Literature Study GuidesThe Wealth Of NationsVolume 1 Book 4 Chapter 2 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 1, Book 4, Chapter 2 : Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home | Summary

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Summary

Smith begins his breakdown of mercantilism by exploring the effects of a relatively simple mercantilist practice: taxing or prohibiting the importation of certain foreign-made goods. These "restraints," as he collectively calls them, do in fact benefit specific domestic industries by giving domestic producers an advantage. Since foreign goods are made expensive by the tax (or by the costs of smuggling, if they're banned altogether), the same types of goods made at home will be cheaper by comparison—often to such an extent that the domestic producers have an effective monopoly on the home market. Those buying the goods will, however, have to pay a higher price than they would under conditions of free trade.

Such restraints, Smith argues, can never benefit a society at large, since everyone is already "exerting himself to find out the most advantageous employment for whatever capital he can command," and government intervention only disrupts this process. When the profits are similar, people already prefer the home trade to foreign and carrying trades because the risks involved are lower. Moreover, he suggests, if the import duties are high enough to decrease importation, they will actually lower customs revenue since the decrease in the amount of imported goods will more than offset the high fees charged for importing them.

Despite all this, Smith identifies a few situations in which it makes sense to restrain importation. Sometimes, he says, it is worthwhile to discourage the importation of goods in industries necessary to a war effort so that those industries will develop at home. Likewise, if domestically produced goods are taxed, it makes sense to tax their imported equivalents as well. He also cautions that any attempt to lower import duties or to relax import bans will have to be undertaken slowly and cautiously, so as not to shake up domestic industry too suddenly. Ultimately, however, Smith sees increased freedom of trade as unlikely because trade restrictions enjoy broad support among members of Parliament and their wealthiest constituents.

Analysis

Smith finds restraints on importation not only economically disadvantageous, but morally offensive. His indignation is, like much of the book's ideology, grounded in the concept of natural rights. To forbid people from exporting sheep or importing corn is, for Smith, a violation of a fundamental freedom, which he describes elsewhere as the right of "making all that [one] can of every part of [one's] own produce." The violation of this "sacred right" can only be justified by a grave necessity, such as preparing the country for war. Enriching certain groups of merchants—which, according to Smith, is the most reliable outcome of import duties—does not constitute such a necessity.

More dubious, from a modern viewpoint, is Smith's attempt to relate Great Britain's political economy to the private economy of a household. "What is prudence in the conduct of every private family," Smith insists in this chapter, "can scarce be folly in that of a great kingdom." The immediate point Smith attempts to justify with this analogy is sensible enough: Great Britain should not manufacture domestically what it can buy cheaply abroad, just as a homemaker would be foolish to make shoes for 10 shillings if the cobbler sells them for five. In general, however, the household analogy is acknowledged to be a poor way of explaining the budgetary workings of a government—notwithstanding politicians' frequent use of the comparison. Simply abandoning the youngest child in the family, for example, would surely not count as "prudence" on the part of a private household, yet Smith advocates something closely analogous when he calls for the divestiture of the American colonies.

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