Trusting the Merchants too much

Adam Smith's Mistakes in the Wealth of Nations Icon

January 1, 2015

Adam Smith wrote the Wealth of Nations as an attack on Mercantilism which has since evolved into Neoclassical Economics. Despite his attack, it’s very strange for him to entrust an entire country’s external trade to foreign merchants:

If the society has insufficient capital to cultivate all its lands and to completely process all its rude produce, there is even a big advantage that its rude produce should be exported by a foreign capital. This will allow the whole stock of society to be employed for more useful purposes. The wealth of ancient Egypt, China, and India demonstrate that a nation may be very opulent even though foreigners carry most of its exportation.

However, this idea goes against his own observation that the interest of merchants is opposite those of society. This came true in the Opium Wars when the Chinese entrusted their external trade to British merchants instead of building their own merchant fleet.

The British became greedy and started bringing in opium which destroyed Chinese society, creating civil war and eventually led to the entry of Communism in the most populous country in the world, which killed so many Chinese (Great Leap Forward) and is still causing problems today.

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