The Relevance of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations

by Don Boudreaux on April 7, 2020

in Adam Smith, Balance of Payments, Books, Myths and Fallacies, Trade

The hot-off-the-press Spring 2020 issue of The Independent Review is devoted to reconsidering several classic works in the classical-liberal tradition. I’m pleased to have contributed reflections on Adam Smith’s monumental 1776 treatise, An Inquiry Into the Nature and Causes of the Wealth of Nations. My article is titled “Today’s Relevance of Adam Smith’s Wealth of Nations,” and can be found here by scrolling down just a bit. Here’s a slice:

Who can observe the world of 2020 and not see the relevance of Smith’s critical analysis of mercantilism? The president of the United States regularly insists that U.S. trade deficits are evidence that America is “losing” at trade — that other countries are draining us of our wealth. Announcements identical in content, if often less bombastic in tone, are daily fare in mainstream newspapers, magazines, blogs, Twitter feeds, talking-head television and radio programs, and stump speeches.

Although the embrace of mercantilism is today more open than it has been for the past seventy-five years, the reality is that mercantilism was never really defeated in the public square. Adam Smith persuaded most economists of the absurdities and dangers of mercantilism, but he has yet to persuade more than the slimmest sliver of the general public. For the public and for politicians who seek their votes, the Wealth of Nations has been irrelevant.

This claim might sound odd given the long post–World War II worldwide reduction in trade barriers. But this freeing of trade was ironically accomplished not on Smithian terms, but on mercantilist terms: the U.S. government — whose chief economic goal in its trade policy was to increase exports relative to imports — agreed to subject Americans to the scourge of greater access to real goods and services from abroad in exchange for other governments’ solemn commitment to permit Americans to export more stuff to non-Americans.

Translating this conventional thinking into words that Smith would find accurate, we get this: “It’s a shame that foreigners won’t do us the favor of letting us toil harder for them unless we let them toil harder for us. Alas, to win for ourselves the golden opportunity of working longer and harder for foreigners, we regrettably but realistically must suffer foreigners working longer and harder for us.”

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