Understanding Autarky With Real Examples

What is Autarky?

Autarky refers to a nation that operates in a state of self-reliance. Nations that follow a policy of autarky are characterized 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.

Understanding Autarky

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 reducing dependence on other nations. Depending on the political structure in a nation, reducing dependence on outside nations may aim to reduce the influence of competing political and economic systems. Autarky has been proposed by groups across the political spectrum, aligning with populist themes of keeping domestic spending at home and blocking wealth transfer to politically unfriendly nations.

Key Takeaways

• Autarky refers to self-sufficiency and is typically used to describe nations or economies that aim to reduce their dependence on international trade.
• No fully-autarkic nations exist today, as even the most isolated participate in international trade and receive outside support or aid.
• North Korea and Nazi Germany are examples of nations that have pursued autarky.
• Autarky is justified by populist arguments of keeping money at home and out of the hands of politically unfriendly nations.

In practice, autarky has economic downsides not immediately apparent in populist arguments. Autarky was first questioned by economist Adam Smith, who proposed that countries should engage in free trade and specialize in goods they have an absolute advantage in producing to generate more wealth. David Ricardo further amended this argument, suggesting that countries produce goods in which they have a comparative advantage. By leveraging comparative advantages, countries work together to create more wealth in the global system of trade.

Opting out of global trade in favor of domestic production 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 have less time to work for wages outside the home. This results in less income for the household and fewer workers for nearby employers, ultimately leading to a smaller economy due to high self-sufficiency. This is true on a global scale as well.

Real Examples of Autarky

Historically, autarkic policies were deployed to different extents. Western European countries implemented them under mercantilist policies from the 16th to the 18th century, which prompted economists like Adam Smith, David Ricardo, and Frederic Bastiat to refine free-market and free-trade philosophies as counter arguments.

Nazi Germany also implemented autarky to ensure the strategic supply needed for its war efforts. Today, North Korea stands as the main example of a policy of autarky. North Korea’s economic isolation is a mixture of intentional self-reliance to reduce international political influence and imposed self-reliance due to being cut out of international trade through sanctions.

One of the most extreme examples of contemporary autarky is North Korea, which relies on the concept of "juche," or "self-reliance."

Autarky and the Autarkic Price

The autarky price, or autarkic price, refers to the cost of a good in an autarkic state. The cost of producing in a closed economy must be covered by the price charged for the good. If the cost is higher relative to other nations, then the autarky price is a dead loss for that national economy. The autarkic price is sometimes used as an economic variable when roughly calculating a nation’s comparative advantages. In practice, however, comparative advantages are discovered through market mechanisms rather than an economic model.