#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
But it’s not helpful just to know if a country has giant piles of coins to swim around in. You have to focus on “the exchangeable value of its annual produce.” (IV.iii.c.3)

#WealthOfTweets #SmithTweets
When the trade balance is even, both sides gain equally. But when the trade balance is uneven, both sides still gain. How much they gain depends on how much capital they can put into motion, a la Book III. (IV.iii.c.4–5)
#WealthOfTweets #SmithTweets
Plus, it's also the trade in foreign goods. Trade in foreign goods is "round-about", and puts into motion capital all over the darned place, not just in the two countries trading the goods. (IV.iii.c.6–7) #WealthOfTweets #SmithTweets
Gold is like foreign goods. You're not more rich if you've got £100,000 worth of gold than if you've got £110,000 worth of wine in your cellars. Neither puts capital into motion.

IOW, precious metals are just goods. (IV.iii.c.6–7) #WealthOfTweets #SmithTweets
There's no reason to think workmen at an alehouse will be taken advantage of. Some will spend too much. Some won't. But they're better off than if they had to make their own ale.

Why is he discussing this now? 🤷‍♀️(IV.iii.c.8)

#WealthOfTweets #SmithTweets
Might as well call this paragraph the Digression on dubious Claims about the effects of Prices, particularly concerning those of Alcohol. (IV.iii.c.8) #WealthOfTweets #SmithTweets
Portugal sells Britain wine, which nudges Smith back on task. The fact that the Portuguese are better customers than the French is no reason to treat Portugal as a favored trading partner. No trader would do business that way. (IV.iii.c.8) #WealthOfTweets #SmithTweets
British people should buy and sell at the best prices, and for the best goods, they can manage. Restricting the extent of the market to countries that also buy British goods is no way to do that. (IV.iii.c.8) #WealthOfTweets #SmithTweets
Wait. We just got it. (We think.) The point of the alehouse thing is that no one should be telling you what your interests are when you're deciding with whom to trade. The French are the alehouse, the workmen are the Brits. We get it now. (IV.iii.c.8–9)
(We're still confused about the Digression on dubious Claims about the effects of Prices, though.) (IV.iii.c.8) #WealthOfTweets #SmithTweets
The ideas that your trading partners will exploit you and that you should only trade with your customers are the root of the idea that we're better off if we're rich and our neighbors are poor. (IV.iii.c.9) #WealthOfTweets #SmithTweets
This is so sad! Trade "ought naturally to be, among nations, as among individuals, a bond of union and friendship", but instead countries use it as an excuse to fight. (IV.iii.c.9) #WealthOfTweets #SmithTweets
And now, some #SmithSnark. (IV.iii.c.9–10) #WealthOfTweets #SmithTweets
Why would we mistake a chance at friendship for a source of "discord and animosity"? Because of "the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be the rulers of mankind". (IV.iii.c.9) #WealthOfTweets #SmithTweets
But don't just blame the merchants and the spirit of monopoly. "they who first taught it were by no means such fools as they who believed it." Ouch. Tell us what you really think, Dr. Smith. (IV.iii.c.10) #WealthOfTweets #SmithTweets
Part of the problem is that war is old and commercial society and trade are relatively new. Your neighbours' wealth is something to celebrate if you trade with them (they can buy more stuff!) but is scary if you're at war. (IV.iii.c.11) #WealthOfTweets #SmithTweets
Smith uses a neat little analogy: If a rich customer moves to a neighborhood, the local manufacturers are happy.
But if a rich manufacturer moves to the neighborhood, the local manufacturers have reason to worry.
(IV.iii.c.11) #WealthOfTweets #SmithTweets
Competition is good for the people, but makes merchants and manufacturers work harder to earn business. They'd rather have a monopoly so they can sit back and count on business without having to cater to those pesky customers. (IV.iii.c.11) #WealthOfTweets #SmithTweets
And so merchants and manufacturers encourage the older impulse in the public to treat foreign countries as a threat, because foreign merchants and manufacturers seem like a threat to them. (IV.iii.c.11) #WealthOfTweets #SmithTweets
And if the protectionists win, the effect is to make foreign commerce "insignificant and contemptible", so it's even harder to realize what you're giving up by restricting it. (IV.iii.c.11) #WealthOfTweets #SmithTweets
France and Britain, says Smith, should be frens. But these forces create a perfect storm that make that impossible. (IV.iii.c.12–13)
#WealthOfTweets #SmithTweets
The "pretended doctors" of the mercantile system (#SmithSnark), have kept saying that countries are doomed because of their trade balances. But no country has so far been doomed. Instead, freer traders get richer. (IV.iii.c.14)
#WealthOfTweets #SmithTweets
Stop👏Saying👏It👏Matters!👏 - Adam Smith (probably). (IV.iii.c.14) #WealthOfTweets #SmithTweets
You wanna worry about something? We get it. We, the SmithTweeters, can be worriers, too.

So how 'bout this: Worry about the "balance" between production and consumption. (IV.iii.c.15) #WealthOfTweets #SmithTweets
If this "balance" is positive, you'll produce more than you consume, and the excess is reinvested to make even more! 🥳
If this "balance" is negative, you'll have to consume productive capital, leading to economic decay. 😱
(IV.iii.c.15) #WealthOfTweets #SmithTweets
The production/consumption "balance" has got zilch to do with foreign trade. It can apply to a country that doesn't trade or to the world as a whole. And it can be positive in a country with a negative balance of trade. (IV.iii.c.16–17) #WealthOfTweets #SmithTweets
It's only if you can see that the growth of the wealth of a country is independent of how much bullion goes in and out that you can understand why nations are growing the way they are and what trade's got to do (got to do) with it. (IV.iii.c.17) #WealthOfTweets #SmithTweets
And it's only once you understand how nations get richer and poorer that you can really assess specific trade policies. Which we'll start doing tomorrow. See you then! (IV.iv) #WealthOfTweets #SmithTweets

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More from @adamsmithworks

11 Feb
#AdamSmith has spent a few days talking about why the mercantile system is not a great idea in general, but today he starts to get into specifics by talking about the policies through which it's implemented. We begin today with...drawbacks! (IV.iv.) #WealthOfTweets #SmithTweets
Merchants and manufacturers are not, of course, content only to have a monopoly over the home market. They also want an advantage in foreign markets.

Also: we're calling them M&Ms now. (IV.iv.1) #WealthOfTweets #SmithTweets
M&Ms don't hold sway over foreign governments, so they've gotta settle for getting their home government to pay them to send goods abroad.
Read 13 tweets
9 Feb
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
Read 20 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." adamsmithworks.org/texts/chapter-…
Read 7 tweets

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