--- ENTITY: balance of trade doctrine ---

# Balance of Trade Doctrine

## Definition

The mercantilist theory that a nation's economic prosperity depends on exporting more goods and services than it imports, thereby accumulating gold and silver through a favourable balance of trade. This doctrine assumes that international trade is a zero-sum game where one nation's gain is another's loss.

## Source Chapter

Book IV, Chapter 3

## Context

Smith's central target of critique in this chapter, which he argues is based on "national prejudice and animosity" rather than sound economic reasoning. He demonstrates how the doctrine leads to irrational trade restrictions and mutual impoverishment between nations.

## Economic Domain

General Theory

---
--- ENTITY: extraordinary restraints on importation ---

# Extraordinary Restraints on Importation

## Definition

Government-imposed restrictions on the import of goods from specific countries, including prohibitions, higher duties, and warehousing requirements, designed to protect domestic industries and maintain a favourable balance of trade. These restraints are applied selectively based on political and commercial considerations rather than economic efficiency.

## Source Chapter

Book IV, Chapter 3

## Context

The primary subject of Smith's critique, exemplified by British restrictions on French goods while allowing imports from other countries. Smith argues these restraints are "unreasonable" even according to the principles of the commercial system that justifies them.

## Economic Domain

Regulation

---
--- ENTITY: computed exchange rate ---

# Computed Exchange Rate

## Definition

The theoretical exchange rate between two currencies calculated based on the official mint standards of each country, assuming coins contain their full legal weight of precious metal. This differs from the real exchange rate, which reflects the actual market value of debased or worn currency.

## Source Chapter

Book IV, Chapter 3

## Context

Part of Smith's analysis of why exchange rates can be misleading indicators of trade balances. He explains that computed exchange rates based on mint standards often diverge significantly from real exchange rates reflecting the actual condition of circulating currency.

## Economic Domain

Exchange

---
--- ENTITY: real exchange rate ---

# Real Exchange Rate

## Definition

The actual market-determined exchange rate between two currencies, reflecting the true value of the circulating money in each country, which may differ from the official mint standard due to wear, clipping, or debasement of coins. This rate determines the true cost of international transactions.

## Source Chapter

Book IV, Chapter 3

## Context

Smith uses this concept to demonstrate that apparent trade imbalances suggested by computed exchange rates may be misleading, as the real exchange rate often tells a different story about the actual flow of value between nations.

## Economic Domain

Exchange

---
--- ENTITY: agio of bank money ---

# Agio of Bank Money

## Definition

The premium or discount at which bank money (representing deposits of precious metal at banks like Amsterdam) trades relative to current currency in circulation. This premium reflects the superior quality and reliability of bank money compared to debased or worn circulating currency.

## Source Chapter

Book IV, Chapter 3

## Context

Smith explains how the agio varies based on the relative quality of bank money versus current currency, and how banks like Amsterdam's manipulate the agio to prevent stock-jobbing while maintaining currency stability.

## Economic Domain

Exchange

---
--- ENTITY: bank money ---

# Bank Money

## Definition

A form of money represented by credit in the books of a bank, backed by actual deposits of precious metal, which maintains a stable value equal to the mint standard. Bank money is superior to current currency because it is not subject to wear, clipping, or debasement.

## Source Chapter

Book IV, Chapter 3

## Context

Smith describes the Bank of Amsterdam as the archetype, explaining how bank money provides security, transferability, and a reliable medium for international trade, while also generating revenue for the city through various fees and the interest on deposits.

## Economic Domain

Exchange

---
--- ENTITY: warehouse rent for bullion deposits ---

# Warehouse Rent for Bullion Deposits

## Definition

The fee charged by banks for storing precious metal deposits, typically higher for gold than silver due to greater security risks and the difficulty of assaying gold's fineness. This fee represents the cost of maintaining the bank's bullion reserves that back its money-issuing operations.

## Source Chapter

Book IV, Chapter 3

## Context

Smith explains why warehouse rent is higher for gold deposits, citing the greater difficulty in ascertaining gold's fineness and the higher risk of fraud, while also noting that this fee contributes to the bank's revenue stream.

## Economic Domain

Exchange

---
--- ENTITY: round-about foreign trade of consumption ---

# Round-about Foreign Trade of Consumption

## Definition

A trade pattern where a country imports goods by first exporting its own products to a third country, receiving payment in precious metals, then using those metals to purchase the desired imports. This contrasts with direct trade where imports are paid for with domestic exports.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues that round-about trade is less advantageous than direct trade, using the example of England potentially importing French goods through tobacco and East India goods rather than through direct English manufactures.

## Economic Domain

Exchange

---
--- ENTITY: direct foreign trade of consumption ---

# Direct Foreign Trade of Consumption

## Definition

A trade pattern where a country directly exchanges its own products for the products it desires from another country, without intermediate transactions through third parties or the use of precious metals as intermediaries.

## Source Chapter

Book IV, Chapter 3

## Context

Smith presents this as the most advantageous form of trade, arguing that England would benefit more from directly exchanging its hardware and cloth for French wines than through round-about routes involving tobacco or precious metals.

## Economic Domain

Exchange

---
--- ENTITY: smuggling as principal import method ---

# Smuggling as Principal Import Method

## Definition

The illegal importation of goods across borders to avoid tariffs, prohibitions, or other trade restrictions, which becomes the dominant method of trade when legal commerce is severely restricted by government policies.

## Source Chapter

Book IV, Chapter 3

## Context

Smith observes that mutual trade restrictions between Britain and France have driven legitimate commerce underground, making smugglers the primary importers of each other's goods, thus defeating the intended purpose of the restrictions.

## Economic Domain

Exchange

---
--- ENTITY: commercial system principles ---

# Commercial System Principles

## Definition

The mercantilist framework of economic thought that prioritizes the accumulation of precious metals through trade surpluses, government intervention in commerce, and the use of tariffs, bounties, and monopolies to direct economic activity toward national enrichment.

## Source Chapter

Book IV, Chapter 3

## Context

Smith critiques this system throughout the chapter, showing how its principles lead to unreasonable trade restrictions and mutual hostility between nations, while failing to achieve their stated objectives of national wealth accumulation.

## Economic Domain

General Theory

---
--- ENTITY: national prejudice and animosity in trade ---

# National Prejudice and Animosity in Trade

## Definition

The emotional and political factors that influence trade policy, where merchants and manufacturers promote restrictions against foreign competitors based on nationalistic sentiments rather than economic reasoning, leading to mutually harmful trade wars.

## Source Chapter

Book IV, Chapter 3

## Context

Smith identifies this as a primary driver of unreasonable trade restrictions, arguing that merchants exploit national prejudices to secure monopolies and that governments foolishly adopt these policies based on animosity rather than economic self-interest.

## Economic Domain

Regulation

---
--- ENTITY: free ports ---

# Free Ports

## Definition

Designated port cities where goods can be imported and exported with minimal or no customs duties, allowing for unrestricted international trade within those specific locations while maintaining restrictions elsewhere in the country.

## Source Chapter

Book IV, Chapter 3

## Context

Smith notes that while some European towns function as free ports, no entire country adopts this approach, despite evidence that free trade enriches rather than ruins trading communities.

## Economic Domain

Exchange

---
--- ENTITY: balance of produce and consumption ---

# Balance of Produce and Consumption

## Definition

The relationship between a nation's annual production of goods and services and its annual consumption of those goods and services, which determines whether national capital is increasing (when production exceeds consumption) or decreasing (when consumption exceeds production).

## Source Chapter

Book IV, Chapter 3

## Context

Smith distinguishes this from the balance of trade, arguing that a nation can have a favourable balance of production and consumption while simultaneously running trade deficits for extended periods, as capital accumulation continues despite negative trade balances.

## Economic Domain

General Theory

---
--- ENTITY: annual produce of land and labour ---

# Annual Produce of Land and Labour

## Definition

The total value of goods and services produced by a nation's economy in a given year through the combined efforts of agricultural and manufacturing activities, representing the fundamental source of national wealth and the basis for determining economic prosperity.

## Source Chapter

Book IV, Chapter 3

## Context

Smith uses this concept to argue that true national wealth is measured by productive output rather than by the accumulation of precious metals, and that trade restrictions that reduce productive efficiency ultimately diminish this annual produce.

## Economic Domain

Production

---
--- ENTITY: annual consumption of goods ---

# Annual Consumption of Goods

# Definition

The total value of goods and services consumed by a nation's population in a given year, including both necessities and luxuries, which when compared to annual production determines whether national capital is being accumulated or depleted.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues that the relationship between annual consumption and annual production is a more accurate indicator of national economic health than the balance of trade, as it directly measures whether a society is living within its means.

## Economic Domain

Consumption

---
--- ENTITY: capital decay through excessive consumption ---

# Capital Decay Through Excessive Consumption

## Definition

The process by which a nation's productive resources are diminished when annual consumption exceeds annual production, forcing society to consume its capital stock to maintain current living standards, leading to long-term economic decline.

## Source Chapter

Book IV, Chapter 3

## Context

Smith warns that when expenses exceed revenue, capital must necessarily decay, and this principle applies to nations as well as individuals, making sustainable consumption levels essential for long-term prosperity.

## Economic Domain

Accumulation

---
--- ENTITY: capital accumulation through frugality ---

# Capital Accumulation Through Frugality

## Definition

The process by which national wealth grows when annual production exceeds annual consumption, allowing the surplus to be saved and invested in productive capital, thereby increasing the nation's capacity for future production and wealth creation.

## Source Chapter

Book IV, Chapter 3

## Context

Smith presents this as the natural mechanism of economic growth, arguing that societies that live within their means and invest surpluses in productive capital will experience sustainable economic development.

## Economic Domain

Accumulation

---
--- ENTITY: mercantile jealousy ---

# Mercantile Jealousy

## Definition

The competitive hostility and fear among merchants and manufacturers of different nations toward each other's commercial success, leading them to advocate for trade restrictions and monopolies that protect their own interests at the expense of overall economic efficiency.

## Source Chapter

Book IV, Chapter 3

## Context

Smith identifies this as a key obstacle to beneficial international trade, explaining how merchants exploit nationalistic sentiments to secure protective measures that ultimately harm both domestic consumers and the broader economy.

## Economic Domain

Regulation

---
--- ENTITY: underling tradesmen maxims ---

# Underling Tradesmen Maxims

## Definition

The narrow commercial principles adopted by small-scale merchants and manufacturers who prioritize securing exclusive customer relationships and protecting local markets over seeking the most efficient sources of supply and the best markets for their goods.

## Source Chapter

Book IV, Chapter 3

## Context

Smith criticizes these principles when applied to national economic policy, arguing that great traders seek the best value regardless of source, while underling tradesmen wrongly believe national prosperity depends on exclusive trading relationships.

## Economic Domain

Exchange

---
--- ENTITY: mutual gain reciprocity ---

# Mutual Gain Reciprocity

## Definition

The principle that international trade between nations, when conducted freely and without artificial restraints, benefits all parties involved through the mutual exchange of goods and services according to comparative advantage, rather than operating as a zero-sum competition.

## Source Chapter

Book IV, Chapter 3

## Context

Smith presents this as the fundamental truth that mercantilist policies ignore, demonstrating how both trading nations gain from exchange even when one appears to have a favourable balance of trade.

## Economic Domain

Exchange

---
--- ENTITY: commercial discord source ---

# Commercial Discord Source

## Definition

The artificial conflicts and animosities created between nations through mercantilist trade policies that frame international commerce as competitive warfare rather than cooperative exchange, leading to restrictions, retaliations, and mutual economic harm.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues that commerce should naturally be "a bond of union and friendship" between nations, but mercantilist policies have transformed it into "the most fertile source of discord and animosity."

## Economic Domain

Regulation

---
--- ENTITY: national enrichment through neighbour's wealth ---

# National Enrichment Through Neighbour's Wealth

## Definition

The principle that a nation's economic prosperity is enhanced rather than threatened by the wealth and development of its trading partners, as rich and industrious neighbours provide larger markets, better goods, and more opportunities for mutually beneficial exchange.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues against the mercantilist fear of neighbourly prosperity, explaining that wealthy trading partners are better customers and that commercial success should be seen as an opportunity for mutual gain rather than competitive threat.

## Economic Domain

Exchange

---
--- ENTITY: commercial maxims inversion ---

# Commercial Maxims Inversion

## Definition

The perverse economic principles that teach nations to view their neighbours' prosperity as a threat rather than an opportunity, leading to policies designed to beggar other nations rather than to maximize mutual benefit through free and open trade.

## Source Chapter

Book IV, Chapter 3

## Context

Smith criticizes how mercantile theory has inverted natural economic reasoning, causing nations to adopt policies that harm themselves while attempting to harm others, rather than pursuing the mutual prosperity that free trade would naturally produce.

## Economic Domain

General Theory

---
--- ENTITY: domestic market monopoly ---

# Domestic Market Monopoly

## Definition

The exclusive control over a nation's internal market achieved by domestic merchants and manufacturers through government-imposed trade restrictions, tariffs, and prohibitions that prevent foreign competition and allow domestic producers to charge higher prices.

## Source Chapter

Book IV, Chapter 3

## Context

Smith identifies this as the primary interest served by mercantilist policies, explaining how merchants and manufacturers use national prejudice to secure monopolies that benefit them at the expense of consumers and overall economic efficiency.

## Economic Domain

Regulation

---
--- ENTITY: alien merchant duties ---

# Alien Merchant Duties

## Definition

The special tariffs and restrictions imposed on foreign merchants operating within a country's borders, designed to protect domestic merchants from foreign competition by making it more expensive or difficult for alien merchants to conduct business.

## Source Chapter

Book IV, Chapter 3

## Context

Smith cites these duties as examples of how mercantile interests secure protection through government policy, arguing that such restrictions harm consumers while benefiting a small group of domestic merchants.

## Economic Domain

Regulation

---
--- ENTITY: foreign manufacture prohibitions ---

# Foreign Manufacture Prohibitions

## Definition

Government bans on the importation of manufactured goods from other countries that could compete with domestic production, designed to protect domestic industries from foreign competition regardless of whether foreign goods might be cheaper or of better quality.

## Source Chapter

Book IV, Chapter 3

## Context

Smith criticizes these prohibitions as economically irrational, arguing that consumers should be free to purchase the best and cheapest goods available, regardless of their country of origin.

## Economic Domain

Regulation

---
--- ENTITY: disadvantageous balance trade restraints ---

# Disadvantageous Balance Trade Restraints

## Definition

The trade restrictions imposed on countries with which a nation supposedly has an unfavourable balance of trade, including higher tariffs, quotas, and prohibitions designed to reduce imports from those specific countries and protect domestic industries.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues these restraints are based on false economic reasoning, demonstrating that trade with countries where the balance appears unfavourable can still be beneficial if their goods are cheaper or better than alternatives.

## Economic Domain

Regulation

---
--- ENTITY: commercial country ruin predictions ---

# Commercial Country Ruin Predictions

## Definition

The frequent forecasts of economic collapse made by proponents of mercantile theory regarding countries that engage in free trade or run trade deficits, predictions that Smith argues have consistently proven false as open trading nations have grown wealthy rather than impoverished.

## Source Chapter

Book IV, Chapter 3

## Context

Smith points out that despite constant warnings about ruin from unfavourable trade balances, no European country has been impoverished by this cause, while those that have opened their ports have been enriched.

## Economic Domain

General Theory

---
--- ENTITY: trade as union and friendship ---

# Trade as Union and Friendship

## Definition

The natural role of commerce as a cooperative activity that should foster peaceful relations and mutual benefit between nations through the voluntary exchange of goods and services, rather than serving as a source of conflict and competition.

## Source Chapter

Book IV, Chapter 3

## Context

Smith laments how mercantile policies have perverted the natural character of trade, transforming what should be a bond of international friendship into a source of discord and animosity between nations.

## Economic Domain

Exchange

---
--- ENTITY: national animosity in commerce ---

# National Animosity in Commerce

## Definition

The hostile attitudes and policies between nations that frame international trade as economic warfare rather than mutual benefit, leading to retaliatory restrictions, trade barriers, and the pursuit of policies designed to harm trading partners rather than maximize collective prosperity.

## Source Chapter

Book IV, Chapter 3

## Context

Smith identifies this as a primary driver of unreasonable trade restrictions, explaining how merchants exploit nationalistic sentiments to secure protection while governments foolishly adopt policies based on animosity rather than economic self-interest.

## Economic Domain

Regulation

---
--- ENTITY: commercial system enrichment mechanism ---

# Commercial System Enrichment Mechanism

## Definition

The mercantilist theory that national wealth is increased through the accumulation of precious metals via trade surpluses, achieved through government intervention, tariffs, bounties, and monopolies that direct economic activity toward exporting more than importing.

## Source Chapter

Book IV, Chapter 3

## Context

Smith critiques this entire mechanism throughout the chapter, demonstrating how it leads to irrational policies that harm rather than benefit the nations that adopt them, while failing to achieve their stated objectives of national enrichment.

## Economic Domain

General Theory

---
--- ENTITY: private interest monopoly spirit ---

# Private Interest Monopoly Spirit

## Definition

The tendency of individual merchants and manufacturers to pursue policies that create and maintain monopolies for their own benefit, using government power to restrict competition and secure exclusive privileges at the expense of consumers and overall economic efficiency.

## Source Chapter

Book IV, Chapter 3

## Context

Smith identifies this as the original source of mercantilist doctrine, explaining how private commercial interests invented and propagated these theories to secure protection and monopolies through government intervention.

## Economic Domain

Regulation

---
--- ENTITY: public good versus private interest ---

# Public Good Versus Private Interest

## Definition

The fundamental conflict between policies that serve the broader public interest through economic efficiency and consumer welfare, and policies that serve the narrow interests of specific commercial groups through protection, monopoly, and restriction of competition.

## Source Chapter

Book IV, Chapter 3

## Context

Smith argues throughout the chapter that mercantilist policies consistently favor private commercial interests over public good, with merchants and manufacturers using national prejudice to secure privileges that harm consumers and reduce overall economic prosperity.

## Economic Domain

General Theory

---
--- ENTITY: national economic identity ---

# National Economic Identity

## Definition

The conception of a nation's economic character and purpose, shaped by its trading relationships, industrial capabilities, and commercial policies, which influences how it views its economic interests and its relationships with other nations.

## Source Chapter

Book IV, Chapter 3

## Context

Smith discusses how national economic identity is constructed through commercial relationships and policies, arguing that nations should view wealthy neighbours as opportunities rather than threats to their economic identity and prosperity.

## Economic Domain

General Theory

---
--- ENTITY: sovereign economic policy authority ---

# Sovereign Economic Policy Authority

## Definition

The governmental power to regulate commerce through tariffs, prohibitions, bounties, and other interventions, which Smith argues should be exercised with restraint and guided by principles of economic efficiency rather than private commercial interests.

## Source Chapter

Book IV, Chapter 3

## Context

Smith critiques how sovereigns have improperly delegated economic policy to commercial interests, resulting in restrictions and monopolies that serve private gain rather than public good, and argues for policies based on sound economic reasoning.

## Economic Domain

Regulation

---
--- ENTITY: commercial society formation ---

# Commercial Society Formation

## Definition

The development of social and economic structures characterized by specialized labor, market exchange, and commercial relationships that replace earlier forms of economic organization based on self-sufficiency, feudal obligations, or simple barter.

## Source Chapter

Book IV, Chapter 3

## Context

Smith discusses how commercial society creates new forms of economic interdependence and requires different principles of governance than earlier social forms, particularly in managing international trade relationships.

## Economic Domain

General Theory

---
--- ENTITY: market price mechanism regulation ---

# Market Price Mechanism Regulation

# Definition

The natural process by which market prices adjust to balance supply and demand through the independent actions of buyers and sellers, which Smith argues is disrupted by government interventions designed to manipulate prices for particular interests.

## Source Chapter

Book IV, Chapter 3

## Context

Smith demonstrates how mercantilist policies interfere with natural price mechanisms, leading to inefficiencies and reduced economic welfare, while arguing that free markets naturally regulate prices more effectively than government intervention.

## Economic Domain

Exchange

---
--- ENTITY: economic system effectiveness evaluation ---

# Economic System Effectiveness Evaluation

## Definition

The assessment of different economic arrangements based on their ability to promote national prosperity, consumer welfare, and efficient resource allocation, which Smith applies to critique mercantilist policies and advocate for free trade principles.

## Source Chapter

Book IV, Chapter 3

## Context

Smith evaluates the commercial system against criteria of economic efficiency and public benefit, demonstrating how mercantilist policies fail to achieve their stated objectives while causing significant economic harm.

## Economic Domain

General Theory

---
--- ENTITY: economic development sequencing ---

# Economic Development Sequencing

## Definition

The order and pattern in which different economic activities and capabilities develop within a nation, which Smith argues is distorted by mercantilist policies that attempt to force development in artificial directions rather than allowing natural economic progression.

## Source Chapter

Book IV, Chapter 3

## Context

Smith discusses how natural economic development follows patterns based on comparative advantage and market opportunities, while mercantilist policies attempt to impose artificial sequences that often prove counterproductive.

## Economic Domain

General Theory

---
--- ENTITY: commercial order and government introduction ---

# Commercial Order and Government Introduction

## Definition

The establishment of governmental structures and policies designed to regulate and promote commercial activity, which Smith argues has often been captured by private interests to serve monopolistic rather than public purposes.

## Source Chapter

Book IV, Chapter 3

## Context

Smith examines how commercial interests have shaped governmental policies to create artificial advantages for themselves through restrictions and monopolies, rather than allowing natural market forces to determine economic outcomes.

## Economic Domain

Regulation

---
--- ENTITY: economic system transformation ---

# Economic System Transformation

## Definition

The fundamental change in economic organization and principles from mercantilist systems based on government intervention and precious metal accumulation to systems based on free trade, market mechanisms, and productive efficiency.

## Source Chapter

Book IV, Chapter 3

## Context

Smith's entire analysis in this chapter represents a call for transformation from the prevailing commercial system to one based on natural liberty and free market principles, arguing that such transformation would benefit all nations involved in international trade.

## Economic Domain

General Theory