Free Trade 自由貿(mào)易

By the end of this lesson, you will be able to listen to reports about global trade issues.

PROFESSOR: Who is this man? How were all these political leaders influenced by him? And how was the way the world works today transformed by him? In 1776, Adam Smith, a Scottish economist and philosopher, published a book called "The Wealth of Nations". Remarkably, more than 2 years later, this book is still one of the biggest influences on the way we do business today.

PROFESSOR1: In his book, Smith came up with three major, and very modern, ideas: the division of labor, self interest and free trade. The first was the division of labor. To illustrate this theory, he used the example of pin making. At the time, the process of making pins involved one man or woman making each pin from start to finish. Smith suggested instead that the labor be divided between five different people, each of them completing one small part of the process.

PROFESSOR2: With this division of labor, Smith calculated that productivity could be increased by 24 times. Consequently, the division of labor was a precursor to today's "mass production" and assembly lines, that are used in modern manufacturing worldwide. Smith's second idea was the pursuit of self-interest. He believed that self-interest could be a powerful economic force. To highlight this, he writes of a butcher, a baker and a brewer.

PROFESSOR3: Smith pointed out that each of these individuals were in business not to help each other, but to help themselves. For example, the butcher sells his meat to the baker and the brewer. He makes a profit, and therefore spends some of this money in the shops of the baker and the brewer. It's as if, although working for themselves, they're also benefiting the society around them. Smith believed that due in part to this "self-interest", prices would regulate themselves.

PROFESSOR4: Look at it this way: if the butcher overcharges the baker and the brewer, they won't come back to his shop, so it's in his own self-interest to be honest and charge a fair price. Smith likened this idea to an 'invisible hand' that controlled the market, so that all producers would charge a fair price for their product. This led Smith to his third main idea, that of free trade. Smith believed that a free market, left alone by government, would benefit everyone. In other words, it was when governments started making rules to control trade, that trade suffered.

PROFESSOR5: Critics of a free market, however, argue that if people do business in a world with no rules, their self-interest encourages them to act unwisely or dishonestly, and this can lead to a market crash, such as that of 28. One thing though, is clear. Since its publication in 1776, Smith's "The Wealth of Nations" has proved to be an accurate prediction of the way we do business in the modern world.