The Wealth of Nations

Book 4, Chapter 2

Restraints upon Importation from Foreign Countries for Goods that can be Produced at Home

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Chapter 2 Summary

Placing restrictions on the importation of foreign goods produced at home creates a monopoly for the home market, hence benefitting the producers of these goods; for example, the ban on the import of live cattle gave Britain’s cattle farmers the monopoly of the home market for butcher's meat; the high duty on importing corn amounts to a prohibition.

Although this monopoly ensures the country a greater share of labor and stock, whether it benefits the society’s industry as a whole is uncertain. Regulation of a society’s commerce cannot increase the quantity of industry beyond what its capital can maintain. It can only divert a portion of the country’s industry into a direction into which it might not otherwise have gone, which will not necessarily be more advantageous to the society than if it had been left unregulated.

Most people endeavor to employ their capital as near to their home market as possible. It is only with a view to making a profit that an individual employs his capital in support of industry, and he will always endeavor to direct that industry so that its produce will be of the greatest possible value. Driven by self-interest and the advantages he can gain from his capital, a man invests in domestic rather than foreign industry, and as such is unintentionally investing in the market that is most advantageous to society.

Imposing a regulation which creates a monopoly for domestic produce is in effect dictating to people how best to employ their capital, and as such is a harmful regulation. If domestic produce can be bought as cheaply as that of foreign industry, such a regulation is obviously useless. If it cannot, the regulation will generally be harmful. No one would build a house that it would cost less for them to buy; just as a tailor does not decide to make his own shoes but buys them from the shoe store. Likewise, if a foreign country can supply a commodity cheaper than it can be produced at home, it makes more sense to buy a foreign product. A country’s industry always grows in proportion to the capital invested in it; this capital will therefore be invested to its maximum advantage. It goes without saying that is not invested to its maximum advantage if used to purchase an object abroad that can be produced cheaper at home.

The natural advantages a country has over another in terms of producing specific commodities are sometimes so great that the country has a significant edge over its competitors. To produce wine in Scotland, for example, would cost around thirty times the amount it costs to buy it from foreign markets; as such, it would not be beneficial to start producing wine in Scotland. The same can be said with regard to paying higher wages. As long as one country has these advantages and another wants them, it will always be more advantageous to buy than to produce.

Merchants and manufacturers benefit the most from monopoly of the home market. Implementing laws prohibiting the importation of foreign corn and cattle in fact ensures that the country’s population and industry never exceed what its own land can maintain.

Luxury goods are the most easily transported. If the importation of foreign goods was not prohibited, several home industries would suffer and even go bankrupt. There are two cases in which such prohibitions are absolutely necessary. The first is the development of a particular industry that is necessary for the defense of the country. The Navigation Act of Britain gave sailors and the shipping industry a monopoly over their own country’s trade by:

  • prohibiting non-British-owned ships and crews from trading with the British settlements, plantations and coastal areas;

  • excluding or imposing hefty taxes on goods imported in ships of the country in which they were produced; for example, the Dutch were excluded from importing to Britain the goods of any other European country. Though Britain and the Netherlands were not actually at war, there was violent animosity between the two nations.

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