures became available, rich landlords cut down on retainers and switched to buying luxuries from independent merchants and manufac­turers, living a better life but sacrificing their personal power. The decline of feudalism was thus the result of the rise of commerce and of the demand for luxuries. Smith shared this analysis, as we shall see. More generally, a commercial society might not be equal - the Scottish Enlightenment writers were very well aware of the huge wealth of leading aristocrats - but it did entail a large, relatively independent, middle class.

Here it is worth mentioning Adam Ferguson. His Essay on the History of Civil Society (1767 [1967]) has attracted little attention from historians of economics (it is, instead, regarded as a pioneer work in sociology) but it contains a surprisingly coherent, if sketchy, account of economic development. Like others at the time, he supported the four stages framework. More to the point, he discussed human motivation, arguing that the animal instinct to seek one’s own survival and to produce descendents is combined with the human characteristics of reflection and foresight to make us constantly seek material wealth and security. Humans, he claims, always seek to improve, so we are always aiming to raise the efficiency and quality of production.

This amounts at least to the beginning of an account of economic development which has much in common with Hume’s but with the emphasis more on improved methods of production, and an implication, at least, that growth should be normal (since it is the result of normal human instincts), and that any end to growth is far away. Sketchy though it is, Ferguson’s account of growth is in some ways more modern than Hume’s or, in fact, Smith’s.