[THOMAS.BEHNKE]

Hello Professor Herbener!

For my Early Modern World class, I’m writing an essay comparing The Wealth of Nations to the policies of Jean Baptise Colbert. I found a great Rothbard article that talks about all of Colbert’s ineffectual policies, but it does not offer proof of how they hurt France’s economy (ie, before and after statistics). I can’t seem to find anything to prove this decline. By any chance, would you be able to direct me to an article or book? If you can’t think of any, that’s completely fine!

Thanks so much!
Tommy

[jmherbener]

You might take a look at the book by Robert Ekelund and Robert Tollison, Politicized Economies: Monarchy, Monopoly, and Mercantilism. Here is a review of the book:

http://www.jstor.org/stable/30024404?seq=1

[THOMAS.BEHNKE]

Thank you so much for that! One more quick question for you. This comes out of Wealth of Nations:

“By means of such regulations, indeed, a particular manufacture may sometimes be acquired sooner than it could have been otherwise, and after a certain time may be made at home as cheap or cheaper than in the foreign country. But though the industry of the society may be thus carried with advantage into a particular channel sooner than it could have been otherwise, it will by no means follow that the sum total, either of its industry, or of its revenue, can ever be augmented by any such regulation. The industry of the society can augment only in proportion as its capital augments, and its capital can augment only in proportion to what can be gradually saved out of its revenue. But the immediate effect of every such regulation is to diminish its revenue, and what diminishes its revenue is certainly not very like to augment its capital faster than it would have augmented of its own accord, had both capital and industry been left to find out their natural employments…”

I’m assuming Smith is saying that when you grant a domestic company a monopoly (by banning foreign exports of that product), the company MIGHT be able to end up making the product cheap or cheaper than in the foreign country. However, this won’t increase sales.

I don’t understand how granting a company a monopoly can ever lead to cheaper prices…am I misunderstanding what he’s saying?

[jmherbener]

It seems to me that Smith is arguing that by state intervention a certain line of production may be made profitable before it becomes so naturally. But to make a line profitable before it has efficient production, the state must divert capital investment from other lines which are naturally profitable from their efficiency. Doing that must decrease the overall profits and thereby decrease the overall capital accumulation in society. There is no social advantage in having the state subsidize investment in an unprofitable line so that capital will accumulate in it making production cheaper sooner than would have happened in the market. If a line of production has the potential to become efficient by investment in that line, then investors in the market will take care to invest capital into it and into the most advantageous lines over time.

[THOMAS.BEHNKE]

Makes sense, thank you!

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