David Bentley is a Distinguished University Professor at Western University. Here, Bentley examines a time when economic policy was increasingly dominated by Adam Smith’s theory in The Wealth of Nations that economies are driven by selfishness and a desire for wealth. John Rae, a little-known early Canadian writer, published a work asserting the inadequacy of Smith’s view. In our governments, both before and during the coronavirus pandemic, we may not have seen much financial caution, but we have seen a surge of Canadians innovating and reaching out to help their communities.
In 1822 Rae, a young Scot who had recently studied medicine at the University of Edinburgh, established a boys’ school in Williamstown, in what is now eastern Ontario. While there, Rae published numerous letters and articles in Canadian newspapers and periodicals on such topics as manufacturing and education in Canada, the clergy reserves and genius, a subject that he was extremely well qualified to tackle. His most important work, Statement of Some New Principles on the Subject of Political Economy was published in Boston in 1834, by which time Rae was teaching at a school in Hamilton.
As indicated by its full title — Exposing the Fallacies of the System of Free Trade, and Some Other Doctrines Maintained in the “Wealth of Nations” — New Principles is a sustained argument against the ideas of Adam Smith, which were regarded as economic gospel when Rae’s book appeared and would remain so for many years to come.
Rae’s most fundamental criticism of Smith is methodological. “The author of the Wealth of Nations,” he argues, “was completely opposed to … inductive philosophy,” which aims to “explain … phenomena,” not by using “preconceived notions” and theories, but through strict “investigation” and “careful interpretation.”
Setting out to correct the errors that flow from Smith’s reasoning, Rae made Upper Canada and North America his laboratory. What he observed led him to contradict Smith’s theory that individuals are driven to “accumulate wealth” merely by a desire for “selfish gratification.” To Rae this was an inadequate view of human motivation and by no means the only “important element” in determining the course of human action.
Another important element, according to Rae, is the presence in humans of the “intellectual powers” that “give rise to reasoning and reflective habits” and, hence, to such traits as financial prudence. Other elements are the “the social and benevolent affections” that prompt individuals “to procure good for others” and to think beyond “mere personal interests” towards the “future good” of their family and their community.
Rae flatly rejected Smith’s theory that, because it is “the source of the wealth of nations” and the means of social advancement the accumulation of wealth by “industry and … individuals” should “never to be interfered with by the legislature.” On the contrary, he argues, “invention is the only power on earth that can be said to create,” and it is therefore “an essential element in … the process of the increase of national wealth, because that process is a creation, not an acquisition … The ends that individuals and nations pursue, are different. The object of one is to acquire, of the other to create.”
From this it follows that whatever favours “invention” — education to increase the strength of both the “intellectual powers” and the “social and benevolent affections” which, in turn, “excite and nourish … genius” — should be encouraged, and whatever impedes invention — “the ascendancy of the purely selfish” — should be discouraged.
Rae grants that legislation can help increase a society’s capacity for invention and, hence, improve society as a whole, but he argues that other factors are also very important. Some of these are environmental: abundant natural resources, for example, and a demanding climate. Others are immigration and ethnic diversity, places “where various different races, or nations, have mingled together, are to be noted as coming eminently forward” in generating “industry” because of the “inventive faculty.” Yet other factors such as civil “commotions … internal oppression,” and, it might be added, battles against pandemics, “excite the inventive faculty to activity.”
In short, Rae argues that “whatever … breaks” the regular “order of things” is conducive to invention because it “exposes the necessity, or the possibility, of connecting them by some other means.” Perhaps that will be one positive outcome of the COVID-19 pandemic. There may well be another.
Because of Smith’s towering influence when First Principles was published in 1834 Rae’s work made little impact, but that would change in 1848 when John Stuart Mill in his powerful Principles of Political Economy repeated and endorsed Rae’s ideas on capital accumulation, luxury taxes, and the use of duties on imported goods to foster and protect native industries.
Through Mill’s book First Principles exerted considerable influence in the late nineteenth century, nowhere more so than in the country in which it was conceived and written. In 1876 when John A. Macdonald rose in the House of Commons to introduce the ideas that would become the National Policy, he cited both Mill and Rae as providing the justification for using “protecting duties” in “a young and rising nation” in the “hope of naturalizing” — domesticating — “foreign industry” in ways “suitable to the circumstances of … [a new] country” “emerging from the first struggles with the forest.”
As Canadians have surely learned during the COVID-19 pandemic, “naturalizing … foreign industry” — fostering the domestic production of such things as pharmaceuticals — is an idea that should be revisited.
David Bentley is a Distinguished University Professor at Western University. He is the Carl F. Klinck Professor in Canadian Literature, Fellow of the Royal Society of Canada and Fellow of the Royal Society of Arts. Bentley is the founding and continuing editor of Canadian Poetry: Studies, Documents, Reviews and the Canadian Poetry Press and the Director of the Canadian Poetry Project. He was the winner of the 2015 Killam Prize, an award that recognizes exceptional career achievements.