… is from page 550 of Douglas Irwin’s superb essay “Adam Smith and Free Trade,” which is chapter 32 in the 2016 volume, edited by Ryan Patrick Hanley, Adam Smith: His Life, Thought, and Legacy:
Smith argued that there is no country in which “the approaching ruin has not frequently been foretold” by an unfavorable balance of trade. Yet despite all the anxiety and the vain attempts by policy makers to turn the balance of trade in their favor, Smith did not believe that any country had been impoverished because of this cause. Instead, he maintained, “in proportion as they have opened their ports to all nations; instead of being ruined by this free trade, as the principles of the commercial system would lead us to expect, have been enriched by it.”
DBx: By “the commercial system,” Smith here means what we today call “mercantilism.”
A quarter of a millennium after Smith made this observation, the antediluvian superstition surrounding so-called “trade deficits” continues to haunt the body-politic and to be regarded – by the press, pundits, politicians, professors, and the judiciary – as a scientifically relevant concept that can legitimately be taken into consideration by those who make trade policy. It’s as if those who make health-care policy still believe in the reality and centrality of the four humors of blood, phlegm, choler, and black bile – and have concluded that, in the patient, these phenomena are now out of balance with each other.
The “balance of trade” is as foolish a concept as is the “balance of humors.”
