This young man should actually read Adam Smith in full.
Mr. W__:
You claim that my attempt yesterday to show that Oren Cass misunderstands Adam Smith is “weak” because all of the quotations that I offer from Smith’s Wealth of Nations “are just from one section of the book.” You thereby imply that there can be found in other parts of The Wealth of Nations evidence that Smith would indeed look favorably upon Oren’s case for government to engineer a “bounded market.”
Well. The part of Smith’s book – Book IV – from which I yesterday drew all of my quotations is the part devoted to debunking the fallacies of mercantilism. And many of Oren’s errors are rooted in his failure to rid his thinking of many of these fallacies.
But let me not be defensive. I offer below several quotations from other parts of The Wealth of Nations. Good luck trying to square these passages with Oren’s misinterpretation of Smith as an early sympathizer with the notion of a “bounded market.”
Among men, on the contrary, the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men’s talents he has occasion for. [Book I, Chapter 2] (You will find no evidence in this chapter – or anywhere else, for that matter, in The Wealth of Nations – that Smith believed that contributions to the “common stock” do or should come only, or even mainly, from fellow citizens.)
…..
As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. [Book 1, Chapter 3] (A key to Smith’s economic case for free trade is the fact that freely trading with foreigners ‘extends’ the market and thus enables producers to take maximum advantage of what we today call “economies of scale.”)
…..
A country which neglects or despises foreign commerce, and which admits the vessels of foreign nations into one or two of its ports only, cannot transact the same quantity of business which it might do with different laws and institutions. [Book I, Chapter 9]
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To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. [Book 1, Chapter 11] (I do not believe that Oren is a mercenary for rent-seeking domestic producers; I believe Oren to be sincere and well-meaning. But his ignorance of economics leads him to work unsuspectingly as a water-carrier for “an order of men … whose interest is never exactly the same with that of the public.”)
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Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness. This would be still more the case were they to attempt, in the same manner, to monopolize to themselves their whole exportation trade. [Book II, Chapter 5]
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Among all the absurd speculations that have been propagated concerning the balance of trade, it has never been pretended that either the country loses by its commerce with the town, or the town by that with the country which maintains it.[Book III, Chapter 1] (Smith argued that, just as people in towns gain from trading freely with people in the country, and people in the country gain from trading freely with people in towns, people in different countries gain from trading freely with each other.)
Other quotations contrary to Oren’s interpretation of Smith are strewn throughout The Wealth of Nations (including in Book V), as well as in Smith’s Lectures on Jurisprudence. But the above, along with those that I sent to you yesterday, are more than sufficient to make clear that Smith would be aghast at the suggestion that he would look kindly upon Oren’s proposal for government to engineer a “bounded market.”
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
