History of Political Economy Adam Smith’s “Two Distinct Beneits” from Trade: The Dead End of “Vent-forSurplus” Interpretations Reinhard Schumacher In the last few decades, Adam Smith’s theory of international trade has seen a revival, after having been neglected for a long time. This renaissance can arguably be attributed to Hla Myint (1958), who highlights the advantages of a Smithian trade theory compared to the static theory of comparative advantage. Myint distinguishes between two different gains from foreign trade in Smith’s theory, a vent-for-surplus and a productivity gain. From those beneits, he derives two separate theories of international trade, namely, a vent-for-surplus theory and a productivity theory, which he ascribes to Smith. This categorization has been successful if measured by its adoption by other scholars. However, there have been arguments about the interrelation of both theories, whether they are inseparable, distinct, or mutually exclusive. Additionally, the vent-forsurplus gain has caused some debates about its possible interpretation and Smith’s original application. In this article, I do not want to add to either of these two discussions. Rather, I will disprove Myint’s widely adopted categorization. This categorization cannot be sustained when compared to what Smith actually writes. It is rather based on a misreading of one paragraph of The Wealth Correspondence may be addressed to Reinhard Schumacher, Department for Economic and Social Sciences, Universität Potsdam, August-Bebel-Straße 89, 14482 Potsdam, Germany; e-mail: rschumac@uni-potsdam.de. I would like to thank Jeffrey Young, Kevin D. Hoover, Paul Dudenhefer, and two anonymous referees of this journal for their very helpful comments. History of Political Economy 47:4 DOI 10.1215/00182702-3321324 Copyright 2015 by Duke University Press Published by Duke University Press History of Political Economy 578 History of Political Economy 47:4 (2015) of Nations (WN). For Smith, imports and exports constitute the “two distinct beneits” from foreign trade, which he expounds in The Wealth of Nations. Smith does not distinguish between a vent-for-surplus gain and a productivity gain from foreign trade and he has no vent-for-surplus theory in a modern sense. The article is organized as follows. I will irst show how Myint comes to the conclusion that Smith’s theory of international trade contains a ventfor-surplus and a productivity theory and how this separation has been discussed in the literature. Afterward I will compare this categorization to The Wealth of Nations. I will discuss the meaning of the terms “surplus produce” and “superluities” in both The Wealth of Nations and the contemporary literature. I will show why imports and exports are both beneicial according to Smith. Moreover, the reasons why Myint and others have misinterpreted Smith’s gains from trade will be discussed. Afterward, I will examine why other classical economists, above all David Ricardo and John Stuart Mill, criticized Smith. Their criticism is not directed against a modern vent-for-surplus argument and has been misunderstood as well. The article ends with a short conclusion. 1. Smith’s Two Alleged Theories of International Trade In an inluential article, Hla Myint (1958) argues that Adam Smith uses two separate gains to show that foreign trade is beneicial for a nation. Myint draws on the following paragraph of The Wealth of Nations: Between whatever places foreign trade is carried on, they all of them derive two distinct beneits from it. It carries out that surplus part of the produce of their land and labour for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives a value to their superluities, by exchanging them for something else, which may satisfy a part of their wants, and increase their enjoyments. By means of it, the narrowness of the home market does not hinder the division of labour in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to improve its productive powers, and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society. (WN IV.i.31) Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 579 Myint argues that Smith’s “two distinct beneits” are irst a vent-forsurplus gain, because international trade “gives a value to their superluities,” and second a productivity gain, because international trade enhances the division of labor and improves “its productive powers.” From the irst gain, Myint (1958, 318) derives the “‘vent for surplus’ theory of international trade,” which assumes that an international market “provides an outlet for the surplus product above domestic requirements.” From the second gain, Myint derives the “productivity theory,” which shows how “international trade also improves the division of labour and raises the general level of productivity within the country” (318). The classiication of the gains from foreign trade in Smith’s theory into a vent-for-surplus gain and a productivity gain has been widely adopted since Myint irst proposed it in 1958.1 Equally, the differentiation between a ventfor-surplus theory and a productivity theory in Smith’s theory of foreign trade was not questioned much. However, most scholars emphasize the productivity theory, according to which foreign trade extends the market and enables an enhanced division of labor and productivity growth. This productivity theory has built Smith’s reputation in international economics, after he was generally seen as a poor trade theorist because he failed to discover the theory of comparative advantage.2 This reappraisal was supported by New Trade Theorists, who claim Smith as one of their predecessors, especially regarding increasing returns (see, e.g., Krugman 1990, 4).3 1. Myint (1958, 318n) refers to John Stuart Mill and the international trade expert John H. Williams for the term “vent-for-surplus.” Mill ([1848] 1965, 591) uses the phrase “a vent for its surplus” in connection with Smith, and Williams (1929, 203) writes about “Mill’s famous objection to Adam Smith’s ‘vent for surplus’ principle.” However, they do not divide Smith’s trade theory into a vent-for-surplus and a productivity approach. Myint introduced this distinction irst, as he himself acknowledges (Myint 1977, 242). The term “vent-for-surplus” itself was not new but used widely, as the following examples demonstrate. James Syme (1821, 291) notes that external trade is beneicial “by furnishing a vent for the surplus produce” (see also 327). James Mill ([1807] 2006, 138) argues against the idea that foreign trade “furnish[es] a vent for the produce of the industry of the country,” and Thomas Mun ([1621] 1969, 50) writes that England “must inde meanes, by Trade to vent our superluities.” Even David Ricardo ([1822] 2004, 241) writes that “under a system of free trade . . . if an abundant harvest occurred . . . after an inconsiderable fall of price, a vent for the superluous produce would be immediately found in exportation.” 2. Smith’s theory of international trade has been depicted by international trade economists as a theory of absolute advantage and thus as a simple case of the more sophisticated theory of comparative advantage. However, this representation, which is included in most modern textbooks on international economics, is an adulteration of Smith’s writings (Schumacher 2012). 3. Smith’s concept of the division of labor is often equated with increasing returns. The neoclassical concept of increasing returns implies that when all factor inputs are increased by an identical proportion, output increases in a greater proportion. Smith’s concept of the division of labor, by contrast, is not so narrow but much more sophisticated. Published by Duke University Press History of Political Economy 580 History of Political Economy 47:4 (2015) The vent-for-surplus theory, in contrast, has been more controversial. Smith uses the terms “surplus produce” and “superluities” in connection with foreign trade in several paragraphs of The Wealth of Nations. In one often quoted paragraph, Smith states, “When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent abroad, and exchanged for something for which there is a demand at home. Without such exportation, a part of the productive labour of the country must cease, and the value of its annual produce diminish” (WN II.v.33). In another paragraph Smith writes that “in every period, indeed, of every society, the surplus part both of the rude and manufactured produce, or that for which there is no demand at home, must be sent abroad in order to be exchanged for something for which there is some demand at home” (WN III.i.7).4 The scope of its application and what Smith meant by it has led to discussion among scholars. The different interpretations can be divided into four groups, which are not necessarily mutually exclusive. First, it is claimed that the vent-for-surplus theory can be applied only to certain nations or goods. In his original approach, Myint (1958) argues that Smith applies the vent-for-surplus theory only to underdeveloped nations. This is repeated by others (Gomes 1987, 2003; Kindleberger 1964; Winch 1965), while Denis O’Brien (1983, 93) suggests that it applies merely to advanced nations. Myint later extended the vent-for-surplus theory to developed countries but still excluded, in alleged accordance with Smith, “highly advanced ‘commercial nations’” (1977, 243). Some stress that Smith’s ventfor-surplus gains can be realized only with agricultural or primary goods (Myint 1977; Ros 2000) or in case of joint products (Kurz 1990, 1992; West 1994). Second, it is argued that Smith’s vent-for-surplus theory is bound to certain presumptions or requirements, such as underemployed resources (Bloomield 1981; Findlay and Lundahl 1994; Kibritçioglu 2002; Magnusson 2004; Meier 1994; Myint 1977, 1958; O’Brien 1975; Platteau 1978; Rima 2004; Ros 2000; Staley 1973; Winch 1965), inelastic domestic demand (Hollander 1973; Myint 1958; O’Brien 1975; Platteau 1978; Staley 1973), internal immobility or ixed resources (Myint 1958; Staley 1973), speciicity of resources or factors (Hollander 1973; Myint 1958; Platteau 1978), indivisibilities (Winch 1965), a highly skewed resource base 4. Other paragraphs referred to in relation to Smith’s vent-for-surplus theory are WN I.xi.c.4, II.v.4–6, II.v.16–18, II.v.24, II.v.34, II.v.36, III.i.1–2, III.iii.20, III.iv.5, IV.iii.c.4, IV.vii.c.4–9, IV.vii.c.22, and IV.vii.c.47–50. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 581 (Kindleberger 1964), overproduction in general (Kindleberger 1964; Morales Meoqui 2010; Rutherford 2002; Negishi 2004; West 1994), and poor internal communications (Winch 1965, 8). Third, some authors do not only stress the difference between the ventfor-surplus and the productivity theory but also assert that the former is incompatible with Smith’s system of natural liberty and therefore at variance with Smith’s overall theory. These authors often refer to David Ricardo and John Stuart Mill, who allegedly brought forward a similar argument. To this group belong Leonard Gomes (1987), Charles E. Staley (1973), and Jorge Morales Meoqui, who refers to Smith’s vent-for-surplus gain as “error,” “theoretical law,” and “fallacy” (Morales Meoqui 2010, 42, 45). Added to this group can be those who agree that there is an incompatibility between both, but that it can be solved. Lars Magnusson argues that the productivity theory is Smith’s “general principle,” but that it applies only in the long run. He implies that Smith “must . . . have been sceptical as to whether this principle provided a very realistic picture of the present,” because “there was a limit to the dynamics of market forces” (Magnusson 2004, 34). Magnusson concludes that the vent-forsurplus theory holds in the short and medium terms. Nerio Naldi (1996, 212) claims that Smith’s references to surplus and superluities indeed “conlict with some fundamental propositions of the WN.” However, this should be seen as a “rhetorical form of speech” and should not be taken at face value.5 Fourth, some have questioned that both gains lead to two different theories of international trade. Gottfried Haberler (1959, 9n) argues that Myint’s distinction is “unconvincing” and suggests that the vent-for-surplus situation is “simply an extreme case of differences in comparative cost.” Other authors emphasize that the “surplus” is mainly the result of increasing returns and thus of specialization, as does Takashi Negishi (1985, 1989). More recently, Negishi (2004, 34, 37) has similarly argued that the productivity theory and the vent-for-surplus theory should be understood “as two parts of Smith’s single disequilibrium theory of inter5. Naldi refers to Smith’s Lectures on Rhetoric and Belles Lettres (LRBL) and uses Smith’s distinction between didactical and rhetorical discourse, the former being characterized by putting “before us the arguments on both sides of the question in their true light,” while the latter “endeavours by all means to perswade us; and for this purpose it magniies all the arguments on the one side and diminishes or conceals those that might be brought on the side conterary to that which it is designed what we should favour” (LRBL i.149–50). Naldi argues that Smith uses the rhetorical method when writing of “surplus” and “superluities.” Published by Duke University Press History of Political Economy 582 History of Political Economy 47:4 (2015) national trade.” They both are “an indispensable part of Smith’s disequilibrium (or path-dependence) theory of international trade,” with the ventfor-surplus theory being “clearly a disequilibrium theory which explains the cause of international trade in excess supply.” Both gains are seen as inseparable. They do not occur independently but are complementary. Robert Blecker (1997, 530) argues that “Smith’s apparently separate concepts of trade can thus be uniied as a theory of an international division of labour.” Andrea Maneschi (1998, 48) describes the productivity and the vent-for-surplus theory “as two sides of a coin,” and Bruce Elmslie and Norman Sedgley (2002, 714) state that the “two gains from trade described by Smith are codependent” (see also Elmslie and Sedgley 2003). Yet each of these four groups exposes some inconsistencies. First, Smith does not limit the terms “surplus produce” and “superluities” to certain nations or certain goods. Rather, he talks of “every period, indeed, of every society” and refers to diverse goods as surplus produce.6 Second, although the listed assumptions are all conceivable explanations of a ventfor-surplus theory, they are not made by Smith himself, even though some authors might claim this. The third group raises the question why Smith would not have noticed such an incompatibility himself. Since he often refers to “surplus produce” and “superluities” in connection with foreign trade, it is unlikely that Smith just overlooked such a mistake. Magnusson’s explanation of short- and long-term developments is in itself consistent but not given by Smith himself.7 Naldi’s interpretation that Smith uses a rhetorical discourse when he uses the terms “surplus produce” and “superluities” is superluous if my interpretation below is correct. There is no need to explain these terms as a rhetorical device, which leads to the question whether the whole Wealth of Nations is merely a rhetorical discourse. Smith uses those terms not only when he polemicizes against mercantilist policies but throughout The Wealth of Nations.8 The fourth group 6. An extensive criticism of Heinz Kurz’s (1990, 1992) joint products interpretation can be found in Elmslie 1996. 7. Magnusson is probably aware of this deiciency of his argument, which is why he adds that this is an alternative interpretation “which might be even more realistic, given what we know of Smith” (2004, 34). 8. Smith does not explicitly refer to the distinction between rhetorical and didactical discourse in The Wealth of Nations. However, The Wealth of Nations was intended as a scientiic work and not merely as a polemic work against prevailing policies. Smith refers to the didactical discourse as “the best in all matters of Science” (LRBL ii.135), and it is thus implausible that he used the rhetorical method throughout The Wealth of Nations. It could be argued that he uses this method in book IV, but it is harder to claim that books I–III are rhetorical rather than didactical according to Smith’s deinitions of those methods, as Naldi implies (see also Brown 1994, 9–22, 162–64). Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 583 raises the question why, if both gains were inseparable, would Smith talk of these as “two distinct beneits” from foreign trade? There is, however, one point of agreement between all authors in these four groups. They do not question Myint’s categorizations per se. Authors in the irst three groups assume that Smith uses the vent-for-surplus gain and the productivity gain as two separate approaches in his theory. Authors in the last group do not accept Myint’s conclusion that both gains lead to separate approaches. They stress that both gains are complementary and are even interdependent. These authors have thus pointed to the right direction, and I will use some similar arguments for my own interpretation below.9 Yet they do not repudiate Myint’s categorization outright. They still uphold that Smith himself classiied the gains from trade accordingly. 2. Smith’s “Two Distinct Beneits” In this section I will show that Myint’s categorization, although it has been inluential, is wrong. On that point, I will irst discuss the meaning of the terms “surplus produce” and “superluities” in Smith’s writings and in the contemporary literature. Afterward, I will show whereof Smith’s “two distinct beneits” from foreign trade are comprised. Reasons why Myint and others misinterpreted Smith are given subsequently. Additionally, the criticism of Smith’s gains from foreign trade by nineteenth-century classical economists will be outlined, since it too has been misunderstood in the context of the debate about Smith’s alleged vent-for-surplus theory. The Terms “Surplus Produce” and “Superluities” Smith does not use the phrase “vent-for-surplus,” but he often speaks of “surplus produce” and “superluities.” The division of labor, with which The Wealth of Nations begins, leads to a specialization of laborers. As a result, they do not produce merely for their own consumption, but they need to exchange some part of their produce for other products that they are in need of. This part of the produce is termed by Smith “surplus produce”: “The certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he may have 9. In a previous article, I myself supported this position in a short remark (Schumacher 2012, 59–60). Published by Duke University Press History of Political Economy 584 History of Political Economy 47:4 (2015) occasion for, encourages every man to apply himself to a particular occupation” (WN I.ii.3).10 All goods that are produced not for the consumption of their respective producer but for the market are described as surplus produce. As we will see in the next paragraph, such surpluses exist because there is a market for them. They would not be produced without a market. An effective demand is the precondition for the production of a surplus. In this way, Smith describes the division of labor in different human societies as an exchange of surplus produce, starting with “a tribe of hunters or shepherds” (WN I.ii.3). In a “civilized society,” the “exchange of rude for manufactured produce” between towns and countryside is described as an exchange of surpluses: “The town affords a market for the surplus produce of the country” (WN III.i.1). The same is true for colonial trade (WN IV.vii.c) and for foreign trade. If the market is extended beyond national borders, the division of labor is enhanced. Some goods are then produced for foreign trade because there is a demand for them from abroad. From a national point of view, these goods are “surplus produce,” as they are not sold or consumed domestically. In this context, the phrase “no demand,” which Smith sometimes uses in conjunction with surplus produce, has to be understood.11 In the case of foreign trade, it always refers to the point of view of the nation. Smith equates “the surplus part both of the rude and manufactured produce” with that part “for which there is no demand at home” (WN III.i.7). The phrase “no demand” does not mean that there is an overproduction, but refers solely to domestic demand and to the term “surplus” as described here. Thus, the surplus would not be produced in any case, that is, even without foreign trade. If there was no overall demand for a commodity, it “would never be produced” (WN II.v.5). A surplus is produced only because there is a foreign 10. See also WN I.iv.1. Smith uses the terms “superluities” and “surplus” in relation to the division of labor already in his earlier Lectures on Jurisprudence (LJ) and in the Early Draft of Part of the Wealth of Nations (ED) (see, e.g., LJ(A) vi.47, LJ(B) 220, and ED 25). The meanings of the terms “superluity” and “surplus” are not limited to the division of labor in Smith’s writings. Luxury goods, i.e., goods that are not necessities, especially diamonds, gold, and silver, are also described as superluities (e.g., WN I.xi.e.38, I.xi.g.28, I.xi.m.18–19, I.xi.n.21, and V. ii.k.7). Smith uses the term “surplus” in several other contexts; e.g., he describes the difference between the rent and the necessary expenditure of the landlord as surplus (e.g., WN I.viii.19). The difference between proits and the necessary expenditure of the capital owner, which Smith labels “neat or clear proit” (WN I.ix.18), is also described as a surplus (see also WN I.viii.20). But these alternative uses are not signiicant for this article. 11. Smith uses the phrase “no demand” in the context of surplus produce once for domestic trade (WN II.v.5) and twice for foreign trade (WN III.i.7 and III.i.31). Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 585 market. These commodities did not exist before foreign trade was established (see especially WN II.v). Thus, when Smith uses the terms “surplus produce” and “superluities” in relation to foreign trade, he merely refers to exports. Elmslie and Sedgley (2002, 718) state that they “count 40 times in the Wealth where Smith uses the term surplus as synonymous with exports.”12 As a consequence, if the demand for some goods collapses or the extent of the market is decreased for another reason, those surplus products for which there is no longer an effective demand will not be produced anymore. This is again true for every kind of exchange, including foreign trade: “Those materials are a part of the surplus produce of those countries which, unless it was annually exchanged for something which is in demand there, would be of no value, and would soon cease to be produced” (WN II.v.17). It is not surprising that Smith himself does not speak of vent-for-surplus, because in his theory there is no surplus that needs a vent. Smith’s notion of “surplus produce” is not dependent on unemployed resources, inelastic demand, specificity of resources, or other presumptions. Neither is it opposed to his economic theory of natural liberty. When he talks of “surplus produce” he has neither “a surplus productive capacity in an isolated economy,” as Myint (1958, 323) alleges, nor overproduction in mind. Rather, he writes of “super-abundance” when he refers to unusable goods, that is, goods that have no value and are thrown away. Even in the paragraph on which Heinz Kurz mainly relies for his joint-product interpretation (see Kurz 1990, 1992), Smith speaks irst of a superabundance of those products, because “a great part of them is thrown away as useless” and is therefore “of little or no value” (WN I.xi.c.3). But as soon as those goods— in Smith’s example skins of animals—are traded with other nations, they are described as surplus products: “the Europeans, with whom they now exchange their surplus peltry, for blankets, ire-arms, and brandy, which gives it some value” (WN I.xi.c.4). Thus, as soon as they are tradable and have a value, they stop being superabundant and are surplus products instead. This example is, however, the only time Smith argues that a superabundant produce becomes a tradable produce as the result of foreign trade. In WN I.xi, Smith is concerned with rent, not with foreign trade. Moreover, he describes in this example “nations of hunters and shepherds” and this cannot be seen as a general rule for commercial societies. 12. This interpretation is also suggested by Arthur Bloomield (1975, 460), but he does not pursue it any further and even discards it. Published by Duke University Press History of Political Economy 586 History of Political Economy 47:4 (2015) The depiction of foreign trade as an exchange of surplus produce or superluities is not peculiar to Smith but was common in his day. Dudley North (1691, 2) states that “trade is nothing else but a Commutation of Superluities.” Henry Martin ([1701] 1954, 69) writes that “by such an universal Freedom of Trade, our Superluities wou’d be multiply’d, our exportations wou’d be enlarg’d, our Bullion wou’d be increas’d, and the more Money wou’d be still imploy’d in Trade” (see also 47, 56). William Blake ([1810] 1857, 7) notes, “In the commercial dealings which take place between any two nations, the surplus produce of the one will be exchanged for the surplus produce of the other.” James Syme (1821, 291) says that “the only use of commerce is to exchange the surplus produce of one country for the surplus produce of other countries” (see also 24–26, 315–16). Others who use those terms in this sense include Thomas Mun ([1664] 1928, 8), David Fordyce ([1754] 2003, 98), James Steuart ([1767] 1805, 1:158, 2:2), John Wheatley (1803, 103–4), and Smith’s mentor Henry Home (Lord Kames) (Kames 1774, 512).13 The description of exchange between two people and of trade inside a nation as an exchange of surpluses was even more common: see, e.g., Hume [1777] 1987, 260–61; James Mill [1821] 2006, 327; and Torrens 1808, 12, 18. Smith’s Gains from Foreign Trade The references to “surplus produce” and “superluities” in relation to foreign trade, therefore, do not justify the assumption of a vent-for-surplus gain. This conclusion is sustained if we reexamine the crucial paragraph quoted at the beginning of this article (WN IV.i.31): “Between whatever places foreign trade is carried on, they all of them derive two distinct beneits from it.” In the next sentence, Smith speciies these two beneits: “It carries out that surplus part of the produce of their land and labour for which there is no demand among them, and brings back in return for it something else for which there is a demand” (my emphasis). After having discussed how Smith uses the term “surplus produce,” it is obvious that the irst beneit consists of exports, while the second beneit in the latter half of the sentence is imports. Hence, exports and imports are Smith’s two distinct beneits from foreign trade. From a modern perspective, this statement might seem idiosyncratic, but it becomes clear when the context is considered. This paragraph is 13. This list is of course far from complete. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 587 part of book IV of The Wealth of Nations, in which Smith criticizes “two different systems of political œconomy” (WN IV.2), namely, mercantilism and physiocracy. His criticism is based on his own theoretical approach, which he outlines in books II and III. He wants to show that both mercantilist and physiocratic policies do not lead to the most beneicial employment of capital for a nation.14 In chapter I of book IV, Smith deals with mercantilism in general. According to Smith’s depiction,15 mercantilists value exports as the sole gain from trade and only insofar as they lead to specie inlows, while imports might even be harmful. He disagrees with mercantilists for two main reasons: irst, the gain from exports does not consist primarily in specie inlows;16 and second, exports are not the sole beneit from foreign trade, but imports constitute a gain as well. For Smith, the gains from foreign trade are not substantially different from those of domestic trade, as the discussion of the terms “surplus produce” and “superluities” in the last section shows. Foreign trade resembles domestic trade (most emphatically in WN IV.v.b.39). However, Smith separates foreign trade from domestic trade in his analysis throughout The Wealth of Nations, and the nation is a level of analysis for him. From this perspective, exports and imports can be described as peculiar to foreign trade, even though their beneicial effects resemble the positive effects of domestic trade. They both increase the wealth in a nation, which Smith deines as “the annual produce of the land and labour of the society” (WN Introduction). 14. For the most beneicial employment of capital, which occurs in a system of natural liberty, including the role of foreign trade, see especially WN II.v and III.i. To argue, as some have, that Smith introduces a new approach to foreign trade in book IV is not plausible. Robert Blecker (1997, 529), for example, states that “Smith introduced the vent-for-surplus notion in the very same passage in which he introduced the market-widening (‘productivity’) concept, where he considered them together as the ‘two distinct beneits’ that countries derive from their foreign trade.” 15. Smith describes the mercantilist position as follows: “The two principles being established, however, that wealth consisted in gold and silver, and that those metals could be brought into a country which had no mines only by the balance of trade, or by exporting to a greater value than it imported; it necessarily became the great object of political œconomy to diminish as much as possible the importation of foreign goods for home-consumption, and to increase as much as possible the exportation of the produce of domestick industry. Its two great engines for enriching the country, therefore, were restraints upon importation, and encouragements to exportation” (WN IV.i.35). This is a simpliied presentation of mercantilist thinkers, but the aim here is to put Smith’s paragraph in context. To that end, it is not necessary to give a differentiated discussion of mercantilist positions. 16. Smith starts the paragraph concerned by stating that “the importation of gold and silver is not the principal, much less the sole beneit which a nation derives from its foreign trade” (WN IV.i.31). Published by Duke University Press History of Political Economy 588 History of Political Economy 47:4 (2015) To increase wealth, more capital must be accumulated and employed productively, so that there is a quantitative or a qualitative increase in productive labor: “The annual produce of the land and labour of any society can be augmented only in two ways; either, irst, by some improvement in the productive powers of the useful labour actually maintained within it; or, secondly, by some increase in the quantity of that labour” (WN IV.ix.34; see also WN II.iii.32). According to Smith, the wealth of a country is increased by productive labor, while unproductive labor does not produce wealth.17 Smith argues that an economically progressing society needs a positive “balance of the annual produce and consumption” (see especially WN II.iii.14–18, IV.iii.c.15–17). Savings are the basis of capital accumulation in Smith’s theory. Thus, he esteems parsimony and frugality: “Capitals are increased by parsimony, and diminished by prodigality and misconduct” (WN II.iii.14). The motive for such behavior by individuals is “their universal, continual, and uninterrupted effort to better their own condition” (WN II.iii.6). Thus, capital owners are not interested only in consuming as much as possible, but in order to afford a better future, they forgo immediate consumption. Yet parsimony alone is not enough. Capital owners must also be able to employ their capital proitably; that is, they have to be able to employ productive labor with it. In Smith’s theory, foreign trade is beneicial because it has a positive inluence on parsimony and the “good conduct” of people,18 offers an opportunity to employ capital productively, and improves the productive powers. Thereby, the wealth of a society is increased through foreign trade. Through imports, some commodities become cheaper, and goods that are not produced domestically become available. More people might be 17. Smith deines productive and unproductive labor in chapter III of book II. As Walter Eltis (1975, 434) shows, Smith’s distinction is not uniform but he gives three different criteria for productive labor: “(i) whether employment produces a proit, (ii) whether employment produces something storable, and (iii) whether a particular kind of employment can be continued indeinitely without new infusions of capital.” But as Eltis rightly notes, the most important difference in Smith’s theory “is between labour that produces and makes available goods that can be used as capital and labour that does not” (434), which is also important in our context. Productive labor “produces a value” (WN II.iii.1), while unproductive labor does not (see also Trapp 1987, 229–37). The prime example of an unproductive laborer is the menial servant for Smith. However, unproductive labor can be useful and necessary. Doctors, lawyers, and professional soldiers, for instance, are also in this category. It is not a moral but merely an economic categorization by Smith. 18. Foreign trade is even responsible to some degree for “order and good government” and thus “the liberty and security of individuals” (WN III.iv.4). Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 589 able to buy those commodities.19 The variety and amount of available goods in a nation is increased. Additionally, capital owners “may purchase an additional stock of materials, tools and provision” abroad that they use in their production, because they are cheaper or not available domestically (WN II.ii.33–35). Technological transfer is another positive effect of foreign trade that is aligned to imports: it is a “mutual communication of knowledge and of all sorts of improvements which an extensive commerce from all countries to all countries naturally, or rather necessarily, carries along with it” (WN IV.vii.c.80).20 Additionally, imports are beneicial because of the effect of competition on the behavior of domestic capital owners. Foreign competition decreases the chances of domestic monopolies (e.g., WN IV.vii.c.102), which Smith sees as an obstacle to economic growth and describes as “a great enemy to good management” (WN I.xi.b.5). High proits, that is, proits above the natural rate, have “bad effects [on] the country in general.” The most “fatal” effect resulting from insuficient competition is that this “seems every where to destroy that parsimony which in other circumstances is natural to the character of the merchant.”21 The result is that “accumulation is thus prevented” and that “the capital of the country, instead of increasing, gradually dwindles away, and the quantity of productive labour maintained in it grows every day less and less” (WN IV.vii.c.61). Thus, imports, by being a competition to domestic producers, promote parsimony. Exports are also beneicial on their own. The international market leads to a higher effective demand for domestic products. Domestic producers are able to enhance the division of labor as a result. The international 19. In the paragraph following the “two distinct beneits,” Smith gives a numerical example of cheaper imports: “When a commodity comes to be sold for a third part of what had been its usual price, not only those who purchased it before can purchase three times their former quantity, but it is brought down to the level of a much greater number of purchasers; perhaps to more than ten, perhaps to more than twenty times the former number” (WN IV.i.32). 20. This includes the imitation of foreign commodities, which Smith assesses positively: Merchants, “in order to save the expence of carriage, . . . establish some manufactures of the same kind in their own country” (WN III.iii.16). 21. This is especially worrying because “the owners of the great mercantile capitals are necessarily the leaders and conductors of the whole industry of every nation, and their example has a much greater inluence upon the manners of the whole industrious part of it than that of any other order of men. If his employer is attentive and parsimonious, the workman is very likely to be so too; but if the master is dissolute and disorderly, the servant who shapes his work according to the pattern which his master prescribes to him, will shape his life too according to the example which he sets him” (WN IV.vii.c.61). Published by Duke University Press History of Political Economy 590 History of Political Economy 47:4 (2015) demand “encourages them to improve its productive powers, and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society” (WN IV.i.31). It does so not only in the exporting sectors, but in all production sectors, because technological advances might be used in other sectors. Even agricultural production, whose commodities are less a subject of foreign trade for Smith, might improve as a result (see WN III.iv). Through foreign trade commodities can be exported proitably. This provides capital owners an opportunity to employ their capital more productively in the production of exports or in trading activities. Without such an opportunity, some capital would either be employed less productively or capital owners would use their income for unproductive labor (e.g., WN III.iv.5). In this case, their behavior would be wasteful rather than frugal. Foreign trade promotes parsimony and thus capital accumulation also because it enables productive investment. Related to this, foreign trade offers a channel for surplus capital (e.g., WN II.ii.30, 51; IV.vii.c.96). As Smith often states, if capital cannot be employed at home, it could be invested abroad. In this way, domestic capital would still accumulate. Thereby, imports and exports both lead to cheaper consumption and encourage production, which Smith describes as “the two effects which it is the great business of political œconomy to promote” (WN V.i.e.26). Both increase the wealth of a nation. Consequently, Smith argues that the balance of trade is irrelevant for a nation’s prospects. It can be positive or negative for a long period and even in these cases foreign trade will still be beneicial (see, e.g., WN IV.iii.c.17). This illustrates that both imports and exports in themselves are beneicial. Myint’s Misinterpretation My scrutiny of Smith’s text contradicts Myint’s inluential categorization. Smith’s two distinct beneits do not consist of a vent-for-surplus gain and a productivity gain. From the previous examination it ensues that Smith has no vent-for-surplus theory of international trade in the way it is understood nowadays. As to the productivity theory, it is true that foreign trade leads to an increase in the productive powers of labor, according to Smith. This resembles productivity gains from domestic trade. Smith has no separate theory of foreign trade, but foreign trade is embedded in his theory of (domestic) capital accumulation. However, he uses the nation as a level of analysis, and from this point of view foreign trade is beneicial as a result of exports and imports for Smith. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 591 This raises the question, What led Myint to his false interpretation, and why have so many scholars adopted it? First, Myint and others base their categorization not on the sentence naming the two beneits, but on the following sentences in IV.i.31, in which Smith explains how imports and exports are beneicial for a country. Thus, the explanation of the beneits is confused with the beneits themselves. Second, the terms “surplus produce” and “superluities” are misinterpreted. Their meaning in modern economics differs from Smith’s meaning of the words, that is, as commodities that are exported. However, Myint and others attribute the modern meaning to Smith. A third reason might be that modern economists are used to deriving gains from trade by comparing autarkic or isolated nations with a situation in which international trade is established. Many scholars stress, when discussing Smith’s supposed “vent-for-surplus” approach, that such gains occur only when an autarkic country starts engaging in international trade, as Myint (1958) does in his original contribution.22 Only in such a framework is it understandable to argue that international trade provides “the new effective demand for the output of the surplus resources which would have remained unused in the absence of trade” (Myint 1958, 321) and superluities in the modern sense might be imaginable. However, Smith assumes that only precommercial societies were really isolated. When discussing foreign trade and its gains, he does not assume two autarkic nations that start trading. Rather, they are already engaged in trade. Smith describes the beneits of ongoing foreign trade that are realized constantly while conducting trade: “These great and important services foreign trade is continually occupied in performing, to all the different countries between which it is carried on” (WN IV.i.31). These beneits are not once-and-for-all, as the vent-for-surplus argument might suggest. Smith does not assume that there is overproduction before trade. The “surplus produce” of a nation is the result of an effective foreign demand. It does not exist prior to trade. A reason why Myint’s misinterpretation became the standard interpretation of Smith’s gains from trade is its adoption by established scholars. For example, the editors of the inluential Glasgow Edition of the Works and Correspondence of Adam Smith included a footnote to WN IV.i.31 stating that “the doctrine of ‘vent for surplus’ was widely applied: see, for example, II.v.33, III.i.1. and IV.iii.c.4.” This prominently placed comment gave the vent-for-surplus interpretation legitimacy and reinforced it. 22. Among them are Findlay and Lundahl (1994), Gomes (1987, 2003), Kindleberger (1964), Meier (1994), Negishi (2004), O’Brien (1975), Platteau (1978), and Winch (1965). Published by Duke University Press History of Political Economy 592 History of Political Economy 47:4 (2015) Ricardo’s and Mill’s Criticism As mentioned above, some scholars argue that Smith’s alleged vent-forsurplus theory contradicts his system of natural liberty. Those scholars often invoke David Ricardo and John Stuart Mill for their argument. In the following, the criticism of Ricardo and Mill should be briely discussed in order to get a better understanding. The aim is not to defend Smith against Ricardo and Mill but to put their criticism in context, because it too is misrepresented. First, they criticize Smith’s wording because an overproduction could be inferred from it. Second, they misunderstand Smith when he notes that “a part of the productive labour of the country must cease.” Third, the difference between Smith and classical economists in the nineteenth century lies in the assessment of exports. The latter do not see exports as a gain from trade. Ricardo is seen as the irst one who criticized Smith’s vent-for-surplus approach. Ricardo, in his Principles, comments on WN II.v.33. Before quoting Ricardo’s comments, let us recall what Smith writes: When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent abroad, and exchanged for something for which there is a demand at home. Without such exportation, a part of the productive labour of the country must cease, and the value of its annual produce diminish. The land and labour of Great Britain produce generally more corn, woollens, and hard ware, than the demand of the home-market requires. The surplus part of them, therefore, must be sent abroad, and exchanged for something for which there is a demand at home. It is only by means of such exportation, that this surplus can acquire a value suficient to compensate the labour and expense of producing it. In response hereto, Ricardo ([1817] 2004, 291n) states the following: One would be led to think by the above passage, that Adam Smith concluded we were under some necessity of producing a surplus of corn, woollen goods, and hardware, and that the capital which produced them could not be otherwise employed. It is, however, always a matter of choice in what way a capital shall be employed, and therefore there can never, for any length of time, be a surplus of any commodity; for if there were, it would fall below its natural price, and capital would be removed to some more proitable employment. No writer has more satisfactorily and ably shewn than Dr. Smith, the tendency of capital to Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 593 move from employments in which the goods produced do not repay by their price the whole expenses, including the ordinary proits, of producing and bringing them to market.23 Ricardo’s quotation appears in a footnote in a chapter headed “Effects of Accumulation on Proits and Interest,” which does not deal particularly with foreign trade. Here, Ricardo tries to defend what became known as the law of markets: “M. Say has, however, most satisfactorily shewn, that there is no amount of capital which may not be employed in a country, because demand is only limited by production” (290). His aim is to demonstrate that an overproduction is not possible: “Too much of a particular commodity may be produced, of which there may be such a glut in the market, as not to repay the capital expended on it; but this cannot be the case with respect to all commodities” (292). This is not so much directed against Smith as against Thomas Robert Malthus, who argues that a “general” or “universal glut” is not only possible but likely to appear, which he deines as follows: “A glut is said to be general, when, either from superabundance of supply or diminution of demand, a considerable mass of commodities falls below the elementary costs of production” ([1827] 1986, 113).24 Ricardo vehemently opposes Malthus’s position. In this context he criticizes Smith. Here, Ricardo is not concerned with foreign trade but with the impossibility of a general glut. His criticism is aimed at Smith’s choice of words, not at the substance of his argument. Ricardo admits that a theory of overproduction is not what Smith had in mind, as he states in the second half of his quotation above. John Stuart Mill ([1848] 1965, 592) has the same concerns: “The expression, surplus produce, seems to imply that a country is under some kind of necessity of producing the corn or cloth which it exports; so that the portion which it does not itself consume, if not wanted and consumed elsewhere, would either be produced in sheer waste, or if it were 23. This criticism has been repeated by others, e.g., James Angell (1926) and Lionel Robbins (1958). 24. Malthus ([1820] 1986, 254) states that Jean-Baptiste Say “has indeed gone so far as to state that the consumption of a commodity by taking it out of the market diminishes demand, and the production of a commodity porportionably increases it. This doctrine, however, . . . appears to me to be utterly unfounded, and completely to contradict the great principles which regulate supply and demand.” Malthus adds that in this respect “M. Say, Mr. Mill, and Mr. Ricardo . . . appear to me to have fallen into some fundamental errors in the view which they have taken of this subject” (255). It is not necessary to give a full account of the debate between Ricardo and Malthus on the possibility of a general glut here. This can be found in Maclachlan 1999 and Sowell 1963. Published by Duke University Press History of Political Economy 594 History of Political Economy 47:4 (2015) not produced, the corresponding portion of capital would remain idle.” But he is less indulgent with Smith and calls his approach “entirely erroneous,” because the law of markets prevents surpluses to be produced or capital to remain idle (592–93). Mill argues that Smith’s theory is close to “the fallacy of general over-production” (593), which he ascribes to Malthus and which he vigorously rejects (see especially Mill [1848] 1965, 570–76). However, Smith never states that there would be a general overproduction or a universal glut if foreign trade ceased, as Ricardo himself points out. Indeed, Smith is quite clear that a general overproduction or underconsumption is not present in his system of natural liberty: “What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too; but it is consumed by a different set of people” (WN II.iii.18). Of course, Smith did not endorse what became known as the law of markets or reject Malthus’s concept of a general glut explicitly, because both were unknown to him. However, Ricardo and Mill must have feared that phrases such as “surplus must be sent abroad” could be interpreted in a way to support Malthus’s argument, particularly considering that Malthus “professed to interpret Adam Smith as the true prophet” (Stephen 1900, 238), as did Ricardo and Mill themselves. Second, there seems to be a misunderstanding about what Smith means when he says that “without such exportation, a part of the productive labour of the country must cease” (II.v.33; my emphasis; see also II.v.34). Ricardo, Mill, and also modern scholars seem to interpret this as meaning that the ceasing of trade, or more speciically exports, would lead to unemployment of workers and capital. In a comment directed against Smith, Mill ([1848] 1965, 592) notes that if foreign trade ceases, “the labour and capital which had been employed in producing with a view to exportation, would ind immediate25 employment in producing those desirable objects which were previously brought from abroad: or, if some of them could not be produced, in producing substitutes for them.” A similar argument can be found in Ricardo’s Principles ([1817] 2004, 294–95). However, Smith would agree with this. He does not argue that unemployment will result if foreign trade ceases. Yet, Smith does argue that workers and thus capital would be employed less productively. Here, the differentiation between productive and unproductive employment discussed above becomes crucial.26 If trade ceases, some part of the former productive labor would be 25. Mill deleted the word “immediate” from the third edition onward. 26. Elmslie and Sedgley (2002, 2003) use a similar argument. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 595 reemployed either less productively or turned into unproductive labor. In the worst case, the capital used to produce exports would be employed in the maintenance of unproductive labor, due to a lack of other investment opportunities. In this case, this capital would not add to the wealth of the country at all, and its owner could use it only for “rustick hospitality at home” but not in commerce (WN III.iv.5; see also V.i.g.22). Even if the capital owner could still employ his or her capital in a productive way, it would be in a less productive way than before. In any case, the potential opulence of a nation is reduced. This is most evident when Smith discusses the effects of policies that restrict or terminate foreign trade: the “industry of the country . . . is thus turned away from a more, to a less advantageous employment, and the exchangeable value of its annual produce . . . must necessarily be diminished” (WN IV.ii.12). The quantity of laborers employed remains the same, because it is determined by the quantity of accumulated capital: “The capital of the country remaining the same, the demand for labour will likewise be the same, or very nearly the same, though it may be exerted in different places and for different occupations” (WN IV.ii.42). Thus, Smith does not assume that capital and labor will become unemployed if trade ceases but that they will be employed less productively. Yet besides Mill and Ricardo, many modern interpreters do claim this. Samuel Hollander (1973, 268), for example, comments on WN II.v.33 that “trade absorbs the output of factors otherwise unemployed.” Similar, Nerio Naldi (1996, 215) misleadingly omits the word “productive” and writes about “Smith’s statement concerning the fact that labour must cease without the exportation of the domestic surplus.” Third, the main difference between nineteenth-century classical economists on the one hand and Smith on the other is their assessment of exports. For Smith, they form a distinct beneit from foreign trade, as do imports. In contrast, the former value only imports as the sole beneit of foreign trade, while exports do not constitute a gain. This view is most clearly depicted by James Mill ([1821] 2006, 275): “When one nation exchanges a part of its commodities for a part of the commodities of another nation, the nation can gain nothing by parting with its commodities; all the gain must consist in what it receives.”27 John Stuart Mill 27. See also pp. 105–25 of James Mill [1807] 2006, in which he states that “the export commerce of Great Britain is productive of no wealth” (118). This is directed mainly against mercantilists in general, who argue that the beneits from trade consist solely of exports, and against William Spence in particular, who writes “that no riches, no increase of national wealth, can in any case be derived from commerce of import” and that “national wealth may, in some cases, be derived from commerce of export” (Spence 1807, 38). Published by Duke University Press History of Political Economy 596 History of Political Economy 47:4 (2015) ([1848] 1965, 591) holds the same view: “the only direct advantage of foreign commerce consists in the imports,”28 as does Robert Torrens (1808, 49–50, 53). Ricardo ([1820] 2004, 407) also follows this assessment of imports and exports: “It will be of immense importance to buy cheap, that is to say to obtain plenty of commodities for a little value; and inasmuch as foreign trade, and an extensive market, enables them to do this, it is beneicial to the country” (see also Ricardo [1815] 2004, 25–26; and [1817] 2004, 133).29 Exports are necessary to pay for imports. But they do not constitute an additional beneit, as Smith maintains. In a reference to Smith, John Stuart Mill ([1844] 1967, 253) notes that “political economists . . . have occasionally suffered themselves to employ language evincing inattention to the fact, that exports, though unimportant in themselves, are important by their inluence on imports.” In this context, John Stuart Mill charges Smith with adhering to “a surviving relic of the Mercantile Theory.” This relic is the view that exports constitute a beneit from foreign trade. This relic is not, as claimed nowadays, a modern vent-for-surplus gain. The modern misinterpretation of Smith’s gains from trade has also led to a misinterpretation of Mill’s criticism of Smith.30 Mill’s charge is directed against Smith’s view that exports are a gain from foreign trade. 3. Conclusion Myint’s claim that Smith’s two distinct beneits from foreign trade consist irst of a vent-for-surplus gain and second of a productivity gain has been widely adopted and it has not been questioned. However, this separation and especially the vent-for-surplus gain have caused a lot of confusion and discussion. Arthur Bloomield (1975, 472) once called the meaning of Smith’s vent-for-surplus theory a “mystery.” Yet this mystery does not exist in Smith’s writings but is made up by his interpreters. As I discussed in this article, Myint’s categorization is wrong. Smith’s two distinct beneits are imports and exports. 28. See also Mill [1826] 1967, 130; [1844] 1967, 233, 253. 29. The same is true for Ricardo’s ([1817] 2004, 134–36) famous England-Portugal example. Imports constitute the gains, because both nations can save laborers by the respective imported goods (England “gains the labour of 20 Englishmen” and “Portugal gains the labour of 10 Portuguese” [Sraffa 1930, 541]). Exports are not described as beneicial in themselves. 30. Incorrectly, Morales Meoqui (2010, 39–41) ascribes the view that only imports are beneicial while exports constitute the necessary cost of imports to Smith, as does Charles Bastable (1897, 20). Thereby, Morales Meoqui tries to link Smith’s theory of foreign trade to Ricardo and Mill. He completely overlooks the fact that Mill criticizes Smith for maintaining that exports constitute a gain. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 597 Smith has no vent-for-surplus theory in the modern sense. He rather uses the terms “surplus produce” and “superluities” as a synonym for exchanged goods and in the case of foreign trade, these are exports. With his position on the gains from trade, he differs from both mercantilists and classical economists of the nineteenth century. The latter reject Smith’s gains from trade, because they include exports as a distinct gain. This part of Smith’s theory is dismissed by John Stuart Mill as a mercantilist relic, a critique which in turn has also been misunderstood by modern scholars. This does not mean that modern vent-for-surplus theories cannot be a useful tool in modern economics. They have been used in development economics in several studies in an attempt to try to explain the effects of international trade on a previously isolated country exporting primary goods, as was proposed by Myint (e.g., Caves 1965; Drake 1979; Findlay and Lundahl 1994; Fuglie 1991; Smith 1976).31 I do not intend to assess these modern approaches in this article. My point is rather that such theories cannot be attributed to Smith and that representatives of modern ventfor-surplus theories should not refer to Smith as their forerunner.32 Other economists might be better suited as precursors of modern ventfor-surplus theories. Bloomield (1981, 100) notes that a paragraph of James Maitland (Earl of Lauderdale) could “be regarded as an early anticipation of modern ‘vent for surplus models.’”33 Furthermore, Bloomield detects “elements of a ‘vent for surplus’ theory” (101) in Malthus’s Principles of Political Economy. There is, however, one classical economist who could be better placed as an early forerunner and this is, of all people, 31. In his original contribution, Myint (1958, 326, 330) argues that “the ‘vent-for-surplus’ theory provides a more effective approach than the comparative-costs theory to the international trade of the underdeveloped countries,” the paradigm being “the typical case of a peasant export economy.” Later, he suggests that “the vent for surplus theory may be extended on a somewhat different basis to the agricultural surpluses of the advanced countries such as the United States and the EEC countries” (1987b, 804). Gerald Meier (1994, 15) concludes that a vent-for-surplus approach “has helped to illuminate some historical episodes of nineteenth century development.” An appraisal of the vent-for-surplus theory by Myint himself can be found in Myint 1987a, 120–23. Marion Johnson (1974) and R. M. Sundrum (1994) discuss the limits of a vent-for-surplus theory, while Barbara Ingham (1979, 1981) criticizes the “neoclassical version of vent for surplus.” 32. I do not dispute that Myint’s vent-for-surplus theory really was inspired by Smith. However, if it was, this inspiration would be based on a misunderstanding of Smith. 33. Lauderdale (1804, 353) writes “that commerce . . . must be considered as a cause to increase industry; for, by promoting an interchange of commodities betwixt two countries, it becomes a most powerful agent in extending the demand for the commodities of each, enriching the one and the other, by exciting a quantity of industry that would otherwise have remained dormant; but which, when thus brought into activity, augments the production of both.” Published by Duke University Press History of Political Economy 598 History of Political Economy 47:4 (2015) John Stuart Mill. Under “indirect beneits of commerce” he names what is comparable to modern vent-for-surplus arguments: There is another consideration, principally applicable to an early stage of industrial advancement. A people may be in a quiescent, indolent, uncultivated state, with all their tastes either fully satisied or entirely undeveloped, and they may fail to put forth the whole of their productive energies for want of any suficient object of desire. The opening of a foreign trade, by making them acquainted with new objects, or tempting them by the easier acquisition of things which they had not previously thought attainable, sometimes works a sort of industrial revolution in a country whose resources were previously undeveloped for want of energy and ambition in the people: inducing those who were satisied with scanty comforts and little work, to work harder for the gratiication of their new tastes, and even to save, and accumulate capital, for the still more complete satisfaction of those tastes at a future time. (Mill [1848] 1965, 593–94) Here, Mill assumes an isolated country without foreign trade that has some un- or underemployed resources. Foreign trade can be beneicial for such a country because it establishes an international demand for goods that can be produced with these existing but unused resources. This idea corresponds to modern vent-for-surplus approaches. Those previously idle resources are used productively because of foreign trade. This might be a surprising conclusion, because Mill is often seen as one of the irst who criticized Smith’s vent-for-surplus theory. However, this is entirely compatible with the analysis of this article. As we have seen, Mill criticizes Smith for assuming that exports constitute a gain from foreign trade besides imports, not for bringing forward a vent-for-surplus argument in the modern sense. References Angell, James W. 1926. The Theory of International Prices: History, Criticism, and Restatement. Cambridge, Mass.: Harvard University Press. Bastable, Charles F. 1897. The Theory of International Trade: With Some of Its Applications to Economic Policy. 2nd ed. London: Macmillan. Blake, William. (1810) 1857. “Observations on the Principles which Regulate the Course of Exchange; and on the Present Depreciated State of the Currency.” In A Select Collection of Scarce and Valuable Tracts and Other Publications on Paper Currency and Banking, edited by John Ramsay McCulloch. London: Printed by Lord Overstone. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 599 Blecker, Robert A. 1997. “The ‘Unnatural and Retrograde Order’: Adam Smith’s Theories of Trade and Development Reconsidered.” Economica 64 (255): 527–37. Bloomield, Arthur I. 1975. “Adam Smith and the Theory of International Trade.” In Essays on Adam Smith, edited by Andrew S. Skinner and Thomas Wilson, 455– 81. Oxford: Clarendon Press. ———. 1981. “British Thought on the Inluence of Foreign Trade and Investment on Growth, 1800–1880.” History of Political Economy 13 (1): 95–120. Brown, Vivienne. 1994. Adam Smith’s Discourse: Canonicity, Commerce, and Conscience. London: Routledge. Caves, Richard E. 1965. “‘Vent for Surplus’ Models of Trade and Growth.” In Trade, Growth, and the Balance of Payments: Essays in Honor of Gottfried Haberler, edited by Robert Baldwin, 95–115. Chicago: Rand McNally. Drake, Peter J. 1979. “The Economic Development of British Malaya to 1914: An Essay in Historiography with Some Questions for Historians.” Journal of Southeast Asian Studies 10 (2): 262–90. Elmslie, Bruce. 1996. “The Role of Joint Products in Adam Smith’s Explanation of the ‘Vent-for-Surplus’ Doctrine.” History of Political Economy 28 (3): 513–23. Elmslie, Bruce, and Norman Sedgley. 2002. “Vent for Surplus: A Case of Mistaken Identity.” Southern Economic Journal 68 (3): 712–20. ———. 2003. “Vent-for-Surplus in a Dynamic Setting.” In Progress in Economics Research, edited by Albert Tavidze, 5:183–96. Hauppauge: Nova Science Publishers. Eltis, Walter A. 1975. “Adam Smith’s Theory of Economic Growth.” In Essays on Adam Smith, edited by Andrew S. Skinner and Thomas Wilson, 426–54. Oxford: Clarendon Press. Findlay, Ronald, and Mats Lundahl. 1994. “Natural Resources, ‘Vent-for-Surplus,’ and the Staples Theory.” In From Classical Economics to Development Economics, edited by Gerald M. Meier, 68–93. Basingstoke: Macmillan. Fordyce, David. (1754) 2003. The Elements of Moral Philosophy, in Three Books, with a Brief Account of the Nature, Progress, and Origin of Philosophy. Edited by Thomas Kennedy. Indianapolis: Liberty Fund. Fuglie, Keith Owen. 1991. “‘Vent-for-Surplus’ as a Source of Agricultural Growth in Northeast Thailand, 1958–1980.” Journal of Developing Areas 25 (3): 331–46. Gomes, Leonard. 1987. Foreign Trade and the National Economy: Mercantilist and Classical Perspectives. Basingstoke: Macmillan. ———. 2003. The Economics and Ideology of Free Trade: A Historical Review. Cheltenham: Edward Elgar. Haberler, Gottfried. 1959. International Trade and Economic Development. Cairo: National Bank of Egypt. Hollander, Samuel. 1973. The Economics of Adam Smith. London: Heinemann. Hume, David. (1777) 1987. Essays Moral, Political, and Literary. Edited by Eugene F. Miller. Indianapolis: Liberty Fund. Ingham, Barbara. 1979. “Vent for Surplus Reconsidered with Ghanaian Evidence.” Journal of Development Studies 15 (3): 19–37. ———. 1981. Tropical Exports and Economic Development: New Perspectives on Producer Response in Three Low-Income Countries. New York: St. Martin’s Press. Published by Duke University Press History of Political Economy 600 History of Political Economy 47:4 (2015) Johnson, Marion. 1974. “Cotton Imperialism in West Africa.” African Affairs 73 (291): 178–87. Kames, Henry Home. 1774. Sketches of the History of Man in Two Volumes: Volume I. Edinburgh: Creech. Kibritçioglu, Aykut. 2002. “On the Smithian Origins of ‘New’ Trade and Growth Theories.” Economics Bulletin 2 (1): 1–15. Kindleberger, Charles P. 1964. Foreign Trade and the National Economy. New Haven, Conn.: Yale University Press. Krugman, Paul R. 1990. Rethinking International Trade. Cambridge, Mass.: MIT Press. Kurz, Heinz D. 1990. “Adam Smith, die Regel der freien Güter und die ‘vent-forsurplus’-Begründung des Außenhandels.” In Adam Smith (1723–1790): Ein Werk und seine Wirkungsgeschichte, edited by Heinz D. Kurz, 237–60. Marburg: Metropolis. ———. 1992. “Adam Smith on Foreign Trade: A Note on the ‘Vent-for-Surplus’ Argument.” Economica 59 (236): 475–81. Lauderdale, James Maitland. 1804. An Inquiry into the Nature and Origin of Public Wealth, and into the Means and Causes of Its Increase. Edinburgh: Printed for Constable & Co. Maclachlan, Fiona Cameron. 1999. “The Ricardo-Malthus Debate on Underconsumption: A Case Study in Economic Conversation.” History of Political Economy 31 (3): 563–74. Magnusson, Lars. 2004. The Tradition of Free Trade. London: Routledge. Malthus, Thomas Robert. (1820) 1986. Principles of Political Economy: Considered with a View to Their Practical Application. Vols. 5–6 of The Works of Thomas Robert Malthus, edited by Edward Anthony Wrigley and David Souden. London: Pickering. ———. (1827) 1986. Definitions in Political Economy. Vol. 8 of The Works of Thomas Robert Malthus, edited by Edward Anthony Wrigley and David Souden. London: Pickering. Maneschi, Andrea. 1998. Comparative Advantage in International Trade: A Historical Perspective. Cheltenham: Edward Elgar. Martin, Henry. (1701) 1954. “Considerations on the East-India Trade.” In A Select Collection of Early English Tracts on Commerce: From the Originals of Mun, Roberts, North, and Others, edited by John R. McCulloch. Cambridge: Cambridge University Press. Meier, Gerald M. 1994. “The ‘Progressive State’ in Classical Economics.” In From Classical Economics to Development Economics, edited by Gerald M. Meier, 5–27. Basingstoke: Macmillan. Mill, James. (1807) 2006. Commerce Defended. In James Mill: Selected Economic Writings, edited by Donald Winch, 85–159. New Brunswick, N.J.: Transaction Publishers. ———. (1821) 2006. Elements of Political Economy. In James Mill: Selected Economic Writings, edited by Donald Winch, 203–336. New Brunswick, N.J.: Transaction Publishers. Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 601 Mill, John Stuart. (1826) 1967. “The Silk Trade.” In Collected Works of John Stuart Mill. Vols. 4–5, Essays on Economics and Society, edited by John M. Robson, 125–39. Toronto: University of Toronto Press. ———. (1844) 1967. “Essays on Some Unsettled Questions of Political Economy.” In Collected Works of John Stuart Mill. Vols. 4–5, Essays on Economics and Society, edited by John M. Robson, 229–339. Toronto: University of Toronto Press. ———. (1848) 1965. Principles of Political Economy: With Some of Their Applications to Social Philosophy. Vols. 2–3 of Collected Works of John Stuart Mill, edited by John M. Robson. Toronto: University of Toronto Press. Morales Meoqui, Jorge. 2010. “Classical Free Trade: A Policy towards Economic Growth and Development.” PhD diss., WU Vienna University of Economics and Business. Mun, Thomas. (1621) 1969. A Discourse of Trade, from England unto the East-Indies. New York: Da Capo Press. ———. (1664) 1928. England’s Treasure by Forraign Trade; or, The Ballance of Our Forraign Trade Is the Rule of Our Treasure. Oxford: Blackwell. Myint, Hla. 1958. “The ‘Classical Theory’ of International Trade and the Underdeveloped Countries.” Economic Journal 68 (270): 317–37. ———. 1977. “Adam Smith’s Theory of International Trade in the Perspective of Economic Development.” Economica 44 (175): 231–48. ———. 1987a. “The Neoclassical Resurgence in Development Economics: Its Strength and Limitations.” In Pioneers in Development, Second Series, edited by Gerald M. Meier, 107–36. New York: Oxford University Press. ———. 1987b. “Vent for Surplus.” In The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, 4:803–4. London: Macmillan. Naldi, Nerio. 1996. “Adam Smith’s Vent-for-Surplus Argument as a Case of Rhetorical Discourse.” History of Economic Ideas 4:205–23. Negishi, Takashi. 1985. Economic Theories in a Non-Walrasian Tradition. Cambridge: Cambridge University Press. ———. 1989. History of Economic Theory. Amsterdam: North-Holland. ———. 2004. “Adam Smith and Disequilibrium Economic Theory.” Adam Smith Review 1:30–39. North, Dudley. 1691. “Discourses Upon Trade; Principally Directed to the Cases of the Interest, Coynage, Clipping, Increase of Money.” London: Printed for Tho. Basset. Available on the Making of the Modern World website via subscription. http://galenet.galegroup.com/servlet/MOME?af=RN&ae=U100321300&srchtp= a&ste=14. O’Brien, Denis P. 1975. The Classical Economists. Oxford: Clarendon Press. ———. 1983. “Theories of the History of Science: A Test Case.” In Methodological Controversy in Economics: Historical Essays in Honor of T. W. Hutchison, edited by A. W. Coats, 89–124. Greenwich, Conn.: JAI Press. Platteau, Jean-Philippe. 1978. Les économistes classiques et le sous-développement. Vol. 1, Adam Smith, Jean-Baptiste Say et James Mill. Namur: Presses Universitaires de Namur. Published by Duke University Press History of Political Economy 602 History of Political Economy 47:4 (2015) Ricardo, David. (1815) 2004. “An Essay on the Inluence of a Low Price of Corn on the Proits of Stock.” In The Works and Correspondence of David Ricardo. Vol. 4, Pamphlets and Papers, 1815–1823, edited by Piero Sraffa, 1–41. Indianapolis: Liberty Fund. ———. (1817) 2004. On the Principles of Political Economy and Taxation. Vol. 1 of The Works and Correspondence of David Ricardo, edited by Piero Sraffa. Indianapolis: Liberty Fund. ———. (1820) 2004. Notes on Malthus’s “Principles of Political Economy.” Vol. 2 of The Works and Correspondence of David Ricardo, edited by Piero Sraffa. Indianapolis: Liberty Fund. ———. (1822) 2004. “On Protection to Agriculture.” In The Works and Correspondence of David Ricardo. Vol. 4, Pamphlets and Papers, 1815–1823, edited by Piero Sraffa, 201–70. Indianapolis: Liberty Fund. Rima, Ingrid H. 2004. “China’s Trade Reform: Verdoorn’s Law Married to Adam Smith’s ‘Vent for Surplus’ Principle.” Journal of Post Keynesian Economics 26 (4): 729–44. Robbins, Lionel. 1958. Robert Torrens and the Evolution of Classical Economics. London: Macmillan. Ros, Jaime. 2000. Development Theory and the Economics of Growth. Ann Arbor: University of Michigan Press. Rutherford, Donald. 2002. Routledge Dictionary of Economics. 2nd ed. London: Routledge. Schumacher, Reinhard. 2012. “Adam Smith’s Theory of Absolute Advantage and the Use of Doxography in the History of Economics.” Erasmus Journal for Philosophy and Economics 5 (2): 54–80. Smith, Adam. (1762) 1978. Early Draft of Part of the Wealth of Nations [ED]. Edited by Ronald L. Meek, D. D. Raphael, and Peter Stein. Vol. 5 of The Glasgow Edition of the Works and Correspondence of Adam Smith. Oxford: Oxford University Press. ———. (1762–63) 1983. Lectures on Rhetoric and Belles Lettres [LRBL]. Edited by J. C. Bryce. Vol. 4 of The Glasgow Edition of the Works and Correspondence of Adam Smith. Oxford: Oxford University Press. ———. (1762–66) 1978. Lectures on Jurisprudence [LJ]. Edited by Ronald L. Meek, D. D. Raphael, and Peter Stein. Vol. 5 of The Glasgow Edition of the Works and Correspondence of Adam Smith. Oxford: Oxford University Press. ———. (1776) 1976. An Inquiry into the Nature and Causes of the Wealth of Nations [WN]. Edited by R. H. Campbell and A. S. Skinner. Vols. 2a–2b of The Glasgow Edition of the Works and Correspondence of Adam Smith. Oxford: Oxford University Press. Smith, Sheila. 1976. “An Extension of the Vent-for-Surplus Model in Relation to LongRun Structural Change in Nigeria.” Oxford Economic Papers 28 (3): 426–46. Sowell, Thomas. 1963. “The General Glut Controversy Reconsidered.” Oxford Economic Papers 15 (3): 193–203. Spence, William. 1807. Britain Independent of Commerce; or, Proofs, Deduced from an Investigation into the True Causes of the Wealth of Nations, That Our Riches, Published by Duke University Press History of Political Economy Schumacher / Adam Smith and “Vent-for-Surplus” Interpretations 603 Prosperity, and Power, Are Derived from Resources Inherent in Ourselves, and Would Not Be Affected, Even Though Our Commerce Were Annihilated. 2nd ed. London: Printed by W. Savage. Sraffa, Piero. 1930. “An Alleged Correction of Ricardo.” Quarterly Journal of Economics 44 (3): 539–44. Staley, Charles E. 1973. “A Note on Adam Smith’s Version of the Vent for Surplus Model.” History of Political Economy 5 (2): 438–48. Stephen, Leslie. 1900. The English Utilitarians. Vol. 2, James Mill. London: Duckworth. Steuart, James. (1767) 1805. An Inquiry into the Principles of Political Oeconomy: Being an Essay on the Science of Domestic Policy in Free Nations. Vols. 1–4 of The Works, Political, Metaphisical, and Chronological of the Late Sir James Steuart of Coltness, Bart., edited by James Steuart Jr. London: Cadell. Sundrum, R. M. 1994. “Exports and Economic Growth.” In From Classical Economics to Development Economics, edited by Gerald M. Meier, 104–20. Basingstoke: Macmillan. Syme, James. 1821. “The Principles of Political Economy Applied to the Financial State of Great Britain Anno Domini 1821.” London: Printed for J. M. Richardson. Available on the Making of the Modern World website via subscription. http:// galenet.galegroup.com/servlet/MOME?af=RN&ae=U104395583&srchtp= a&ste=14. Torrens, Robert. 1808. The Economists Refuted; or, An Inquiry into the Nature and Extent of the Advantages Derived from Trade. London: S. A. Oddy. Trapp, Manfred. 1987. Adam Smith: Politische Philosophie und Politische Ökonomie. Göttingen: Vandenhoeck & Ruprecht. West, Edwin G. 1994. “Joint Supply Theory before Mill.” History of Political Economy 26 (2): 267–78. Wheatley, John. 1803. “Remarks on Currency and Commerce.” London: Cadell and Davies. Available on the Making of the Modern World website via subscription. http://galenet.galegroup.com/servlet/MOML?af=RN&ae=F104560862&srchtp= a&ste=14. Williams, John H. 1929. “The Theory of International Trade Reconsidered.” Economic Journal 39 (154): 195–209. Winch, Donald. 1965. Classical Political Economy and Colonies. London: Bell. Published by Duke University Press History of Political Economy Published by Duke University Press