Simplified Wealth of Nations by Adam Smith, Book 4, Chapter 3c, Part 2: Unreasonableness or Fallacy of Equilibrium
Chapter 3c, Part 2: The Unreasonableness of those extraordinary Restraints on other Principles
30 In Part 1, I showed how unnecessary it is to lay extraordinary restraints on foreign imports from those countries with a disadvantageous balance of trade, even on the principles of the commercial system.
31Nothing, however, can be more absurd than this whole doctrine of the balance of trade, on which these restraints and almost all the other regulations of commerce are founded.
This doctrine supposes that:
when two places trade with one another, neither of them loses or gains if the balance be even
But if it leans in any degree to one side, that one of them loses and the other gains, in proportion to its declension from the exact equilibrium
Both suppositions are false.
A trade forced by bounties and monopolies commonly is disadvantageous to the country which it is supposed to benefit.
But a trade which is naturally and regularly done between any two places without force or constraint, is always advantageous to both, though not always equally so.
32 To me, advantage or gain means the increase of the exchangeable value of:
the country's annual produce, or
the annual revenue of its inhabitants.
It does not mean the increase of the amount of gold and silver.
33 If the balance is even, and if the two countries trade their native commodities, they will both gain equally or very near equally.
Each will afford a market for the other's surplus produce.
Each will replace the capital employed in raising the other's surplus.
This capital will be distributed among its people.
It will give them revenue and maintenance.
Some of the people will indirectly derive their revenue and maintenance from the other country.
The commodities exchanged are supposed to be of equal value.
The two capitals employed in raising those commodities will also be equal or very nearly equal, on most occasions.
The distribution of those commodities will afford equal, or very nearly equal revenue and maintenance to the people of both countries.
This revenue and maintenance will vary relative to their dealings.
For example, if these annually amount to £1 million on each side, each of them would afford an annual revenue of £1 million to the people of the other country.
34 If one of them exported only native commodities while the other exported only foreign goods, the balance would still be even.
Commodities being paid for with commodities.
They would both gain, but not equally.
The people of the country which exported only native commodities would get the greatest revenue from the trade.
For example, if England imports only French commodities from France in exchange for East India goods:
It would give more revenue to the French than to the English.
The whole French capital employed in it would be distributed among the French.
But only the English capital employed in producing English commodities which bought the East India goods would be distributed among the English.
Most of it would replace the capitals employed producing East India goods in distant countries.
If the capitals were equal, the French capital would increase French revenue much more than English capital would increase the English revenue.
France would carry on a direct foreign trade of consumption with England.
England would carry on a round-about trade with France.
35 There is probably no trade between any two countries which consists in:
all native commodities on both sides, or
all native commodities on one side and all foreign goods on the other.
Almost all countries trade partly native and partly foreign goods.
The principal gainer will always be the country which:
exports the most native commodities
the least foreign goods
36 If England paid for imported French goods with gold and silver, the balance would be supposed uneven since commodities are not paid with commodities.
In this case, the trade would give more revenue to France than England.
The capital which produced the English goods that bought this gold and silver, would be distributed to the English and will give revenue to them.
The whole English capital would not be reduced by this exportation of gold and silver.
On the contrary, its capital would be increased in most cases.
Only exported goods have a higher demand overseas than at home.
Consequently, the returns will be more valuable at home than the commodities exported.
If English tobacco worth £100,000 is sent to France to buy wine worth £110,000 in England, this exchange will increase English capital by £10,000.
If £100,000 of English gold bought French wine worth £110,000 in England, this exchange will increase English capital by £10,000.
A merchant who has £110,000 worth of wine is richer than one who only has £100,000 worth of gold.
The richer merchant can:
mobilize more industry
give revenue, maintenance, and employment to more people
But the capital of the country is equal to the capitals of all its inhabitants.
The quantity of industry which can be annually maintained in it is equal to what all those capitals can maintain.
This exchange must increase:
the country's capital
the amount of industry maintained in it
It would be more advantageous for England to buy French wines with its own hardware and cloth than with the tobacco of Virginia or the gold and silver of Brazil and Peru.
"A direct foreign trade of consumption is always more advantageous than a roundabout one."
A round-about foreign trade of consumption, done with gold and silver, is not less advantageous than any other round-about one.
A country which has no mines is not more likely to run out of gold and silver by the annual exportation of those metals than one which does not grow tobacco by the like annual exportation of tobacco.
A country which has means to buy tobacco or gold and silver will never be long in want of it.
37 "It is said, It is a losing trade which a workman carries on with the alehouse;"
The trade which a manufacturing country naturally carries on with a wine country may be considered as a trade of the same nature.
I answer, that the trade with the alehouse is not necessarily a losing trade.
In its own nature, it is just as advantageous as any other.
Although it is more liable to be abused.
The employment of a brewer and a liquor retailer are as necessary divisions of labour as any other.
It is generally more advantageous for a worker to buy liquor from the brewer than to brew it himself.
If he is a poor worker, it will be better for him to buy it little by little from the retailer than to buy a large amount from the brewer.
He might buy too much liquor.
It is advantageous to many workers that all these trades should be free, even though this freedom may be abused in all of them.
Though individuals may sometimes ruin their fortunes by drinking too much liquor, there is no risk that a nation should do so.
In every country, many people spend more on liquors than they can afford.
But there are always more who spend less.
The cheapness of wine seems to be a cause of sobriety and not of drunkenness.
The people of the wine countries are generally the soberest people in Europe.
This is proven by the Spaniards, Italians, and the people of southern France.
People are seldom guilty of excess in their daily fare.
Nobody affects the character of liberality and good fellowship by being profuse of a liquor which is as cheap as small beer.
On the contrary, drunkenness is a common vice in countries:
which produce no grapes due to excessive heat or cold
where wine is dear
Drunkenness is common in the northern and tropical nations, such as the coast of Guinea.
Wine is much cheaper in southern France than in northern France.
When a French regiment from the north goes to the south, the soldiers become debauched by the cheapness of good wine.
After a few months, most of them become as sober as the rest of the people.
If the duties on foreign wines and the excises on malt, beer, and ale were removed all at once, it might create a temporary drunkenness among the middle and lower class people in Great Britain.
It would probably be soon followed by a permanent and almost universal sobriety.
Presently, drunkenness is not the vice of the upper class.
A gentleman drunk with ale has never been seen among us.
The restraints on Great Britain's wine trade are not created to hinder people from going to the alehouse or where there is the best and cheapest liquor.
Those restraints favour Portuguese wine and discourage French wine.
It is said that the Portuguese are better customers for our manufactures than the French.
Our manufactures should therefore prefer the Portuguese.
As they give us their custom, we should give them ours.
The sneaking arts of underling tradesmen are thus erected into political maxims.
Only the most underling tradesmen make it a rule to chiefly employ their own customers.
A great trader buys his goods always where they are cheapest and best, without regard to any little interest of this kind.
38By those maxims, nations have been taught that their interest consisted in beggaring all their neighbours.
Each nation has been made to:
look invidiously on the prosperity of all the nations it trades with
consider the gain of other nations as its own loss
Commerce, which should naturally be a bond of union and friendship among nations, as among individuals, has become the most fertile source of discord and animosity.
During the past and present centuries, the capricious ambition of kings and ministers was not more fatal to European peace than the impertinent jealousy of merchants and manufacturers.
"The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy."
Merchants and manufacturers are not, and should not be, the rulers of mankind.
Their mean rapacity and monopolizing spirit perhaps cannot be corrected.
But they can be very easily prevented from disturbing the peace of others.
39Without a doubt, it was the spirit of monopoly which originally invented and propagated this doctrine.
Those who first taught it were by no means such fools as those who believed it.
In every country, it is always the people's interest to buy whatever they want the cheapest.
This proposition is so very manifest that it is ridiculous to take any pains to prove it.
It could never have been questioned had not the sophistry of merchants and manufacturers confounded the common sense of mankind.
Their interest is directly opposite of the people's interest.
It is the interest of the freemen of a corporation to hinder the rest of the people from employing any workers but themselves.
So it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market.
there are extraordinary duties on almost all goods imported by foreign merchants in Great Britain and most European countries
the high duties and prohibitions on all those foreign manufactures which can compete with our own
the extraordinary restraints on imports from countries with which the balance of trade is supposed to be disadvantageous
40 The wealth of a neighbouring nation is dangerous in war and politics.
It is certainly advantageous in trade.
In war, it may enable our enemies to maintain superior fleets and armies.
But in peace, it may enable them to exchange to a greater value with us.
It may afford a better market for:
our produce, or
whatever is bought with our produce
A rich man is likely to be a better customer to industrious people than a poor man.
It is likewise with a rich nation.
A rich manufacturer is a very dangerous neighbour to all the other manufacturers in the neighbourhood.
However, the rest of the neighbourhood profits from the good market the rich manufacturer affords them.
They even profit by his underselling the poorer manufacturers.
In the same way, the manufacturers of a rich nation may be very dangerous rivals to their neighbour's manufacturers.
This competition, however, is advantageous to the people.
They profit greatly by the good market which that nation affords them.
Private people who want to make a fortune never think of retiring to remote and poor provinces.
They retire to the capital or to some great commercial town.
They know that where little wealth circulates, there is little to be got.
But where much wealth is in motion, some share of may fall to them.
In this way, the same maxims which would direct the common sense of 1 to 20 individuals, should regulate the judgement of 1 to 20 million people.
It should make a nation see the riches of its neighbours as a probable cause for itself to acquire riches.
A nation will likely enrich itself through foreign trade when its neighbours are all rich, industrious, and commercial nations.
A nation surrounded by wandering, poor savages might acquire riches by cultivating its own lands and by its interior commerce, but not by foreign trade.
This is how ancient Egypt and modern China acquired their great wealth.
The ancient Egyptians neglected foreign commerce.
The modern Chinese hold foreign commerce in the utmost contempt.
They rarely give it protection through its laws.
The modern maxims of foreign commerce aim at the impoverishment of all our neighbours.
Those maxims render that commerce insignificant and contemptible, instead of producing their intended effect.