The Hidden Costs of Trade Protection — The Wealth of Nations

Smith examines the first mercantile restraint: high duties or prohibitions on imports that can be produced at home, which secure domestic producers a monopoly of the national market for cattle, corn, woollens, silk, and many other goods. Such protection certainly draws labour and stock toward favoured trades, yet it cannot enlarge total industry beyond what national capital can maintain; it only diverts capital from employments it might otherwise have chosen. Every investor seeks the nearest, most profitable use of funds, preferring home trade to foreign consumption and carrying trade when profits are equal, because capital kept in view supports more domestic employment and aims to maximize the value of output.

Though he intends only his own gain, he is led as if by an invisible hand to support domestic revenue; he generally neither intends to promote the public interest nor knows how much he is promoting it. By preferring domestic industry he intends only his own security; by directing industry toward greatest value he intends only his own gain. Nor is it always the worse for society that it was no part of his intention. I have never known much good done by those who affected to trade for the public good. What species of domestic industry his capital can employ, every individual in his local situation can judge much better than any statesman or lawgiver.

Giving one manufacture the home market is useless when domestic goods are already as cheap, or hurtful when they are not. The prudent household does not make at home what costs more than purchase; neither should a kingdom buy dear domestic goods when foreigners supply cheaper. The value of annual produce is diminished when industry is turned from commodities of more value to those of less. Forced early establishment of a manufacture may succeed, but diminishes immediate revenue and rarely augments capital faster than natural saving would.

Society would not be poorer in any period if capital had stayed in its most advantageous employments, because the same capital would still have employed the same number of hands upon different objects in the manner most advantageous at the time. Scottish wine from hot-walls shows the absurdity of using thirty times the resources needed abroad; a thirtieth excess is the same error in kind. Natural and acquired advantages alike counsel buying where others produce cheaper. Merchants and manufacturers gain most from import bans; graziers and farmers less, because bulky corn and live cattle resist foreign competition. Irish cattle and salt provisions scarcely threaten British feeders; free import of lean cattle may help fattening districts while breeding highlands could be checked from raising prices exorbitantly.

Corn imports average a tiny fraction of consumption, though export bounties distort scarcity and chiefly alarm corn merchants, not farmers. Country gentlemen and farmers are, to their great honour, of all people the least subject to the wretched spirit of monopoly; the undertaker of a great manufactory is alarmed if another work of the same kind is established within twenty miles, but farmers are generally disposed to promote neighbours' improvement. They have no secrets such as manufacturers possess, and Cato called agricultural profit the most stable and least envied.

Farmers dispersed across the country cannot combine as easily as merchants collected in towns with corporation spirit; yet manufacturers invented import restraints and farmers imitated them, forgetting how much less their interest was affected than that of the people whose example they followed. A perpetual ban on foreign corn and cattle caps population and industry to what native soil can feed. Merchants bring capitals home when possible, making every carrying nation an emporium, yet that natural preference for domestic employment is not improved by forcing consumers to buy dear protected goods.