Free traders love quoting Adam Smith’s dictum that “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” And rightly so. If it’s inefficient for a household to bake its own bread, sew its own clothes, and generate its own electricity, why should a nation aspire to that same miserable fate?
The insight underlying Smith’s line is the division of labor. We don’t produce everything we consume. Instead, we specialize in the jobs we’re best suited to perform, then trade for the things that we aren’t as efficient at producing. Families do it. Firms do it. So do nations.
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