# Encouragement to Industry

## Definition

The incentive effect that market access and trade opportunities exert on productive activity. When two places can trade with each other, they "mutually afford" encouragement to each other's industry — meaning that the existence of buyers stimulates producers to increase output, improve methods, and specialise further. Conversely, when markets are isolated, the absence of demand discourages investment in productive improvements.

## Source Chapter

Book 1, Chapter 3: "That the Division of Labour is Limited by the Extent of the Market"

## Context

Smith uses this concept to explain the reciprocal benefits of trade between London and Edinburgh, and between London and Calcutta. The ability to trade does not merely transfer goods but actively stimulates production in both locations by expanding the effective demand each faces.

## Economic Domain

Exchange

## Smith's Original Wording

> "Those two cities, however, at present carry on a very considerable commerce with each other, and by mutually affording a market, give a good deal of encouragement to each other's industry."

## Modern Interpretation

This anticipates the modern concept of trade as a growth engine — the idea that market integration creates positive-sum outcomes by expanding demand and stimulating productivity gains. It is closely related to the concept of gains from trade in international economics.