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17: Blows Directed Against Commerce: The Rivalry of Nations - 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).

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


17

Blows Directed Against Commerce: The Rivalry of Nations

In order to judge what must happen to several rival nations who are each attempting to trade exclusively, I am moving the people we have observed into Asia Minor. I give it Mysia, Lydia, Bythinia and other provinces, and I make a kingdom with Troy as its capital.*

But since I only want to observe the results of the envy of nations, I assume, to remove every other cause, that this people no longer has in its customs or its government any of the vices with which I have reproached it. It will be at this moment an agricultural nation. It is fostering the skills that bear on agriculture: it is beginning to develop others: it is putting more refinement into the conveniences of life. But its habits are still simple, as is its government. It is unacquainted with tolls, customs, taxes, guilds, corporations or any kind of privilege, nor does it know what we call grain police. Each citizen is free to choose for his subsistence the type of work that suits him, and the government only demands a contribution which is adjusted to the needs of the state, and which the nation pays willingly. Such are the new Trojans. But you must allow me still more assumptions.

I assume, then, that in the centuries when they lived, centuries before all tradition, Asia, Egypt, Greece and Italy, as well as the islands scattered in the seas which separate these continents, were so many civilised countries whose peoples were beginning to have some trade with each other; while all the rest of Europe was still in barbarism.

Finally, my last assumption will be that the arts had not yet made as much progress anywhere as among the Trojans. Everywhere else they seemed in their infancy. Yet luxury was still unknown even at Troy.

The population must be large in all the countries I have just assumed. Many reasons contribute to it: the simplicity of manners, subsistence assured in work of one’s choice, and agriculture which makes all the more progress as it is prized more.

However, all the lands we have covered with civilised nations are not equally fertile; and, in consequence, all do not produce the means of subsistence for a similar population in a comparable area. Greece, for example, is nowhere near as fertile as Egypt; and many maritime coasts would be sparsely inhabited if they were confined to the produce of their soil alone.

But in places where agriculture cannot feed a large population, industry makes up for it, and trade enables a large populace to live there on the surplus of the agricultural nations. This people, to whom the soil seems to deny the essentials, becomes the carrier of the others. It deals with everyone’s surplus; it brings back the means of subsistence to its own soil, and because it has acquired a habit of the thrift with which it was forced to begin, it ends up enriching itself. There you see what must happen to the nations that live on unproductive soil along the sea coast. Trading nations from their location, they are the first to carry out commission trade or trafficking.

Then all the ports were open to traders. All the peoples gave import and export complete freedom. The surplus was constantly poured from one to the other. Through the competition of every possible merchant, each good was at its true price; and the plenty which spread among all the nations seemed, through a kind of ebb and flow, to tend to set itself everywhere at the same level.

This trade was particularly profitable to the Trojans. The progress they had made in the arts drew to them all the merchants of every nation. They worked up both the raw materials of their soil and those which they drew from abroad; and their manufactures, which flourished more every day, gave subsistence to a host of artisans.

Happy in this position, the peoples did not know how to sustain it. Why, they said, send the Trojans those prime materials we can work up ourselves? Is it reasonable to carry our money and our products abroad to give subsistence to artisans there, who, by consuming in our midst, would increase our population and our wealth? So all the peoples considered ways in which each could establish the same manufactures among themselves.

But the trading nations particularly aroused envy. These nations, poor in their soil, were becoming rich and populous and seemed to owe their wealth and population to the blindness of others. Why should we leave them to carry out all the trade virtually alone, the envious peoples were saying? Shall we still suffer them for long to make profits out of us which we could make ourselves? It is we who make them subsist, it is we who make them wealthy. Let us close our ports to them, they will fall into wretchedness and soon they will no longer exist.

These reflections are not as well-based as they appear. The Author of nature, in Whose eyes all the peoples, despite the prejudices that divide them, are as one republic, or rather as just one family, has established needs amongst them. These needs are a consequence of the difference in climate which causes one people to lack things of which another has a surplus, and which gives each of them different types of industry. A curse on the people that would like to do without all the others. It would be as absurd as a citizen who, regretting the profits made from him in society, wished to provide by himself for all his needs. If a people did without the trading nations, if it destroyed them, it would be less rich itself through its actions, since it would reduce the number of consumers to whom it sold its surplus products.

Besides, the traders do not really belong to any country. They form a nation which is spread everywhere and which has its separate interests. A people is therefore mistaken if it thinks it is working for itself when it sacrifices all to its merchants. By excluding those of other nations, it sells its goods at a lower price, and it buys foreign goods at a higher one; its manufactures collapse, its agriculture deteriorates, and it makes fresh losses every day. It is only the competition of all the merchants that can make trade flourish to the benefit of each people. Do and let do [faire & laisser faire], there then is what should be the aim of all the nations. Trade that is always open and always free, alone can contribute to the happiness of all together and of each individually.

But that is not how people reasoned. A state, they said, is only rich and powerful in proportion to the money that circulates; and money only circulates in greater quantity in so far as one carries on a more extensive trade. Every nation that understands its real interests must therefore think of ways to become the sole trading nation.

This reasoning appears clear-cut and people act upon it. So there you have the peoples working to make each other poorer: because in wanting to take trade away from each other, each of them trades less. Let us see the effects of this policy.

The Trojans who had ports on the Aegean Sea, on the Propontis and on the Black Sea were still masters of all the islands adjacent to their continent. In this position, where they could carry on an extensive trade alongside the other peoples, they wished to engage in it exclusively. So they set up customs posts everywhere: they subjected foreign merchants who exported or imported to taxation; finally they closed the ports completely to them.

The people applauded the government’s wisdom. It thought it was going to carry on all the trade by itself; and it handled no more than before, because it could not leave its manufactures and its fields to board ship.

Trade shrank considerably when it was no longer carried out through the intervention of the trading nations. This complete change brought with it the failure of many manufactures; and agriculture was damaged because there were fewer products, once the inability to export had made any surplus useless.

However, the government did not suspect the error it had made. On the contrary it believed that trade was bringing more wealth than ever into the state: it judged thus from the fortunes of some Trojan merchants.

But these traders were making themselves rich at the expense of the state: as they had no rivals when they bought and sold, they alone set the price of things. Every day they cut back the income of the artisan and the ploughman and sold dearly whatever they brought from abroad.

In their mutual rivalry, the peoples could not restrict themselves to closing their ports and denying each other trade in the hope of conducting it exclusively. They yet had to arm, and they armed. In wars that were disastrous for all, they congratulated themselves in turn on the blows they thought they were inflicting, and which only bore on trade to ruin it equally everywhere. Large armies by land, and large fleets at sea, made it necessary to snatch one section of the citizens forcibly from the plough and from manufactures, and to burden the other with taxes. These acts of violence were renewed with each war, always with new abuses because peace, which only came through exhaustion, never lasted long enough to allow the warring powers to make good their losses.

Trade, which had fallen during the war, did not pick up easily in peacetime. People did not dare to engage in enterprises demanding large advances, and whose prospects could evaporate in the first hostilities. None the less the government invited the people and even the nobility to carry out trade. It offered its protection to the dealers, and it seemed only concerned to make the trade flourish that it had wrecked and that it was to ruin further.

When one has power one believes that everything is possible. One does not mistrust one’s intellect at all, and because one has given orders, one does not imagine one could find obstacles. There lies the reason why an error which has been made in public administration is made again and is made for a long time. It becomes a maxim of state and prejudices rule. The Trojans persisted in closing their ports to trading nations, they persisted in making war on them, and yet they were searching for what could be the cause of the decay of their trade.

They thought they had found it, when having meditated that enterprises needed even larger advances as they were exposed to greater risks, they imagined that trade could only continue to be carried on by companies which brought together the capital of several rich merchants. So they only had to allow as many to be formed as was judged fitting. But a company presented itself. It made the state see great advantages in the types of trade it projected. It exaggerated the advances it would have to make. It represented that after having made the outlay it would not be fair that it should be deprived of profit due to its hard work; and it demanded an exclusive privilege. It was given it.

This privilege was a blow directed at freedom since it gave one single company a right which belonged to all the citizens. The traders protested, but in vain. The new company gave the money, and the privilege was confirmed.

As soon as the government realised that these privileges could be sold, it sold more. As this abuse passed into custom it became the rule; and soon people regarded exclusive privileges as a protection granted to trade.

However, to sell exclusive privileges to craftsmen and traders was to exile those to whom none were sold. Many left the kingdom and bore away manufactures with them. It is true that the government forbade them to leave the state under severe penalties. But when they had passed over to a foreign land, it was no longer possible to punish them, and yet one could not prevent them from crossing there. This prohibition made them desert in greater numbers.

When manufactures in a kingdom enjoy complete freedom they multiply in relation to need. It is not the same when they belong to an exclusive company. As the interest of this company is much less to sell a great deal than to sell dearly, it thinks to make the largest profit with the least trading. Besides, it finds an advantage in reducing the number of manufactures, namely that the workers, remaining in larger numbers than it can employ, are reduced, if they do not want to beg, to working for almost nothing.

It was not only that labour cost these exclusive companies little. They also wanted to make a new profit on raw materials. They represented to the government how much the export of raw materials abroad was contrary to the interests of trade, and their sale overseas was forbidden. They therefore bought them at rock-bottom prices and as a result agriculture was more neglected every day.

While customs duties, taxes and exclusive privileges troubled trade and agriculture, luxury grew with wretchedness: the state, which no longer subsisted except through expedients, was continually contracting new debts: and financial speculation raised itself in the midst of the debris of public wealth.

There you have the condition in which the Trojan monarchy found itself. Such a condition was near enough that of all the monarchies which had armed to take from each other certain branches of trade. One would not have guessed from the means that they used that they wanted to become richer.

When the government is for ever borrowing, the interest on money is necessarily very high: it is especially so at a time when luxury, which sets no limits to needs, compels the richest to borrow.

If it is the citizens who lend to the state, capital leaves trade to let a host of rentiers subsist without work, men who are useless, whose number grows continually.

If it is foreigners, the capital not only leaves trade, it also leaves the state which ruins itself by degrees.

Then the traders who are finding it difficult to borrow, or who only find money at high interest rates, are powerless to form great enterprises. How should they form them? Their businesses are almost always tied up with that of the government to which the exclusive companies have lent their credit; and in consequence mistrust of government banishes all confidence from trade. It is therefore very difficult for trade to flourish in such monarchies.

One did not see such drawbacks among the trading republics. On the contrary, great confidence reigned there because traders enjoyed complete freedom there and the government, without luxury and debt, assured their fortunes. They had a great advantage in trade over the traders of the monarchies because they could borrow at low interest rates, and having some saving, they thought less of making huge profits every time than to make small ones often. All the capital thus stayed in trade and made it flourish.

But of all the peoples, the wisest or the happiest were the agrarian republics. With little concern to carry out the trade themselves, they had not thought to close their ports to foreign merchants who came to carry away their surplus produce, and they lived in plenty.

This was the state of affairs, when new branches of trade changed everything.

The Phoenicians [the Dutch: Daire, Mélanges], a republican trading people, found to the east of Europe a country peopled by a host of cities, which seemed to them all the more barbaric, as possessed of plenty of gold and silver, they attached no value to them. This discovery, which gave them the means to carry out a much greater trade, soon gave them preponderance over all the trading nations.

In the Trojan monarchy, where exclusive companies had got hold of all the known trade, they had even greater need to make discoveries. It was the sole expedient for merchants who had bought no privileges at all. So as they were reduced to looking for some new branch of trade in unknown lands, they penetrated into the Caspian Sea; and from there by the Oxus, they went upstream to India. It was a vast, fertile country where the arts were cultivated, and where labour was all the cheaper, as a large population lived there in plenty with few needs.

This discovery introduced a new form of luxury into the monarchy. People admired the beauty of the fabrics made in India, and novelty giving them a value which grew in some way by reason of the remoteness of the country, the merchants who were the first to open up this trade earned from 150 to 200 per cent.

So this trade appeared very lucrative: indeed it was for the merchants. It would have been for the state itself, if people had gained 150 per cent on the goods they carried to India; because, on this assumption, it would have made the manufactures of the kingdom flourish. But the Indians had no need of articles which were made in the West; and gold and silver were almost the only goods which one could give them in exchange for theirs. So it was on the return journey that the merchants made a profit of 150 per cent; and consequently they made it at the state’s expense.

People were not used to making such distinctions. The merchants were making their fortunes by carrying on a trade that was burdensome for the state, and people said, the state is becoming wealthy.

Once this trade seemed to be conducted with so many advantages by some individual merchants, it was not hard to prove to the government that it would be conducted with still more benefit by an exclusive company. It was even proved to the government that the individuals who were carrying on the trade could not conduct it; and although it was convinced of their impotence, so that it followed that it was pointless to forbid them the trade, the government prohibited them, and gave an exclusive privilege for fifteen years to a company.

So there you have many merchants excluded from a trade which they had discovered at their own risk and with their own capital, and yet the company did not carry it on. Companies are slow in their operations: they lose a lot of time in debating and they incur many expenses before starting. The latter did not start at all: it simply prevented the trade being carried on by others.

A second company was formed, a third, several in succession, and the government which was making a habit of forming them still believed that it was to its advantage to form more. It was so convinced of this that it fin-ally formed one to which it gave the greatest help, down to advancing it the capital it needed.

The last named, despite some intermittent success, had soon used up the greater part of its capital. It could see the moment when it was going to lose its credit; and because it was important for it to conceal its losses, it had the idea of making a distribution to its shareholders as if the trade had produced a profit. But this fraudulent shift, which patched up its credit for a while, made an even greater hole in its coffers. Soon it was reduced to borrowing at high interest rates, and it only kept going through the help it received from the government.

But why is the selfsame trade at the same time lucrative and ruinous? It is lucrative when individuals carry it on, because it is then run economically. It is enough for merchants to be in touch with the merchants of the countries where they trade. At the most they will have factors wherever they need to have depots; and they avoid all useless expenditure because they see to everything by themselves.

It is not the same for companies. In the capital they need administrators, directors, clerks, employees: they need other administrators, other directors, other clerks, other employees wherever they form establishments. They also need, in addition to the counters and the warehouses, buildings as a monument to the vanity of the directors they employ. Forced to such outlays, how much will they not lose in embezzlement, in negligence, in incompetence? They pay for all the errors of those they employ to serve them; and all the more arise, as the administrators who succeed each other at the whim of faction, and who each see differently, never allow a sensible, sustained plan to be made. They form badly contrived enterprises: they carry them out as though randomly; and in an administration that seems to tie itself up in knots, they employ self-interested men to complicate it further. The direction of these companies is thus necessarily vicious.

But the India Company had further vices beyond that of its constitution. It wanted to be warlike and conquering. It interfered in the quarrels of the Indian princes: it had soldiers, forts: it acquired possessions; and its employees thought themselves sovereigns. It is thus easy to understand how its direction absorbed more than the products of trade.

However, this company persisted in wanting to keep its privileges; and it based its case on the assertion that this trade was impossible for individual traders. But it spoke for the interests of its employees who alone were amassing wealth. Indeed, its experience proved that it could no longer carry on this trade itself. So what risk was there in freeing the trade? The worst is that everyone would have abandoned it. But they would have carried it on, since they had done it before. [1798 addition: If it is possible to conduct the trade profitably individuals will carry it on, otherwise it will not be carried on.]

The Indian trade excited the greed of the trading nations. The Red Sea opened it to the Phoenicians. They were not slow to engage in it, and they carried to India the gold which they drew from the west of Europe. But it seemed that exclusive companies were to set up everywhere. One was formed to which the Phoenicians abandoned this trade.

This company had in their republic, as in a monarchy, the vices inherent in its constitution. However, it maintained itself better than that of the Trojans, because it found itself in more favourable circumstances.

The Phoenicians had conquered several islands, the only ones where spices grew; and they had believed they would keep to themselves the exclusive sale of these products, by giving these islands to a company that was concerned to close them to every foreign merchant. It was these products which supported their company. It would have been ruined, like all the others, if, without unique possessions, it had been confined to the Indian trade. Enlightened Phoenicians were not unaware of this. They did not count at all on the lasting nature of a company that was at one and the same time warlike and trading, and they judged with reason that it would have been more advantageous for their republic to leave complete freedom to trade, and to share even that of spices with foreign nations.

However, the example of an exclusive company among the Phoenicians was a great argument in Troy for protecting the India Company. How, people said, can this company be contrary to freedom and trade since similar ones are being established among free, mercantile peoples? But if those who made this objection foresaw the reply, they were in bad faith; and if they did not foresee it, they were very ill-informed. Nevertheless, similar reasoning blinded the government to the extent that it did not tire of making fresh efforts constantly to support this company.

The Egyptians [the English: Daire, Mélanges], situated so advantageously for trading from East to West, found it hard to see without envy the riches that the trade was bringing to the Phoenicians. So they tried to share them, and they opened up the same routes for themselves. Bit by bit the other peoples of Asia, copying each other, devoted themselves to the trade, and all arrived in India by different routes. The latecomers counted on the same profits as the first had made. They did not foresee that the competition of so many trading nations would make everything more expensive in Indian markets; and that the goods that were bought there at a higher price would resell at a lower one, because they were becoming commoner. On the contrary, with the great movement that was growing in the trade, people were convinced every day of the maxim that a state is only powerful in so far as it is rich, and that it is only rich in so far as it trades.

It is not that I blame the trading. I think one should allow a people to do whatever it thinks right. The government has nothing to prescribe in this respect. It certainly must not encourage trading exclusively, nor even agriculture. All its protection is limited to watching what is happening, to allowing it to be done, to lifting obstacles and maintaining order. So the country districts should not be trampled on, they will be repopulated with a surplus which will flow again into the towns to fill them with craftsmen, and into the ports to fill them with sailors. Then all will be brought to worth by an effort which will be applied to everything, and the nation will be truly powerful.

But, in order not to trample on the country districts, must one remove all the taxes? Doubtless not. Because it is the lands which must pay the taxes, since they alone are able to pay. As we have noted, whatever tax we place on them, the artisans and the merchants never pay, because if they work they are reimbursed and if they do not work they beg. In a word, whatever way one sets about to make them contribute, it is always the landowners who pay for the wage-earners, since it is the owners who pay the wages: we have already said so. One must therefore place taxes on the lands: one must give industry complete freedom, and one must not allow any of the abuses to arise which we have seen in governments.

All these abuses were to a greater or lesser extent introduced among the nations of Asia; and when they removed all freedom from trade, and with the repercussion ruined agriculture, they wanted to become trading nations and each wanted to be so exclusively. From that came frequent wars in India, in Asia, and continued upheavals in trade. It fell in turn everywhere, and it only picked up feebly among the nations which had had more success. All contracted debts, all multiplied taxes; and to support trade they all seemed to compete in ruining agriculture, without which, however, there was no trade at all. Disorder was the same everywhere, or near enough.

At last people realised that land is the greatest source of wealth; and it was proposed among the Trojans to encourage agriculture by allowing export and import of corn at the same time. Our soil, they said, is naturally fertile, and, if well cultivated, it will be an inexhaustible resource for us. Competition between the nations will set corn at its true price. Assured of the sale of their grains, cultivators will clear all the lands; and each year we shall have a greater stock for trade.

In Egypt, export alone was allowed: frequently the government even encouraged it by bounties. Wealthy through their soil, the Egyptians were so also through their trade, and they then dominated on the seas. Following this example, many people among the Trojans wanted export at least to be allowed: others opposed it, and the public, who did not know what to think, was fearful, whether it was allowed, or whether it was forbidden.

Among the lines of argument sustained on this matter, the best did not convince, and the worst had the advantage of being numerous. The government which, like the public, did not know what to think, obeyed the cry which appeared the strongest, allowing and forbidding export in turn; and because for lack of principles it conducted itself timidly, it usually only granted a freedom that it circumscribed, and which for that reason it left open to the greatest abuses. In a word, one would have said, by its behaviour, that it wanted to cause dearth to favour the monopolists.

In the meantime it was learnt that the Egyptians had just forbidden export; and this news seemed to make those who laid the blame on it in Troy win the argument.

We have proved that it is in the interest of all the nations to grant freedom to import and export: we note here that this freedom must procure the greatest advantages, or at least procure them more promptly, when it comes together with all the causes which can contribute to the progress of agriculture.

Although there were abuses in Egypt, old customs still caused agriculture to be respected. They had as a maxim that taxes should never be set except on the net product of the land, and this product was assessed in the way that was most favourable to the cultivator. A farmer knew what he ought to pay. Confident that he would never be asked for more, he lived in comfort. He was left all the advances he needed to cultivate the fields and to improve them; and the tax could never, on whatever excuse, be levied on these advances. He even had an opportunity to make himself wealthy, which contributed to the progress of agriculture. The fact is that leases lasted for twenty, twenty-five or thirty years. So, during the first four or five years of a lease, rich farmers could direct all their profits into plantations, into clearance of land, into increasing their livestock. They could even use some of their property for this purpose, and they often did so, because they were guaranteed being able to withdraw with profit the advances they had made, in fifteen or twenty years’ time. In a word, through the length of their leases, they were able to cultivate a farm with the same self-interest as if it had been their own; and the proprietors themselves found a great advantage in it, because at each renewal of the lease they considerably increased their revenues.

There you have the causes which came together with the freedom to export in Egypt, and you can imagine that great advantages must have resulted from them.

In Troy, for quite some time, a large number of abuses contributed to the deterioration of agriculture. Leases were for nine years: the law did not allow longer ones to be fixed; and even if it had allowed it, agriculture would have drawn few advantages. What could one expect from the farmers? In general they only earned enough to subsist wretchedly. Little assured of their advances, they were often reduced to selling their animals, or even down to their ploughs, in order to pay their taxes. Poor as they were, they pretended to appear even poorer; because the taxes, which were arbitrary and fell on the individual, grew the moment a ploughman allowed any comfortable living to show. In this state of affairs, the fields fell fallow: people only cultivated in so far as they were forced by necessity; and the majority of farms were far from productive. One may judge from this exposition that, in the Trojan monarchy, time was needed to obtain for themselves all the advantages one must expect from the freedom of trade in corn.

You will no doubt ask why the Egyptians had forbidden export after encouraging it: the fact is that they had not allowed import. There was dearness following a bad harvest and foreigners brought no corn, or did not bring enough. In these circumstances, the government thought it should take the useless precaution of forbidding export, which was not happening and which could not happen.

The Trojans ought to have given the corn trade complete freedom, and they ought also to have made all the causes which can contribute to the progress of agriculture come together. But when a state falls into decay, people think neither about agriculture, nor of the causes which bring damage to it, nor of the ways to set it right. The sole maxim held is that one must make money; and when one has made it, one thinks one has more power, because one can raise larger armies. But in supposing that large armies create power, one must know how the monarch has the money, to judge if his power is well founded.

Is it the cultivators who give the money; and after having given it, do they live in ease? I can conceive that the sovereign is rich; and if he puts his wealth to use he will be powerful. But does he only have money because he has borrowed it? Then he has none. He only has debts. In order to pay them, he will ruin his people; and before he has paid them, he will already have contracted new ones.

Nevertheless, that is the position in which the chief powers of Asia found themselves. Everywhere one spoke of making money enter the state: one spoke of preventing it from leaving: in a word, one only spoke of the need to have it; and governments, which only conducted themselves by the principles of finance, could not think of ways to make agriculture flourish.

With this financial policy, monarchs believed themselves powerful, or prided themselves on becoming so. But the distant centuries in which I make them live must forgive them this error. They did not foresee how easily the richest empires, especially those of Asia, would be overthrown; and they could believe that some day there would be financial conquerors. They deceived themselves.

[* ] [“The wisdom of the reader will have little difficulty in discovering in the course of this chapter that Condillac’s imaginary kingdom of Troy is France.” (Eugène Daire and G. de Molinari, Mélanges d’économie politique [Paris, 1847], 1:427.)]