The Wealth of Nations · Chapter
II: Of the Unreasonableness of Those Extraordinary Restraints Upon Other Principles explained
Smith argues against the mercantile system's doctrine of the balance of trade, showing that free and natural trade between nations is mutually beneficial.
What happens
Smith argues against the mercantile system's doctrine of the balance of trade, showing that free and natural trade between nations is mutually beneficial. He criticizes the monopolizing spirit of merchants and manufacturers who propagate restrictive trade policies, and contends that the wealth of neighboring nations is advantageous in commerce, not a threat. He uses the example of France and England to illustrate how proximity and wealth could make trade highly beneficial, contrasting it with the less advantageous trade with North American colonies.
Themes in this chapter
Free Trade and Market Competition
Smith argues that free trade between nations is mutually beneficial, and that restraints based on mercantile jealousy are unreasonable.
Self-Interest and the Invisible Hand
The chapter discusses how the self-interested behavior of merchants and manufacturers leads to monopolistic policies that harm the public.
Wealth and Money
Smith redefines gain as the increase of exchangeable value of annual produce, not just gold and silver, challenging mercantile notions of wealth.
Characters to notice
- Great Britain
Discussed as a nation whose trade with France would be highly advantageous if not for mercantile jealousy and restraints.
- The French
Mentioned as neighbors of Great Britain; their wealth and population make them ideal trading partners.
- The Colonies
Referenced as North American colonies, whose trade is less advantageous than trade with France due to longer return times.
- The Portuguese
Cited as an example of a nation that is a better customer for British manufactures than the French, according to mercantile reasoning.
- The Chinese
Mentioned as an example of a nation that acquired wealth while neglecting foreign commerce.
Key passages
“A nation that would enrich itself by foreign trade, is certainly most likely to do so when its neighbours are all rich, industrious, and commercial nations.”
A country benefits most from foreign trade when its trading partners are wealthy and industrious.
Smith counters the mercantile view that neighboring wealth is a threat.
“Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.”
Trade should unite nations, but instead it has become a major cause of conflict.
Smith laments how mercantile policies have perverted the natural harmony of commerce.
“The sneaking arts of underling tradesmen are thus erected into political maxims for the conduct of a great empire; for it is the most underling tradesmen only who make it a rule to employ chiefly their own customers.”
Petty business practices have been wrongly elevated to national policy, as only small-minded traders favor their own customers exclusively.
Smith criticizes the influence of narrow mercantile interests on statecraft.