Chapter 2a: The Restraints on foreign imports which can be produced at home
1 The monopoly of domestic industry is secured through high duties or import bans of foreign goods which can be produced at home.
- The ban on importing foreign live cattle or foreign salt secures the monopoly of the home market for meat to British graziers.
- The high duties on wheat imports amount to a ban in times of moderate plenty.
- Such duties give a like advantage to wheat growers.
- The ban on woollens importation is equally favourable to woollen manufacturers.
- The silk manufacture uses foreign materials.
- It has recently obtained the same advantage.
- The linen manufacture has not yet obtained it, but is making great strides towards it.
- In Great Britain, many other kinds of manufacturers have obtained a monopoly against their countrymen.
- The variety of goods banned from being imported exceeds what is commonly known by people unfamiliar with the customs laws.
The home-market monopoly greatly encourages the industries which enjoy it.
- It frequently turns more of the society's labour and stock towards those industries.
- It is not so obvious whether it:
- increases the society's industry, or
- gives it the most advantageous direction.
3The general industry of society can never exceed what the capital of the society can employ.
- The number of workers that can be employed by any person must be proportional to his capital.
- Likewise, the number that can be employed by a society must be proportional to the total capital of that society.
- It can never exceed that proportion.
- No commercial regulation can increase the amount of industry in any society beyond what its capital can maintain.
- It can only divert some of it into a direction which it might not otherwise have gone into.
- It is uncertain whether this artificial direction will be more advantageous to society than its natural direction.
4"Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command."
- It is his own advantage which he has in view, and not that of the society.
- But the study of his own advantage naturally leads him to prefer that employment which is most advantageous to society.
- 5Every individual endeavours to employ his capital as near home as he can.
- He consequently supports domestic industry as much as he can, provided that he can always obtain profits which are ordinary or not much less than the ordinary.
- 6 Thus, on equal profits, every wholesale merchant naturally prefers the home-trade to the foreign trade of consumption.
- He prefers the foreign trade of consumption to the carrying trade.
- In the home-trade, his capital is never long out of his sight.
- He can better know the character and situation of the persons whom he trusts.
- If he is deceived, he knows better the local laws from which he must seek redress.
- In the foreign trade of consumption, his capital is frequently out of sight.
- In the carrying trade, his capital is divided between two foreign countries.
- None of it is ever brought home or placed in his own immediate view and command.
- An example of the carrying trade is an Amsterdam merchant carrying wheat from Konigsberg to Lisbon and fruit & wine from Lisbon to Konigsberg.
- Half of his capital must be at Konigsberg and the other half at Lisbon.
- None of it ever needs to come to Amsterdam.
- His natural residence should be at Konigsberg or Lisbon.
- Only some particular circumstances can make him prefer to reside in Amsterdam.
- The uneasiness that he feels from being separated far from his capital makes him bring part of the Konigsberg and Lisbon goods to Amsterdam.
- a double charge of loading and unloading, and
- some duties
- Yet he willingly submits to this extraordinary charge for the sake of having some of his capital under his own view and command.
- In this way, every country doing the carrying trade becomes the emporium for foreign goods.
- The merchant sells as many foreign goods in the home-market as possible, to save a second loading and unloading.
- He converts his carrying trade into a foreign trade of consumption.
- When a merchant in the foreign trade of consumption collects goods for foreign markets, he will always be glad, on equal profits, to sell as much of them at home as he can.
- He saves the risk and trouble of exportation when he converts his foreign trade of consumption into a home-trade.
- Home is the centre:
- around which capitals are continually circulating, and
- to which capitals are always tending
- Sometimes, capital may be driven off towards more distant employments.
- 7Every individual who employs his capital to support domestic industry necessarily tries to direct that industry so that its produce may be of the greatest value.
- 8 The produce of industry is what capital adds to the raw materials.
- The profits of the employer will be in proportion to the value of this produce.
- But it is only for the sake of profit that anyone employs a capital to support industry
- He will always employ it to support that industry which gives the most valuable produce.
The Invisible Hand
9The annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry.
- Its revenue is precisely the same thing with that exchangeable value.
- Every individual necessarily works to render the society's annual revenue as great as he can.
- He generally does not:
- intend to promote the public interest, or
- know how much he is promoting it
By preferring to support domestic industry over foreign industry, he intends only his own security.
By directing that industry to produce the greatest value, he intends only his own gain.
In this case, as in many other cases, he is led by an invisible hand to promote an end which he did not intend.
"Nor is it always the worse for the society that it was no part of it."
By pursuing his own interest, he frequently promotes the society's interest more effectively than when he really intends to promote it.
Every individual can, in his local situation, judge much better than any statesman on what domestic industry his capital produce the greatest value.
Smith's Comparative Advantage11
- The statesman who directs private people how they should employ their capitals would load himself with a most unnecessary attention.
- He would assume an authority which could not be safely trusted to any single person nor to any council or senate.
- Such authority would be most dangerous in the hands of a man who had the folly and presumption to fancy himself fit to exercise it.
To give the monopoly of the home-market to any domestic industry is to direct private people how they should employ their capitals. 12
The prudence in the conduct of every private family cannot be a folly in the conduct of a great kingdom.
- If a foreign country can supply us with a commodity cheaper than we can make ourselves, better buy it of them with the produce of our own industry employed in our advantage.
The general industry of the country is always in proportion to the capital which employs it.
- The general industry will only be reduced in those disadvantageous industries.
- It will find the best way to be employed with the greatest advantage.
It is certainly not employed to the greatest advantage when it is directed towards making something which it can buy cheaper.
- The value of its produce is reduced when its industry is turned to making commodities at home which could be bought cheaper overseas.
- Those cheap foreign commodities could have been purchased instead with local commodities naturally produced at home at an advantage.
- By making those cheap foreign commodities at home, the nation's industry is thus turned into a less advantageous employment.
- The exchangeable value of its annual produce is reduced by such regulations, opposite of the intention of the lawgiver.
By such regulations, a particular manufacture may sometimes be developed sooner. 14
Even if a society fails to develop a certain manufacture because of the lack of the needed supporting regulations, it would not be necessarily poorer.
- A society's total capital and industry might still be employed on other manufactures most advantageous at the time.
- Its revenue might have been the greatest which its capital could afford.
- Both capital and revenue might have been increased the fastest.
The natural advantages one country has over another in producing particular commodities are sometimes so great that it is in vain to struggle with them.
Next:Chapter 4, Part 2b: Free importation