Why does Adam Smith argue against the regulation of commerce?
Adam Smith criticized government’s interference in commerce by rejecting the mercantile system. The mercantile system was a method used by early governments to regulate trade by increasing the amount of gold and silver in their coffers. Additionally, the idea encouraged exports and restricted imports into the country in order to create a buildup of trade surpluses, which would translate to increased wealth for the nation. However, Smith asserted that trade presented a better opportunity for nations to generate wealth compared to the amount of capital generated.
No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone, and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.- Wealth of Nations, Book IV Chapter 2
The regulation aimed at determining the countries that were able to trade with the nation would increase the cost of imports and introduce subsidies on exports. The situation restricted access to essential products and services for citizens of the country and hindered their ability to improve their well-being through trade. Furthermore, the situation brought about conflicts between different nations and often resulted in wars that negatively impacted the overall economy of the participating nations.
Adam Smith looked askance at government intervention in the marketplace because he believed, as Henry David Thoreau would later write, “that government is best which governs least.” Smith put his faith in the industriousness of the individual left alone to profit from his labors. Left free to pursue wealth, he wrote in An Inquiry Into the Nature and Causes of the Wealth of Nations, the individual’s success would strengthen the nation far more than if the government played an intrusive role in the conduct of commerce. As he wrote in his lengthy examination of economics,
“. . .by directing that industry in such a manner that its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. . .By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
Smith’s cynicism regarding government regulation of commerce is at the core of his broader economic thesis regarding the benefits of a capitalist system characterized by a laissez faire attitude towards economics by the government. Commerce impeded by an oppressive regulatory environment would suffer and, by consequence, the society or nation writ large would suffer. The accumulation of wealth at the local level ultimately benefited the nation and strengthened it economically and socially.
Adam Smith argues against the regulation of commerce because he feels that it is inefficient. Smith believes that economies become more efficient as they develop a division of labor. This allows a given person to specialize in one thing and become very good at doing that one thing. The same goes for countries. He argues that it is advantageous for all countries to specialize in those things that they are best at. If every country does this, countries can trade with one another (assuming there is no regulation). They can produce what they are best at producing and trade with others to get the things they are not good at producing. This is more efficient than having every country try to produce everything for itself.