Thus far (see here and here), we have studied the first three passages in Adam Smith’s 79-page pamphlet: Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations (1784). Today, we will explore the next two substantive passages (Additions #4 and #5), which together take up three full pages. In his fourth insert (Addition #4, pp. 3-4), Smith describes the history of Britain’s punitive trade policy toward France:

“By what is called the impost 1692, a duty of five and twenty per cent … was laid upon all French goods; while the goods of other nations were, the greater part of them, subjected to much lighter duties, seldom exceeding five per cent…. In 1696, a second duty of twenty-five per cent, the first not having been thought a sufficient discouragement, was imposed upon all French goods, except brandy; together with a new duty of five and twenty pounds upon the ton of French wine, and another of fifteen pounds upon the ton of French vinegar.” (Smith 1784, p. 3)

In fact, Smith conjectures that the true tariff rate on French goods may have been as high as 75%: “… before the commencement of the present war [i.e. the Seven Years’ War of 1756-1763] seventy-five per cent may be considered as the lowest duty, to which the greater part of the goods of the growth, produce, or manufacture of France were liable.” (Id.)

What about France’s trade policy toward Britain? Although Smith concedes that he is far less familiar with French trade laws, he states, “The French in their turn have, I believe, treated our goods and manufactures just as hardly, though I am not so well acquainted with the particular hardships which they have imposed upon them.” (Id. at pp. 3-4) As a result, in the immortal words of Adam Smith (my emphasis): “Those mutual restraints have put an end to almost all fair commerce between the two nations, and smugglers are now the principal importers, either of British goods into France; or of French goods into Great Britain.” (Id. at p. 4)

Here, Smith is making four crucial points, one of which is implicit. Smith’s explicit points are: (1) lawful trade between France and Britain is close to zero; (2) most of the trade between France and Britain is being carried out by illegal smugglers; and (3) the cause of (1) and (2) are France and Britain’s counter-productive trade policies. (Smith’s implicit point is that Britain’s punitive trade laws against French goods do not eliminate the demand for French goods by British consumers.)

Next (Addition #5, pp. 4-6), Smith explains how France and Britain would both be better off if they allowed free trade and opened their markets to each other:

“If those two countries, however, were to consider their real interest, without either mercantile jealousy or national animosity, the commerce of France might be more advantageous to Great Britain than that of any other country; and for the same reason that of Great Britain to France. France is the nearest neighbour to Great Britain.” (Id. at p. 4)

Smith further conjectures that free trade with France would generate greater economic benefits than Britain’s trade with her North American colonies:

“It [free trade between France and Britain] would be, at least, three times more advantageous, than the boasted trade with our North American colonies, in which the returns were seldom made in less than three years, frequently not in less than four or five years. France, besides, is supposed to contain twenty-four millions of inhabitants. Our North American colonies were never supposed to contain more than three millions: And France is a much richer country than North America; though, on account of the more unequal distribution of riches, there is much more poverty and beggary in the one country, than in the other. France, therefore, could afford a market at least eight times more extensive, and, on account of the superior frequency of the returns, four and twenty times more advantageous, than that which our North American colonies ever afforded.” (Id. at pp. 4-5)

Furthermore, free trade is a two-way street: “The trade of Great Britain would be just as advantageous to France, and, in proportion to the wealth, population and proximity of the respective countries, would have the fame superiority over that which France carries on with her own colonies.” (Id. at p. 5) So why have both France and Britain rejected free trade and closed off their markets to each other? Smith explains why in the second paragraph of Addition #5 on pp. 5-6 of his 1784 pamphlet. According to Smith, irrational animus (“national animosity”) as well as petty politics (“the passionate confidence of interested falsehood”) are the main obstacles to free trade and economic prosperity:

“But the very same circumstances which would have rendered an open and free commerce between the two countries so advantageous to both, have occasioned the principal obstructions to that commerce. Being neighbours, they are necessarily enemies, and the wealth and power of each becomes, upon that account, more formidable to the other; and what would increase the advantage of national friendship, serves only to inflame the violence of national animosity. They are both rich and industrious nations; and the merchants and manufacturers of each, dread the competition of the skill and activity of those of the other. Mercantile jealousy is excited, and both inflames, and is itself inflamed, by the violence of national animosity: And the traders of both countries have announced, with all the passionate confidence of interested falsehood, the certain ruin of each, in consequence of that unfavourable balance of trade, which, they pretend, would be the infallible effect of an unrestrained commerce with the other.” (Id. at p. 5)

But as I mentioned at the end of my previous post, Adam Smith’s eloquent defense of free trade in these particular passages poses another potential “Adam Smith problem” because Smith was a Commissioner of Scottish Customs when he made these additions in 1784. More specifically, how can we reconcile Smith’s powerful critique of trade barriers with his day-to-day duties as a customs commissioner, i.e. as a public official sworn to uphold the very trade policies he is here condemning in these same passages? (To be continued.)