Thus far these past few weeks (see here, here, here, here, here, here, here, here, here, and here), we have surveyed the first 11 additions in Adam Smith’s 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). Next up, then, is Addition #12,

This particular addition to Smith’s 1784 pamphlet is significant for many reasons. In summary, Smith begins Addition #12 by explaining the logic of what he calls “the mercantile system”. Next, he surveys in tedious details Britain’s many mercantile laws and explains how these protectionist laws got enacted in the first place. And then he concludes with a blistering attack against these laws. (It is also worth noting that Addition #12 is the second-longest part of Smith’s 1784 pamphlet. It contains an entirely new chapter to The Wealth of Nations: Chapter 8 of Book IV of Smith’s magnum opus).

1. Smith’s nuanced picture of “the mercantile system”

Smith begins Addition #12 by describing the ostensible “ultimate object” of mercantilism: “Its ultimate object, … it pretends, is always the same, to enrich the country by an advantageous balance of trade.” (Smith 1784, p. 23, my emphasis) How does mercantilism go about obtaining this “advantageous balance of trade”? According to Smith, “the mercantile system” attempts to achieve this aim in two different ways:

“Through the encouragement of exportation and the discouragement of importation are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some particular commodities it seems to follow an opposite plan: to discourage exportation and to encourage importation.” (Id.)

In other words, mercantilists don’t always favor exports, and they don’t always reject free trade. Sometimes, they oppose exports and allow imports! But how does a mercantilist draw this line? How does he decide which goods to export and which goods to import? Here, Smith draws a crucial distinction between “instruments of trade” and “materials of manufacture”:

It [the mercantile system] discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets; and by restraining, in this manner, the exportation of a few commodities, of no great price, it proposes to occasion a much greater and more valuable exportation of others.” (Id.)

2. Smith’s survey of Britain’s mercantilist laws

At the time he was writing his 1784 pamphlet, Smith was a Commissioner of Scottish Customs and was thus familiar with Britain’s mercantilist laws. By way of illustration, Smith identifies many specific “materials of manufacture” that are exempt from the payment of all duties (see paragraph 3 at p. 24 of Addition #12), including sheep’s wool, cotton wool, undressed hides, seal skins, as well as “pig and bar irons”, and he also identifies those “materials of manufacture” whose importation is not only allowed but even encouraged via bounties (see paragraphs 6 to 14 at pp. 26-29 of Addition #12), including “timber fit for masts, yards, and bowspirits” (para. 7 on p. 22); “tar, pitch, and turpentine” (paras. 7 & 8 on p. 26); “indigo” (para. 9 on pp. 26-27); “undressed flax” (para. 10 on p. 27); “wood from America” (para. 11 on pp. 27-28); “raw silk” (para. 12 on p. 28); pipe, hogshead, and barrel staves (para. 13 on p. 28); and “hemp from Ireland” (para. 14 on pp. 28-29).

What was the rationale behind these exemptions and bounties? Why do mercantilists favor the importation of some particular goods but not others? According to Smith, their rationale is twofold:

“It [the mercantile system] encourages the importation of the materials of manufacture in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities.” (Id.)

At the same time, however, some “materials of manufacture” are subject to strict and severe export restrictions, such as and wool. (See, for example, paras. 15 to 23 at pp. 29-34 of Addition #12.) Ditto the exportation of “fuller’s earth or fuller’s clay” (para. 33 on p. 38), raw hides and other unfinished leather goods (paras. 34 & 34 on pp. 38-39), various metals (para. 36 on p. 39), lead and lead ore (para. 38 on p. 40), “coals” (para. 42 on p. 43), and “frames or engines for knitting gloves or stockings” (para. 43 on p. 43). To paraphrase Smith (para. 16 on p. 29), the export of all these goods were either “discouraged” by high duties or forbidden altogether by “absolute prohibitions”.

But why did the legislature enact this complex web of mercantilist laws in the first place? And what effect did these laws have in practice? Smith addresses both of these key questions next. (To be continued …)