… is from page 446 of Book IV, chapter i, of the 1981 Liberty Fund edition of Adam Smith’s timeless 1776 masterwork, An Inquiry Into the Nature and Causes of the Wealth of Nations:
The importation of gold and silver is not the principal, much less the sole benefit which a nation derives from its foreign trade.
DBx: Were Adam Smith to write the above today he would write “The importation of money is not the principal, much less the sole benefit which a nation derives from its foreign trade” – but the point would be identical.
It is a point that Trump and other mercantilists do not grasp. People burdened with this particular species of economic ignorance think that the ultimate point of international trade is to bring to the home country as much money as possible from foreign countries. This misunderstanding is why Trump incessantly alleges that when the U.S. runs trade deficits we Americans are “losing” (given that a U.S. trade deficit means that we Americans during some period spent more on imports than we earned on exports).
But as Smith argued so eloquently – and as competent economists ever since have pointed out in various ways – the ultimate point of trade is not to bring to the home country, from abroad, as much money as possible in exchange for as little money as possible, but, rather, to bring to the home country, from abroad, as many goods and services (imports) as possible in exchange for as few goods and services (exports) as possible.
In short, Trump and other mercantilists have a completely backwards and inside-out understanding of trade.
