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 XIX.

ON FOREIGN TRADE.

caroline.

At our last interview, Mrs. B., you were regretting that any restraint should be imposed on our trade with foreign countries; yet I cannot help thinking that every measure tending to discourage foreign commerce, and promote our own industry, would be extremely useful.

mrs. b.

You would find it difficult to accomplish both those objects; for in order to encourage our own industry we must facilitate the means of selling the produce of our manufactures, and extend their market as much as possible. On the other hand, if we prohibit exportation, we limit the production of our manufactures to the supply which can be consumed at home. If the woollen manufacturers of Leeds, after having supplied the whole demand of England for broad cloths, have any capital left, they will use it in the preparation of woollen goods for exportation.

caroline.

Why not rather employ it in the fabrication of other commodities which may be consumed at home?

mrs. b.

If there were a deficiency of capital in any other branch of industry at home, the redundancy would naturally be drawn to that branch; but if all the trade, that is, all the exchanges that could be made at home, have been made, we send the residue of our commodities to foreign markets for sale.

caroline.

Yet it appears a great hardship on the poor to send goods abroad, which so many of them are in want of at home.

mrs. b.

The poor are first supplied with whatever they can afford to purchase; and without the means of purchase you must recollect that there can be no effectual demand. It is not to be expected that farmers and manufacturers should labour for them merely from charitable motives, and were they so disposed, they would not long possess the means of continuing their benevolence. It would be very wrong, therefore, to consider this surplus produce as taken from the poor; for it would not have been produced had there been no demand for it in foreign countries.

caroline.

That is very true. In all employment of capital men labour with a view to profit; they work, therefore, only for those who will pay them the value of their produce. And it is easy to conceive that those who have no further want of English commodities may yet wish to procure foreign goods. The English merchant will therefore say, “Since there is no more demand for the goods I deal in, I will export the remainder, which will be purchased abroad, and I shall get foreign commodities in exchange; — though my countrymen do not require any more cotton goods, I know that they will purchase wines, coffee, sugar, &c.”

mrs. b.

Very well. Let us examine now what would be the effect of confining the employment of commercial capital to the home trade. If the inhabitants of the West-Indian islands, Jamaica, for instance, were to prohibit the exportation of coffee and sugar, and the planters were obliged to trade only within the island, the consequence would be, that the demand for coffee and sugar would be very insignificant, and that an inconsiderable part only of the capital of the colony would find employment. The same effect would take place in Russia, if foreign merchants were not allowed to purchase the hemp and flax so abundantly produced in that country. If in Peru and Chili the exportation of indigo, bark, and other drugs were prohibited, the Europeans, who purchase them, would not be the only sufferers; the Americans would be impoverished for want of employment for their capital.

caroline.

All this is very clear, I admit. But what security have we that merchants will not employ their capital in foreign commerce, before the demand for it in the home trade is fully supplied?

mrs. b.

That security is derived from the natural distribution of capital according to the rate of profit. If foreign commerce employed more capital than the country could spare, the demand for it at home would raise the profits of the home trade, and the temptation of these increased profits would soon restore that portion of capital which had been unnecessarily withdrawn from it.

caroline.

The rate of profit, then, affords an excellent criterion of the employment of capital most advantageous to the community. When foreign commerce offers greater profits than the home trade, it proves that there is a greater demand for capital in that branch of industry?

mrs. b.

Yes; it proves that the country possesses a surplus quantity of produce either agricultural or manufactured, which cannot be disposed of in the home market; and if the owners of this surplus were prevented from exchanging it for foreign commodities, it would not in future be produced, and those who produced it would be thrown out of employment.

The first commodities a country usually exports is agricultural produce, which she exchanges for manufactured goods; this is still the case with America, on account of it being a newly-settled nation; it is also the case with Poland and Russia, those countries having made slower progress in wealth and population than the other communities of Europe. When nations are considerably advanced in wealth and population, all the food they raise is required at home, and manufactures are established in order to employ the increased numbers of people; in the course of time they find that they require more food than is produced at home, it then becomes expedient to export manufactured goods in exchange for corn, which they can obtain cheaper by importation than by raising it on inferior soils at home. And it is at this point that England is now arrived.

caroline.

I am surprised that foreign commerce with distant countries should ever offer sufficient profits to afford a compensation to the merchant for the disadvantages arising from the slow return of capital.

mrs. b.

If it did not, no merchant would engage in it. The greater the distance of the market to which he sends his goods, the greater must be the profits on their sale, to make up not only for the tardy return of his capital, but also for the charges of conveyance of the goods. Freight and insurance from sea risks are both to be deducted from the profits of the merchant in foreign trade.

caroline.

Then since we are obliged to sell our goods at such high prices in distant markets, I wonder that we should find purchasers for them: would it not answer better for those countries to produce them at home?

mrs. b.

You may be assured that no nation will purchase from abroad what may be procured of the same quality and for less expense at home. But all countries are not equally capable of producing the same kind of commodities, either rude or manufactured. The gifts of nature are still more diversified in the different climates of the earth than the habits and dispositions of men. It would be impossible for us at any expense to produce the wines of Portugal, on account of the coldness of our climate. We can procure them only by an exchange of commodities: the Portuguese take our broad cloth in return: this, it is true, they might manufacture at home; but as our climate is peculiarly favourable to pasturage, and our workmen particularly skilful in manufactures, broad cloths could not be made in Portugal equally good at the same expense, including the charges of freight and insurance; and whilst the Portuguese can purchase them of us for less than they can fabricate them at home, it is certainly their interest to procure them in exchange for commodities the culture or fabrication of which is more suited to the nature of their climate and the habits of the people.

But the difference of price of our manufactured goods at home or abroad is not so great as you would imagine; in articles of small bulk it is very trifling. I recollect some years since purchasing an English pocket-book at Turin for nearly the same price that it would have cost in London.

caroline.

How, then, was the expense of conveyance defrayed; and what compensation was there for the slow return of capital?

mrs. b.

These expenses probably did not more than counterbalance the high rent and taxes paid by London shopkeepers, which I believe are comparatively insignificant at Turin. There might, perhaps, also be some bounty on the exportation of such goods, which would enable the merchant to sell them at a lower price.

caroline.

Pray what is a bounty on goods?

mrs. b.

It is a pecuniary reward given by government for the exportation of certain goods. Governments, so far from partaking of your prejudices against foreign trade, often think it right to encourage the exportation of their manufactures by such artificial measures.

caroline.

A bounty, then, on any commodity has the effect of inducing merchants to export more of it than they would otherwise do, as it raises their profits. But in consequence of this, capital will be drawn into that trade beyond its due proportion?

mrs. b.

Certainly; a bounty often tempts merchants to invest capital in a trade which otherwise would not answer; that is, to export goods which would not yield a profit, after paying the expenses of conveyance, without such encouragement; and this capital, were it not artificially drawn out of its natural course, would flow into channels which would yield profits without any expense to government.

caroline.

Here, then, my apprehension of foreign trade is well-founded; for more capital is drawn into it than is required to preserve the equality of profits.

mrs. b.

That is sometimes the case; but it may also be unduly drawn from one branch of foreign commerce to another. The effect of bounties, however, is generally counteracted by the nations with whom we trade. Alarmed at our thus forcing our goods upon them, and dreadfully apprehensive of its interfering with the sale of their own manufactures, they immediately lay a duty on the commodity on which we grant a bounty, and oblige it to pay, on entering their territory, a sum at least equivalent to that which we bestow on it on quitting our own.

caroline.

What a pity that either party should interfere to check and restrain the natural course of commerce! The disease, however, seems to call for the remedy; as it is sometimes expedient to take one poison as an antidote to another.

mrs. b.

If we are so generous, or so absurd, as to enable foreigners to purchase our commodities at a cheaper rate, by paying a part of the price for them, under the form of bounty, are we not doing them a service, and ourselves an injury? And is it wise in them to endeavour to counteract such a measure?

caroline.

True; I did not consider it in that point of view. It is really laughable to see two nations, the one strenuously endeavouring to injure itself, whilst the other studiously avoids receiving a benefit; and thus, by the mutual counteraction of each other’s artifice, they leave the trade to follow its natural course.

I am now perfectly satisfied of the advantage of obtaining, by means of foreign commerce, such articles as cannot be produced at home; but I confess I do not feel the same conviction with regard to commodities which might be produced at home, though with some additional expense.

mrs. b.

Why should it not be the interest of a country as well as that of an individual to purchase commodities wherever they can be procured cheapest? It might be very possible, as it has been observed by an ingenious writer* , for England to produce at a great expense of labour the tobacco which we now import from Virginia; and the Virginians, with no less difficulty, might fabricate the broad cloths with which we furnish them. But if our climate is better adapted to pasturage, and that of Virginia to the culture of tobacco, it is evident that the exchange of these commodities is a mutual advantage.

caroline.

But are not the goods exchanged in trade of equal value? If we send the Virginians a thousand pounds’ worth of broad cloths, they will send us only a thousand pounds’ worth of tobacco in return. It may be a convenient measure, and the exchanging merchants will each make their profits; but I cannot perceive how the country can derive any accession of wealth from such traffic.

mrs. b.

The exchangeable value of both these commodities will be augmented by bringing them from places where they are plentiful to those where they are scarce. When we ship off 1000l. worth of broad cloths for Virginia, and the Virginians export 1000l. worth of tobacco for England, the commodities of each acquire an additional value during the transport; the tobacco will be worth more when it arrives in England, because, not being cultivated here, it is more scarce and in greater demand with us. The broad cloth will be worth more when it reaches Virginia, because, not being fabricated in that country, it is more scarce and in greater demand there. The respective cargoes will perhaps each have acquired the additional value of 200l. on being landed at their destined ports.

caroline.

Very true; but if we both cultivated tobacco and fabricated broad cloths; and if the Virginians did the same, each country would be supplied at home, and the expense of conveyance of the two cargoes exchanged would be saved.

mrs. b.

If we could raise tobacco at as little expense as it is done in Virginia, and the Virginians could manufacture broad cloths as cheap as they can purchase them of us, your argument would be just; but that is not the case. To make this clear to you, let us examine what quantity of labour is bestowed upon the production of these several commodities. If the broad cloth which we send to Virginia cost us the labour of one man, we will say for 1000 days, while the tobacco which we receive in exchange would have cost us 2000 days’ labour to produce at home, do we not save a thousand days’ labour? and is not the advantage to the Virginians similar, if the tobacco which cost them 1000 days’ labour to raise, will exchange for English broad cloth which they could not have manufactured under 2000 days’ labour?

caroline.

By such an exchange, then, each country saves 1000 days’ labour?

mrs. b.

Yes; and to save is to gain; for the thousand days’ labour thus economised are employed in the production of some other commodity, which is so much clear gain to each country.

caroline.

Then each country procures the commodity it wants at half the expense which would have been required to produce it at home?

mrs. b.

Just so. To put the question in other words, we may say, if by the employment of 50,000l. in the Virginia trade we can obtain as much tobacco as would require 100,000l. if cultivated at home, there is 50,000l. economised, which will be employed in producing something else. The advantages of foreign commerce, it is true, are seldom carried so far as a saving of half the expenses of production; but they must always exist in a greater or less degree; for it is evident that no nation will purchase from abroad what can be produced equally cheap and good at home.

caroline.

When goods are equally good and cheap, I certainly prefer buying them of shops in the neighbourhood rather than at a distance, because it is more convenient; but why merchants should feel the same preference I do not clearly see: provided the goods they receive in their warehouses are of the same quality and price, I should think it would be immaterial to them from whence they came?

mrs. b.

They, like you, find advantages in dealing with their neighbours; it enables them to ascertain better the character of the persons of whom they make their purchases; it affords them the means of protecting themselves against imposition, and of applying a legal remedy in case of necessity. As long as profits are equal, therefore, (independently of risk,) a merchant will always prefer employing his capital in the home trade; and it is only superior profits that can tempt him to enter on a trade in which he is exposed to greater risks. You may recollect we formerly observed that the chances of gain must always be proportioned to the chances of loss.

caroline.

I confess that before this explanation I never could comprehend how foreign trade could be a mutual advantage to the countries engaged in it, for I imagined that what was gained by the one was lost by the other.

mrs. b.

All free trade, of whatever description, must be a mutual benefit to the parties engaged in it; the only difference that can exist with regard to profit is, that it may not always be equally divided between them. An opposition of interests takes place, not between merchants or countries exchanging their commodities, but between rival dealers in the same commodity; and it is from that circumstance probably that you have been led to form such an erroneous idea of commerce. Do you not recollect our observing, some time since, that competition amongst dealers to dispose of their commodities renders them cheap, whilst competition amongst purchasers renders them dear? When you make any purchase, are you not sensible that the greater the number of shops in the same neighbourhood dealing in the same commodity, the more likely you are to purchase it at a low price?

caroline.

Yes, because the shopkeepers endeavour to undersell each other.

mrs. b.

It is therefore the interest of the dealer to narrow competition, whilst it is that of the consumer to enlarge it. Now which do you suppose to be the interest of the country at large?

caroline.

That of the consumers; for every man is a consumer, even the dealers themselves, who, though they are desirous of preventing competition in their own individual trade, must wish for it in all other species of commerce.

mrs. b.

No doubt; it is by free and open competition alone that extravagant prices and exorbitant profits are prevented, and that the public are supplied with commodities as cheap as the dealer can afford to sell them.

caroline.

But in regard to luxuries, Mrs. B., may we not be allowed to encourage those of our own production in preference to those brought from foreign countries?

mrs. b.

The commercial state of France during Bonaparte’s system of prohibition will furnish a very satisfactory answer to your question. The West-Indian produce, which the French were prohibited from purchasing, consists chiefly of certain luxuries of which they could not endure to be deprived; so that (for instance,) they were employed, at an immense expence of capital, in extracting a saccharine juice from various fruits and roots to answer in an inferior degree the purpose of sugar; they cultivated bitter endives, the root of which supplied them with a wretched substitute for coffee; their tea was composed of indigenous herbs of a very inferior flavour to that of China. In a word, labour was multiplied to produce commodities of inferior value; or they would have been altogether deprived of a variety of comforts to which they had been accustomed, and which, besides the pleasure derived from the enjoyment of them, we have observed to be one of the strongest incitements to industry.

But the privation of the consumers of luxuries is but a trifling evil compared with the consequences of such restrictions upon the labouring classes; for its effect is to increase the difficulty of raising produce, and, consequently, to diminish the quantity of capital, the fund upon which the poor subsist.

Mr. Say, who witnessed all the pernicious effects of this system, thus expresses himself: “C’est un bien mauvais calcul que de vouloir obliger la zone temperée à fournir des produits à la zone torride. Nos terres produisent péniblement, en petite quantité, et en qualité médiocre, des matières sucrées et colorantes, qu’un autre climat donne avec profusion; mais elles produisent, au contraire, avec facilité, des fruits, des céréales que leur poids et leur volume ne permettent pas de tirer de bien loin. Lorsque nous condamnons nos terres à nous donner ce qu’elles produisent avec désavantage aux dépends de ce qu’elles produisent plus volontiers; lorsque nous achetons fort cher, ce que nous payerions à fort bon marché, si nous le tirions des lieux où il est produit avec avantage, nous devenons nous mêmes victimes de notre propre folie. Le comble de l’habilité est de tirer le parti le plus avantageux des forces de la nature; et le comble de la démence est de lutter contre elles; car c’est employer nos peines à détruire une partie des forces qu’elle voudroit nous prêter.”

caroline.

The prohibition of foreign commodities has, then, an effect precisely the reverse of that of machinery; for it increases instead of diminishing the quantity of labour; and produces inferior, instead of more perfect commodities.

mrs. b.

And, consequently, the wealth, prosperity, and enjoyments of a country so situated, instead of augmenting, would decline. Let us hear what Dr. Franklin says on the subject of restrictions and prohibitions.

“Perhaps, in general, it would be better if government meddled no further with trade than to protect it, and let it take its course. Most of the statutes or acts, edicts, arrets, and placards, of parliaments, princes, and states, for regulating, directing, or restraining of trade, have, we think, been either political blunders, or jobs obtained by artful men, for private advantage, under pretence of public good. When Colbert assembled some wise old merchants of France, and desired their advice and opinion how he could serve and promote commerce: their answer, after consultation, was in three words only, ‘Laissez nous ‘faire.’ It is said by a very solid writer of the same nation, that he is well advanced in the science of politics who knows the full force of that maxim, pas trop gouverner, which perhaps would be of more use when applied to trade than in any other public concern. It were, therefore, to be wished that commerce were as free between all the nations in the world, as between the several counties of England. So would all, by mutual communication, obtain more enjoyment. Those counties do not ruin each other by trade, neither would the nations. No nation was ever ruined by trade, even seemingly the most disadvantageous. Whenever desirable superfluities are imported, industry is thereby excited and superfluity produced.”

caroline.

Well, I abandon the exclusive use of English luxuries; but the very argument you have used against them makes me think that it must be advisable to rely on home produce for the necessaries of life. Were we dependent on foreign countries for a supply of corn, what would become of us if those countries, in time of war, prohibited its exportation?

mrs. b.

Your question will lead us into a discussion on the corn trade, which it is too late for us to enter upon to-day; we will, therefore, reserve it for our next meeting.

[* ]Sir Francis Divernois.