The Wealth of Nations/Book IV/Chapter 4 - Wikisource, the free online libraryBy restraining, either by high duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them. Thus the prohibition of importing either live cattle or salt provisions from foreign countries secures to the graziers of Great Britain the monopoly of the home market for butcher's meat. The high duties upon the importation of corn, which in times of moderate plenty amount to a prohibition, give a like advantage to the growers of that commodity. The prohibition of the importation of foreign woollens is equally favourable to the woollen manufacturers. The silk manufacture, though altogether employed upon foreign materials, has lately obtained the same advantage. The linen manufacture has not yet obtained it, but is making great strides towards it.
The Wealth of Nations
All rights reserved. So let's say your country says it doesn't want cheap goods coming in from China because that ruins the lives of people who want to make these same goods inside your country. So the government decides to protect these jobs by restricting the importation of the cheaper goods. This basically gives the makers inside your country a monopoly by cutting off competition from other countries. However, while this government regulation might be good for the people who have the monopoly, it has a negative effect on society as a whole.
by Adam Smith
Merchants and manufacturers are not contented with the monopoly of the home market, but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations, and therefore can seldom procure them any monopoly there. They are generally obliged, therefore, to content themselves with petitioning for certain encouragements to exportation. Of these encouragements what are called Drawbacks seem to be the most reasonable. To allow the merchant to draw back upon exportation, either the whole or a part of whatever excise or inland duty is imposed upon domestic industry, can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed. Such encouragements do not tend to turn towards any particular employment a greater share of the capital of the country than what would go to that employment of its own accord, but only to hinder the duty from driving away any part of that share to other employments. They tend not to overturn that balance which naturally establishes itself among all the various employments of the society; but to hinder it from being overturned by the duty.
In the first chapter of this book, Smith vigorously criticizes the economy theory and policy that preceded his work. A number of policies were detrimental and opposed to the progression of public well-being and wealth. First, Smith criticizes the idea that wealth consists in money gold and silver. This confusion is based on the fact that money is used as an instrument of commerce, and is therefore used to obtain commodities or command of labor, which are the true measures of wealth. This confounding of money with wealth has led many governments to prohibit the exportation of gold and silver. Commercial countries, however, have since learned that the exportation of gold and silver, when it was used to purchase goods, did not always diminish the quantity of those metals in the kingdom.