The Answer Is Transaction Costs Adam Smith Episode 8: A Nation of Shopkeepers
Dec 30, 2025
They dismantle mercantilism, showing how treating wealth as bullion warped trade, tariffs, and monopolies. They trace why colonies sometimes prospered despite European policy and how exclusive companies and navigation laws distorted incentives. They contrast free ports with monopolies, explore rent-seeking and bounties, and outline the system of natural liberty as an alternative to sector favoritism.
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Mercantilism Mistook Money For Wealth
- Mercantilists equated national wealth with gold and silver and pursued a favorable balance of trade at huge real cost.
- Smith shows this produced protectionism, tariffs, and monopolies that enriched a few while impoverishing many, distorting markets.
Monopolies Fueled By Rent Seeking
- Monopoly and concentrated political interests drove mercantilist policy via rent seeking and deceptive arguments about national interest.
- Smith (via Munger) frames merchants as rent seekers who convinced themselves their gains served the nation, a proto-public-choice critique.
Why Colonies Grew Despite Europe
- New colonies prospered mainly because of abundant land, high wages, and colonists' own institutions, not metropolitan regulation.
- Smith argues Europe's policies often discouraged colonial growth; prosperity owed to land availability and self-government.