Superphysics Superphysics
Chapter 11

The Balance of Trade

by Adam Smith Icon
5 minutes  • 963 words

The idea of public opulence consisting in money has led to the most pernicious regulations. These think:

  • that the commerce which drain us of our money are disadvantageous and so such commerce is prohibited and
  • that the commerce which increase money are beneficial and is encouraged

France is thought to produce more of the elegancies of life than England. We take much from them and they need little from us and so the balance of trade is against us. Therefore, almost all our trade with France is banned by great taxes and import duties.

On the other hand, Spain and Portugal take more of our commodities than we take of theirs, The balance is in our favour and so this trade is encouraged.

It’s easy to see the absurdity of these regulations. All commerce between any two countries is advantageous to both. The very intention of commerce is to exchange your own commodities for others which you think will be more convenient for you.

Two persons trade undoubtedly for the advantage of both. Person A has more commodities than he needs, so he exchanges some of it for the useful commodity of Person B who agrees to the bargain on the same account. In this way, the mutual commerce is advantageous to both.

The case is exactly the same between any two nations. The goods which the English merchants want to import from France are certainly more valuable to the English than what the English give for those goods. Our very desire to buy them shows that we have more use for them than either the money or the commodities which we give for them.

It is true that money lasts forever, but that claret and cambrics are soon consumed. But the intention of industry is to produce those useful things for human life. Industry has no purpose if we cannot use the produce of our industry. If we have the money to spend on foreign commodities, why do we need to keep it in the country?

If the circulation of commodities require it, there will be none left. If the channel of circulation is full, no more is necessary. If only a certain sum is necessary, why throw more into it?

By banning the exportation of goods to foreign markets, the country’s industry is greatly discouraged. It is a very great motive to industry, that people have it in their power to exchange the produce of their labour for what they please, and wherever there is any restraint on people in this respect, they will not be so vigorous in improving manufactures.

If sending corn and cloth to France were banned, then our corn and clothing industry for the French market is stopped. But if we were allowed to trade with France, we would not exchange our commodities with theirs, but our money. Thus human industry is not discouraged.'

But if we attend to it, we shall find that it comes to the same thing at last.

By hindering people to spend, you discourage those manufactures that they spend on. All jealousies and prejudices between nations limit public opulence by being extremely hurtful to commerce. This is always the case between France and us in wartime.

In general, these jealousies and prohibitions are most hurtful to the richest nations, just as free trade is the most advantageous. When a rich man and a poor man deal with one another, both of them will increase their riches, but the rich man’s stock will increase in a greater proportion than the poor man’s.

Similarly, when a rich and a poor nation engage in trade, the rich nation will have the greatest advantage. Therefore, the prohibition of this commerce is most hurtful to the rich nation.

All our trade with France is prohibited by the high duties imposed on every imported French commodity. It would have been better policy to encourage our trade with France. If any foreign commerce is to be prohibited, it should be that with Spain and Portugal.

France is larger, much more populous, and more advanced in arts and manufactures. A trade with France would excite our industry to make it much greater. 20 million people working through the division of labour, would produce 1,000 times more goods than another society of only 3 million. It would be better for England and France to:

  • have all national prejudices rooted out, and
  • have a free and uninterrupted commerce established.

In general, no nation has been ruined by this balance of trade. When Gee published his book, the balance with all nations was against us, except Spain and Portugal. All political writers since the time of Charles II cried that in a few years, we would be reduced to absolute poverty.

Despite all this, we are far richer than before. We can raise much more money when needed. A late minister of state levied 23 million in one year with greater ease than Lord Godolphin could levy 6 million in Queen Anne’s time.

The French and Dutch writers embraced the same principle. They frequently alarmed their country with the same groundless terror. But they still continue to flourish.

The nation’s poverty can never come from foreign trade if done with wisdom and prudence. Poverty comes from much the same causes with those which render an individual poor. When a man consumes more than he gains by his industry, he must impoverish himself unless he has some other way of subsistence. In the same way, if a nation consumes more than it produces, poverty is inevitable.

If its annual produce is 90 million and its annual consumption is 100 million, then it spends, eats, and drinks, wears and tears, 10 million more than it produces. Its stock of opulence must gradually go to nothing.

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