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Subject Area: Economics
Topic: Free Trade

ESSAY No. LXXXI. - Condy Raguet, The Principles of Free Trade [1835]

Edition used:

The Principles of Free Trade illustrated in a series of short and familiar Essays originally published in the Banner of the Constitution, 2nd ed. (Philadelphia, 1840).

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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.


ESSAY No. LXXXI.

february 16, 1831.

The West India trade. Effects of interfering with it by commercial legislation pointed out.

A RESPECTABLE correspondent in Virginia addressed us, some time ago, the following letter, accompanied by an article on the West India trade, which we published in our last paper:

Gloucester County, November 7, 1830.

“Sir:

Never having seen the subject of the West India trade treated exactly as I could have desired, I take the liberty of giving you my views upon it, over the signature of “A Farmer,” to publish, if found to be correct. This is the first of my composition for the public eye, and therefore shall not feel mortified if it is deemed unworthy a place in your paper; though, in the latter event, should be pleased to have my notions set right, by an expression of your opinion on the subject, in the Banner, or in a private communication to me. Yours, &c.”

As our correspondent has asked our opinion on this subject, we will cheerfully give it.

The positions with which the Farmer sets out—viz., that the income of a nation is limited, and that its imports cannot exceed its exports—are undoubtedly correct. Hence it follows, that, if the price of an article, imported into any country, be raised, by the imposition of duties, or by increased expenses, such as are incident to an indirect voyage, the quantity which that nation can afford to consume, must of necessity be diminished, in the same manner precisely as a labouring man must diminish his consumption of food and clothing when their prices are increased. No nation or individual can purchase as many articles at high prices as at low prices, and, to suppose that they can, betrays a want of analytical examination of the subject. To explain our opinions on this matter, we will take a specific case. Say, for instance, our trade with the island of Jamaica, under a direct and under an indirect trade, and, what will be true in reference to that, will be true in reference to the other islands.

Between Jamaica and the United States, we will suppose there is a direct trade. A barrel of flour here costs six dollars, and the freight and charges upon it, and ordinary mercantile profit, require that it should be sold, at Jamaica, so as to nett, there, eight dollars. A cargo of 1000 barrels is shipped and sold in Jamaica, for 8000 dollars, which sum is invested in 1000 barrels of sugar.

This direct trade is then prohibited, and the accustomed exchange of flour for sugar can only take place at a neutral island. To that island the American merchant ships his flour, and to that island the Jamaica planter ships his sugar. The price of both articles will therefore be regulated by the free competition of the neutral market, and thus it will appear that neither party is obliged to sell to the other for any less price than he can obtain from others. But at this market the Jamaica planter purchases American flour, and the price he pays for it, by the time he receives it in Jamaica, is just as much more than he would have to pay under a direct trade, as the increased expenses, whatever they may be, of the double voyage. Supposing these to be one dollar per barrel more, his supply will cost him nine dollars per barrel, and, as he cannot afford to buy as many barrels as when the price was but eight dollars, he must diminish the quantity proportionably, and be content with 900 barrels, because that quantity will absorb, at the new price, his whole fund of 8000 dollars. The loss to the American farmer, from this process, will be the loss of the sale of 100 barrels of flour out of every thousand which he used to sell to Jamaica, but no more, and the influence which this loss can have upon the price, in the home market, of flour, will only be in the proportion that the diminished sales to Jamaica would bear to the total demand for flour—and even that would be of momentary duration, inasmuch as the new production of flour would soon be made to conform to the new demand, and restore the old price. It is an error to suppose that any increased demand for flour in the United States would permanently raise its price. If five dollars per barrel afford a return for the capital and labour, and the use of the land employed in the production of wheat, equal to the average returns derived from other pursuits, as we presume it does, or it would not be raised so abundantly, any rise above five dollars would draw more capital, land, and labour, to that branch of agriculture, until the new quantity should equal the new demand—and then the price would be restored to the old rates. The same is true of a diminished demand for flour, which could only have a temporary effect; for, as capital, land, and labour, would find more profitable employment in other pursuits, they would be turned from the cultivation of wheat, until the price should again be raised to the remunerating point.

The same effect precisely would take place with the sugar. The Jamaica planter would sell less sugar, by 100 barrels out of every 1000, than he used to sell, but the price of sugar in Jamaica would only decline in the proportion that the diminished demand of the United States would bear to the total demand, upon the Jamaica market, for sugar. This decline, too, would be but temporary, as in the other case, for the production of sugar would be diminished until the price should rise to the remunerating point.

If we are correct in these positions, the following facts will be evident:

First. That the interruption of this direct trade is beneficial to neither party; and,

Secondly. That each party loses the sale of a portion of its agricultural products, for which a market did before exist.

As to the question of tonnage, that being a mixed question, is not so susceptible of definite illustration as the other. To convey 900 barrels of flour from the United States to St. Thomas’s, would clearly not require as much tonnage as to convey 1000 barrels to Jamaica; nor would the transportation of 900 barrels of sugar from Jamaica to St. Thomas’s require as much tonnage as to transport 1000 barrels to the United States. But whether the total quantity of American and British tonnage, together, employed in the indirect trade, be not greater than in the direct trade, we are not prepared to assert. We presume it is—but the merits of the question would not thereby be affected. There is no more reason why prices should be artificially raised, to please the ship-owners of either country, than there is to please the manufacturers.

Now, in order to solve the problem which the Virginia Farmer has proposed, it is only necessary to reverse our reasoning, and it would then appear, that the effect of a restoration of a direct trade with the British West Indies must be to increase the mutual exchange of products to an extent at least equal to the whole additional expenses of the circuitous route, which will now be saved to the two countries. This we say in reference to those commodities in which the trade was not entirely broken up. But, as regards the articles of live stock and lumber, which could not bear the expense of a double shipment, the benefits of the restoration will be more perceptible, although even in them they will not appear in the form of permanently increased prices, but of a permanently increased demand.

In the above calculations we have not employed the accuracy which nice proportions call for. We have, for instance, spoken of 900 barrels, where precision required only 889. But this was done for the convenience of the reader. In the same manner we have spoken of 100 barrels, where 111 was the proper number.