Autarky comes from the Greek words autos (self)and arkein (to suffice) and in essence, describes a general state of self-sufficiency. However, the term is most commonly used to describe the economic system of a nation that can operate without support from the economic systems of other nations. Autarky, therefore, is an economic system characterized by self-sufficiency and limited trade with international partners.

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Understanding autarky

A nation said to be in full autarky operates a closed and self-sufficient economy. In other words, it does not receive aid or other forms of support and does not trade with international partners. Japan is perhaps one of the best and most recent examples, with the country cut off from the rest of the world for over 200 years between 1635 and 1859.

Thanks to a move toward free trade after the Second World War, however, full autarky is now impossible to achieve. Indeed, even the most isolated countries such as North Korea cannot survive without some participation in the modern, globalized society.

Autarky, nationalism, and protectionism

Throughout history, autarky has been promoted in line with nationalist and protectionist policies to ensure a reliable supply of critical goods and eliminate dependencies for goods on other nations.

Irrespective of the prevailing political structure of a nation, autarky appears to make sense at first glance. Nations that produce their own goods create more jobs and ensure that profits remain within the country. However, there are some downsides to autarky that were mentioned by economist Adam Smith in his 1776 text The Wealth of Nations.

Smith countered that a nation could generate more wealth if it became involved in free trade and produced goods where it enjoyed an absolute advantage. In other words, where it could create a good or service for a lower price or more efficiently than another nation and import any good or service where it did not enjoy such an advantage.

Fellow economist David Ricardo expanded on Smith’s idea to suggest that trade should be based on comparative advantage, where a nation produces a good or service not for a lower price but a lower opportunity cost. This, he posited, allowed countries to pool their resources and create more wealth from a global trade system.

Perhaps more importantly, autarkies tend to be associated with more significant opportunity costs for individuals and the nation as a whole. For instance, a farmer who must necessarily sew their own clothes and build their own furniture has less time to spend growing food. This means reduced income and output, fewer jobs, and more broadly, a smaller economy that is anything but self-sufficient.

Key takeaways:

Autarky is an economic system characterized by self-sufficiency and limited trade with international partners.
The best and most recent example of autarky occurred in Japan over more than 200 years across the 17^th, 18^th, and 19^th centuries. In the modern, globalized world, full autarky cannot exist.
Historically, autarky was promoted in line with nationalist and protectionist policies to ensure a reliable supply of critical goods and eliminate goods dependencies on other nations. However, economists believed the quest for self-sufficiency made economies smaller and, paradoxically, more dependent on other nations as free trade started to become more prevalent.