Thread by @adamsmithworks

Dear Smithketeers. Over many chapters of #WealthOfNations, we've grown close. We were even going to ask all of you to be our Valentines.
And we have to tell you:

The title of Book IV Chapter 6, "Of Treaties of Commerce", is a lie. (IV .vi) #WealthOfTweets #SmithTweets

More like, "Of the reasons the Author is opposed to Treaties generally and the Treaty with Portugal in particular." (IV .vi) #WealthOfTweets

But FINE. Here we go:

Countries that bind themselves via a treaty to offer special treatment to the merchants and manufacturers of another country are granting them a sort of monopoly over their market. (IV. vi.1) #WealthOfTweets #SmithTweets

Smith thinks treaties granting special access are disadvantageous for one country, but he still doesn't think they cause the country granting special treatment to become a "loser" in trade. (IV. vi.2) #WealthOfTweets #SmithTweets

Transactions favoured by the treaty must at least break even or the trade would stop. Both countries still gain from trade, but the country granting special access gains by less than they would under free trade. (IV. vi.2) #WealthOfTweets #SmithTweets

Sounds like there's no argument for treaties, right? Just use free trade!

Sure, if you're Smith. But the argument for treaties comes from...you guessed it: advocates of the mercantile system. (IV. vi.3) #WealthOfTweets #SmithTweets

The idea behind treaties is that they can help a country secure a positive trade balance and rake in the gold. That's silly, says Smith! (Really, he says it's silly!) (IV. vi.3 & 14) #WealthOfTweets #SmithTweets

Thus ends Smith's substantive argument against treaties generally.

But oh, hey! Did you know that Britain has a treaty with Portugal? #AdamSmith sure as heck knew it. And he DID NOT LIKE IT. (IV. vi.3–19) #WealthOfTweets #SmithTweets

The whole idea behind needing a treaty with Portugal is that Portugal has got gold! GOLD! (IV. vi.8–19) #WealthOfTweets #SmithTweets

(Spain has gold mines, too, but Spain sides with France and against Britain and Portugal in wars, so that's no good. If anything Spain would want Britain to get less gold.) (IV. vi.8) #WealthOfTweets #SmithTweets

The treaty is popular because Britain imports such a huge proportion of all the gold it imports from Portugal. But Smith says that's just because Britain gets so much gold from Portugal that it doesn't need much more. (IV. vi.13) #WealthOfTweets #SmithTweets

And besides, gold is just like any other commodit—ARE WE REALLY DOING THIS AGAIN?!

(IV. vi.12) #WealthOfTweets #SmithTweets

Ahem. Gold is just like any other commodity. Britain will be able to get as much as it's willing to pay for without special treaties. (IV. vi.12) #WealthOfTweets #SmithTweets

Britain sends most of its Portuguese gold back out of the country again. Gold plate still comes from old gold plate (not Portuguese gold) and the money is still about the same age (not new-coined Portuguese gold). (IV. vi.17–18) #WealthOfTweets #SmithTweets

And now: Smith's argument for seignorage.

The link between this and treaties is feeling pretty tenuous, folks. (IV. vi.19–31) #WealthOfTweets #SmithTweets

Smith is against the government paying for turning bullion into coins. The people changing the bullion to coin should pay the mint to do it. The profit the government would make by coining the metals is seignorage. (IV. vi.19–31) #WealthOfTweets #SmithTweets

The Bank of England is unlikely to support the reintroduction of seignorage, says Smith, because they have "mistaken their own interest not a little." But in reality, it would protect them from potentially great losses. (IV. vi.22–31) #WealthOfTweets #SmithTweets

There are many sample calculations. If you like that sort of thing, this chapter is for you.

Just...not if you want to read about treaties. (IV. vi.22–31) #WealthOfTweets #SmithTweets

#TLDR seignorage, so long as it's not so high that it encourages counterfeiting, protects the money supply from being melted down as coins get worn and lose their gold or silver content. And adds to the public coffers, too. (IV. vi.22–31) #WealthOfTweets #SmithTweets

So why does the government pay for coinage?

It's because of mercantilism. #ItsAlwaysBecauseOfMercantilism (IV. vi.32) #WealthOfTweets #SmithTweets

This content "might perhaps have been more properly placed in...the first book".

We noticed, Dr. Smith!! (IV. vi.32) #WealthOfTweets #SmithTweets

Come back tomorrow, when we talk about colonies! See you then! #WealthOfTweets #SmithTweets