Freer Trade Stolen disclaimer
“It is not one single cause that makes nations either prosperous or miserable. No friend of free trade is such an idiot as to say that free trade is the only valuable thing in the world; that religion, government, police, education, the administration of justice, public expenditure, foreign relations, have nothing whatever to do with the well being of nations” Macaulay 1845.
If we could call free trade the string that ties nations together. Then we could say that the rule of law, education, a justice system, all part of a government, are basic binding points of free trade among nations. With Macaulay’s very eloquent disclaimer in mind we can say that free trade does exist and has been very successful, but it has yet to achieve its full potential. The full potential of free trade has not been achieved because these basic binding points have found themselves lacking in one way or another of Adam Smith’s’ economic ideal.
Adam’s logic
What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country… will not thereby be diminished… but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage, when it is thus directed towards an object, which it can buy cheaper than it can make. AdamSmith1799.
Adam Smith makes an invitation to apply as a nation what we already do as individuals. So free trade is an international extension of what we do everyday in providing and buying services from others. The key to success in doing this according to Adam Smith is specialization. A country must find an industry where it can have an absolute advantage by specialization and let other countries provide other products and services. David Ricardo added that if comparative advantage (usually by lower cost) beats you at something you are good take advantage of opportunity cost and spend your efforts on what you are best at that others don’t produce.
Adam’s utopia
The obvious and simple system of natural liberty, advocated by Adam Smith, in which individuals would be free to pursue their own interests, while the government provided infrastructure, and a legal framework within which commerce would take place was very idealistic.