Simplified Wealth of Nations by Adam Smith, Book 4, Chapter 2a: Import Restraints
Chapter 2a: The Restraints on foreign imports which can be produced at home
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.
3 The 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.
- 5 Every 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.
- This subjects him to:
- 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.
- But a capital employed in the home-trade mobilizes more domestic industry.
- It gives revenue and employment to more people in the country than an equal capital employed in the foreign trade of consumption.
- The capital employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade.
- Upon equal profits, every individual is naturally inclined to employ his capital to:
- support domestic industry, and
- give revenue and employment to the greatest number of people of his own country.
- 7 Every 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
9 The annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry.
10 Every individual can, in his local situation, judge much better than any statesman on what domestic industry his capital produce the greatest value.
- 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.
- "I have never known much good done by those who affected to trade for the public good."
- It is an affectation not very common among merchants.
- Very few words can be used to dissuade them from it.
Smith's Comparative Advantage
- 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.
- The monopoly of the home market is a useless or a hurtful regulation in almost all cases.
- It is useless if the price of domestic produce is already as cheap as the price of foreign produce.
- It must be hurtful if it cannot lower the price of domestic produce.
- "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy."
- The tailor does not make his own shoes, but buys them of the shoemaker.
- The shoemaker does not make his own clothes, but employs a tailor.
- The farmer does not make shoes nor clothes, but employs tailors and shoemakers.
- For their interest, all of them employ their industry with some advantage over their neighbours.
- They buy whatever else they need with the price of their own produce.
- 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.
- After a certain time, it may be made at home cheaper than in the foreign country.
- But even if the society's industry may be advantageously brought into a particular channel sooner, it does not follow that its total industry or revenue can be increased by such regulations.
- The society's industry can increase only in proportion as its capital increases.
- Its capital can increase only in proportion to what can be gradually saved out of its revenue.
- The immediate effect of such regulations is to reduce its revenue.
- What reduces its revenue will not increase its capital faster than if capital and industry were left to find their natural employments.
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.
- Very good grapes can be raised in Scotland by using glasses, hotbeds, and hot walls.
- Very good wine can be made at about 30 times more expence than those from overseas.
- Would it be reasonable to ban all foreign wine imports merely to encourage the making of claret and burgundy in Scotland?
- It is absurd to turn 30 times more capital & industry towards making a product that could be bought overseas instead using a single capital.
- It is as absurd, though not so glaring, to turn towards such products 1/30th or even 1/300th part more of the capital & industry.
- In this respect, it does not matter whether the advantages which one country has over another is natural or acquired.
- As long as one country has those advantages and the other wants them, it will always be more advantageous for the latter to buy than to make.
- The advantage of one artificer in one trade over another artificer in another trade, is only an acquired advantage.
- They find it more advantageous to buy of one another than to make what does not belong to their trades.
Next: Chapter 2b: Free importation