Thread by @adamsmithworks

Today #AdamSmith is talking about stuff that sounds pretty contemporary. But remember: it's 240 years old. Today it's all about attempts by the political system to manipulate the balance of trade. (IV.iii.) #WealthOfTweets #SmithTweets

The "Commercial System" that Smith is talking about here is also called the mercantile system, or mercantilism. (IV.iii.) #WealthOfTweets #SmithTweets

The gist of mercantilism is:
- If your imports and exports are equal, that's fair. But,
- If you export more than you import, you bring in silver. That's good! And,
- If you import more than you export, you pay out silver. That's bad.
(IV.iii.) #WealthOfTweets #SmithTweets

If it hasn't before now, it may be dawning on you why Smith is so relentlessly, tediously preoccupied with and determined to debunk the myths that silver is money and money is wealth.

So let's do this thing. (IV.iii.) #WealthOfTweets #SmithTweets

In this part, Smith wants to point out why even if money were wealth, WHICH IT'S NOT, and a country got richer by getting more silver, WHICH IT CAN'T, preoccupation with the balance of trade wouldn't make sense. (IV.iii.a) #WealthOfTweets #SmithTweets

#TLDR: France and Britain have kiboshed their chance of being great trading partners. (Unless you count the smugglers.)

Restrictions might come from scheming merchants, but now the arguments are about "national prejudice and animosity". (IV.iii.a.1) #WealthOfTweets #SmithTweets

We don't actually know how trade with France would shake out in terms of Britain's trade balance. Trade with France might replace other foreign trade, might be re-exported, or it might supply domestic industry. (IV.iii.a.2–3) #WealthOfTweets #SmithTweets

And we can't really know, anyway, how even to determine the trade balance objectively. It's always going to be determined by principles of private interest and public animosity. That's not about national wealth. (IV.iii.a.4) #WealthOfTweets #SmithTweets

The idea of the balance of trade comes from the way we think about debts and exchange rates. Between two countries, you can look at exchange rates and have an idea of the state of debt and credit between two countries. (IV.iii.a.5–6) #WealthOfTweets #SmithTweets

But you can't conclude from the exchange rate between two countries anything about the trade balance, let alone whether the trade balance is advantageous. (IV.iii.a.6) #WealthOfTweets #SmithTweets

Exchange rates depend not just on the two countries, but on all the other countries they deal with. And how the government supports the currency. And when people who take bullion to the mint. And and and. (IV.iii.a.6–10) #WealthOfTweets #SmithTweets

And it gets even more complicated when you talk about small places that do a lot of foreign trade! Then you've got to think about "bank money", which is always worth more than the common currency. (IV.iii.a.11) #WealthOfTweets #SmithTweets

Dear readers, #AdamSmith wrote so many beautiful, meaningful, insightful, and sometimes even touching things over his life.

Alas. He also wrote the Digression concerning Banks of Deposit, particularly concerning that of Amsterdam. (IV.iii.b) #WealthOfTweets #SmithTweets

Really small states have a problem: most of their dealings happen in foreign currency. This means that the government can try to reform its coin, but it can't actually control the value of money. The solution? Bank money. (IV.iii.b.1–4) #WealthOfTweets #SmithTweets

Bank money is basically credit with a special bank that tries to fix this problem. It allows merchants in these small states to transact with a predictable currency. (IV.iii.b.1–4) #WealthOfTweets #SmithTweets

Are you the sort of person who wants to know EXACTLY, in TEDIOUS DETAIL, how this works? Cool. Cool cool cool. It doesn't tweet well. Check out IV.iii.b.6–16. #WealthOfTweets #SmithTweets

*record scratch*
"four reigning burgomasters"?!

Come on. Is Amsterdam even a real place, @nescio13? (IV.iii.b.15) rudolphtherednosedreindeer.fandom.com/wiki/BurgerMei…

#WealthOfTweets #SmithTweets

So #TLDR: Bank money is generally better than common currencies regardless of a country's trade balance. (IV.iii.b.17) #WealthOfTweets #SmithTweets

The success of the Bank of Amsterdam illustrates that it's silly to focus on exchange rates. You can get a better exchange rate in ways that have nothing to do with trade, like addressing problems of risk. Exchange rates are just prices. (IV.iii.b.17) #WealthOfTweets #SmithTweets

So trade doesn't determine exchange rates, exchange rates don't tell us about the debt or wealth of a country, and it's a fool's game to worry about the balance of trade to fix either.

And Smith ain't done—more Book IV Chapter 3 tomorrow. #WealthOfTweets #SmithTweets