Friday, February 28, 2014

Adam Smith - Sovereignty more important than wealth

This next post on Adam Smiths writings is in regards to the needs of defense of national sovereignty when it is in conflict with free trade.  In Wealth of Nations, Smith says "As defence (sic), however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England."[1]  Here "defence" is the defense of England against military action by foreign nations.  The "act of navigation" is a trade law which restricts the importation of goods to England which are not carried on English crewed, English owned ships.  The immediate goal of the act was to promote the British Navy by having a large standing source of English ships and crew, and to disfavor the Dutch who previously had a large commercial fleet which enabled a large naval threat to England by the Dutch.

The opulence is what Smith believes to be the natural result of free trade.  He says "The act of navigation is not favourable to foreign commerce, or to the growth of that opulence which can arise from it."  This is, under certain conditions, true, but under others not so true, at least not for the general population of the nation.  It is certainly true for the traders engaging in the commerce of who's welfare Smith was highly concerned.

What is most important in the first quote is that Smith implies that national sovereignty is more important than free trade, and that nations have a right to protect their sovereignty.  Actually he says "much more important" as if that need to protect the nation overrides all trade concerns.  That is, even Smith agrees that there are limits to free trade.  And that due to the effects of free trade which endanger the existence of a nation, for nations were continually engaged in existential battles back in those days in which a country could be conquered and come under the domain of another nation, nations are rightfully and reasonably allowed to place restrictions on free trade.

Smith here means defense against military threat, but that leads one to ask if other threats to the nation are also covered by this sentiment?  Western nations are rarely the target of military invasion these days, but threats to their existence continue to take place in other forms, most often economic, political, and cultural.  If there are forces due to free trade that are harming a nation, shouldn't it have the right to act to prevent these corrosive effects just as Smith insists that a nation has the obligation to inhibit free trade in order to protect itself militarily?  Isn't this protection of the nation much more important than supposed opulence?  Opulence which in other posts has been shown to be rather unevenly distributed in a nation and may overall make that nation poorer while enriching only a few.

How would free trade be regulated today?  Much like back in the day when Smith wrote, regulation would happen today through the use of import tariffs and quotas.  If a nations unemployment is high, its manufacturing base, which is the basis of trade, is declining due to production moving off shore, if high wage, high tech, high value added jobs are moving off shore due to free trade, shouldn't a nation defend itself?  Just as it would defend itself against the same economic damage if it was caused by a military conflict?

It seems that the pertinent feature of Smith's sentiment is that the damage done to a nation should determine the action taken, rather than the specific mechanism by which that damage is inflicted.  Damage is damage regardless of the source of the damage to a nation.  And the proper response is to take actions to protect against the source of that damage.  If that damage is due to free trade, then that trade needs to be restricted in the interest of the continued existence and welfare of the nation.