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2: The Circulation of Wealth When Trade Enjoys Complete Freedom - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship [1776]

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Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


2

The Circulation of Wealth When Trade Enjoys Complete Freedom

The arts multiply the goods of secondary need, they perfect them; and in proportion to their progress, they place in trade a greater quantity of goods, and goods of greater value.

We have seen manufactures right down to the villages; but these are manufactures which are not sold far away, and which, in consequence, only cause wealth to circulate in their localities.

So it is for the manufactures set up in the towns to produce a general circulation between all our cities. The works which come out of them, being made to be sought after everywhere, are on sale everywhere, and the trade made in them causes a sequence of exchanges on every hand which brings everything to value.

I call mercantile the provinces where there are manufactures of this kind and agrarian those where there are none. Let us look at the trade between the one and the other kind.

If an agrarian province buys cloth and linen with the surplus of its products, or with a sum of money equal to that surplus, it makes a profitable trade. Because in handing over the surplus of its products for sale, it gives up something which is useless to it; and in handing over an equivalent sum of money, it gives up money with which this surplus will be bought, and, as a result, the money will come back to it.

This trade is equally profitable to the mercantile provinces whether they are paid in products or whether they are paid in coin. Because they need these products and this money for their subsistence and for the upkeep of their manufactures. It will often happen that they subsist in part on the product of the agrarian provinces; but the latter will not suffer from that if they only ever give up their surplus.

This respective position of the provinces would secure the same plenty for all, if it could always stay unchanged.

It is not to be denied that in mercantile provinces manufactures to a greater or lesser extent harm the cultivation of products necessary for man’s subsistence. By preference, people there will grow the raw materials for which manufacturers are accustomed to pay a higher price, and the lure of gain will draw the inhabitants to become artisans rather than ploughmen. These provinces will thus be forced to carry their money into the agrarian provinces to provide themselves with those foodstuffs lacking for their subsistence; and they will carry all the more there as they become more populous. Now the manufactures, which are a magnet for industry, will make new inhabitants come every day from all over.

Subsistence in a mercantile province is thus not in proportion to its population. But it is easy for it to put this disadvantage right, since with the product of its manufactures it can buy everything it lacks.

The more need the mercantile provinces have of subsistence, the more they demand from the agrarian provinces; and in consequence, they make agriculture flourish there. For the same reason, the fewer manufactures the agrarian provinces have, the more they cause them to flourish in the mercantile provinces. So it is that as the ones lack what is surplus in the others, they all come together for their common advantage.

However, there is a disadvantage for an agrarian province, which is that it is never possible for it to buy except by reason of its surplus. Indeed, as each individual is free to dispose of his property as he pleases, by what means could the province come to regulate its expenditure in this proportion? To increase its expenditure beyond its surplus, would it not be enough, for instance, for the use of fine cloths and fine linen to become more common? It would then have to give up part of the foodstuffs needed for its consumption, or to give a sum with which people could come to buy them.

In the one case as in the other, it would not have enough foodstuffs left: that would make them rise to a higher price, and would force some of the inhabitants to go and live elsewhere.

The more it consumed in cloth and expensive fabrics the more everything would become expensive for it; because the subsistence it would be forced to give in exchange would become scarcer every day.

However, the cloths and fabrics of which it was consuming more would become still more costly, and cause a greater amount of money to pass into the mercantile provinces.

As the latter become richer they form new undertakings. They extend their trade more and more, and they summon new citizens from every part because they offer industry copious wages. That is how these provinces seem bound to enrich themselves and populate themselves at the expense of the agrarian provinces, and seem to be preparing their ruin. But they will not cause it.

You may perhaps judge that it does not matter to the state that wealth and men pass from one province to another, provided that the total of wealth and of men always finds itself the same. However, it is not right, in order to make some provinces more populous and to enrich them, to make of the others so many deserts, or only to leave a wretched people there. If agriculture decayed in the agrarian provinces, because they were no longer populous or rich enough, the mercantile provinces which had caused their ruin would destroy themselves in reaction, because they would not be able to extract anything from them, nor carry anything to them.

Everything would seem to draw towards this general ruin, if the trade in manufactures belonged exclusively to the mercantile provinces.

This is not how they possess it; it can be shared with them, and it will be. In step as the mercantile provinces make everything more expensive, industry will revive in the agrarian provinces, where people would like to go on wearing fine linen and fine cloth, and where they find that it is progressively more difficult to buy them at the price set by the mercantile provinces. It is easy for the agrarian provinces to judge how profitable it would be for them to have their own manufactures, where labour is at a lower cost.

Now if there are flourishing manufactures in the mercantile provinces, there are also others which are hardly so. The attraction of profit has multiplied them excessively and they harm each other by rivalry. There are therefore manufacturers interested in setting up elsewhere. They move into the agrarian provinces where they are called for.

At first, they only make poor-quality cloths, because they do not have the choice of workers; the most skilled having remained in the mercantile provinces where rich manufacturers give them higher wages.

But they offer their cloths at the lowest possible price, and they find a sale in a region where people in general are not rich enough to buy finer ones.

Bit by bit they train up better workers. Then they make cloths which rival in beauty those of the mercantile provinces; and they sell them for a lower price, because labour costs them little and they live very economically.

So the mercantile provinces see some of their trade escaping them. To keep it, as far as they are able, they lower the price of their cloth, of their fabrics, etc. They are forced to do so by the competition of the manufactures set up in the agrarian provinces.

In this way there will be a continuous balancing of wealth and population between all the provinces: a balancing which will be maintained by industry and competition, and which, without reaching a permanent equilibrium, will always seem to lead towards it, and will always be close to it. In a word, all provinces will be rich and populous by reason of the fertility of their soil and their industry.

If a province believed it could become wealthier by concerning itself with the ways of attracting and retaining gold and silver from all the others, that would be an error on its part as fatal as it was gross. Soon everything would become costlier for it: it would lose population: sooner or later it would be forced to spread abroad its gold and silver; and it would have no more idea how to bring them back because, as everything became more expensive, it would have lost its manufactures, and it would need a long time to set them up again.

So gold and silver must be able to enter and leave freely. That is the way that wealth balances itself between all the provinces: all will be in plenty through the exchange of their work.

It is true that, when one province is richer in metal, it seems to have an advantage over others. Since the price of the land’s products and of work are evaluated in money, they are higher in it. They will double, for instance, if it has twice as much money in circulation. With the product of one of its arpents, valued at four ounces of silver, it can buy the product of two arpents, which would only bring in two ounces each in silver in another province. In the same way the product of the work of one of its inhabitants will be the equivalent of the product of the work of two inhabitants of another province. In consequence, it will sell for twice as much money what people buy from it, and it will pay half as much money for what people sell to it.

This advantage would be huge and real for it, if it had the exclusive privilege of the trade in manufactures. It does not. If it believes it is richer because it has more money it is thus harbouring an illusion.

In reality the provinces which have been harmed will concern themselves with ways to draw money to them, and they will succeed through the cheapness of their manufactures. They will sell a lot, while the province that is rich in metal will sell little, or nothing, and nevertheless it will buy all the more, as its consumption will be far greater. So money will leave it, not to return, and it will enter the others, not to leave them, or at least only to leave when they have made the same mistake.

To develop my ideas I have had to show how it appears that provinces must get rich at each other’s expense. All the same this cannot happen when one assumes that they give trade complete and permanent freedom. Because if the circulation of wealth can be carried on with some inequality, it is not to be feared that this inequality can ever go as far as to place wretchedness in sharp contrast to opulence. All the peoples will work in emulation of each other, because they will all want to join in the same benefits. In this competition manufactures will gradually decay in the provinces that they have enriched, and where the price of labour has risen; while they will recover in the other provinces which they must make wealthier, and where the price of labour is lower. They will pass from province to province. Everywhere they will set down a part of the wealth of a nation; and trade will be like a river that divides itself in a host of channels, to water all the lands in succession.

This revolving motion will finish only to begin again. When, in one province, the high price of labour starts to make manufactures decay, the low price will raise them up again in another. They will thus be more or less rich in turn. But because none will be too rich, so none will be poor. That is, wealth will flow back continuously from one to the other; following the different gradients that trade will make them take, they will pour out in succession everywhere. This revolving motion will be without drawbacks, because it will happen naturally and without violence. It is imperceptibly that some provinces will lose a part of their commerce; it is imperceptibly that others will recover what they have lost. Freedom has thus the benefit of guaranteeing them all against poverty, and at the same time checking the advance of wealth in each, when excess of this kind could be harmful.

At the start of this chapter I was obliged to distinguish two kinds of provinces, the one mercantile and the other agrarian: but you can see that, through freedom of trade, they are all at the same time both agrarian and mercantile. That is to say that, in each, people are concerned with everything, and no one knows exclusive preferences.