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)…

#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

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with @AdamSmithWorks

@AdamSmithWorks Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @adamsmithworks

10 Feb
#AdamSmith corrects a lot of economic errors in #WealthOfNations "Nothing, however, can be more absurd than this whole doctrine of the balance of trade," upon which nearly all protectionism is based. But we still worry about it today. (IV.iii.c.2) #WeathOfTweets #SmithTweets
Both the supposition that an even balance of trade = fair trade and that an uneven balance of trade implies one side wins and the other loses are false.

That's how he puts it. "Both suppositions are false."

We love a decisive Smith. (IV.iii.c.2) #WealthOfTweets #SmithTweets
The trap is thinking that the country that brings in the most silver and gold wins. Since bullion is the currency of international trade, exporting more than you import (having a positive trade balance) means you bring in more bullion. (IV.iii.c.3) #WealthOfTweets #SmithTweets
Read 31 tweets
8 Feb
Here we are in Book 4, chapter 2. It's clear that by restraining and prohibiting imports, you can give a monopoly to domestic manufacturers. But can you create wealth?

Well, we know how #AdamSmith feels about monopolies. (IV.ii.1) #WealthOfTweets #SmithTweets
In fact, Smith's not even all that convinced that prohibitions keep foreign goods out. (IV.ii.1) #WealthOfTweets #SmithTweets
Dear readers, we do not tweet the footnotes. (If that's your sort of thing, totally @ us.) But we have to draw your attention to the footnoted letter to William Eden where Smith claims that he burnt a bunch of his clothes for being illegal. (IV.ii.1) #WealthOfTweets #SmithTweets
Read 34 tweets
7 Feb
Sorry to leave you hanging there yesterday, Smithsters. There's just a lot going on in this chapter!
So we return to #AdamSmith's many grievances with the very idea of the mercantile system. (IV.i.14–45) #WealthOfTweets #SmithTweets
People worry too much about the supply of cash money. It’s easy to import more and you can always use barter instead, if things get really tight. Also, paper money is a thing! (IV.i.14–15) #WealthOfTweets #SmithTweets
But everyone complains about a scarcity of money. That’s usually because they can’t get credit, or are big spenders. Or it can be caused by overtrading. It’s not about how many coins are around, but the ease of getting them. (IV.i.16) #WealthOfTweets #SmithTweets
Read 24 tweets
6 Feb
Good morning, Smithketeers! Time for Fun With 18thC Spelling! WHY does #AdamSmith, who invented modern economics, spell it with an O like some kind of crazy person? #WealthOfTweets #SmithTweets
It's because he's thinking about the Greek roots of the word. Oikos=Household and Nomia=Management [Sending some love to our friends @kefimgr] #WealthOfTweets #SmithTweets
We, the SmithTweeters, support a revival of this spelling. We're sure it won't bother any of our oeconomist friends, or their oeconomics departments. Right? #WealthOfTweets #SmithTweets
Read 28 tweets
5 Feb
Just for the record @doctorow, #AdamSmith never uses the phrase "free market." That's a phrase that's basically nonexistent until the Great Depression.…
He does use the phrase "free traders" and "a free trade" with the first phrase appearing extensively in Book 3, Chapter 3, where he points out that sometimes kings would give certain traders tax exemptions. They were then called "free traders."…
Read 7 tweets
5 Feb
OK so chapter 4 of Book 3 of #WealthOfNations is a lot of *chef's kiss* and a little "...wat." Let's dive in. (III.iv.) #SmithTweets
Towns getting rich helped the country get rich in three ways:

1) They provide a market for the country.
2) They provided entrepreneurial people with the money to buy and improve land.
3) They largely ended domination and war.

(III.iv.1–4) #WealthOfTweets #SmithTweets
3) is another wildly underappreciated argument from Smith: The commercial society that towns fostered improved governing institutions to reduce violence and increase security so that development can even happen.

That's good.
That's huge. (III.iv.4) #WealthOfTweets #SmithTweets
Read 28 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!