Saturday, July 31, 2010

A View on Smith on Protection

This arrived as a comment fom 'Brian', but after pressing 'publish', it 'disappeared' and it is not clear to which post it refers.

I post it here with my comments:


Its important to understand that Adam Smith also saw cases in which tariffs might be beneficial, which he discusses in Part II of Book IV of the Wealth of Nations : 'Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can Be Produced at Home' .

He argues that the two cases in which it would be advantageous are when an industry is required for national defense, and when there is some internal tax placed on domestic industry which makes it more difficult to sell domestic products compared to foreign products.

Then he goes on to talk about cases in which there have to be deliberation, including retaliatory tariffs. His difference from mercantilists was he thought retaliatory tariffs always should have the goal in mind of returning the situation to how it was and influencing the other party to drop tariffs.

So there's a question to me of how much Hamilton really strayed from Smith compared to others who went even farther than Smith and become doctrinaire partisans against tariff.

Hamilton, and later List, expanded on Smith's limits, and suggested tariffs may appropriate for things like 'infant industry protection'.

But like Smith, they opposed the old System of mercantilism, which was more than about protective tariffs -- in establishing state sponsored monopolies, privileges, control of trading ports, determining who colonies could trade with, creating strict quality regulations that were punishable by death. Mercantilists also assumed the point of trade was to always encourage exports over imports, which Hamilton didn't accept either.

The opponents of Hamilton and List, who were free trade exponents and disliked all tariffs, were no better as heirs of Smith.



Your comments are welcome and accepted.

Hamilton was considering the situation post US independence, where the UA was no longer inhibited by Britain’s Navigation Acts and prohibitions on US domestic manufacturing. Its manufacturing sector was weak and it was US policy to grow it, and to export to Europe, including the UK.

Smith had considered this a good idea but political realities prohibited it. Whether it required tariff protection was an empirical issue – domestic substitution would promote domestic manufacturing. How much so was empirical. The easier route to protection had implications and political favour.

List was an outright protectionist of a German nationalist disposition, seeing in Smith a dubious advocate in a protectionist (mercantile) Britain, of which Smith was critical – List implies that Smith was devious.




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