The Wealth of Nations: Book 4, Chapter 8 Summary & Analysis

The mercantile system’s stated goal is to improve the balance of trade by increasing exports and reducing imports. But to a significant extent, Britain’s attempts to help domestic business produce goods cheaply actually do the opposite. It discourages the exportation of materials of manufacture and instruments of trade, while encouraging the importation of the materials but not the instruments (since the production of machines is itself an important domestic industry). For instance, textile manufacturers have pressured Britain into suspending duties on foreign wool and yarn, while offering bounties for exporting cloth. Britain also offers bounties for importing naval goods, indigo, wood, silk, and barrels from America (as well as hemp from both America and Ireland).

Meanwhile, exporting sheep and wool from Britain has long been illegal. For centuries it was strictly punished, including by death, and there are still “oppressive restrictions” on when, how, and where wool must be transported to avoid smuggling. People who live near the sea face extra restrictions on buying wool, which reduces the wool trade between domestic ports. Wool merchants justify this monopoly by falsely claiming that England produces the highest-quality wool. Together, these restrictions have kept wool prices low. In an ordinary business, this would cause people to leave and supply to fall. But since shepherds sell meat, hides, and wool, the restrictions’ effect is limited. Still, the government should impose duties on wool exports instead of banning them altogether. That way, it would collect revenue; now, it just encourages smuggling.

Clay, rawhide and leather, cattle horns, yarn, white cloth, dye, watch and clock parts, some metals, and many other goods used for manufacture also face serious export restrictions, which are intended to support domestic manufacturing. For the same purpose, there are very low import duties and very high export duties on chemicals for dyes (like gum arabic), beaver pelts, and coal. It’s illegal to export instruments of trade—like any of the machines used in making wool or cloth—or even to go abroad and teach spinning or clothmaking techniques. Like the restrictions on apprenticeships, these rules protect British producers and hurt foreign ones, while raising prices for consumers.

The mercantile system’s central flaw is that it focuses on reshaping production, when consumption is really “the ultimate end and object of all industry and commerce.” All of Britain’s mercantilist policies, from blocking imports of competitive goods and putting bounties on exportation to the treaty with Portugal and the exclusive trade policies with the colonies, really just support merchants and manufacturers at consumers’ expense.