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Quotation of the Day…

… is from page 608 of Book IV, Chapter vii of the 1981 Liberty Fund edition of Adam Smith’s 1776 masterpiece, An Inquiry Into the Nature and Causes of the Wealth of Nations:

imagesBut whatever forces into a branch of trade of which the returns are slower and more distant than those of the greater part of other trades, a greater proportion of the capital of any country than what of its own accord would go to that branch, necessarily renders the whole quantity of productive labour annually maintained there, the whole annual produce of the land and labour of that country, less than they otherwise would be.  It keeps down the revenue of the inhabitants of that country below what it would naturally rise to, and thereby diminishes their power of accumulation.  It not only hinders, at all times, their capital from maintaining so great a quantity of productive labour as it would otherwise maintain, but it hinders it from increasing so fast as it would otherwise increase, and consequently from maintaining a still greater quantity of productive labour.

DBx: Smith’s highly polished economist’s lens enabled him to see the less-obvious effects of government efforts to stimulate trade or industries of particular kinds or in particular places.  Such efforts not only divert resources from elsewhere, they divert resources into less-productive uses and away from what would be more-productive uses.  (Smith here incorrectly suggests that such government efforts cause the quantity of employment to fall.  The number of jobs in total isn’t affected over the long run.  But such government efforts – for example, those of that great geyser of cronyism, the U.S. Export-Import Bank – cause the productivity and, hence, the pay of workers to fall.)