After confirming that the Bank of England’s interest rate would be held at 3.75%, Andrew Bailey reprised his lament that leaving the European Union would shrink the British economy.

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He went as far as to say that the state of the economy is a vindication of the Bank’s pro-remain stance. When we reduce the size of the markets we trade with, the Governor argued, we reduce the size of our exports, which negatively impacts economic growth, productivity, and division of labour. To give credence to his opinion, he said, “We learnt this from Adam Smith by the way. I’m not making this up”

Yes, Adam Smith made similar remarks in The Wealth of Nations, but not in the limited context the Governor insinuated in his comment. As he fleshed out the concept of division of labour in Chapter 3 of his book, Smith’s insight was that division of labour is derived from the incentive to exchange goods and services. Thus, the extent of division of labour is limited by the extent of the market. In other words, Smith’s argument was for commerce with the largest possible market (i.e. the world), not a regional protectionist bloc........

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