Front Page Titles (by Subject) V. Employment and the Balance of Trade - Studies in the Theory of International Trade
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V. Employment and the Balance of Trade - Jacob Viner, Studies in the Theory of International Trade 
Studies in the Theory of International Trade (New York: Harper and Brothers, 1965).
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V. Employment and the Balance of Trade
The mercantilist arguments for a favorable balance of trade so far considered all rest upon the desirability of more bullion. But there was one mercantilist argument which was not dependent upon the attachment of superior economic importance to the precious metals than to other commodities of equal exchange value, namely the “employment” argument. Exports were the product of English labor whereas imports, especially if they consisted of finished products and of commodities competitive with home products, displaced English labor. The greater, the exports, and the smaller the imports, the greater, therefore, was the employment of English labor. This argument was not, as is sometimes supposed, of late seventeenth-century origin. It is to be found in the very earliest mercantilist writings,1 and it persists without break throughout the literature of the seventeenth and eighteenth centuries. It is not even clear that it was more emphasized in the eighteenth- than in the seventeenth-century mercantilist literature, and it could even be argued that the sixteenth-century writers stressed it most of all. Of all the mercantilist reasoning, it withstood criticism most successfully, and persisted into the nineteenth and twentieth centuries as an important element in the protectionist doctrine.
The stress on employment led to an appraisal of exports not merely in terms of their value, or of their value relative to imports, but in terms of the amount of labor they represented. Exports of manufactured articles were rated more highly than exports to the same value of raw materials, because the former embodied a larger proportion of labor. The stress on employment sometimes took the form of measuring the gain from trade by the exports alone, and in a few cases the argument even went to the extreme of recommending production of goods simply to employ labor, even though the product of their labor were burnt upon their completion.2 In the case of a few later writers, the employment argument gave rise to a new balance-of-trade concept, in which the amounts weighed against each other were not the values respectively of the exports and the imports, but the respective amounts of labor or employment they represented, i.e., the “balance of labor” or the “balance of employment.” Barbon seems to have been the first to come close to this concept. The measure of benefit from different exports is the amount of employment they had given to English labor, and, similarly, the measure of benefit from imports is the amount of employment to which they will give rise in their further manufacture. His employment test leads him at times to liberal conclusions. Imports of raw silk are more profitable than imports of gold and silver, because more hands are employed in the manufacture of the first than in working the latter. If woolen goods are exported for Westphalian bacon and then the import of the latter is prohibited, England would lose even if the consumption of English bacon increased, because woolen cloth employs more hands in its production than does bacon.3
Tucker stated the argument somewhat differently. The balance of trade for country A is the excess of the number of laborers working up manufactures for country B in A as compared to the number of laborers working up manufactures for A in B:
... when two countries are exchanging their produce or manufactures with each other, that nation which has the greatest number employed in this reciprocal trade, is said to receive a balance from the other; because the price of the overplus labor must be paid in gold and silver. ... This is the clearest and justest method of determining the balance between nation and nation: for though a difference in the value of the respective commodities may make some difference in the sum actually paid to balance accounts, yet the general principle, that labor (not money) is the riches of a people, will always prove, that the advantage is on the side of that nation which has most hands employed in labor.4
A closely similar doctrine is presented also by Harris, Steuart, and Arthur Young:
... a nation that pays ultimately upon its trade a balance in bullion, is a loser of so much of its dead stock; and a loser also, if its exports maintained fewer of its own inhabitants, than its imports did of those foreign nations.5
In all trade two things are to be considered in the commodity sold. The first is the matter; the second is the labor employed to render this matter useful. The matter exported from a country is what the country loses; the price of the labor exported is what it gains. If the value of the matter imported be greater than the value of what is exported the country gains. If a greater value of labor be imported, than exported, the country loses. Why? Because in the first case, strangers must have paid, in matter, the surplus of labor exported; and in the second case, because the country must have paid to strangers, in matter, the surplus of labor imported. It is therefore a general maxim, to discourage the importation of work, and to encourage the exportation of it.6
A balance in our favor is a proof that foreigners take more products and fabrics from us than we do from them, which is an advantage of the highest consequence, because it suggests at least a strong probability that they employ more of our poor than we do of theirs.7
These writers apparently would compare the amount of English labor embodied in the exports with the amount of foreign labor represented by the imports in computing the English “balance of labor.” On this basis, a given trade balance measured in money would have to be regarded as more favorable the lower the prices at which English exports were sold and the lower the wages earned by English labor engaged in their production, although it is not evident that these writers saw this implication of their doctrine. The objective they had in mind, to the exclusion of other considerations, was employment of English labor, and in the case of Young the assumption is fairly clear that the labor engaged in the production of exported goods would in the absence of such exports remain idle. He states that “whatever is paid to other countries in bullion, as a balance upon the year's trade, is just so much loss to any nation that has unemployed poor or unpurchased commodities,” but he concedes to Hume that the loss of the bullion is important only as it is a sign “that we do not export a due quantity of products and labor.” 8
The balance-of-labor doctrine is of course absurd and probably even more absurd than the earlier and at the time still dominant balance-of-trade doctrine. It nevertheless can be regarded as a stage of some importance in the evolution toward more sensible doctrine. In the first case, any criticism of or substitution for the dominant balance-of-trade doctrine helped to promote the disintegration of the mercantilist errors, and thus was a service even if it proposed an even less satisfactory alternative doctrine, provided the criticism survived and the proposed substitute did not survive. Secondly, the balance-of-labor doctrine reversed the roles of employment and foreign trade as compared to the conventional balance-of-trade doctrine. In conventional mercantilism increased population, increased employment, improvement in the arts, in roads, canals, in the energy and skill of labor, were all welcomed because they would make possible increased production of goods for export or in lieu of imports from abroad, and would thus promote a favorable balance of trade. In the balance-of-labor doctrine the end was employment, and the favorable balance was the means, and even if its exponents did not themselves see clearly that income and consumption were in turn the rational ends of employment, and of economic activity in general, they at least made it easy for Adam Smith and later writers to take the next step and thus to bring about a revolutionary change in the orientation of economic thought.
One student of English mercantilism, E. A. Johnson, nothing the indisputable—and undisputed—fact that the mercantilists approved of a large working population, hard work on the part of laborers, the progress of skill in the application of labor, improvements in transportation and industry, and so forth, has concluded that serious injustice has been done to them by accounts such as presumably the present one of their doctrines:
All of which should prove that the ultimate concern of the mercantilists was the creation of effective factors of production. Not ten per cent of English mercantilist literature is devoted to the ill-fated doctrine of the balance of trade. [Let anyone who doubts this assertion turn through the pages of the English mercantilist literature and be convinced!] Their ardent passion for productive efficiency is shown by their advocacy of improvement of lands, mines and fisheries, and by their encouragement of inland communication and canal building. Industry was to be encouraged, idleness to be repressed. ... 9
But evidence that the mercantilists desired efficient production, be it piled up mountain high, of itself proves nothing as to their “ultimate concern.” They may have desired, and did desire, increased production, because they thought that it would promote a favorable balance of trade, even though they also desired it for other reasons. Such quantitative propositions have an unearned air of precision, but on the basis of my turning of the pages of English mercantilist literature I venture the conclusion that not ten per cent of it was free from concern, expressed or clearly implied, in the state of the balance of trade and in the means whereby it could be improved.
The labor doctrines of the English mercantilists need not be examined at length here, since they have been ably dealt with by other writers.10 On only one point, it seems to me, is critical comment on their exposition called for. The mercantilists, as they point out, were led by their obsession with the balance of trade and also, perhaps, by unconscious class sympathies, to deal with questions affecting labor as if laborers were a set of somewhat troublesome tools rather than human beings whose own comfort and happiness were a proper and primary object of concern for statesmen. The dominant doctrine, in consequence, advocated low wages, as a means of stimulating the worker to greater effort and of increasing England's competitive strength in foreign trade by lowering the money costs of English products. Sir James Steuart was merely expressing in blunter fashion than was common the position implicit in much of the mercantilist treatment of the labor question when he stated that “the lowest classes of a people, in a country of trade, must be restrained to their physical-necessary.” 11 But Furniss and Gregory fail to do full justice to the size and importance of the dissenting group, who on grounds either of economic analysis or humanitarian sentiment opposed the dominant doctrine that low wages were desirable. Such important writers as Cary, Coke, Davenant, and Defoe belonged to this group, and in the latter part of the eighteenth century the growth of humanitarianism operated to give even stronger challenge to the prevailing views.12 Representative of the opposition on humanitarian grounds was the complaint of an anonymous writer: “it is a great pity the laboring poor have not better encouragement, the cries of those unskillful men, who made a clamor of labor being too high, is a doctrine propagated more by theory than practice.” 13 Hume conceded that high wages resulted in some disadvantage in foreign trade, but insisted that “as foreign trade is not the most material circumstance, it is not to be put in competition with the happiness of so many millions.” 14 Since Hume was an enlightened critic of mercantilism, this is not of great significance, but Wallace, who was a mercantilist, agreed with Hume's doctrine, as “a maxim ... suitable to a humane disposition. Agreeably to such a benevolent sentiment, we ought to extend our notions of trade, and consider not only how much money it gains to a nation, but how far it is conducive to the happiness of the people.” 15
ENGLISH THEORIES OF FOREIGN TRADE, BEFORE ADAM SMITH: II
He shewed me a very excellent argument to prove, that our importing lesse [gold?] than we export, do not impoverish the kingdom, according to the received opinion: which, though it be a paradox, and that I do not remember the argument, yet methought there was a great deal in what he said.—Samuel Pepys, Memoirs, February 29, 1663/4.
E.g. [Starkey], England in the reign of King Henry the Eighth [ca. 1538], 1871 reprint, p. 94; “How the comen people may be set to worke” [ca. 1530], Pauli ed., Drei volkswirthschaftliche Denkschriften, p. 56; “How to reforme the realme” [ca. 1535], ibid., p. 76; “Polices to reduce this realme of England” , T.E.D., III, 333; [John Hales] A discourse of the common weal , Elizabeth Lamond ed., pp. 63 ff.; Malynes, Treatise of the canker , T.E.D., III, 399; Misselden, The circle of commerce, 1623, p. 35. Mun is one of the few early writers who dealt with trade matters extensively who makes no use of the employment argument. Reliance upon Mun as adequately representative of the earlier literature may have been responsible for the conclusion that the argument first appeared in the later period.
Petty, Treatise of taxes , in Economic writings, Hull ed., I, 60; [Sheridan] A discourse on the rise and power of parliaments , Bannister ed., p. 200; Taxes no charge, 1690, p. 16.
Nicholas Barbon, A discourse of trade , Hollander reprint, pp. 23, 37; ibid., A discourse concerning coining the new money lighter, 1696, pp. 50–51.
Josiah Tucker, A brief essay on the advantages and disadvantages which respectively attend France and Great Britain, with regard to trade [3d ed. 1753], McCulloch ed., Select collection of ... tracts on commerce, p. 315. This passage first appeared in the third edition. See also Tucker, Reflections on the expediency of a law for the naturalization of foreign protestants, 1751, Part II, p. 21.
[Joseph Harris] An essay upon money and coins, Part I (1757), 89. See also p. 24.
Sir James Steuart, Principles of political economy, 1767, II, 336. (Italics in original text.)
Arthur Young, Political essays concerning the present state of the British Empire, 1772, p. 538.
Ibid., p. 533. Although they both stress employment, this “balance-of-labor” argument differs from the earlier argument that an excess of the value of exports over the value of imports results in an inflow of bullion, which increases trade and therefore employment. (Cf. Malynes, Treatise of the canker , T.E.D., III, 399: “the more ready money ... that our merchants should make their return by, ... the more employment would they make upon our home commodities, advancing the price thereof, which price would augment the quantity by setting more people on work; ...”) In the balance-of-labor doctrine it is the direct effect of the exports on employment which is stressed, and not the indirect effect consequent upon the inflow or outflow of specie.
“The mercantilist concept of ‘art’ and ‘ingenious labour,’” Economic History, II (1931), 251–52. The sentence placed here in brackets is a footnote in the original text.
E. S. Furniss, The position of the laborer in a system of nationalism, 1920; T. E. Gregory, “The economics of employment in England, 1660–1713,” Economica, I (1921), 37–51.
An inquiry into the principles of political economy, 1767, I, 502. Cf. ibid.,: “It is therefore a principle, to encourage competition universally until it has had the effect to reduce people of industry to the physical-necessary, and to prevent it ever from bringing them lower. ...”
Cf. the citations in Lujo Brentano, Hours and wages in relation to production (translated from the German), 1894, pp. 2–5, to which many additions should be made.
An enquiry into the melancholy circumstances of Great Britain, ca. 1730, pp. 19–20.
Political discourses , in Essays, moral, political and literary, 1875 ed., I, 297.
[Robert Wallace] Characteristics of the present political state of Great Britain, 1758, p. 46.