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THE EFFECTS OF WAR ON COMMERCIAL PROSPERITY. - John Millar, Letters of Sidney, on Inequality of Property. To which is added, a Treatise of the Effects of War on Commercial Prosperity 
Letters of Sidney, on Inequality of Property. To which is added, a Treatise of the Effects of War on Commercial Prsoperity (Edinburgh: the Office of the Scots Chronicle, 1796).
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THE EFFECTS OF WAR ON COMMERCIAL PROSPERITY.
It appears, on a cursory view, one of the most extraordinary circumstances attending on wars, that, notwithstanding the expence which they occasion to the state, and the distress which they bring on individuals, they seem to produce little diminution of the exports and imports of a commercial country. At the beginning of a war, a diminution of both is sensibly felt; but, in a short time, foreign trade seems to accommodate itself to the new circumstances of the country, and to rise vigorous from its temporary depression. Thus, towards the end of the two last wars, our exports and imports were very large* ; and in the year 1795, it is insisted, and probably with truth, that they equalled, or rather surpassed, those of 1792, one of the most flourishing periods of our commerce. Hence it has been inferred, that war is in no great degree, if at all, inconsistent with national prosperity. That it may for a time give a check to our advances, but that the spring of our commerce, by its inherent elasticity, will soon rebound* . It may be useful to inquire, Whether these assertions are well founded?—how far the consequences of war are, in a commercial view, detrimental to the state?—and whether the amount of our exports and imports is a sure indication of our prosperity? In examining these questions, I shall not controvert the authority of the custom-house books, although it seems agreed that they furnish very vague and uncertain data.
The whole annual produce must arise from the land, the capital, and the labour† . It seems impossible that there should be any other source; and even of these, the first is nearly unproductive, unless supported and invigorated by the others. Land, if uncultivated, will yield hardly any crop; if ill cultivated, a very sparing; if fully cultivated, a very rich produce: and the cultivation is altogether carried on by means of capital and labour. We may, therefore, without any dangerous inaccuracy, withdraw our attention from the land, and consider the annual produce as depending on the capital and labour employed. Without population, riches would find no profitable employment; without riches to maintain the workman till his commodity is prepared for market, to supply him with tools and machinery, to effectuate the division of labour, and to transport his manufacture to places in which it is in demand, labour would be scarcely productive; from these two mutually assisting and supporting each other, the annual produce, that is, the national riches, altogether arise. Whatever, therefore, diminishes the capital or labour of a country, must also diminish the aggregate of the annual produce, and consequently tend to national impoverishment.
1st, It seems hardly possible to doubt that war reduces the number of workmen: A few of those who enter into the sea and land services are indeed so idle and profligate* , that their enlisting occasions little or no diminution of industry; but the great majority are tradesmen who are tempted by high bounties, or prevailed upon during a casual fit of intoxication, to enlist. At the beginning of the present war, there were also a great number of sober and industrious men forced into the public service, by the pressure arising from the almost total stagnation of every branch of trade. When we consider that to the ordinary causes of mortality, are added fatigue, battle, and often pestilence and famine, we can have little doubt that, during wars, population must greatly decrease.
Including the navy, the army, the militia, and fencibles, I apprehend I am much under the truth in stating the number of men already enlisted, in Britain, since the commencement of the present war, at 300,000. Of these let us suppose that 20,000 would have died in the common course of nature, and that 30,000 were so idle and dissolute, as to live altogether without labouring. These allowances are surely sufficiently large; and it will follow, that the other 250,000 men have been all withdrawn from industry. If we reckon nine shillings per week the ordinary rate of wages, and in 1792 it was considerably higher, we shall find that the loss of produce to the country exceeds five millions and a half each year.
Nor does this loss terminate with the war, from which it arises. At peace, few of our soldiers and sailors will resume their former occupations: Those who have been maimed or killed are completely lost to the country; and the rest return, some with worn-out constitutions, all with habits destructive of industry. It must require many years to fill up the measure of population from the rising generation; and till this is effected, the quantity of productive labour in the country will continue at a level below that at which it would otherwise have stood. The effect of war, then, is to diminish the produce of the national industry, not only during its continuance, but for a considerable time after its termination; and this effect would follow, even on the supposition that the funds which support labour were to remain untouched. In this case it must be evident, that a rise in the demand for workmen, and a consequent enhancement of the rate of wages, would immediately result from the decrease of population: but, as our commodities are already sold at the highest price they can bring in the market, this rise of wages would occasion a proportionate reduction of manufacturing and agricultural profits. Stock would be instantly withdrawn from these employments, in which it no longer yielded its ordinary returns, and, being placed in foreign speculations, would again produce its former profits, but would no longer support the industry, nor increase, to the same degree, the amount of the aggregate produce of this country. But,
2dly, Every unusual national expence must cause a diminution of national capital. The whole property belonging to individuals is engaged in agriculture, commerce, or manufactures: If the proprietor does not choose to vest it in these speculations at his own risk, he lends it to others who pay him interest for the loan; that is, share with him the profits which they draw from its employment. The whole stock of the nation is thus engaged in trade; there are no unemployed funds from which the extraordinary expences can be defrayed, and therefore they must altogether fall on productive capital. If the amount of these expences were levied within the year, each person would find it necessary to give up to the state part of that capital which he formerly employed in a lucrative manner; for it would be obviously impossible for him to save his quota from his ordinary private expences.
All supplies, however, are now raised by loans furnished to government by monied people, or capitalists: Taxes are levied to pay the interest of these loans; and such taxes are, in general, paid by individuals, not from their capitals, but from savings from their expenditure. But the property thus advanced to the state was not formerly idle; it was either employed by the capitalists themselves, or lent by them to other traders. In either case, before it can be lent to the public, it must be withdrawn from its former employments: It cannot serve two purposes; it cannot be expended on wars without ceasing to support the industry of the country. Loans are merely wholesale bargains, transacted by the government, between the capitalists and the rest of the nation: They prevent the necessity of each individual withdrawing a portion of his funds from trade; but they do this, merely by making it the interest of one class to dedicate a larger part of their property to the public service. In place of 100 persons withdrawing 100l. each from their different trades, one man undertakes to advance the whole, on receiving from the others such a compensation, by annual payments, as may be agreed upon. But this man, that the others may continue their ordinary business, must withdraw the whole 10,000l., either from his own trade, or from those persons to whom he had formerly lent that sum, and who had employed it in trade. There is no other source from which the 10,000l. can be procured, unless we suppose, what is evidently absurd, that it was formerly locked up in a strong box, idle and unproductive. Should this money of the capitalist be already invested in the public funds, the case would be no way different. It can supply the new loan only by being withdrawn from the old; and there is but one mode of withdrawing it, which is by sale. Some other person, therefore, must purchase the stock which this capitalist formerly held, and he can do this no otherwse, than by means of property which was formerly employed in a profitable manner either by himself or others. In either case, the capital of the nation, those funds which formerly supported industry, and yielded an annual increase, are diminished. To the lender, indeed, there may be no loss; and, in the hour of public distress, there will probably be great gain: but part of the productive capital of the nation is consumed, and consequently the aggregate of the annual produce, which constitutes the riches of a state, must decline.
It would therefore appear, that the national capital ought to decrease exactly according to the expences of war; but there are particular circumstances which, in some measure, alleviate this evil.
The most universal of these circumstances, is the economy of individuals. Most people are induced, at all times, from a desire of raising themselves in the world, and of providing for their families, to live within their incomes. Whatever is thus saved in one year, is employed in next year’s trade, and becomes part of the productive capital. It has been shown, by the very ingenious author of the Wealth of Nations* , that these savings, from expence, are, in reality, the immediate sources of all the increase of capital; and, as this accumulation proceeds in time of war in a similar, though less rapid, manner than in time of peace, it must, in some measure, replace the waste occasioned by public profusion. The actual diminution of national capital, is, therefore, only the excess of the public expences over the sums saved by individual economy. There is, however, a comparative decrease of capital, which, though not so severely felt by individuals, tends equally to national impoverishment. The amount of the savings of individuals, from their incomes, is, from the reluctance which every person feels in changing his mode of life, as taxes increase, much less considerable during war; and the whole of that accumulation which would have taken place, if peace had continued, may fairly be considered as lost to the nation.
The Funding System, among its many disadvantages, possesses this conveniency, that, by holding out advantageous terms to the rich of all nations, it induces foreigners to vest money in our funds; and thus, in some measure, prevents the decrease of our capital, by attracting part of that which was formerly employed in other countries. In so far as this acts, the property, which formerly supported foreign industry, is consumed by our expences; for, as the capital which is remitted for this purpose, did not formerly exist here, it could give no support to our labour, and the turning it to unproductive employments does not diminish our annual produce. We must, indeed, pay interest for this money from our taxes; but we are enabled to save great part of these taxes annually from our incomes, and the productive capital of the country suffers no diminution. During the present war, there has also been a great influx of wealth, belonging to French, Flemish, and Dutch emigrants; and though it is probable, that, on the return of peace, a great part of this property will be again withdrawn from the country, yet this circumstance has afforded, at least, a temporary support to the national capital.
The expences of the present war have already amounted to above 50 millions Sterling, more than two years rents of all the lands in the kingdom* . The national capital ought to have declined in the same proportion; but, in as far as the expences of individuals have fallen short of their incomes, in as far as property has been brought over by emigrants, and as other foreigners have vested money in our funds, so far has this alarming evil been mitigated. In whatever degree, however, the national capital may have actually declined since 1792, this seems certain, that under a wise neutrality, it might, at the present moment, have been at least one hundred millions more than it really is. The savings from the incomes of individuals would have been incomparably greater, and, in the present convulsed state of Europe, as much, perhaps more, property would have flowed in from other nations. The national riches, therefore, though they have not been actually diminished in so great a degree, have been depressed at least one hundred millions below the level to which they would naturally have risen.
It seems, then, undeniable, that both the capital and labour, and consequently the annual produce of the capital and labour, must be materially injured by war. Meantime, the merchant may find a demand for his commodities, and the rate of wages may even advance. The decrease of capital, other things being equal, will of itself occasion a comparative increase of demand for our commodities, and a consequent enhancement of profit* . The same business is to be transacted by a smaller stock than formerly, and therefore, that stock will more easily find employment. In the same manner, if half the merchants in any country were to become bankrupt, the other half would have a brisker trade, although the aggregate produce would certainly be diminished. The decrease of the number of workmen, will at the same time account for the high wages of labour. Wages are fixed by the competition of masters on one hand, and of workmen on the other* . If the population, and the capital which employs labour, decline proportionally, the competition will be the same as formerly, and wages will be stationary. If capital declines faster, they will fall; if slower, they will rise. The only inference, therefore, which can justly be drawn from the fact, that wages are at present as high as in 1792, is, that capital and population have declined nearly in equal proportions.
If what has now been stated is the truth; if wars reduce the sum of national riches; the observation that our foreign trade continues to flourish, can be little calculated to afford us consolation. There must be a deficiency somewhere; if it is not in our exports and imports, it must be found in our home trade: if the aggregate is reduced, and one branch continues flourishing, the other branches must have declined the more. But Dr. Smith has shown, in the most convincing manner† , that the home trade is far more advantageous to the country; that it gives a greater degree of support to our industry, and is a much surer foundation of national prosperity than any foreign trade whatever. What then is the force of this argument drawn from our exports and imports? Nothing more than this; that the baneful effects of war fall heaviest on those branches of our trade which are most requisite to the prosperity of the state.
If, however, we inquire more particularly into the causes of our large exports and imports, during war, we shall find that, while they hold out the semblance of an advantageous foreign trade, they are altogether fallacious; that they arise partly from national profusion, and partly from national calamity.
1st, The captures made by the enemy swell the amount of our exports. When a vessel is taken on her voyage to a port where British goods are in demand, a new cargo will be commissioned to supply that demand. As soon as it is known that a vessel carrying out British goods to the West Indies has been captured, another cargo will be dispatched to supply those merchants who would otherwise be disappointed; for it is altogether impossible that the delay can render the demand less urgent. The captured cargoes are usually carried to markets for which they are not naturally fitted, and to which they would not otherwise have gone. If a cargo designed for the West Indies is carried into France, the goods must be sold for what they will bring; but, unless for this accident, no part of these commodities would have gone to that country, and therefore this consumption is altogether an addition to the usual and natural demand. Some cargoes indeed are carried into ports to which similar goods would of themselves have forced their way; but which the greater part may be considered as disposed of in a market to which they could not otherwise have had access.
In so far as exports are increased, from this cause, nothing can be more preposterous than to consider them as indications of national prosperity; they are, on the contrary, direct proofs of national loss. Our cargoes, if insured, are always insured at home; and whether the loss falls upon the merchant, or upon the underwriter, who indemnifies himself by the premiums on such cargoes as arrive safe, it is equally a loss to the nation. This part of our trade resembles that of a merchant, who should sell without receiving the price of his commodity; it is a trade which leads, not to opulence, but to ruin. In the mean time, we boast of those exports which are caused by the capture of our own property, not observing, that the more numerous these captures become, the greater will be the amount of our exports, and the greater also the national impoverishment.
2dly, Part of our exports is occasioned by our war expences* . When we are engaged in war, our troops on foreign service must be paid, magazines must be formed, and foreign princes must be subsidised. For these purposes, money must be remitted; or bills, for which money may be got in foreign countries, must be procured.
It is obviously impossible to send abroad any considerable part of the circulating money of this country. Scarcely any part of it could be spared, without the greatest inconveniency, from its usual employment, and even the whole would supply, for but a short time, the enormous waste of a modern campaign. The quantity of bullion in England is usually very inconsiderable; whatever more is requisite for the expences of war, must be purchased; and the price paid for it, must consist in the produce of the land and labour of the country. The demand for gold increases in England, and our merchants endeavour to sell their commodities abroad for that which they find bears a high price at home. Our manufactures are therefore exported to countries from which returns can be got in bullion, and this bullion is afterwards sold to government agents and contractors.
The same thing takes place respecting bills of exchange. If the demand for bills on any particular country is suddenly increased, a premium will be given for such bills. They will consequently be sought after by our merchants; and there are only two ways in which they can be procured, either by exporting goods directly to that country, and drawing for the amount, or by sending goods to such other countries as have these bills to dispose of. In both cases, a quantity of our produce is exported, and the returns consist in bills of exchange, which are afterwards sold by our merchants to government agents and contractors.
Whether our foreign expences are defrayed by gold or by bills of exchange, a quantity of our manufactures must be exported to purchase the necessary gold or bills; and for this part of our produce, no other return whatever is received. But the demand for foreign articles of consumption, although in some degree diminished, is by no means annihilated; and these foreign articles can be got in no other way than as returns for home articles exported, or for bills purchased by home articles. No actual decrease of our exports will therefore take place, unless the war expences and our consumption of foreign articles, are, together, to a smaller amount than our consumption during peace. Unless this is the case, the quantity of our manufactured produce exported, must soon rise to as high an amount as before the commencement of the war; and whenever our war expences overbalance the diminution of the consumption of foreign commodities by individuals, it will even rise higher. In the mean time, the premium on foreign bills acts as a bounty on exportation; and, by enabling our merchants to send their commodities cheaper to foreign markets, encourages the consumption abroad; and thus, though we may be deprived of part of our customers, those that remain will increase their demands for our manufactures* .
It appears, then, that part of our exports, during war, are occasioned solely by our expences; and such trade can surely add nothing to national riches. It may swell the declamation of a Minister; it may amuse the people with fancied prosperity; it may even enrich many individuals; but, were it doubled, we should be so much the poorer; were it increased threefold, we should probably be ruined. Many branches of our commerce and manufactures might flourish, but the whole price of the commodities thus exported, would be finally paid by the nation. Our prosperity would resemble that of a merchant who should sell his commodities in order immediately to consume the price; he might for some time have a brisk trade, but it would inevitably lead to ruin.
3dly, Part, of our imports also arises from our war expences. Timber, hemp, pitch, iron, and indeed almost every article of naval and military stores, must be brought, at least in their rude state, from foreign countries; and they swell, very materially, the general amount of our imports. This, however, in place of proving that we enjoy a lucrative trade, merely shows that we are expending a large revenue. It is a proof of our consumption, but not of our prosperity; for no man, surely, can grow rich by purchasing commodities which he immediately consumes; and, in this respect, there is no difference whatever between the expences of individuals and of states.
These additional imports occasion additional exports. Foreign nations will not give us their commodities for nothing; they must receive, in return, either our produce, or money, or bills which have been purchased by our produce; and thus, not only those war expences, which must be defrayed in the countries in which our troops are acting, but also such as arise from the purchase of naval and military stores, increase the amount of our foreign trade.
4thly, The suppression of smuggling, occasions larger entries in the custom-house books, from which the estimates of our imports are taken: During war, smuggling must always decrease. It becomes much more difficult to escape the numerous frigates that cover the sea; and many of the smugglers are induced, many forced, to enter into the public service. What may be considered as the premium for smuggling, the amount of the duties to be evaded, remains nearly as before; and the risks attending the traffic are greatly increased: It is accordingly given up as a losing trade; and those formerly engaged in it, are induced, by want of employment, and the high bounties offered to volunteers, to enlist. Others, who might still be inclined to continue a contraband trade, being seafaring people, being detected in smuggling, or having no visible means of livelihood, are pressed into the service. The goods, which formerly were brought into the country in a clandestine manner, are now regularly entered, and support the general produce of the customs, and the apparent amount of the imports. In order, however, to compare, in a fair manner, the imports during war, with those in time of peace, we ought to deduct, from the former, the whole amount of the smuggling trade, which is greatly decreased, if not altogether suppressed; for, although the mode of entering goods is altered, by the suppression of the contraband trade, it by no means follows, that the quantity of commodities imported, has increased.
5thly, War does not, in so great a degree as we should at first sight imagine, diminish the consumption of foreign luxuries. The common people, using few or none of these luxuries, the absence of the troops occasions a diminution of consumption equal only to that of the officers. Nor do the additional taxes produce that economy which might be expected. When a man’s nett income is reduced, it requires some effort for him to make a proportionate reduction in his usual expences: he is apt to live as formerly, till the accumulation of taxes makes him feel the absolute necessity of retrenching. He continues, year after year, to flatter himself, that the war will be of short duration, and that the return of peace will enable him to support his former stile of living. He is unwilling to appear with less splendour in the eyes of his acquaintances and of the world, and he prefers suspending, as he thinks, for a short time, his usual accumulation. But the increase of national riches, has no other source than the savings of individuals: and the continuance of a great importation of foreign luxuries, can merely prove, that, while the public expences are reducing the commercial capital of the country, while new and heavy burthens are laid on the people, private economy, which alone could alleviate those evils, is too apt to be neglected.
These seem to me to be the chief causes of the exports and imports of a commercial country being little affected by wars. The expence of military stores, and the thoughtless profusion of individuals, support both. Our exports are kept up by the captures of our own vessels, and by the expences of our own armies abroad; and our imports are apparently, but illusively, increased by the suppression of smuggling. Of such a trade, national loss, not national prosperity, must be the certain consequence. The suppression of smuggling, indeed, brings with it some advantages; but all the other circumstances arise from national or individual profusion, and tend to impoverishment.
In whatever way, then, we reason, whether generally from the diminution of the capital and labour, and consequently of the annual produce of the nation, or more particularly from the causes which support a semblance of foreign trade, it will appear, that, in a commercial country, the effects of war are highly destructive; and, it is hoped, that this view of the subject may have some influence on those who treat all arguments from humanity as unmeaning declamation, who have not hearts to feel for the miseries of mankind.
May. 12. 1796
[* ]Chalmers’s Estimate.
[* ]Chalmers’s Estimate.
[† ]Smith’s Wealth of Nations, Book I. chap. 6.
[* ]Mr. Chalmers likewise considers disappointed lovers as unproductive.
[* ]Book II. chap. 3.
[* ]The amount of the loans is as follows:—
[* ]Wealth of Nations, Book I. chap. 9.
[* ]Wealth of Nations, Book I. chap. 8.
[† ]Wealth of Nations, Book II. chap. 5.
[* ]Wealth of Nations, Book IV. chap. 1.
[* ]In the present war, the demand for British goods has also increased, from the total stop put to French manufactures; but this being a particular, not a general concomitant of war, has been omitted.