#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.
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.
Drawbacks are a refund on tariffs already paid. Smith likes them because all they can do is eliminate the tariffs and put things back to normal. They can't offer more encouragement to be in an industry than the market would provide. (IV.iv.2) #WealthOfTweets#SmithTweets
(Because if you get the maximum possible drawbacks, you just stop getting drawbacks if you keep exporting. At that port the exportation is for profits, not drawbacks.) (IV.iv.2) #WealthOfTweets#SmithTweets
Drawbacks can be refunds of duties paid on foreign goods that are re-exported, but M&Ms argue against even these to discourage foreign goods coming into the country at all.
Adam Smith provides (more) evidence that the British and the French were not tradin' frens. (IV.iv.8–11) #WealthOfTweets#SmithTweets
Smith thinks drawbacks are probably the result of governments trying to encourage the carrying trade to bring gold into the country. He says that's silly.
But he thinks it undoes some of the harm that tariffs do. That's good. (IV.iv.12) #WealthOfTweets#SmithTweets
You might think that drawbacks are bad for public revenues, says Smith, but it depends. If the drawbacks are partial, trade volume could increase enough to make up for it. (IV.iv.13–14) #WealthOfTweets#SmithTweets
If the drawback takes back *all* of the revenue from tariffs, then yeah. OK. Sure. It will reduce public revenue. But, says Smith...#WorthIt.
(IV.iv.14) #WealthOfTweets#SmithTweets
Drawbacks on goods exported to British colonies have no justification unless you're an evil M&M. (IV.iv.15) #WealthOfTweets#SmithTweets
See you tomorrow! What's coming? Just this...
*sigh* This is not political commentary. We're just going to talk about bounties on trade tomorrow. And Boba Fett is a bounty hunter and...
...we need more tea.
Love, the SmithTweeters
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Yes, it’s the Digression Concerning the Corn Trade and Corn Laws! We can barely contain ourselves long enough to remind you that “corn” doesn’t mean 🌽 It means the principal cereal crop of a nation. (We keep saying so because we keep forgetting.) #WealthOfTweets#SmithTweets
Everyone admits, says Smith, that bounties shouldn't be given to industries or endeavors that could happen without them. But that means you're only going to give them to endeavors that can't pay for themselves. (IV.v.a.2) #WealthOfTweets#SmithTweets
#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."
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
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
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?
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
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