America is not the only semi-quincentennial in 2026. Economics is turning 250 too.
Adam Smith wrote the “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776 and became the father of modern-day economics. He may be turning in his Edinburgh grave, viewing the world today.
Smith’s book was largely a defense of free international trade and attacked the prevailing mercantilist system, which aimed to export goods and import gold and silver. Because countries have different advantages in terms of natural resources or acquired skills, a country should trade freely when it is cheaper to buy than make domestically. Smith states, “It is the maxim of every prudent master of the family never to attempt to make at home what will cost him more to make than to buy” and “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have an advantage.”
The parallel argument Smith is making is that a family or country should specialize in what it is good at, and trade for things it is less good at. I specialize in teaching economics and trade the income I earn for things I am less good at, oil changes, designing cell phones, and growing vegetables. In the pandemic, I tried to grow my own vegetables, and this carrot cost me $338! I no longer grow my own carrots and buy them for $1.35 for 2lbs.
Smith was firmly opposed to tariffs. “By restraining, either by high duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them”. This may sound like a good idea, but Smith warns that “the interest of the home consumer is evidently sacrificed to that of the producer.”
The producer gains from reduced competition, and maybe employment increases in those industries, but at the cost of higher inflation for everyone.
