Among other things, Adam Smith devotes an entire chapter of The Wealth of Nations to “Restraints upon the Importation from Foreign Countries.” (See Book IV, Chapter 2 of his magnum opus.) To begin with, the Scottish philosopher-economist concedes right off the bat that “high duties” (i.e. import tariffs) or “absolute prohibitions” (total embargoes) on imports can work to the benefit of local producers: “By restraining, either by high duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them” (Wealth of Nations, IV.ii.1).
The father of economics then provides several specific examples of “high duties” or “absolute prohibitions” on foreign trade–specifically, those imposed on the importation of live cattle, salt, corn, wool, and silk:
“Thus the prohibition of importing either live cattle or salt provisions from foreign countries secures to the graziers of Great Britain the monopoly of the home market for butcher’s meat. The high duties upon the importation of corn, which in times of moderate plenty amount to a prohibition, give a like advantage to the growers of that commodity. The prohibition of the importation of foreign woollens is equally favourable to the woollen manufacturers. The silk manufacture, though altogether employed upon foreign materials, has lately obtained the same advantage. The linen manufacture has not yet obtained it, but is making great strides towards it. Many other sorts of manufacturers have, in the same manner, obtained in Great Britain, either altogether or very nearly, a monopoly against their countrymen.” (Ibid.)
Also, Smith notes that these restraints on foreign trade are not just limited to cattle and corn or wool and silk: “The variety of goods of which the importation into Great Britain is prohibited, either absolutely, or under certain circumstances, greatly exceeds what can easily be suspected by those who are not well acquainted with the laws of the customs” (ibid.). And next, Smith further reiterates that restrictions on imports benefit domestic graziers (cattle ranchers), domestic corn growers, as well as domestic woollen and silk manufacturers:
“That this monopoly of the home-market frequently gives great encouragement to that particular species of industry which enjoys it, and frequently turns towards that employment a greater share of both the labour and stock of the society than would otherwise have gone to it, cannot be doubted.” (ibid.Wealth of Nations, IV.ii.2)
It is here, however, where Smith’s analysis starts to get interesting, for he then makes the following offhand observation: “But whether it [i.e. protectionism] tends either to increase the general industry of the society, or to give it the most advantageous direction, is not, perhaps, altogether so evident” (ibid.). In other words, are restrictions on trade good on balance? Are they beneficial overall? Stay tuned, for I will survey Smith’s scathing and still-relevant critique of trade barriers in my next few posts …
prior probability 