Front Page Titles (by Subject) 2.: Where profits of Trade are the advantage sought by the Mother Country. - Colony
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2.: Where profits of Trade are the advantage sought by the Mother Country. - James Mill, Colony 
Supplement to the Encyclopedia Britannica (London: J. Innes, 1825).
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Where profits of Trade are the advantage sought by the Mother Country.
We have now investigated the first of the modes in which a colony, considered as territory merely, may be expected to benefit the mother country; and we have seen the chances of good which it affords. The second of these modes, viz. the trade, by means of which it is supposed that colonies may benefit the mother country, is a topic of some importance; for it is on account of the trade, that colonies have remained an object of affection to Englishmen. It is on account of trade, solely, that the colonies in the West Indies are valued; and though an idea of something like a tribute from the East Indies has till this time maintained a place in the minds of the unthinking part of the community, still it is the trade which has been supposed to be the principal source of the advantage which has been ascribed to what we call “the British Empire in the East.”
In the idea of deriving a peculiar advantage from the trade of the colonies, is necessarily included the idea of monopoly. If the trade of the colony were free, other nations would derive as much advantage from it as the mother country; and the mother country would derive as much advantage from it, if the colony were not a colony.
Dr. Smith affirms that this monopoly can never be of any advantage; must always, on the contrary, be a source of great disadvantage to the mother country.
If the trade of the colony is left open to all the merchants of the mother country, it will no doubt happen, that the competition of these merchants, one with another, will make them sell as cheap in the colony as they can afford to sell, that is, buy as dear as they can afford to buy. The produce of the colony will, in that case, go as cheap to the foreign as to the home consumer.
There is another case; namely, that in which the trade of the colony is placed in the hands of an exclusive company. In that case it is true, that the mother country may obtain a given quantity of the goods of the colony for a less quantity of her own than otherwise she would do. The goods of the mother country are, in that case, placed, with regard to the goods of the colony, in the situation in which those commodities which can only be produced in a limited quantity, particular wines, for example, which can only be produced on one particular spot, are placed with regard to all the rest of the goods in the world. It is evident that any quantity of the rest of the goods in the world may be given for those wines, if people are sufficiently desirous to possess them; that there is no limit, in short, to that quantity, but the unwillingness of people to part with more of the things which they possess, to obtain the commodities which are thus in request. The same would be the case with a colony, the trade of which was entirely in the hands of an exclusive company. The exclusive company, by limiting the quantity of the goods of the mother country which they chose to send to the colony, might compel the colonists to give for that limited quantity any quantity of the produce of their own land and labour, which their desire to obtain the goods of the mother country would admit. If the goods of the mother country were goods which excited a very strong desire, if they were goods of the first necessity, the necessary materials of food or the instruments of their industry, there would be no limit but one to the greatness of the quantity of their own produce, which they might be compelled to pay for a given quantity of the produce of the mother country. When nothing was left to the colony of the whole produce of its labour, but just enough to keep the labourers alive, it could not go any farther. Up to that point, if dependent for articles of the first necessity, it might, by an exclusive company, undoubtedly be stript.
Even where the monopoly is not confined to an exclusive company, but extended to all the merchants of the mother country, she might still, in one supposeable case, draw an ordinary advantage from the trade of the colony.
The facts would be these. Whatever foreign goods the colony bought, she would still be obliged to purchase from the mother country. No doubt, the competition of the merchants of the mother country would, in this case, compel them to sell as cheap to the colony as to any other country. Wherein, then, would consist the advantage? In this, that England might thus sell in the colony, with the usual profits of stock, certain kinds of goods, which not being able to manufacture so cheaply as some other countries, she would cease to manufacture, except for the monopoly. But still a very natural question arises:—What advantage does she derive from forcing this manufacture, since she makes by it no more than the ordinary profits of stock, and might make the ordinary profits of stock by the same capital in some other employment? The answer is, that she might, by this means, obtain a greater quantity of the goods of the colony, by a given quantity of the produce of her own labour, or what comes to the same thing, an equal quantity of the goods of the colony, by a less quantity of the produce of her own labour, than she could in a case of freedom.
It may be seen to be so in this manner. England desires to purchase, say 10,000 hogsheads of sugar. This is her consumption. For this she will give, of the produce of her own labour, whatever quantity it is necessary to give. She wishes, however, to give as little as possible; and the question is, in what way she may give the least. The sugar is worth, say £500,000. England sends goods to the colony which sell for £500,000. Now, apply the supposition introduced above. Suppose that, if trade were free, these goods from England, which the manufacturers and merchants of England cannot afford to sell for less than £500,000, could be had for £400,000, from some other country. In that case it is evident that the same quantity of these same goods with which England, under the monopoly, purchased 10,000 hogsheads of sugar, would now purchase only 8000; for that is the ratio of the £400,000 to the £500,000. What, then, would happen, supposing England still to resolve upon having 10,000 hogsheads of sugar? One of two things must of necessity happen. Either she will purchase the sugar with the same goods, or she will not. If she purchases it with the same goods, it is evident that she must give a greater quantity of goods; she must give one fifth more of the produce of her labour; one fifth more of her industrious people must be withdrawn from administering to other productions, and employed in enabling her to obtain the same quantity of sugar. This quantity of produce, in that case, the mother country saves, by means of the monopolized trade of the colony. This quantity she loses, by losing such a colony. But, undoubtedly the mother country would, in such a case, endeavour to purchase the sugar, not with such goods as she purchased it with before, but other goods. She would endeavour to punchase it with goods which she could manufacture as cheaply as any other country. But supposing the colony had no demand for any goods which the mother country could afford as cheap as any other country; even in that case the mother country would still have a resource. If there was any country in which she could sell such goods for money, she could purchase the same quantity of sugar, for the same quantity of the produce of her own labour as before.
It is not then true, according to Dr. Smith, that in no case can the mother country derive any peculiar advantage in the way of trade, from the possession of colonies. We see that there are two cases, in which she may derive an advantage in that way. It remains to inquire what that advantage is ultimately worth; not only what it is in itself independently, but what it is, after compensation is made for all the disadvantages with which the attainment of it is naturally attended.
We are first to enquire what is the value of that advantage, all deductions made, which the mother country may derive, through an exclusive company, from the trade of a colony?
It is very evident, in the first place, that, whatever the mother country gains, the colony loses. Now, if the colony were part of the dominions of a foreign state, there is a certain way of viewing such questions, in which that result would appear to be perfectly desirable. But, suppose that the colony, which is the fact, is not part of the dominions of a foreign state, but of the same state; that it is, in truth, not part of a different country, but of the same country; its subjects not part of a different community, but of the same community; its poverty or riches, not the poverty or riches of another country, but of the same country. How is the result to be viewed in that case? Is it not exactly the same sort of policy, as if Yorkshire were to be drained and oppressed for the benefit of Middlesex? What difference does it make, that one of the portions of the same empire is somewhat farther off than another? Would it, for that reason, be more rational to pillage Caithness, than to pillage Yorkshire, for the sake of Middlesex? Does the wealth of a state consist in the wealth of one part, effected by the misery of another? What opinion must we form of such a rule for guiding the policy of state? Assuredly, this would be a contrivance, not for increasing her wealth and happiness upon the whole. It would be a contrivance for diminishing it. In the first place, when, from one of two parties, equally provided with the means of enjoyment, you take a portion to give it to the other, the fact is,—a fact too well established, and too consonant with the experience of every man, to need illustration here,—that you do not add to the happiness of the one, so much as you take from the happiness of the other; and that you diminish the sum of happiness of the two taken together. This, in truth, is the foundation, upon which the laws for the protection of property rest. As the happiness of one man is, or ought to be, of no more value to the state, than the happiness of another man, if the man who takes from another man a part of his property, added to his own happiness, as much as he took from the happiness of the other, there would be no loss of happiness upon the whole, and the state would have no ground, in utility, on which to interfere.
But this is not all: not only is the quantity of happiness diminished upon the whole, but by that operation which gives the mother country an advantage by the trade of the colony, the quantity of produce of the community is diminished upon the whole. The subjects of the state, taken as a whole, not only enjoy less than they would otherwise enjoy, but they produce less than they would otherwise produce. The state is not a richer state; it is, on the contrary, a poorer state, by means of such a colonial policy.
By means of such a policy, a portion of the capital of the state is employed in a channel in which it is less productive than it would have been in the channel into which it would have gone of its own accord. It is a point established in the science of Political Economy, that it is not good policy to confine consumption to any sort of home manufacture, when it can be purchased more cheaply abroad. It is upon this ground that we have laughed at the late and present outcries of the Germans, because the English sell their goods cheaper than they can make them. The reason is, because when a country continues to consume an article made at home, which it could get cheaper from another country, it does neither more nor less than insist, that it shall employ a certain number of men’s labour in providing it with that article, more than it would be necessary to employ if it imported the article; and, of course, it loses completely the benefit of these men’s labour, who would otherwise be employed in producing for it something else. The country is, therefore, the poorer, by the whole value of these men’s labour. The case is exactly the same, where the colonies are confined to the manufactures of the mother country. When the colony is obliged to employ, for the purpose of obtaining a certain quantity of goods from the mother country, the labour of a greater number of men than she would be obliged to employ to get the same quantity of goods from another country, she loses the labour of all that additional number of men. At the same time, the mother country does not gain it; for if the mother country did not manufacture for the colony, her capital would be liberated to another employment, and would yield the same profits in that as it did in the former employment.
We have still, however, to examine that extraordinary case which we before supposed, in which the mother country cannot produce any sort of commodity whatsoever as cheap as other countries; and, if trade were free, of course would sell nothing in a foreign market. The case here is somewhat altered. In liberating the colony from the monopoly of the mother country, there would be no change of capital from a less to a more productive employment; because, by the supposition, the mother country has not a more productive employment to which her liberated capital can be sent. Events would succeed in the following order. The colony would obtain the goods which it demanded, with a smaller portion of its own labour, would hence be more amply supplied with goods. But it is not supposed that this event would give to its industry a more beneficial direction. In the case of a sugar colony, at any rate, its industry would remain in the same channels as before. Such would be the effects in regard to the colony. What would they be in regard to the mother country? If her capital is no longer employed in manufacturing for the colony, she can always, indeed, employ it with the same profit as before. But she still desires the same quantity of sugar; and her goods will not go so far as before in the purchase of it. Whatever fall would be necessary in the price of her goods to bring them upon a level with the goods of other countries, is equivalent, as far as she is concerned, to a rise of the same amount, in the price of sugar. In this case, the mother country would lose exactly as much as the colony would gain. The community, taken as a whole, would be neither the richer nor the poorer, for driving things out of the free, into the compulsory channel. The people of the mother country would be so much the richer, the people of the colony would be so much the poorer.
This, however, still remains to be said. There is only one case in which this sort of monopoly would not diminish the produce of the community, and render it positively poorer upon the whole. There is only that one case, supposed above, in which the mother country has not one commodity which she can sell as cheap as other countries. Now this may fairly be regarded as a case, if not altogether, at any rate, very nearly impossible. It is not easy to conceive a country so situated, as not to have advantages in regard to the production of some sorts of commodities, which set her on a level with other countries. As long as this is the case, she can obtain money on as good terms as any other country; and if she can obtain money on as good terms, she can obtain sugar, and every thing else.
The question, then, as to the benefit capable of being derived from a colony through the medium of an exclusive trade, is now brought to a short issue. There is no benefit, except through the medium of a monopoly. There is only one case in which the monopoly does not make the whole community poorer than it would otherwise be. In that case, it does not make the community richer than it would otherwise be; and that case is one, which can either never be realized, or so rarely, as to be one of the rarest of all exceptions to one of the most constant of all general rules. The policy of holding a colony for the benefit of its trade, is, therefore, a bad policy.
To these conclusions, one or two of the doctrines of Dr. Smith will be seen to be opposed, and, therefore, require a few words of elucidation.
If an advantage, in the two cases just explained, would arise from colonies, it would be counterbalanced, he says, by the disadvantage attending the rise in the profits of stock.
Both parts of this doctrine may be disputed. In the first place, it may be disputed, whether the monopoly of the colony trade has any tendency to raise the profits of stock in the mother country. In the next place, it may be disputed, whether a high rate of profits in any country, has any tendency to lay it under any disadvantage in its traffic with other nations.
First, it may be disputed, whether the monopoly of the colony trade would increase the profits. The expulsion of foreign capital would create a vacuum, whence, according to Smith, a rise of profit, and an absorption of capital from the mother country. The question is, whether capital would not flow into the colonies from the mother country, till it reduced the profits in the colony, to the level of the profits in the mother country, instead of raising those in the mother country, in any degree toward a level with those of the colony. That it would do so, appears to be capable of demonstration. Mr. Ricardo’s argument would be very short. Nothing, he would say, can raise the profits of stock, but that which lowers the wages of labour. Nothing can lower the wages of labour, but that which lowers the necessaries of the labourer. But nobody will pretend to say, that there is any thing in the monopoly of the colony trade, which has any tendency to lower the price of the necessaries of the labourer. It is, therefore, impossible that the monopoly of the colony trade can raise the profits of stock. By those who are acquainted with the profound reasonings of Mr. Ricardo, in proof of the two premises, this argument will be seen to be complete. There is not a demonstration in Euclid, in which the links are more indissoluble. To those who are not acquainted with those reasonings, we are aware that the propositions will appear mysterious; and yet, we are afraid that, in the few words to which we are confined, it will not be possible to give them much satisfaction.
With regard to the last of the two propositions, that nothing can lower the wages of labour, but that which lowers the necessaries of the labourer, we may confine ourselves to that combination of circumstances which marks the habitual state, without adverting to the modifications exemplified in those states of circumstances which are to be regarded as exceptions. The habitual state of population is such, that wages are at the lowest terms; and cannot be reduced lower without checking population, that is, reducing the number of labourers. In this case, it is self-evident, that nothing can lower the wages of labour, but lowering the necessaries of the labourer. In all, then, except the extraordinary cases, which it would require too many words here to explain, in which a country is but partially peopled, and in which part of the best land is still unemployed, the proposition of Mr. Ricardo is indisputable, that nothing can lower the wages of labour, except a fall in the necessaries of the labourer.
Let us next consider the proposition, That nothing can raise the profits of stock but that which lowers the wages of labour.
One thing is perfectly clear, that if the whole of what is produced by the joint operations of capital and labour, were, whatever it is, divided, without deduction, between the owner of the stock, and the labourers whom it employs, in that case, whatever raised the wages of labour, would lower profits of stock, and profits of stock could never rise, except in proportion as wages of labour fell. The whole being divided between the two parties, in whatever proportion the one received more, it is certain that the other would receive less.
But what is here put in the way of supposition, viz. that the whole of what is produced by the joint operations of capital and labour, is divided between the capitalists and the labourers, is literally and rigidly the fact. It is, then, undeniable, that nothing can raise the profits of stock, but that which lowers the wages of labour.
The whole produce, without any exception, of every country, is divided into three portions, rent, wages, and profits. If there were no rent, and the whole were divided into profits and wages, the case would be clear; because nothing could be added to the one without being detracted from the other.
Rent, however, does, in reality, make no difference. Rent is no part of the joint produce of labour and capital. It is the produce, exclusively, of a particular degree of fertility in particular lands; and is yielded over and above a return to the whole of the labour and capital employed upon that land, over and above a return equal to the joint produce of an equal portion of labour and capital in any other employment.
So much, then, for Dr. Smith’s opinion, that the monopoly of the colonial trade raises the profits of stock. Let us next inquire if it be true, that a rise in the profits of stock, if it were produced by the monopoly, would occasion, as he supposes, any discouragement to the foreign trade of the mother country.
It would occasion this discouragement, he says, by raising prices. If, then, it can be shown, that it would certainly not raise prices, every reason for supposing that it would afford any discouragement to foreign trade is taken away. But that a high rate of profits does not, and cannot raise prices, is evident from what has been deduced above. The whole produce of the joint operations of labour and capital being divided between profits and wages, in whatever degree profits rise, wages fall; the cost of production remains the same as before.
Not only does a variation in the state of wages and profits give no obstruction to foreign trade, a variation even in the cost of production gives no obstruction. A nation exports to another country, not because it can make cheaper than another country; for it may continue to export, though it can make nothing cheaper. It exports, because it can, by that means, get something cheaper from another country, than it can make it at home. But how can it, in that case, get it cheaper than it can make it at home? By exchanging for it something which costs it less labour than making it at home would cost it. No matter how much of that commodity it is necessary to give in exchange. So long as what it does give is produced by less labour, than the commodity which it gets for it could be produced by at home, it is the interest of the country to export. Suppose that the same quantity of corn which is produced in England by the labour of 100 men, England can purchase in Poland with a quantity of cotton goods which she has produced with the labour of 90 men; it is evident that England is benefited by importing the corn and exporting the cotton goods, whatever may be the price of the cotton goods in Poland, or the cost of producing them. Suppose that the cotton goods could be produced in Poland with the labour of 85 men, that is, less than they are supposed to be produced with in England. Even that would not hinder the trade between them. Suppose that the same quantity of corn, which is raised in England with the labour of 100 men, is raised in Poland with the labour of 80; in that case, it is plain, that Poland can get with 80 men’s labour, through the medium of her corn, the same quantity of cotton goods which would cost her the labour of 85 men, if she was to make them at home. Both nations, therefore, profit by this transaction; England, to the extent of 10 men’s labour, Poland to the extent of 5 men’s labour; and the transaction, in a state of freedom, will be sure to take place between them, though England is less favourably situated than Poland with regard to both articles of production.
In what manner this class of transactions is affected by the intervention of the precious metals; in what manner the precious metals distribute themselves, so as to leave the motives to this barter exactly the same as they would be, if no precious metal intervened, it would require too many words here to explain. The reader who recurs for that explanation to Mr. Ricardo, the first author of it, will not lose his time or his pains.
One other disadvantage of the colony trade is adduced by Dr. Smith. It turns the capital of the country out of a more, into a less profitable employment, by turning it from the home to a foreign trade, from a foreign of quick, to a foreign of slow returns, and from a foreign to a carrying trade. This doctrine, too, requires some explanation, and more, to be sufficiently clear, than can here be bestowed upon it. The home trade is not necessarily more advantageous than the foreign, nor the foreign of quick, than the foreign of slow returns, nor any of them all than the carrying trade. These trades, it may be allowed, increase the gross produce of a country, in the order in which Dr. Smith has arranged them. But a country is happy and powerful, not in proportion to its gross, but in proportion to its net revenue; not in proportion to what it consumes for the sake of production, but to what it has over and above the cost of production. This is an important fact, which, in almost all his reasonings Dr. Smith has overlooked. It will hardly, however, be denied, that in various circumstances, any one of these trades, the carrying trade itself, may be more conducive to a net revenue, than any of the rest; and in a state of freedom will be sure to be so, as often as the interest of individuals draws into that channel any portion of the national stock.
We have now, therefore, considered all those cases which, in the study of colonial policy, can be regarded in the light of species or classes. There are one or two singular cases, which are of sufficient importance to require a separate mention.