Understanding Autarky

Autarky refers to a nation that operates in a state of self-reliance. Nations that follow a policy of autarky are characterised by self-sufficiency and limited trade with global partners. The definition of autarky comes from the Greek—autos, meaning "self" and arkein, meaning "to ward off" and "to be strong enough, to suffice." A fully autarkic nation would be a closed economy and lacking any sources of external support, trade or aid. In practice, however, no modern nation has achieved this level of autarky, even when subjected to punishing sanctions. This is because the global supply chain has made true economic isolation difficult, so any policy of autarky is a matter of degrees rather than a complete isolation.

Autarky can be thought of as an extreme form of economic nationalism and protectionism. The motivation behind a policy of autarky is usually a combination of securing the supply of important goods and a desire to reduce the dependence on other nations in general. Depending on the type of political structure in a nation, the goal of reducing dependence on outside nations may be related to reducing the influence of competing political and economic systems. At various points in history, however, autarky has been proposed by groups all across the political spectrum. When framed in terms of keeping domestic spending at home or stopping the transfer of wealth to bad political actors, autarky touches populist themes and appears to make practical sense.

In practice, however, autarky has economic downsides that are not immediately apparent in the populist arguments. Autarky was first questioned by economist Adam Smith, and then David Ricardo.1 Smith suggested that countries should engage in free trade and specialize in goods they have an absolute advantage in producing, in order to generate more wealth. This is one of the core arguments Smith made in favor of free trade in The Wealth of Nations. Ricardo amended this argument slightly, saying that countries should also produce goods in which they have a comparative advantage. By leveraging comparative advantages, countries are able to work together to create more wealth in the global system of trade.

Put another way, opting out of global trade in favor of doing it all domestically has a high opportunity cost for nations, just as it does for individuals. For example, a family preoccupied with sewing their own clothes, building their own furniture, and growing their own food will necessarily have less time to work outside the home for wages.

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