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We now move to Book IV, Chapter I,
which is on mercantile systems
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or mercantilism.
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The chapter is called "Of the Principle
of the Commercial or Mercantile System."
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Note that there's also a very short
introduction before this chapter.
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Smith lays out the overall
organization of Book IV
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and he notes that book IV
will cover two different systems,
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the mercantile system and
the agricultural system.
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Now, what you're going to see
is that you get 270 pages or so
-
in my addition on the mercantile system,
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and Book IV, Chapter IX, then suddenly,
is a much shorter chapter
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on the agricultural system.
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So, keep track of
this overall organization.
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There'll be chapter after chapter
on the mercantile system.
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But this is still part of a broader book
pairing the mercantile system
-
up against the agricultural system.
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Smith really does make his head-on
critique of mercantilism here
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and he stresses that wealth
does not consist of gold and silver.
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He discusses what we now call
a fallacy of composition.
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That, for a single individual,
gold and silver do signify wealth
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but for the nation as a whole,
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gold and silver are simply
one part of wealth,
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wealth in the broader sense referring
to the ability of that nation
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to produce valuable goods and services.
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Smith then turns to discuss
whether we should prohibit
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the exportation of the precious
metals gold and silver.
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He considers two points.
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First, if say gold is exported
from a country
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those metals do not sink to
the bottom of the ocean
-
never to be recovered,
-
but, in fact, it's quite often the case
that gold and silver may flow back
-
into a country in return,
of course, for goods.
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Second, Smith considers the point that
gold and silver can be smuggled anyway.
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So perhaps the attempt to prohibit
their exportation is doomed to failure.
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Now, Smith basically agrees
with these two arguments
-
but he actually thinks
they don't go nearly far enough
-
in refuting mercantilist fallacies.
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Smith's main critique of mercantilism
in this context is really a broader point
-
about markets market prices
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and it's well expressed by
this quotation and I quote:
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"We trust with perfect security
that the freedom of trade,
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without any attention of government,
will always supply us with the wine
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which we have occasion for;
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and we trust with equal security
that it will always supply us
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with all the gold and silver which
we can afford to purchase or to employ."
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In other words, if you allow
the price system to operate
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Smith believes that the proper supply
of the precious metals
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will be part of a self-regulating
order governed by market prices.
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Smith stresses once again that
the main benefit of trade comes
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from the exchange of goods.
-
Getting what you want more
and giving up what you want less.
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That's quite distinct
from the question of
-
how much gold or silver
is flowing into your country.
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Finally, this chapter closes
with a brief taxonomy of
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different kinds of import restrictions
and export subsidies.
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Smith is going to turn his attention
to these in more detail quite shortly.