Here’s the second in my series on Curtis Ellis’s laughably error-ridden effort to defend protectionism.
Editor, American Greatness
In “An American System for America Prosperity” (March 18), Curtis Ellis joins the legions of protectionists who try to conscript Adam Smith into their ranks. And like these other protectionists, among Ellis’s means of conscription is to quote Smith out of context. Ellis, though, goes even further and actually puts words in Smith’s mouth.
Here’s Ellis’s offending passage:
Another case, Smith wrote, “in which it will generally be advantageous to lay some burden upon foreign imports for the encouragement of domestic industry, is, when some tax is imposed on the [domestic industry.] In this case, it seems reasonable that an equal tax [i.e., tariff] should be imposed” on the foreign imports.
Minimum wage laws, environmental and workplace safety regulations, and Social Security and Medicare costs are examples of taxes imposed on American industry. Their costs are reflected in the price of goods produced in the United States. According to Smith’s doctrine, “an equal tax should be imposed upon” imports to level the playing field for American producers.
First, Ellis fails to mention that this quotation from Smith appears in that part of The Wealth of Nations where Smith identifies four exceptions to his preferred policy of unilateral free trade. Exceptions are just that: exceptions; they are not, contrary to Ellis’s presentation, Adam Smith’s endorsement of economic nationalism.
Second, by substituting in brackets “domestic industry” Ellis subtly but significantly changes Smith’s meaning. Here’s the actual quotation from Smith:
The second case, in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is, when some tax is imposed at home upon the produce of the latter.*
Contrary to the false impression created by Ellis, the home-government-created burden that Smith argued might justify a tariff is not just any burden that government imposes on domestic industry; instead, this burden is a particular tax on the domestic production of some particular produce of domestic industry.
In a passage not quoted by Ellis, Smith was explicit that the situation he here had in mind is that of “a particular commodity of which the price was enhanced by a particular tax immediately imposed upon it.” Not covered by this exception to a policy of free trade are taxes and other government interventions that cause a “general enhancement of the price of all commodities.”
Smith therefore, and without question, would reject Ellis’s claim that “[m]inimum wage laws, environmental and workplace safety regulations, and Social Security and Medicare costs” justify tariffs.
One reason Smith gave for confining this exception to particular goods the prices of which are raised by particular taxes specifically laid upon those goods is because only for such taxes “it might always be known with great exactness how far the price of such a commodity could be enhanced by such a tax.” And such “great exactness” of knowledge was important for Smith because his stated justification for a tariff under these circumstances is that it
would not give the monopoly of the home market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.
Smith could not be more clear that he was not – contrary to the impression created by Ellis – arguing for tariffs to protect domestic producers from foreign competition.
The fact that in his attempt to justify protectionism Ellis gets Smith so very wrong is sufficient reason for great skepticism of all that else that Ellis writes about trade.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* All quotations from Smith are from Book IV, Chapter II of An Inquiry Into the Nature and Causes of the Wealth of Nations (1776).