David R. Henderson  

Adam Smith Bio Corrected

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It is a mistake to say that Adam Smith unambiguously favored retaliatory tariffs.

Russ Roberts called my attention to a mistake in my bio of Adam Smith in The Concise Encyclopedia of Economics. I had bought the conventional wisdom on Smith, which was that he favored retaliatory tariffs. That's why I wrote:

One definite difference between Smith and most modern believers in free markets is that Smith favored retaliatory tariffs. Retaliation to bring down high tariff rates in other countries, he thought, would work. "The recovery of a great foreign market," he wrote "will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods."

But Russ pointed out that Smith's support for retaliatory tariffs was much more nuanced and hedged than I had written. I went to The Wealth of Nations and found out that he was right. So I've rewritten the Smith bio. Here's the relevant section of the rewrite:
Many people believe that Smith favored retaliatory tariffs. A retaliatory tariff is one levied by, say, the government of country A against imports from country B to retaliate for tariffs levied by the government of country B against imports from country A. It is true that Smith thought they might be justified, but he was fairly skeptical. He argued that causing additional harm to one's own citizens is a high price to pay that tends not to compensate those who were harmed by the foreign tariff while also hurting innocent others who had no role in formulating the tariff policy. He wrote:

There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people to do another injury ourselves, not only to those classes, but to almost all the other classes of them. When our neighbours prohibit some manufacture of ours, we generally prohibit, not only the same, for that alone would seldom affect them considerably, but some other manufacture of theirs. This may no doubt give encouragement to some particular class of workmen among ourselves, and by excluding some of their rivals, may enable them to raise their price in the home-market. Those workmen, however, who suffered by our neighbors prohibition will not be benefited by ours. On the contrary, they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods. Every such law, therefore, imposes a real tax upon the whole country, not in favour of that particular class of workmen who were injured by our neighbours prohibition, but of some other class. (An Inquiry into the Nature and Causes of the Wealth of Nations, par. IV.2.39)


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CATEGORIES: International Trade



COMMENTS (4 to date)
Hazel Meade writes:

If Adam Smith said it, it must be true ...

... even if we already tried retaliatory tariffs in things like the Smoot-Hawley Tariff act, and it did not lead to other countries lowering tariffs. Instead it created a vicious cycle of everyone retaliating against eachother with higher tariffs, which led to the Great Depression.

Retaliation on works if you are sure the the other guy isn't going to retaliate right back, and only if you're not being a total hypocrite by massively subsidizing domestic producers yourself.

Russ Roberts writes:

Hazel Meade,

You might want to read the quote from Adam Smith. He was making your point. So is David Henderson.

Timothy Hopper writes:
...the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.
Brilliant comment by Smith, relevant on so many occasions.
Andrew_FL writes:

@Hazel Meade- Exacerbated sure, but lead to? The economy had already entered the downturn when Smoot-Hawley was passed.

Other than that, I concur on all points.

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