(THE REAL ADAM SMITH PROBLEM)

“There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon [imports] for the encouragement of domestic industry.” (Wealth of Nations, IV.ii.23)

Thus far (see here, here, here, here, here, here, and here), we have surveyed the first half (paragraphs 1 to 22) of Book IV, Chapter 2 of The Wealth of Nations, where Adam Smith builds the case for free trade. The second half of this chapter (paragraphs 23 to 45), however, identifies several possible exceptions, such as national defense, and we shall soon see when we resume our series next week, these Smithian “exceptions” are so sweeping in scope that they could end up sabotaging or crippling the original case for free trade, and to my mind, it is this internal contradiction in Smith’s analysis of trade that marks the real Das Adam Smith Problem.