… is from page 516 of Book IV, Chapter 5 of the 1981 Liberty Fund edition of Adam Smith’s brilliant and timeless 1776 masterwork, An Inquiry Into the Nature and Causes of the Wealth of Nations:
Bounties upon the exportation of any home-made commodity are liable, first to that general objection which may be made to all the different expedients of the mercantile system; the objection of forcing some part of the industry of the country into a channel less advantageous than that in which it would run of its own accord: and, secondly, to the particular objection of forcing it, not only into a channel that is less advantageous, but into one that is actually disadvantageous; the trade which cannot be carried on but by means of a bounty being necessarily a losing trade.
DBx: Here again Smith reveals that, were he alive today, he would point out that Beijing’s industrial policies weaken rather than strengthen the Chinese economy. Smith would further argue that any like ‘retaliation’ by Washington – such as proposed by some politicians – would weaken rather than strengthen the American economy. (Smith would surely applaud this recent contribution to the New York Times by my intrepid Mercatus Center colleague Veronique de Rugy.)
Were he alive today, Smith would no doubt scold economists for having done such a poor job of conveying basic economic understanding to the general public.
