Private Prudence, Public Folly
Adam Smith contrasted the Government’s handling of the national economy with the way most families handled theirs.
1776
Adam Smith contrasted the Government’s handling of the national economy with the way most families handled theirs.
1776
By 1776, the long-standing policy of favouring British producers and blocking overseas competitors had raised prices, cost jobs, and only last year driven the American colonies to revolution. Adam Smith thought it both damaging and insulting, for the humblest tailor or cobbler could have told the Government that this was no way to run a budget.
TO give the monopoly of the home-market to the produce of domestic industry,* in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful.*
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers.
* This is known as Protectionism: taxes, regulations and lop-sided trade agreements are used to push customers into buying from home-grown industries rather than foreign competitors. On balance, Smith preferred to buy British: see The Economic Case for Sovereignty. His complaint was that our Government had been forcing people to buy British, which was either unnecessary or harmful.
* In 1855, Montgomery Martin, a former Colonial Treasurer of Hong Kong, gave an example of the kind of havoc caused by protectionism. “For many years,” he wrote, “great commercial injustice was done by England to British India. High, indeed prohibitory, duties were laid on its sugar, rum, coffee, &c., to favour similar products grown in the West Indies: still worse, we compelled the Hindus to receive cotton and other manufactures from England at nearly nominal duties (two and a-half per cent.), while, at the very same time, fifty per cent, were demanded here on any attempt to introduce the cotton goods of India. The same principle was adopted in silk and other articles: the result was the destruction of the finer class of cotton, silk, and other manufactures.”