Study Guide

The Wealth of Nations Book IV, Chapter 2

By Adam Smith

Advertisement - Guide continues below

Book IV, Chapter 2

Of Restraints Upon the Importation from Foreign Countries of Such Goods as can be Produced at Home

  • Now we're going to learn about what happens when a country puts restrictions on the importation of foreign goods. So let's say your country says it doesn't want cheap goods coming in from China because that ruins the lives of people who want to make these same goods inside your country.
  • So the government decides to protect these jobs by restricting the importation of the cheaper goods. This basically gives the makers inside your country a monopoly by cutting off competition from other countries.
  • However, while this government regulation might be good for the people who have the monopoly, it has a negative effect on society as a whole. Smith wants to show you why.
  • And here is where Adam Smith makes one of his most famous statements: he claims that the overall good of society is raised when everyone pursues their own selfish interests.
  • That's because this behavior creates a lot of productive behavior that pushes prices down and constantly makes products better.
  • Therefore, a government that gives its local businesses a monopoly over the domestic market is actually steering them to do more of that work than they would naturally do. The long-term effect of this is to hurt the economy, because it drives prices up, and people's money is worth less and less over time. If another country makes way better versions of a certain product, it is always a better choice to import that better version than to struggle to produce it at home.
  • People tend to think of international commerce as a competition where one country is always trying to defeat another. But the truth is that countries need to focus on making themselves wealthier through cooperation and trade. Imposing trade barriers might seem to give your country a competitive advantage, but it makes you poorer in the long run by cutting off your access to better goods from other countries.
  • Yes, many people will lose their jobs if their companies get out-competed by goods from other countries. But Smith is confident that these people will soon find jobs elsewhere because the economy as a whole will do better. Smith says this will happen as long as we get rid of restrictions on where people are allowed to live.
  • Smith also admits that Britain will probably never have free trade because there are so many lobbying interests wrapped up in protecting their monopolies.
  • Smith closes the chapter by conceding that some taxes on imports are necessary if the government is going to raise funds for its public institutions. He's going to discuss this later on.

The Wealth of Nations Book IV, Chapter 2 Study Group

Ask questions, get answers, and discuss with others.

Tired of ads?

Join today and never see them again.

This is a premium product

Please Wait...