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Adam Smith, Book 4, Ch. 1, Mercantile Systems

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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
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    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
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    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
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    never to be recovered,
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    but, in fact, it's quite often the case
    that gold and silver may flow back
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    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
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    but he actually thinks
    they don't go nearly far enough
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    in refuting mercantilist fallacies.
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    Smith's main critique of mercantilism
    in this context is really a broader point
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    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.
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    Getting what you want more
    and giving up what you want less.
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    That's quite distinct
    from the question of
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    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.
Title:
Adam Smith, Book 4, Ch. 1, Mercantile Systems
Description:

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Video Language:
English
Team:
Marginal Revolution University
Project:
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Duration:
03:29

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