The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Conversation I.: Introduction.
• Conversation II.: Introduction — Continued.
• Conversation III.: On Property.
• Conversation IV.: On Property— Continued.
• Conversation V.: On the Division of Labour.
• Conversation VI.: On Capital.
• Conversation VII.: On Capital — Continued.
• Conversation VIII.: On Wages and Population.
• Conversation IX.: On Wages and Population. Continued.
• Conversation X.: On the Condition of the Poor.
• Conversation XI.: On Revenue.
• Conversation XII.: On Revenue Derived From Property In Land.
• Conversation XIII.: On Revenue Derived From the Cultivation of Land.
• Conversation XIV.: On the Revenue of Those Who Do Not Employ Their Capital Themselves.
• Conversation XV.: On Value and Price.
• Conversation XVI.: On Money.
• Conversation XVII.: Subject of Money Continued.
• Conversation XVIII.: On Commerce.
• Conversation XIX.: On Foreign Trade.
• Conversation XX.: Continuation of Foreign Trade.
• Conversation XXI.: Subject of Foreign Trade Continued.
• Conversation XXII.: On Expenditure.

CONVERSATION XVIII.

ON COMMERCE.

mrs. b.

We mentioned commerce as one of the modes of employing capital to produce a revenue; but deferred investigating its effects until you had acquired some knowledge of the nature and use of money. We may now, therefore, proceed to examine in what manner commerce enriches individuals, and augments the wealth of a country.

Those who engage their capitals in commerce or trade, act as agents or middle-men between the producers and the consumers of the fruits of the earth; they purchase them of the former, and sell them to the latter; and it is by the profits on the sale that capital so employed yields a revenue.

There are two distinct sets of men engaged in trade: — merchants, who purchase commodities (either in a rude or a manufactured state) of those who produce them, — this is called wholesale trade; and shopkeepers, who purchase goods in smaller quantities of the merchants, and distribute them to the public according to the demand, — this constitutes the retail trade.

caroline.

Trade will no doubt bring a revenue to those who employ their capital in it; but I do not conceive how it contributes to the wealth of the country: for neither merchants nor shopkeepers produce any thing new; they add nothing to the general stock of wealth, but merely distribute that which is produced by others. It is true, that mercantile men form a considerable part of the community; but if their profits are taken out of the pockets of their countrymen, they may make fortunes without enriching their country.

mrs. b.

Trade increases the wealth of a nation, not immediately by raising produce, like agriculture, nor by working up raw materials, like manufactures; but it gives an additional value to commodities by bringing them from places where they are plentiful to those where they are scarce; it enables us to procure what we want more, in exchange for what we want less; and, by providing the means of a more extended distribution of commodities, it gives a spur to the industry both of the agricultural and manufacturing classes. It would be impossible, you know, for every town or district to produce the several kinds of commodities required for its consumption; different soils and climates, and various species of skill and industry, are requisite for that purpose. Some lands are best calculated for corn, others for pasture; some towns are celebrated for their cotton manufactures, others for their woollen cloths. Every place has, therefore, an excess of some kind of commodities, and a deficiency of others; which renders a system of exchanges necessary, not only between individuals (as we observed in treating of the origin of barter), but between towns and countries to the most distant regions of the earth.

Now it is the business of merchants to exchange the surplus produce of one place for that of another. A man who deals in any particular commodity makes it his business to find out in what parts that commodity is most abundant, and will be sold at the lowest price; and in what parts it is most scarce, and will fetch the highest price, and then to ascertain the least expensive mode of conveying it from the one to the other market.

caroline.

In this they consult their own interest; since to purchase at the cheapest, and sell at the dearest market, will give them the greatest profits.

mrs. b.

No doubt; but it is wisely and beneficially ordained by Providence, that in consulting their own interest, they are at the same time favouring that of the community. When merchants hasten to send their goods to a market where they will sell at a high price, they supply those who are in want of such goods: the higher the price, the more urgent is the demand: it is a deficiency that has rendered them dear, and by furnishing the market with an ample supply, merchants not only satisfy the wants of the purchasers, but ultimately lower the price of the commodity.

Do you think that manufacturers would be able to dispose of an equal quantity of goods without the intervention of mercantile men? In such a case, Manchester would be reduced to distribute its cottons merely within its own precincts and environs, instead of supplying, as it now does, not only the demand of all England, but even that of the most remote provinces of America.

Trade encourages industry, in the second place, by rendering commodities cheaper. The merchant, by dealing in large quantities, is enabled to bring goods to market at a less expense of conveyance, and can therefore afford to sell them on lower terms than if the consumer were obliged to send for them to the places where they are produced.

caroline.

Yet things may generally be bought at the lowest price where they are produced or manufactured?

mrs. b.

True; but if you add the charges of a private conveyance, they will cost you much dearer. Had we no means of procuring coals, than by sending a waggon to Newcastle, though we should pay less for them there than in London, they would, from the expense of carriage, cost us more. Merchants who deal in large quantities have a regular system of conveyance for their goods, which considerably diminishes the charges. The coals are by them transported in ships to the different sea-ports, and thence conveyed in barges to the inland parts of the country wherever water-carriage is practicable.

caroline.

It would, to be sure, not only be very expensive, but extremely inconvenient, were we obliged to send to distant parts for the commodities they produce. If, for instance, it were necessary to send to Sheffield to purchase a set of knives and forks; to Leeds for a coat, and to Norwich for a shawl; — or, without going so far, were it requisite to send into the country for corn, meat, hay, in short, every thing which the country produces, these things would cost us much more than if we bought them of shopkeepers.

But admitting that trade, by facilitating the distribution of commodities, and rendering them cheaper, promotes their consumption, I cannot understand how that can conduce to the wealth of a country: it increases its comforts and enjoyments, but it seems to me to encourage expenditure rather than production.

mrs. b.

It would be rather difficult to encourage the one independently of the other, unless you could purchase what has not been produced. To increase the comforts and enjoyments of a country is the ultimate aim of national wealth, and it is only by augmenting these productions that we can increase the enjoyment of them. Now whilst trade promotes consumption, by rendering commodities cheaper, it encourages industry in the producer, to augment the supply. A reduction of price brings a commodity within the reach of a greater number of persons, which increases the demand for it; the man who could afford to wear only a linen frock, will, when commodities are cheaper, be able to wear a coat. He who could allow himself but one coat in the year, can now without extravagance wear two.

This increasing demand for commodities stimulates the industry of the farmer and manufacturer, and they enrich themselves by furnishing the requisite supplies. With their wealth their consumption also augments; for the wants of men increase with their means of satisfying them; and when they add to their income, they usually add also to their expenditure. The farmer has more to satisfy the desires of the manufacturer; and the manufacturer produces more to supply the demands of the farmer: so that each is enabled to give and receive a greater quantity of things in exchange. These exchanges, it is true, are made through the agency of merchants, and by the means of money, but they are effectually exchanges of commodities, as really as if the manufacturer supplied the farmer with clothing in exchange for provisions. The increase of saleable commodities affects in a similar manner all classes of people. The proprietor of land improves his fortune by the increasing value of his rents, which the prosperous state of agriculture enables the farmer to pay; and the labourer betters his condition by the rise in the rate of wages resulting from the increased demand for labour. The whole may be summed up by saying, that the quantity of commodities being increased, a larger portion will fall to the lot of every consumer who has any share in their production.

caroline.

I now begin to understand the general advantages resulting from commerce. The retail trade carried on by shopkeepers must be attended with the same happy effects. It would be extremely inconvenient to the rich, and impracticable for the poor, to purchase the commodities they wanted in such large quantities as are disposed of by merchants and wholesale dealers. Were there no such trade as a butcher, for instance, every family would be obliged to purchase a whole sheep or a whole ox of the farmer.

mrs. b.

Retail trade is one of the most useful subdivisions of labour. Nothing can be more desirable than that the poor, who are maintained by daily or weekly wages, should be able to purchase their provisions in as small quantities as possible.

caroline.

Yet I have often regretted the high price which the lower orders of people are obliged to pay for fuel, candles, grocery, and various little articles with which they are supplied by the chandlers’ shops; whilst the higher ranks, who can afford to purchase the same goods in larger quantities, obtain them of more extensive dealers at a cheaper rate.

mrs. b.

You must consider that were there no small shopkeepers, the lower classes would be reduced to the utmost distress; and these petty dealers cannot afford to sell their pennyworths, without being paid for the additional labour and trouble such kind of traffic requires. Their profits cannot be exorbitant, otherwise competition would in time reduce them to their natural standard.

caroline.

But by selling very small quantities at a higher price, they must make more than the usual rate of profit; and how do you reconcile this to the common level of profit in all employment of capital?

mrs. b.

By reckoning whatever gains they make above the usual profits of capital, as wages, that is to say, the reward of their personal labour. The smaller is the capital which a man employs, the greater is the proportion which his wages will bear to the profits of his capital. A man who sells oranges in the streets has laid out perhaps a capital of 20 or 30 shillings on the goods in which he deals; the usual profits of trade on such a sum is two or three shillings a year; but if he did not carry about oranges for sale, he would work as a labourer, and get perhaps two shillings a day wages; these two shillings a day, or 626 shillings a year, the man must make by the sale of his oranges, in addition to the usual profits of trade; the whole of his gains go, however, under the name of profits, because the distinction can be made only in theory.

caroline.

But all tradesmen and mercantile men devote their time and attention to their business: should not, therefore, a portion of their gains be considered as the reward of their personal labour, which must be valuable in proportion to the extent and importance of the concern in which they are engaged?

mrs. b.

No doubt; yet it will bear but a small proportion to their profits, compared with that of petty dealers. A merchant who makes in trade an income of 5000l. a year, were he to engage himself as clerk, would probably not obtain a salary of above 500l.; his wages would therefore be equal to only one tenth of his profits, whilst those of the man who sold oranges would be above 200 times the amount of the profits of his capital.

Another advantage resulting to the farmer and manufacturer, from the disposal of their goods to merchants, is the quick return of the capital they have employed in their production; for they receive the price of their goods from the merchant much sooner than they would, were they obliged to collect it gradually from the consumers.

Let us suppose a cotton-manufacturer who devotes a capital of a thousand pounds to the employment of as many labourers as it will maintain, and sells their work to a wholesale dealer for 1100l. With this money he immediately sets his men and his mills to work again; whilst, if he retailed the goods himself, though instead of 1100l. he might perhaps get 1200l. or even 1300l. for them; yet, as the money would come in very slowly, he and his workmen would necessarily be kept a long time out of employ.

caroline.

To the farmer such delays would prove ruinous, if he could not sell his crops in time to proceed with the necessary cultivation of the farm for the ensuing season.

mrs. b.

In order to avoid such extremities, both the farmer and manufacturer would be obliged to divide their capital into two parts, and employ the one in raising or manufacturing commodities, and the other in disposing of them. To the occupations of agriculture or manufactures, they would find it necessary to add that of trade, a complication which would be equally injurious to each of the concerns. Commerce is one of the economical divisions of labour; if it sets apart a certain number of men, for the purpose of circulating and distributing the produce of the earth, it is in order that those who are engaged in raising and manufacturing that produce should be able to devote the whole of their capital, their time, and their talents, to their respective employments. It is worthy of observation, too, that none of these divisions are enforced by law, but exist under the choice of the parties, and have been adopted from a view to their general interest.

But although it is advantageous to separate commerce from other branches of industry, it is desirable that its operations should be facilitated as much as possible, both in order that agriculture and manufactures should not be deprived of too many labourers, and that commodities should be brought to market with the least possible expense. Good and numerous roads and navigable canals are extremely conducive to this end, as they enable the produce of the country to be conveyed with ease and expedition to the several markets; for case and expedition economise time and labour, and economy of time and labour is productive of cheapness.

caroline.

Were there no roads, the farmer being without means of sending his crops to market would not produce more than could be consumed by his family, and perhaps some few customers in his neighbourhood, and he must be content to clothe himself with the fleeces of his flocks and the skins of his herds, for he would be unable to procure manufactured articles. Nor would the manufacturers be better off, as the market for the disposal of their goods would be equally limited.

mrs. b.

Neither towns nor manufactures could exist in such a state of things, because they could not be supplied with the produce of the country, which is still more necessary to their existence, than the workmanship of the towns is to the farmer. It is the surplus produce of the country which pays for the workmanship of the towns, and the surplus workmanship of the towns that pays for the produce of the country. The greater, therefore, the intercourse between town and country, the greater is the encouragement given to the industry of both.

History teaches us that in all old settled countries no material improvement has taken place in the cultivation of the lands without a considerable advance in the state of manufactures and commerce; and Adam Smith even goes so far as to say, that “through the greater part of Europe the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion of the improvement and cultivation of the country.”

But as the forms of governments, and the manners and customs of our barbarous ancestors, have constantly interfered with and restricted the progress of wealth and civilisation of Europe, the natural order of things has frequently been reversed: and towns have arisen, not from the surplus wealth of the country, but as citadels and fortresses in which the people found shelter from the oppression of their superiors, and the incursions of their warlike neighbours. We must look to America for the natural effect of the progress of wealth and civilisation, and we shall there behold the habitations of farmers scattered over the face of the country, and towns built only after cultivation was far advanced.

caroline.

In expatiating on the advantages of facility of conveyance, it must not, however, be forgotten, that the land which is converted into roads is taken from tillage; and could we calculate the quantity of corn and hay which the roads, in a state of culture, might have produced, it would perhaps be found that some of them have occasioned more loss than gain.

To take land from cultivation for the purpose of roads appears to me very analogous to taking labourers from agriculture for the purpose of trade.

mrs. b.

The result is in both cases similar; for there can be no doubt but that the general effect of roads and canals is to increase the produce of the country. If we are indebted to merchants for the advantages of trade, roads and canals are the instruments with which they carry it on. Deprived of such means, their operations would be very circumscribed; there would be no trade but at seaports, and along the course of rivers.

The charges of conveyance from Liverpool to Manchester on the Duke of Bridgewater’s canal is six shillings a ton, whilst the price of land-carriage is forty shillings.

caroline.

If there had been a river from one of those towns to the other, the expense of carriage would have been still less than that of the canal.

mrs. b.

Probably not; a river is seldom uniformly navigable, and is always more or less circuitous in its course; and where the stream is powerful, it will admit of navigation only in one direction, as is the case in some of the American rivers. Before the Bridgewater canal was dug, the usual mode of conveyance of goods was along the Mersey and the Trevell, and the cost was twelve shillings a ton, just double that of conveyance on the canal. Macpherson observes, that “this spirited and patriotic enterprise of the Duke of Bridgewater is rewarded by a vast revenue, arising from his water-carriage and his formerly useless coal-mine; and the surrounding country is benefitted a pound at least in every shilling paid to the Duke.”

caroline.

This reminds me of a circumstance that occurred during a tour in Wales; we were admiring a neat fountain which supplied a village with water, and were informed by the landlord of the inn, that he had constructed it, and had had the water conveyed from a distant spring, whence the people of the village had formerly been under the necessity of fetching it. A trifling sum was annually paid by each family for liberty to use this water, and the landlord thought it necessary to make many apologies for not allowing it them free of expense, and talked much of the money he had laid out in the enterprise. My father assured him that he was convinced the speculation was still more beneficial to the village than it was to himself; that as the inhabitants had the option of fetching water for themselves, the payment proved that it was because they could turn the time and labour they bestowed on the conveyance of water to better account; and upon enquiry we found the village had been in an improving state ever since the erection of this fountain. It had not only become more opulent, but had acquired habits of cleanliness, which had proved very beneficial to the health of the people.

mrs. b.

There are three species of commerce in which merchants engage their capitals. The home trade, foreign trade, and the carrying trade.

The home trade comprehends all the internal and coasting trade of a country. The foreign trade is that in which we exchange our commodities for those of foreign countries; and the carrying trade consists in conveying the commodities of one foreign country to another. Let us at present confine our observations to the home trade.

caroline.

The home trade, I conclude, must be the most advantageous to the country, because it encourages the industry of our own people.

mrs. b.

But what difference can it make whether our labourers are employed to work for us, or for foreigners? For if we export English goods, we receive an equal amount of foreign goods in exchange; so that foreign labourers work equally for us in return.

The only advantage of the home trade is that it usually affords a quicker return of capital, which is a further means of promoting industry. The nearer is the market at which the merchant disposes of his goods, the sooner will his capital be returned to him, and the sooner will he be able to take other goods from the hands of the farmer or manufacturer. If a London merchant trades with Sheffield or Manchester, his capital may be returned to him in the course of a few weeks; if with America or the East Indies, it may be a year or two, or more, before he gets it back. The greater the vicinity of the market, therefore, the greater the number of sales and purchases he will be able to make in a given time. A capital of 1000l., for instance, might in the home trade be returned once a month, and enable the merchant, during the course of the year, to purchase 12,000l. worth of goods; whilst, if he sent his merchandise to India, two years would probably elapse before he got his capital returned. In the first case, therefore, the 1000l. capital would afford twenty-four times more encouragement to industry than it would in the latter.

caroline.

You do not thence mean to infer, that in the first case the profits would be twenty-four times greater?

mrs. b.

Certainly not. Competition is, you know, perpetually tending to equalise the profits of capital, in whatever way it is employed. Profits will consequently be proportioned to the slow return of capital; and must, therefore, be reckoned annually, and not calculated upon every time the capital is returned.

caroline.

The period of the return of capital applies, then, not so much to the home or foreign trade, as to the distance of the market; for capital might be returned quicker in trading with Calais or Dunkirk than with Edinburgh and Cork?

mrs. b.

It is very true; and how much is it to be regretted that jealousies and dissensions should so frequently impede and restrict the trade between neighbouring nations, which would otherwise be carried on with such great and reciprocal advantage! But we shall reserve till our next interview the observations we have to make on foreign trade.