# Of Colonies explained — The Wealth of Nations > Chapter companion for The Wealth of Nations by Adam Smith. ## What happens Smith examines the economic effects of European colonization, particularly the impact of monopolies like the East India Company. He argues that while colony trade has some benefits, the mercantile system's monopolies distort natural capital distribution, hinder productive labor, and degrade colonial economies. He contrasts the detrimental effects of exclusive companies with the benefits of free trade and impartial justice, as seen in England. ## Themes in this chapter ### Free Trade and Market Competition Smith argues that free trade and impartial justice, rather than monopolies, promote industry and capital growth, as seen in England's colony trade. ### Role of Government Criticizes government-backed monopolies (like the East India Company) for distorting natural capital distribution and harming both colonies and the home country. ### Self-Interest and the Invisible Hand Highlights how private interests naturally lead to beneficial capital distribution without legal intervention, while monopolies derange this natural order. ## Character check-ins ### Great Britain Discussed as a nation whose colony trade, despite monopoly, has benefited from general liberty of trade and impartial justice. ### The Servants of the Company Criticized for their private trade that stunts colonial growth and for governing in their own interest rather than the colony's. ### The Portuguese Mentioned as having claimed exclusive rights to East Indies trade in the 16th century. ### The Dutch Noted for excluding other European nations from direct trade to their spice islands. ### The Europeans Referenced in the context of regulations sent to colonies and the general system of colonial governance. ## Key lines > The monopoly of the colony trade, therefore, like all the other mean and malignant expedients of the mercantile system, depresses the industry of all other countries, but chiefly that of the colonies, without in the least increasing, but on the contrary diminishing, that of the country in whose favour it is established. The colony trade monopoly, like other mercantile system tricks, harms other nations' industry, especially the colonies', and actually reduces the industry of the country that benefits from it. _Smith condemns the monopoly as counterproductive even for the home country._ > Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society, among all the different employments carried on in it, as nearly as possible in the proportion which is most agreeable to the interest of the whole society. Without laws, people's self-interest naturally allocates society's capital in the way that best benefits everyone. _Smith illustrates the invisible hand concept in capital distribution._ > It is a very singular government in which every member of the administration wishes to get out of the country, and consequently to have done with the government, as soon as he can, and to whose interest, the day after he has left it and carried his whole fortune with it, it is perfectly indifferent though the whole country was swallowed up by an earthquake. It's a strange government where officials want to leave quickly and don't care if the country is destroyed after they take their wealth. _Smith criticizes the East India Company's governance for lacking long-term commitment to the colony._ ## Links - HTML: https://www.betterreads.online/discover/the_wealth_of_nations_se/chapters/vii-of-colonies - Book: https://www.betterreads.online/discover/the_wealth_of_nations_se - All chapters: https://www.betterreads.online/discover/the_wealth_of_nations_se/chapters