In this discussion, Gordon Hansen, a Harvard Economics professor, dives into 250 years of trade history. He explores Adam Smith's revolutionary concepts of free trade and their early American implications, contrary to the protective policies that defined past political debates. Hansen highlights key figures, like Cordell Hull, who transitioned from skepticism to championing trade for global peace, while examining modern criticisms of trade agreements and their often overlooked consequences. This engaging conversation illuminates the complex interplay between trade policy and the economy.
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Trade's Historical Significance and Regulation
Trade has been crucial throughout economic history, facilitating money, companies, and stock markets.
Governments increasingly regulate trade, creating a dilemma between encouraging international trade and protecting domestic industries.
question_answer ANECDOTE
Adam Smith and the Wealth of Nations
Adam Smith, author of "The Wealth of Nations," challenged the prevailing view of national wealth based on gold reserves.
He argued a nation's true wealth lies in its people's standard of living, advocating for free trade to enhance it.
question_answer ANECDOTE
Protectionism in the Early U.S.
The U.S., despite Smith's influence, adopted protectionist policies due to lobbying by factory owners.
This demonstrates how concentrated benefits (for factory owners) often outweigh diffuse costs (for consumers).
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Published in 1776, 'The Wealth of Nations' is Adam Smith's magnum opus that laid the groundwork for modern economics. The book critiques mercantilist economic theories and introduces the concept of the 'invisible hand,' which describes how individual self-interest leads to societal benefit. It emphasizes the division of labor, the accumulation of capital, and the importance of free markets. Smith argues that a nation's wealth is not measured by its gold and silver reserves but by the stream of goods and services it produces. The book also outlines the core functions of government, such as maintaining defense, enforcing civil law, and promoting education, while advocating for limited government intervention in market activities.
Trade has come up in all of the episodes of Summer School so far. An early use of money was to make trade easier. Trade was responsible for the birth of companies and the stock market. And trade was the lifeblood of the early United States.
Today's episode covers 250 years of trade history in three chapters. We start with one of the founding texts of economics, Wealth of Nations, in which Adam Smith argues a country's true value is not measured in gold and silver, but by its people's ability to buy things that enhance their standard of living. Then we'll watch American politicians completely ignore that argument in favor of protecting domestic industries – until one congressman makes a passionate case for free trade as the means to world peace. And finally we'll follow the trade debate up to the modern day, where the tides of American politics have turned toward regulation.
This series is hosted by Robert Smith and produced by Audrey Dilling. Our project manager is Devin Mellor. This episode was edited by Planet Money Executive Producer Alex Goldmark and fact-checked by Sofia Shchukina.
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