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LECTURE III.: MERCANTILE THEORY OF WEALTH CONCLUDED. - Nassau William Senior, Three Lectures on the Transmission of Precious Metals from Country to Country and The Mercantile Theory of Wealth 
Three Lectures on the Transmission of Precious Metals from Country to Country and The Mercantile Theory of Wealth. Delivered before the University of Oxford, in June 1827 (London: John Murray, 1828).
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MERCANTILE THEORY OF WEALTH CONCLUDED.
I remarked, in my last lecture, that there are three grounds on which an interference with the natural channels of commerce may, in some cases, be defended without having recourse to the mercantile theory. Two of these, security in case of war, and the immediate injury to the domestic producer with whom the imported commodity would interfere, I have considered. I now proceed to the last, which is taxation:—
The principle of free trade is non-interference: it is to suffer every man to employ his industry in the manner which he thinks most advantageous, without a pretence on the part of the legislator to controul or direct his operations. But when a tax is laid on any domestic product for which a substitute can be obtained from abroad, if the tax exceed the difference between the price at home and abroad, and the expense of importation, it may, besides the general evils necessarily incident to a tax, also operate as an interference with the natural employment of industry. It may occasion the home producer to abandon his business and devote himself to the production of some other commodity, by the exportation of which he may be enabled to import, tax free, the foreign commodity. A heavy tax is imposed on the domestic manufacture of glass:—if no restrictions were imposed on the importation of foreign glass we should cease to manufacture glass at home, and devote an additional portion of our industry to the manufacture of commodities to be exported in exchange direct or indirect, for the glass of France and Germany.
The obvious mode of preventing this is to levy an equivalent, or, as it is called, a countervailing duty on the foreign commodity: and we may easily believe that no government is likely to be wanting in this precaution. The fault is uniformly on the other side. Partly with a view to reconcile to the tax the domestic producer; partly in the hope of additional revenue; and partly with the patriotic intention of protecting domestic industry, a specific tax on any home product is always accompanied, not by an equivalent, but by a much heavier tax on the foreign commodity which might be a substitute for it. And the necessary evils of the tax are augmented by making it a pretext for new restrictions on commerce. But if the duty be no more than a countervailing or equivalent one, it is, subject to the exceptions which I shall mention in a subsequent part of my lectures, not a departure from the principles of free trade but an application of them.
This argument, however, is often made use of to sanction the grossest violation of those principles. We have seen that free trade is founded on non-interference; on the unquestionable axiom, that the wealth of the whole nation is best promoted by allowing each individual to employ himself in the way which he thinks most advantageous to himself, without the influence of motives artificially supplied by partial taxation. But taxation can supply such motives only while it is partial. When a tax is laid generally on all employments, it obviously can occasion no transfer of industry from one employment to another. An exclusion of foreign commodities founded on such a tax, must, of course, either be general, or a particular one. We have seen that such a general exclusion, if it were possible, instead of diminishing the necessary evil of the tax would be itself a fresh, and a far severer calamity. On the other hand, a particular exclusion would be an attempt to favour some particular class or classes of producers at the expense of the community. The first would be simply mischievous; the second mischievous and unjust.
The same answer is to be made to the demand by a particular class to be allowed a monopoly in consideration of the injury which they suffer from the monopolies granted to others. It is true they are sufferers, and so is the whole community, but where would be the justice of an attempt to exempt them from their share of the general suffering by inflicting a new evil on the community at large?
As a fallacy cannot be clearly exposed without illustrations, I will venture to select a few examples from the debate in the House of Commons, in February, 1826, on the proposed admission of foreign silks. The Member who opened it, said “It was utterly impossible to compete with French silks. With a load of debt, hanging like a mill-stone, around the neck of the nation, were they rational men who could propose a competition with a people whose debt was almost no burthen at all?”
The Member for Coventry asked, “Could they go back to the rate of wages which prevailed in 1792? Could they introduce the same scale of prices? If they could not, how could the manufacturer compete with the foreigner?”
The Member for Lincoln said, “Let gods destroy time, taxes, and poor rates, and then let any newly enlightened minister open his eager arms to admit the unrestrained commerce of the world. But until that were done, to talk of free trade, what was it, but to propose that a man bound in fetters should try his strength and agility with one whose limbs were wholly free?”
Even Mr. Baring urged as an objection to the measure, the advantage possessed by the foreigner in the cheapness of labour; and thought “this another proof, in addition to the many which already existed on the same subject, which in his opinion, proved beyond the possibility of a doubt, that it would be impossible for the English manufacturers ever to bring down their goods to such a price as would enable them to compete with the workmen of other nations.” He went on to say, “that the Right Honourable Gentleman was proceeding on wrong grounds with respect to his whole commercial system. He ought to begin with the Corn Laws.”
To every one of these arguments the answer is the same. The Poor Laws and the National Debt, or rather the taxation which they occasion, are tremendous evils. The Corn Laws are an evil, not so great perhaps as either of the former, but more galling from their injustice. But do any of these evils peculiarly affect the manufacturers of silk? If foreign silks were freely admitted must they not be paid for, directly or indirectly, with English manufactures, and if these burthens disable our silk manufacturers from competing with foreigners, must they not equally disable our other manufacturers? On this supposition, must not these burthens of themselves form the most effectual prohibition of foreign silks, by preventing the exportation of English equivalents? Again, because we are prohibited from obtaining bread on the best terms, are we, therefore, to be prohibited from using the most advantageous means to obtain silk? Because public honour, and even common honesty require that every man should contribute a portion of his income to the public creditor, should he therefore be required to pay a larger sum than is necessary to his silk merchant?
The fallacy is, however, most striking when the pretext for monopoly is the high rate of English wages. It is, in the first place, open to the general answer, that not pressing peculiarly upon any one class, it gives to no one class a claim to peculiar privileges: and the force of this answer is, if possible, increased when high wages are used as a defence for the monopoly enjoyed by the producers of corn, a class of persons who obtain labour on cheaper terms than the rest of the community. But it is open to the additional answer, that high wages instead of preventing our manufacturers from competing with foreign countries, are, in fact, a necessary consequence of the very cause which enables us to compete with them,—of the very cause which enables us to obtain in return for the produce of one Englishman’s labour for a day, or a week, or a month, commodities produced by the labour of perhaps two Frenchmen, four or five Poles, and more than ten Hindoos; namely, the superior productiveness of English labour.
I am aware that this proposition may be to many of my readers paradoxical. A statement at this place, of the arguments which have convinced me of its truth, would be an inconvenient digression, besides involving many other propositions which are far from elementary. Indeed, I have introduced it here, though unnecessary to my reasoning, only to suggest to those among my hearers who are anxious to extend the limits of the science, an important and very neglected subject of inquiry,—namely, the differences in the amount of money wages in different countries, and the causes of those differences.
With these remarks I might close all that I have to say on the mercantile theory of wealth, and on the practice which that theory has occasioned; but I have discussed it at so much length, and there is such difficulty in following a long discussion in the form of Lectures, that I should wish to conclude by a recapitulation of the heads of the argument. Fortunately, I can do this, and that in language far better than my own, by reading to you the most important document on the science of trade which has ever been made public,—the Petition of the British Merchants presented to Parliament in May, 1820. That Petition conveys the deliberate judgment of the first commercial members of the greatest commercial country that exists, or ever has existed. It conveys their judgment upon facts constantly before their eyes; complains of evils by which they must have been principally affected; and points out remedies of which the experiment was to be tried on themselves. Besides its merits as a composition, besides its fulness, perspicuity, and precision, besides the conviction which its conclusions must have carried if their force had depended, like that of my own, solely on their premises, it has all the weight of the most powerful testimony;—of the testimony of persons who could not easily be deceived, since they were stating the results of their own long and daily experience, and could have had no motive to deceive others, since they would have themselves been the earliest and most extensive sufferers, if their conclusions had been erroneous.
As the object of the petitioners was to obtain the removal of existing evils, not to account for their origin, they have not traced the restrictive system to the mercantile theory of wealth. In every other respect their reasonings will be found to differ from those which I have addressed to you only in the superiority of their expression.
The Petition states—
“That foreign commerce is eminently conducive to the wealth and prosperity of a country by enabling it to import the commodities for the production of which the soil, climate, capital and industry of other countries are best calculated, and to export in payment those articles for which its own situation is better adapted.
“That freedom from restraint is best calculated to give the utmost extension to foreign trade, and the best direction to the capital and industry of the country.
“That the maxim of buying in the cheapest market and selling in the dearest, which regulates every merchant in his individual dealings is strictly applicable, as the best rule for the trade of the whole nation.
“That a policy founded on these principles would render the commerce of the world an interchange of mutual advantages, and diffuse an increase of wealth and enjoyments among the inhabitants of each state.
“That, unfortunately, a policy the very reverse of this has been, and is, more or less, adopted and acted upon by the government of this and of every other country; each trying to exclude the productions of other countries, with the specious and well-meant design of encouraging its own productions; thus inflicting on the bulk of its subjects, who are consumers, the necessity of submitting to privations in the quantity or quality of commodities; and thus rendering what ought to be the source of mutual benefit and of harmony among states, a constantly recurring occasion of jealousy and hostility.
“That the prevailing prejudices in favour of the protective or restrictive system may be traced to the erroneous supposition that every importation of foreign commodities occasions a diminution or discouragement of our own productions to the same extent; whereas it may be clearly shown, that although the particular description of production which could not stand against unrestrained foreign competition, would be discouraged, yet as no importation could be continued for any length of time without a corresponding exportation, direct or indirect, there would be an encouragement, for the purpose of that exportation, of some other production to which our situation might be better suited; thus affording at least an equal, and probably a greater, and certainly a more beneficial, employment to our own capital and labour.
“That of the numerous protective and prohibitory duties of our Commercial Code it may be proved, that while all operate as a very heavy tax on the community at large, very few are of any ultimate benefit to the classes in whose favour they were originally instituted, and none to the extent of the loss occasioned by them to other classes.
“That among the other evils of the restrictive or protective system, not the least is, that the artificial protection of one branch of industry, or source of production, against foreign competition, is set up as a ground of claim by other branches for similar protection; so that if the reasoning upon which these restrictions or prohibitory regulations are founded were followed out consistently, it would not stop short of excluding us from all foreign commerce whatsoever. And the same train of argument which, with corresponding prohibitions and protective duties, should exclude us from foreign trade, might be brought forward to justify the re-enactment of restrictions upon the interchange of productions (unconnected with public revenue) among the kingdoms composing the union, or among the counties of the same kingdom.
“That an investigation of the effects of the restrictive system at this time is peculiarly called for, as it may, in the opinion of your Petitioners, lead to a strong presumption that the distress which now so generally prevails, is considerably augmented by that system; and that some relief may be obtained by the earliest practicable removal of such of the restraints as may be shewn to be most injurious to the capital and industry of the community, and to be attended with no compensating benefit to the public revenue.
“That a declaration against the anti-commercial principles of our restrictive system is of the more importance at the present juncture, inasmuch as in several instances of recent occurrence, the merchants and manufacturers in foreign states have assailed their respective governments with applications for further protective or prohibitory duties and regulations, urging the example and authority of this country, against which they are almost exclusively directed, as a sanction for the policy of such measures. And, certainly, if the reasoning upon which our restrictions have been defended is worth any thing, it will apply in behalf of the regulations of foreign states against us. They insist upon our superiority in capital and machinery, as we do upon their comparative exemption from taxation, and with equal foundation.
“That nothing would tend more to counteract the commercial hostility of foreign states than the adoption of a more enlightened and more conciliatory policy on the part of this country.
“That although as a matter of mere diplomacy, it may sometimes answer to hold out the removal of particular prohibitions or high duties, as depending upon corresponding concessions by other states in our favour, it does not follow that we should maintain our restrictions in cases where the desired concessions on their part cannot be obtained. Our restrictions would not be less prejudicial to our own capital and industry because other governments persisted in preserving impolitic regulations.
“That upon the whole the most liberal would prove to be the most politic course on such occasions.
“That independent of the direct benefit to be derived by this country on every occasion of such concession or relaxation, a great incidental object would be gained, by the recognition of a sound principle or standard, to which all subsequent arrangements might be referred; and by the salutary influence which a promulgation of just views by the legislature, and by the nation at large, could not fail to have on the policy of other states.
“That in thus declaring, as your Petitioners do, their conviction of the impolicy and injustice of the restrictive system, and in desiring every practicable relaxation of it, they have in view only such parts of it as are not connected, or are only subordinately so, with the public revenue. As long as the necessity for the present amount of revenue subsists, your Petitioners cannot expect so important a branch of it as the Customs to be given up, nor to be materially diminished, unless some substitute, less objectionable, be suggested. But it is against every restrictive regulation of trade not essential to the revenue, against all duties merely protective from foreign competition, and against the excess of such duties as are partly for the purpose ofrevenue and partly for that of protection, that the prayer of the present petition is respectfully submitted to the wisdom of parliament.
“Your Petitioners, therefore, humbly pray, that your Honourable House will be pleased to take the subject into consideration, and to adopt such measures as may be calculated to give greater freedom to foreign commerce, and thereby to increase the resources of the state.”
I cannot resist the temptation of adding, though it must be unnecessary, to the testimony of the Petitioners, that of one of the wisest and most patriotic statesmen whose services this country has ever enjoyed,—of that excellent and enlightened man whom disease has now so recently snatched from the national councils. Before this Petition was presented to Parliament it was submitted to Lord Liverpool, by a deputation of the most eminent of the Petitioners. Lord Liverpool read it aloud to them, probably to mark that no part of its contents could have escaped his notice, and then added—“That, with every sentiment and every principle contained in the petition he fully and unreservedly agreed, and that if he were then to form a commercial code those were the principles on which he would establish it.”
I have to apologize for having detained you so long, and that at the very outset of my Lectures, on a single point. A view of the mercantile theory of wealth was essential, but the symmetry of my course would have been improved if I had disposed of it, as I certainly might have done, more briefly,—if I had contented myself with exposing the absurdity of that theory, and omitted all consideration of its practical consequences. My reasons for going into it at so much length were, first, that the mercantile theory is a detached subject in Political Economy more capable than any other of being submitted to those who are not familiar with the science, or, what is the same as far as my Lectures are concerned, with the view which I take of it. And, secondly, because the question whether the mercantile system shall be abandoned or shall be aggravated and extended; or, in other words, the question of free trade is, next to the Reformation, next to the question of free religion, the most momentous that has ever been submitted to human decision.
If the unhappy prejudices that now exist on this subject should continue, and if the extension of representative governments should increase the power of public opinion over the policy of nations, I fear that commerce may not long be enabled to retain even that degree of freedom that she now enjoys. Much, perhaps every thing, depends on the example to be set by this country. I have perfect reliance on the knowledge and good intentions of our present ministers; but very little on the knowledge possessed by the country at large. And if ministers are unsupported by the community at large, if each class in turn is to be permitted a complete or a partial monopoly, and bribed by this sacrifice of the general and permanent interest of the public, to its own partial and immediate advantage, to allow others to clamour for the power to exercise a similar oppression,—if ministers are not aided by the public voice in their struggles against individual rapacity,—we shall tread backwards and with greater rapidity the few steps which we have so laboriously gained. Slowly and reluctantly, and as if parting from our dearest friend, we have begun to withdraw from the restrictive system. If once we begin to reapproach it, I am justified by all experience in the fear that in our retrograde motion we shall not stop at the point at which we originally set out. It will have been an unsuccessful rebellion against popular prejudice, and like all unsuccessful rebellions, strengthen and consolidate the ruling power. We shall again adopt, and with more skill to enforce it, the third of Edward IV. as the fundamental law of the customs, and consider, with Mr. Daines Barrington, a system of general and absolute prohibition to be founded on the wisest principles of commerce—a system, which, to borrow the words of Mr. Huskisson, proclaims that, “All interchange of their respective commodities between the different nations of the world is a source of evil to the one or to the other; that each country ought to shut itself up within itself, making the most of its own resources, refusing all commerce with any other country, barbarously content to suffer wants which this commerce might easily supply, and to waste its own superfluous productions at home, because to exchange them for the superfluous advantages of that other country would be ruinous to both.”
It is not enough to say that such a state of things (and it is a state to which between our own prohibitions and restrictions and the retaliatory measures of other countries, we were rapidly approaching,) would be mischievous to this country; it would carry with it total and irremediable ruin. The inhabitants of countries of vast extent, possessing every variety of soil and climate, like Russia and China, though their enjoyments might be much increased by foreign commerce, can yet exist without it. And there are other countries which, from their poverty or their situation, the small value of the equivalents which they have to offer, or their difficulties of access, are unable to enjoy it. But both natural causes and the course of events, while they have admirably fitted Great Britain for extensive commerce, have rendered her totally dependent on it. Nature has placed her in the centre of civilization, between the two worlds, but nearer to the more opulent hemisphere, has surrounded her with sea ports and intersected her by navigable rivers. She has given to her a climate eminently favourable to continued exertion of body and mind, and enriched her with minerals more abundant, more varied, and better adapted to one another, and to the wants of mankind, than those of any other country of equal extent. But there the profuseness of her generosity has ceased. Our territory is of limited extent, and still more limited fertility. Our climate confines us to a narrow range of vegetable productions, and what we have are not distinguished by their excellence, or their abundance. What would be the food, and what would be the clothing of even our poorest population, if they were formed only of indigenous materials? What houses or what ships could we build from our internal resources?
On the other hand the absence of unnecessary religious restraint, the security of person and property, the freedom of internal trade, our immunity from hostile invasion, and the non-existence of privileged orders, or of artificial obstacles to the ambition of the humblest individual, all these negative advantages, which it might have been supposed that every nation would secure to itself, but which, in fact, have never been fully enjoyed by any extensive country except Great Britain, and the nation which Great Britain has founded, all this absence of artificial evil has enabled us during the 140 years that have elapsed since the Revolution perfected and secured it, to more than double our numbers, and more than quadruple our wealth. If we had done only one of these things, if we had only increased our wealth, preserving our numbers unaltered, we should certainly have suffered severely from the privation of foreign commerce, our circle of enjoyments, and our power would have been much diminished, but we might have existed as a backward and second-rate nation, on the products of our own soil, worked up by our own manufacturers. Or if our numbers had increased without any addition of our wealth, the mass of our population would have been in nearly the same situation, in respect to wealth, in which the mass of the Irish population is now. They would have been eaters of potatoes instead of wheat, clothed in the rough manufactures of the country, and enabling a race of overgrown landlords to waste in coarse profuseness the cheap labour of their retainers. We should have felt little the want of foreign commerce, as little could have been obtained from it in return for the produce of our ill-directed labour.
But the course which we have run, has combined increased numbers with more varied wants and greater powers of production; an increased taste for those comforts and luxuries which our own soil and climate deny, and still more increased means of purchasing them. The well-directed labour of an Englishman is worth twice as much as that of any other inhabitant of Europe, it is worth four or five times as much as the labour of the less advanced European districts: it is worth twelve or fifteen times as much as the labour of the most civilized Asiatic nations. It is true that the long course of perverse commercial legislation from which we are but beginning to emancipate ourselves, has prevented us from turning these advantages to the best account. Cramped, however, as we have been, we have so far made use of them, that a very large portion of our labouring classes are employed directly, or indirectly, in obtaining foreign commodities; that we scarcely make a meal, or put on a dress, or enter a house formed solely of domestic materials. We are dependent on foreign countries, not merely for what is agreeable, but for what custom has rendered necessary. Do I regret this dependence? Far from it, for it is the necessary consequence of two great benefits, the increase of our numbers and the increase of our wealth. It is the necessary dependence of the rich on the poor, of a metropolis on the surrounding country. The half-naked subjects of Caractacus were doubtless independent of foreign supplies, and so is the semi-barbarian who burrows in the ruins of Persepolis, and cultivates his dates among the remains of palaces. Every approach on our part to a similar independence must be obtained by an approach to a similar condition. But if we only consent to use and improve to the utmost our natural and acquired advantages, if we only consent to buy what our neighbours are willing to sell, if we cease to refuse what they offer us on the ground that they offer it too cheaply, if, to use the words which the Member for Lincoln intended for irony, we open our eager arms to the unrestricted commerce of the world, I see no definite term to the course of prosperity before us. I see no cause that, for ages to come, need check the progress of our wealth and our population. I see no reason why England, which now supports in virtue and in happiness more human beings than any other district of equal extent, should not contain a much larger population with still greater moral and physical advantages.
printed by c. roworth, bell yard, temple bar.