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SECOND BOOK: THE THEORY - Friedrich List, The National System of Political Economy 
The National System of Political Economy by Friedrich List, trans. Sampson S. Lloyd, with an Introduction by J. Shield Nicholson (London: Longmans, Green and Co., 1909).
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POLITICAL AND COSMOPOLITICAL ECONOMY.
BEFORE Quesnay and the French economists there existed only a practice of political economy which was exercised by the State officials, administrators, and authors who wrote about matters of administration, occupied themselves exclusively with the agriculture, manufactures, commerce, and navigation of those countries to which they belonged, without analysing the causes of wealth, or taking at all into consideration the interests of the whole human race.
Quesnay (from whom the idea of universal free trade originated) was the first who extended his investigations to the whole human race, without taking into consideration the idea of the nation. He calls his work 'Physiocratie, ou du Gouvernement le plus avantageux au Genre Humain,' his demands being that we must imagine that the merchants of all nations formed one commercial republic. Quesnay undoubtedly speaks of cosmopolitical economy, i.e. of that science which teaches how the entire human race may attain prosperity; in opposition to political economy, or that science which limits its teaching to the inquiry how a given nation can obtain (under the existing conditions of the world) prosperity, civilisation, and power, by means of agriculture, industry, and commerce.
Adam Smith66 treats his doctrine in a similarly extended sense, by making it his task to indicate the cosmopolitical idea of the absolute freedom of the commerce of the whole world in spite of the gross mistakes made by the physiocrates against the very nature of things and against logic. Adam Smith concerned himself as little as Quesnay did with true political economy, i.e. that policy which each separate nation had to obey in order to make progress in its economical conditions. He entitles his work, 'The Nature and Causes of the Wealth of Nations' (i.e. of all nations of the whole human race). He speaks of the various systems of political economy in a separate part of his work solely for the purpose of demonstrating their non-efficiency, and of proving that 'political' or national economy must be replaced by 'cosmopolitical or world-wide economy.' Although here and there he speaks of wars, this only occurs incidentally. The idea of a perpetual state of peace forms the foundation of all his arguments. Moreover, according to the explicit remarks of his biographer, Dugald Stewart, his investigations from the commencement are based upon the principle that 'most of the State regulations for the promotion of public prosperity are unnecessary, and a nation in order to be transformed from the lowest state of barbarism into a state of the highest possible prosperity needs nothing but bearable taxation, fair administration of justice, and peace.' Adam Smith naturally understood under the word 'peace' the 'perpetual universal peace' of the Abbé St. Pierre.
J. B. Say openly demands that we should imagine the existence of a universal republic in order to comprehend the idea of general free trade. This writer, whose efforts were mainly restricted to the formation of a system out of the materials which Adam Smith had brought to light, says explicitly in the sixth volume (p. 288) of his 'Economie politique pratique': 'We may take into our consideration the economical interests of the family with the father at its head; the principles and observations referring thereto will constitute private economy. Those principles, however, which have reference to the interests of whole nations, whether in themselves or in relation to other nations, form public economy (l'économie publique). Political economy, lastly, relates to the interests of all nations, to human society in general.'
It must be remarked here, that in the first place Say recognises the existence of a national economy or political economy, under the name 'économie publique,' but that he nowhere treats of the latter in his works; secondly, that he attributes the name political economy to a doctrine which is evidently of cosmopolitical nature; and that in this doctrine he invariably merely speaks of an economy which has for its sole object the interests of the whole human society, without regard to the separate interests of distinct nations.
This substitution of terms might be passed over if Say, after having explained what he calls political economy (which, however, is nothing else but cosmopolitical or world-wide economy, or economy of the whole human race), had acquainted us with the principles of the doctrine which he calls 'économie publique,' which however is, properly speaking, nothing else but the economy of given nations, or true political economy.
In defining and developing this doctrine he could scarcely forbear to proceed from the idea and the nature of the nation, and to show what material modifications the 'economy of the whole human race' must undergo by the fact that at present that race is still separated into distinct nationalities each held together by common powers and interests, and distinct from other societies of the same kind which in the exercise of their natural liberty are opposed to one another. However, by giving his cosmopolitical economy the name political, he dispenses with this explanation, effects by means of a transposition of terms also a transposition of meaning, and thereby masks a series of the gravest theoretical errors.
All later writers have participated in this error. Sismondi also calls political economy explicitly 'La science qui se charge du bonheur de l'espèce humaine.' Adam Smith and his followers teach us from this mainly nothing more than what Quesnay and his followers had taught us already, for the article of the 'Revue Méthodique' treating of the physiocratic school states, in almost the same words: 'The well-being of the individual is dependent altogether on the well-being of the whole human race.'
The first of the North American advocates of free trade, as understood by Adam Smith—Thomas Cooper, President of Columbia College—denies even the existence of nationality; he calls the nation 'a grammatical invention,' created only to save periphrases, a nonentity, which has no actual existence save in the heads of politicians. Cooper is moreover perfectly consistent with respect to this, in fact much more consistent than his predecessors and instructors, for it is evident that as soon as the existence of nations with their distinct nature and interests is recognised, it becomes necessary to modify the economy of human society in accordance with these special interests, and that if Cooper intended to represent these modifications as errors, it was very wise on his part from the beginning to disown the very existence of nations.
For our own part, we are far from rejecting the theory of cosmopolitical economy, as it has been perfected by the prevailing school; we are, however, of opinion that political economy, or as Say calls it 'économie publique,' should also be developed scientifically, and that it is always better to call things by their proper names than to give them significations which stand opposed to the true import of words.
If we wish to remain true to the laws of logic and of the nature of things, we must set the economy of individuals against the economy of societies, and discriminate in respect to the latter between true political or national economy (which, emanating from the idea and nature of the nation, teaches how a given nation in the present state of the world and its own special national relations can maintain and improve its economical conditions) and cosmopolitical economy, which originates in the assumption that all nations of the earth form but one society living in a perpetual state of peace.
If, as the prevailing school requires, we assume a universal union or confederation of all nations as the guarantee for an everlasting peace, the principle of international free trade seems to be perfectly justified. The less every individual is restrained in pursuing his own individual prosperity, the greater the number and wealth of those with whom he has free intercourse, the greater the area over which his individual activity can exercise itself, the easier it will be for him to utilise for the increase of his prosperity the properties given him by nature, the knowledge and talents which he has acquired, and the forces of nature placed at his disposal. As with separate individuals, so is it also the case with individual communities, provinces, and countries. A simpleton only could maintain that a union for free commercial intercourse between themselves is not as advantageous to the different states included in the United States of North America, to the various departments of France, and to the various German allied states, as would be their separation by internal provincial customs tariffs.
In the union of the three kingdoms of Great Britain and Ireland the world witnesses a great and irrefragable example of the immeasurable efficacy of free trade between united nations. Let us only suppose all other nations of the earth to be united in a similar manner, and the most vivid imagination will not be able to picture to itself the sum of prosperity and good fortune which the whole human race would thereby acquire.
Unquestionably the idea of a universal confederation and a perpetual peace is commended both by common sense and religion.67 If single combat between individuals is at present considered to be contrary to reason, how much more must combat between two nations be similarly condemned? The proofs which social economy can produce from the history of the civilisation of mankind of the reasonableness of bringing about the union of all mankind under the law of right, are perhaps those which are the clearest to sound human understanding.
History teaches that wherever individuals are engaged in wars, the prosperity of mankind is at its lowest stage, and that it increases in the same proportion in which the concord of mankind increases. In the primitive state of the human race, first unions of families took place, then towns, then confederations of towns, then union of whole countries, finally unions of several states under one and the same government. If the nature of things has been powerful enough to extend this union (which commenced with the family) over hundreds of millions, we ought to consider that nature to be powerful enough to accomplish the union of all nations. If the human mind were capable of comprehending the advantages of this great union, so ought we to venture to deem it capable of understanding the still greater benefits which would result from a union of the whole human race. Many instances indicate this tendency in the spirit of the present times. We need only hint at the progress made in sciences, arts, and discoveries, in industry and social order. It may be already foreseen with certainty, that after a lapse of a few decades the civilised nations of the earth will, by the perfection of the means of conveyance, be united as respects both material and mental interchange in as close a manner as (or even closer than) that in which a century ago the various counties of England were connected. Continental governments possess already at the present moment in the telegraph the means of communicating with one another, almost as if they were at one and the same place. Powerful forces previously unknown have already raised industry to a degree of perfection hitherto never anticipated, and others still more powerful have already announced their appearance. But the more that industry advances, and proportionately extends over the countries of the earth, the smaller will be the possibility of wars. Two nations equally well developed in industry could mutually inflict on one another more injury in one week than they would be able to make good in a whole generation. But hence it follows that the same new forces which have hitherto served particularly for production will not withhold their services from destruction, and will principally favour the side of defence, and especially the European Continental nations, while they threaten the insular State with the loss of those advantages which have been gained by her insular position for her defence. In the congresses of the great European powers Europe possesses already the embryo of a future congress of nations. The endeavours to settle differences by protocol are clearly already prevailing over those which obtain justice by force of arms. A clearer insight into the nature of wealth and industry has led the wiser heads of all civilised nations to the conviction that both the civilisation of barbarous and semi-barbarous nations, and of those whose culture is retrograding, as well as the formation of colonies, offer to civilised nations a field for the development of their productive powers which promises them much richer and safer fruits than mutual hostilities by wars or restrictions on trade. The farther we advance in this perception, and the more the uncivilised countries come into contact with the civilised ones by the progress made in the means of transport, so much more will the civilised countries comprehend that the civilisation of barbarous nations, of those distracted by internal anarchy, or which are oppressed by bad government, is a task which offers to all equal advantages—a duty incumbent on them all alike, but one which can only be accomplished by unity.
That the civilisation of all nations, the culture of the whole globe, forms a task imposed on the whole human race, is evident from those unalterable laws of nature by which civilised nations are driven on with irresistible power to extend or transfer their powers of production to less cultivated countries. We see everywhere, under the influence of civilisation, population, powers of mind, material capital attaining to such dimensions that they must necessarily flow over into other less civilised countries. If the cultivable area of the country no longer suffices to sustain the population and to employ the agricultural population, the redundant portion of the latter seeks territories suitable for cultivation in distant lands; if the talents and technical abilities of a nation have become so numerous as to find no longer sufficient rewards within it, they emigrate to places where they are more in demand; if in consequence of the accumulation of material capital, the rates of interest fall so considerably that the smaller capitalist can no longer live on them, he tries to invest his money more satisfactorily in less wealthy countries.
A true principle, therefore, underlies the system of the popular school, but a principle which must be recognised and applied by science if its design to enlighten practice is to be fulfilled, an idea which practice cannot ignore without getting astray; only the school has omitted to take into consideration the nature of nationalities and their special interests and conditions, and to bring these into accord with the idea of universal union and an everlasting peace.
The popular school has assumed as being actually in existence a state of things which has yet to come into existence. It assumes the existence of a universal union and a state of perpetual peace, and deduces therefrom the great benefits of free trade. In this manner it confounds effects with causes. Among the provinces and states which are already politically united, there exists a state of perpetual peace; from this political union originates their commercial union, and it is in consequence of the perpetual peace thus maintained that the commercial union has become so beneficial to them. All examples which history can show are those in which the political union has led the way, and the commercial union has followed.68 Not a single instance can be adduced in which the latter has taken the lead, and the former has grown up from it. That, however, under the existing conditions of the world, the result of general free trade would not be a universal republic, but, on the contrary, a universal subjection of the less advanced nations to the supremacy of the predominant manufacturing, commercial, and naval power, is a conclusion for which the reasons are very strong and, according to our views, irrefragable. A universal republic (in the sense of Henry IV. and of the Abbé St. Pierre), i.e. a union of the nations of the earth whereby they recognise the same conditions of right among themselves and renounce self-redress, can only be realised if a large number of nationalities attain to as nearly the same degree as possible of industry and civilisation, political cultivation, and power. Only with the gradual formation of this union can free trade be developed, only as a result of this union can it confer on all nations the same great advantages which are now experienced by those provinces and states which are politically united. The system of protection, inasmuch as it forms the only means of placing those nations which are far behind in civilisation on equal terms with the one predominating nation (which, however, never received at the hands of Nature a perpetual right to a monopoly of manufacture, but which merely gained an advance over others in point of time), the system of protection regarded from this point of view appears to be the most efficient means of furthering the final union of nations, and hence also of promoting true freedom of trade. And national economy appears from this point of view to be that science which, correctly appreciating the existing interests and the individual circumstances of nations, teaches how every separate nation can be raised to that stage of industrial development in which union with other nations equally well developed, and consequently freedom of trade, can become possible and useful to it.
The popular school, however, has mixed up both doctrines with one another; it has fallen into the grave error of judging of the conditions of nations according to purely cosmopolitical principles, and of ignoring from merely political reasons the cosmopolitical tendency of the productive powers.
Only by ignoring the cosmopolitical tendency of the productive powers could Malthus be led into the error of desiring to restrict the increase of population, or Chalmers and Torrens maintain more recently the strange idea that augmentation of capital and unrestricted production are evils the restriction of which the welfare of the community imperatively demands, or Sismondi declare that manufactures are things injurious to the community. Their theory in this case resembles Saturn, who devours his own children—the same theory which allows that from the increase of population, of capital and machinery, division of labour takes place, and explains from this the welfare of society, finally considers these forces as monsters which threaten the prosperity of nations, because it merely regards the present conditions of individual nations, and does not take into consideration the conditions of the whole globe and the future progress of mankind.
It is not true that population increases in a larger proportion than production of the means of subsistence; it is at least foolish to assume such disproportion, or to attempt to prove it by artificial calculations or sophistical arguments, so long as on the globe a mass of natural forces still lies inert by means of which ten times or perhaps a hundred times more people than are now living can be sustained. It is mere narrow-mindedness to consider the present extent of the productive forces as the test of how many persons could be supported on a given area of land. The savage, the hunter, and the fisherman, according to his own calculation, would not find room enough for one million persons, the shepherd not for ten millions, the raw agriculturist not for one hundred millions on the whole globe; and yet two hundred millions are living at present in Europe alone. The culture of the potato and of food-yielding plants, and the more recent improvements made in agriculture generally, have increased tenfold the productive powers of the human race for the creation of the means of subsistence. In the Middle Ages the yield of wheat of an acre of land in England was fourfold, to-day it is ten to twenty fold, and in addition to that five times more land is cultivated. In many European countries (the soil of which possesses the same natural fertility as that of England) the yield at present does not exceed fourfold. Who will venture to set further limits to the discoveries, inventions, and improvements of the human race? Agricultural chemistry is still in its infancy; who can tell that to-morrow, by means of a new invention or discovery, the produce of the soil may not be increased five or ten fold? We already possess, in the artesian well, the means of converting unfertile wastes into rich corn fields; and what unknown forces may not yet be hidden in the interior of the earth? Let us merely suppose that through a new discovery we were enabled to produce heat everywhere very cheaply, and without the aid of the fuels at present known: what spaces of land could thus be utilised for cultivation, and in what an incalculable degree would the yield of a given area of land be increased? If Malthus' doctrine appears to us in its tendency narrow-minded, it is also in the methods by which it could act an unnatural one, which destroys morality and power, and is simply horrible. It seeks to destroy a desire which nature uses as the most active means for inciting men to exert body and mind, and to awaken and support their nobler feelings—a desire to which humanity for the greater part owes its progress. It would elevate the most heartless egotism to the position of a law; it requires us to close our hearts against the starving man, because if we hand him food and drink, another might starve in his place in thirty years' time. It substitutes cold calculation for sympathy. This doctrine tends to convert the hearts of men into stones. But what could be finally expected of a nation whose citizens should carry stones instead of hearts in their bosoms? What else than the total destruction of all morality, and with it of all productive forces, and therefore of all the wealth, civilisation, and power of the nation?
If in a nation the population increases more than the production of the means of subsistence, if capital accumulates at length to such an extent as no longer to find investment, if machinery throws a number of operatives out of work and manufactured goods accumulate to a large excess, this merely proves, that nature will not allow industry, civilisation, wealth, and power to fall exclusively to the lot of a single nation, or that a large portion of the globe suitable for cultivation should be merely inhabited by wild animals, and that the largest portion of the human race should remain sunk in savagery, ignorance, and poverty.
We have shown into what errors the school has fallen by judging the productive forces of the human race from a political point of view; we have now also to point out the mistakes which it has committed by regarding the separate interests of nations from a cosmopolitical point of view.
If a confederation of all nations existed in reality, as is the case with the separate states constituting the Union of North America, the excess of population, talents, skilled abilities, and material capital would flow over from England to the Continental states, in a similar manner to that in which it travels from the eastern states of the American Union to the western, provided that in the Continental states the same security for persons and property, the same constitution and general laws prevailed, and that the English Government was made subject to the united will of the universal confederation. Under these suppositions there would be no better way of raising all these countries to the same stage of wealth and cultivation as England than free trade. This is the argument of the school. But how would it tally with the actual operation of free trade under the existing conditions of the world?
The Britons as an independent and separate nation would henceforth take their national interest as the sole guide of their policy. The Englishman, from predilection for his language, for his laws, regulations, and habits, would whenever it was possible devote his powers and his capital to develop his own native industry, for which the system of free trade, by extending the market for English manufactures over all countries, would offer him sufficient opportunity; he would not readily take a fancy to establish manufactures in France or Germany. All excess of capital in England would be at once devoted to trading with foreign parts of the world. If the Englishman took it into his head to emigrate, or to invest his capital elsewhere than in England, he would as he now does prefer those more distant countries where he would find already existing his language, his laws, and regulations, rather than the benighted countries of the Continent. All England would thus be developed into one immense manufacturing city. Asia, Africa, and Australia would be civilised by England, and covered with new states modelled after the English fashion. In time a world of English states would be formed, under the presidency of the mother state, in which the European Continental nations would be lost as unimportant, unproductive races. By this arrangement it would fall to the lot of France, together with Spain and Portugal, to supply this English world with the choicest wines, and to drink the bad ones herself: at most France might retain the manufacture of a little millinery. Germany would scarcely have more to supply this English world with than children's toys, wooden clocks, and philological writings, and sometimes also an auxiliary corps, who might sacrifice themselves to pine away in the deserts of Asia or Africa, for the sake of extending the manufacturing and commercial supremacy, the literature and language of England. It would not require many centuries before people in this English world would think and speak of the Germans and French in the same tone as we speak at present of the Asiatic nations.
True political science, however, regards such a result of universal free trade as a very unnatural one; it will argue that had universal free trade been introduced at the time of the Hanseatic League, the German nationality instead of the English would have secured an advance in commerce and manufacture over all other countries.
It would be most unjust, even on cosmopolitical grounds, now to resign to the English all the wealth and power of the earth, merely because by them the political system of commerce was first established and the cosmopolitical principle for the most part ignored. In order to allow freedom of trade to operate naturally, the less advanced nations must first be raised by artificial measures to that stage of cultivation to which the English nation has been artificially elevated. In order that, through that cosmopolitical tendency of the powers of production to which we have alluded, the more distant parts of the world may not be benefited and enriched before the neighbouring European countries, those nations which feel themselves to be capable, owing to their moral, intellectual, social, and political circumstances, of developing a manufacturing power of their own must adopt the system of protection as the most effectual means for this purpose. The effects of this system for the purpose in view are of two kinds: in the first place, by gradually excluding foreign manufactured articles from our markets, a surplus would be occasioned in foreign nations, of workmen, talents, and capital, which must seek employment abroad; and secondly, by the premium which our system of protection would offer to the immigration into our country of workmen, talents, and capital, that excess of productive power would be induced to find employment with us, instead of emigrating to distant parts of the world and to colonies. Political science refers to history, and inquires whether England has not in former times drawn from Germany, Italy, Holland, France, Spain, and Portugal by these means a mass of productive power. She asks: Why does the cosmopolitical school, when it pretends to weigh in the balance the advantages and the disadvantages of the system of protection, utterly ignore this great and remarkable instance of the results of that system?
THE THEORY OF THE POWERS OF PRODUCTION AND THE THEORY OF VALUES.
ADAM SMITH'S celebrated work is entitled, 'The Nature and Causes of the Wealth of Nations.' The founder of the prevailing economical school has therein indicated the double point of view from which the economy of nations, like that of private separate individuals, should be regarded.
The causes of wealth are something totally different from wealth itself. A person may possess wealth, i.e. exchangeable value; if, however, he does not possess the power of producing objects of more value than he consumes, he will become poorer. A person may be poor; if he, however, possesses the power of producing a larger amount of valuable articles than he consumes, he becomes rich.
The power of producing wealth is therefore infinitely more important than wealth itself; it insures not only the possession and the increase of what has been gained, but also the replacement of what has been lost. This is still more the case with entire nations (who cannot live out of mere rentals) than with private individuals. Germany has been devastated in every century by pestilence, by famine, or by civil or foreign wars; she has, nevertheless, always retained a great portion of her powers of production, and has thus quickly reattained some degree of prosperity; while rich and mighty but despot- and priest-ridden Spain, notwithstanding her comparative enjoyment of internal peace,69 has sunk deeper into poverty and misery. The same sun still shines on the Spaniards, they still possess the same area of territory, their mines are still as rich, they are still the same people as before the discovery of America, and before the introduction of the Inquisition; but that nation has gradually lost her powers of production, and has therefore become poor and miserable. The War of Independence of the United States of America cost that nation hundreds of millions, but her powers of production were immeasurably strengthened by gaining independence, and it was for this reason that in the course of a few years after the peace she obtained immeasurably greater riches than she had ever possessed before. If we compare the state of France in the year 1809 with that of the year 1839, what a difference in favour of the latter! Nevertheless, France has in the interim lost her sovereignty over a large portion of the European continent; she has suffered two devastating invasions, and had to pay milliards of money in war contributions and indemnities.
It was impossible that so clear an intellect as Adam Smith possessed could altogether ignore the difference between wealth and its causes and the overwhelming influence of these causes on the condition of nations. In the introduction to his work, he says in clear words in effect: 'Labour forms the fund from which every nation derives its wealth, and the increase of wealth depends first on the productive power of labour, namely, on the degree of skill, dexterity, and judgment with which the labour of the nation is generally applied, and secondly, on the proportion between the number of those employed productively and the number of those who are not so employed.' From this we see how clearly Smith in general perceived that the condition of nations is principally dependent on the sum of their productive powers.
It does not, however, appear to be the plan of nature that complete sciences should spring already perfected from the brain of individual thinkers. It is evident that Smith was too exclusively possessed by the cosmopolitical idea of the physiocrats, 'universal freedom of trade,' and by his own great discovery, 'the division of labour,' to follow up the idea of the importance to a nation of its powers of production. However much science may be indebted to him in respect of the remaining parts of his work, the idea 'division of labour' seemed to him his most brilliant thought. It was calculated to secure for his book a name, and for himself posthumous fame.
He had too much worldly wisdom not to perceive that whoever wishes to sell a precious jewel does not bring the treasure to market most profitably by burying it in a sack of wheat, however useful the grains of wheat may be, but better by exposing it at the forefront. He had too much experience not to know that a débutant (and he was this as regards political economy at the time of the publication of his work) who in the first act creates a furore is easily excused if in the following ones he only occasionally raises himself above mediocrity; he had every motive for making the introduction to his book, the doctrine of division of labour. Smith has not been mistaken in his calculations; his first chapter has made the fortune of his book, and founded his authority as an economist.
However, we on our part believe ourselves able to prove that just this zeal to put the important discovery 'division of labour' in an advantageous light, has hindered Adam Smith from following up the idea 'productive power' (which has been expressed by him in the introduction, and also frequently afterwards, although merely incidentally) and from exhibiting his doctrines in a much more perfect form. By the great value which he attached to his idea 'division of labour' he has evidently been misled into representing labour itself as the 'fund' of all the wealth of nations, although he himself clearly perceives and also states that the productiveness of labour principally depends on the degree of skill and judgment with which the labour is performed. We ask, can it be deemed scientific reasoning if we assign as the cause of a phenomenon that which in itself is the result of a number of deeper lying causes? It cannot be doubted that all wealth is obtained by means of mental and bodily exertions (labour), but yet from that circumstance no reason is indicated from which useful conclusions may be drawn; for history teaches that whole nations have, in spite of the exertions and of the thrift of their citizens, fallen into poverty and misery. Whoever desires to know and investigate how one nation from a state of poverty and barbarism has attained to one of wealth and prosperity, and how another has fallen from a condition of wealth and well-being into one of poverty and misery, has always, after receiving the information that labour is the cause of wealth and idleness the cause of poverty (a remark which King Solomon made long before Adam Smith), to put the further question, what are the causes of labour, and what the causes of idleness?
It would be more correct to describe the limbs of men (the head, hands, and feet) as the causes of wealth (we should thus at least approach far nearer to the truth), and the question then presents itself, what is it that induces these heads, arms, and hands to produce, and calls into activity these exertions? What else can it be than the spirit which animates the individuals, the social order which renders their energy fruitful, and the powers of nature which they are in a position to make use of? The more a man perceives that he must provide for the future, the more his intelligence and feelings incite him to secure the future of his nearest connections, and to promote their well-being; the more he has been from his youth accustomed to forethought and activity, the more his nobler feelings have been developed, and body and mind cultivated the finer examples that he has witnessed from his youth, the more opportunities he has had for utilising his mental and bodily powers for the improvement of his condition, also the less he has been restrained in his legitimate activity, the more successful his past endeavours have been, and the more their fruits have been secured to him, the more he has been able to obtain public recognition and esteem by orderly conduct and activity, and the less his mind suffers from prejudices, superstition, false notions, and ignorance, so much the more will he exert his mind and limbs for the object of production, so much the more will he be able to accomplish, and so much the better will he make use of the fruits of his labour. However, most depends in all these respects on the conditions of the society in which the individual has been brought up, and turns upon this, whether science and arts flourish, and public institutions and laws tend to promote religious character, morality and intelligence, security for person and for property, freedom and justice; whether in the nation all the factors of material prosperity, agriculture, manufactures, and trade, have been equally and harmoniously cultivated; whether the power of the nation is strong enough to secure to its individual citizens progress in wealth and education from generation to generation, and to enable them not merely to utilise the natural powers of their own country to their fullest extent, but also, by foreign trade and the possession of colonies, to render the natural powers of foreign countries serviceable to their own.
Adam Smith has on the whole recognised the nature of these powers so little, that he does not even assign a productive character to the mental labours of those who maintain laws and order, and cultivate and promote instruction, religion, science, and art. His investigations are limited to that human activity which creates material values. With regard to this, he certainly recognises that its productiveness depends on the 'skill and judgment' with which it is exercised; but in his investigations as to the causes of this skill and judgment, he does not go farther than the division of labour, and that he illustrates solely by exchange, augmentation of material capital, and extension of markets. His doctrine at once sinks deeper and deeper into materialism, particularism, and individualism. If he had followed up the idea 'productive power,' without allowing his mind to be dominated by the idea of 'value,' 'exchangeable value,' he would have been led to perceive that an independent theory of the 'productive power,' must be considered by the side of a 'theory of values' in order to explain the economical phenomena. But he thus fell into the mistake of explaining mental forces from material circumstances and conditions, and thereby laid the foundation for all the absurdities and contradictions from which his school (as we propose to prove) suffers up to the present day, and to which alone it must be attributed that the doctrines of political economy are those which are the least accessible to the most intelligent minds. That Smith's school teaches nothing else than the theory of values, is not only seen from the fact that it bases its doctrine everywhere on the conception of 'value of exchange,' but also from the definition which it gives of its doctrine. It is (says J. B. Say) that science which teaches how riches, or exchangeable values, are produced, distributed, and consumed. This is undoubtedly not the science which teaches how the productive powers are awakened and developed, and how they become depressed and destroyed. M'Culloch calls it explicitly 'the science of values,' and recent English writers 'the science of exchange.'
Examples from private economy will best illustrate the difference between the theory of productive powers and the theory of values.
Let us suppose the case of two fathers of families, both being landed proprietors, each of whom saves yearly 1,000 thalers and has five sons. The one puts out his savings at interest, and keeps his sons at common hard work, while the other employs his savings in educating two of his sons as skilful and intelligent landowners, and in enabling the other three to learn a trade after their respective tastes; the former acts according to the theory of values, the latter according to the theory of productive powers. The first at his death may prove much richer than the second in mere exchangeable value, but it is quite otherwise as respects productive powers. The estate of the latter is divided into two parts, and every part will by the aid of improved management yield as much total produce as the whole did before; while the remaining three sons have by their talents obtained abundant means of maintenance. The landed property of the former will be divided into five parts, and every part will be worked in as bad a manner as the whole was heretofore. In the latter family a mass of different mental forces and talents is awakened and cultivated, which will increase from generation to generation, every succeeding generation possessing more power of obtaining material wealth than the preceding one, while in the former family stupidity and poverty must increase with the diminution of the shares in the landed property. So the slaveholder increases by slavebreeding the sum of his values of exchange, but he ruins the productive forces of future generations. All expenditure in the instruction of youth, the promotion of justice, defence of nations, &c. is a consumption of present values for the behoof of the productive powers. The greatest portion of the consumption of a nation is used for the education of the future generation, for promotion and nourishment of the future national productive powers.
The Christian religion, monogamy, abolition of slavery and of vassalage, hereditability of the throne, invention of printing, of the press, of the postal system, of money, weights and measures, of the calendar, of watches, of police, the introduction of the principle of freehold property, of means of transport, are rich sources of productive power. To be convinced of this, we need only compare the condition of the European states with that of the Asiatic ones. In order duly to estimate the influence which liberty of thought and conscience has on the productive forces of nations, we need only read the history of England and then that of Spain. The publicity of the administration of justice, trial by jury, parliamentary legislation, public control of State administration, self-administration of the commonalties and municipalities, liberty of the press, liberty of association for useful purposes, impart to the citizens of constitutional states, as also to their public functionaries, a degree of energy and power which can hardly be produced by other means. We can scarcely conceive of any law or any public legal decision which would not exercise a greater or smaller influence on the increase or decrease of the productive power of the nation.70
If we consider merely bodily labour as the cause of wealth, how can we then explain why modern nations are incomparably richer, more populous, more powerful, and prosperous than the nations of ancient times? The ancient nations employed (in proportion to the whole population) infinitely more hands, the work was much harder, each individual possessed much more land, and yet the masses were much worse fed and clothed than is the case in modern nations. In order to explain these phenomena, we must refer to the progress which has been made in the course of the last thousand years in sciences and arts, domestic and public regulations, cultivation of the mind and capabilities of production. The present state of the nations is the result of the accumulation of all discoveries, inventions, improvements, perfections, and exertions of all generations which have lived before us; they form the mental capital of the present human race, and every separate nation is productive only in the proportion in which it has known how to appropriate these attainments of former generations and to increase them by its own acquirements, in which the natural capabilities of its territory, its extent and geographical position, its population and political power, have been able to develop as completely and symmetrically as possible all sources of wealth within its boundaries, and to extend its moral, intellectual, commercial, and political influence over less advanced nations and especially over the affairs of the world.
The popular school of economists would have us believe that politics and political power cannot be taken into consideration in political economy. So far as it makes only values and exchange the subjects of its investigations, this may be correct; we can define the ideas of value and capital, profit, wages, and rent; we can resolve them into their elements, and speculate on what may influence their rising or falling, &c. without thereby taking into account the political circumstances of the nation. Clearly, however, these matters appertain as much to private economy as to the economy of whole nations. We have merely to consider the history of Venice, of the Hanseatic League, of Portugal, Holland, and England, in order to perceive what reciprocal influence material wealth and political power exercise on each other.
The school also always falls into the strangest inconsistencies whenever this reciprocal influence forces itself on their consideration. Let us here only call to mind the remarkable dictum of Adam Smith on the English Navigation Laws.71
The popular school, inasmuch as it does not duly consider the nature of the powers of production, and does not take into account the conditions of nations in their aggregate, disregards especially the importance of developing in an equal ratio agriculture, manufactures and commerce, political power and internal wealth, and disregards especially the value of a manufacturing power belonging specially to the nation and fully developed in all its branches. It commits the error of placing manufacturing power in the same category with agricultural power, and of speaking of labour, natural power, capital, &c. in general terms without considering the differences which exist between them. It does not perceive that between a State devoted merely to agriculture and a State possessing both agriculture and manufactures, a much greater difference exists than between a pastoral State and an agricultural one. In a condition of merely agricultural industry, caprice and slavery, superstition and ignorance, want of means of culture, of trade, and of transport, poverty and political weakness exist. In the merely agricultural State only the least portion of the mental and bodily powers existing in the nation is awakened and developed, and only the least part of the powers and resources placed by nature at its disposal can be made use of, while little or no capital can be accumulated.
Let us compare Poland with England: both nations at one time were in the same stage of culture; and now what a difference. Manufactories and manufactures are the mothers and children of municipal liberty, of intelligence, of the arts and sciences, of internal and external commerce, of navigation and improvements in transport, of civilisation and political power. They are the chief means of liberating agriculture from its chains, and of elevating it to a commercial character and to a degree of art and science, by which the rents, farming profits, and wages are increased, and greater value is given to landed property. The popular school has attributed this civilising power to foreign trade, but in that it has confounded the mere exchanger with the originator. Foreign manufactures furnish the goods for the foreign trade, which the latter conveys to us, and which occasion consumption of products and raw materials which we give in exchange for the goods in lieu of money payments.
If, however, trade in the manufactures of far distant lands exercises admittedly so beneficial an influence on our agricultural industry, how much more beneficial must the influence be of those manufactures which are bound up with us locally, commercially, and politically, which not only take from us a small portion, but the largest portion of their requirements of food and of raw materials, which are not made dearer to us by great costs of transport, our trade in which cannot be interrupted by the chance of foreign manufacturing nations learning to supply their own wants themselves, or by wars and prohibitory import duties?
We now see into what extraordinary mistakes and contradictions the popular school has fallen in making material wealth or value of exchange the sole object of its investigations, and by regarding mere bodily labour as the sole productive power.
The man who breeds pigs is, according to this school, a productive member of the community, but he who educates men is a mere non-productive. The maker of bagpipes or jews-harps for sale is a productive, while the great composers and virtuosos are non-productive simply because that which they play cannot be brought into the market. The physician who saves the lives of his patients does not belong to the productive class, but on the contrary the chemist's boy does so, although the values of exchange (viz. the pills) which he produces may exist only for a few minutes before they pass into a valueless condition. A Newton, a Watt, or a Kepler is not so productive as a donkey, a horse, or a draught-ox (a class of labourers who have been recently introduced by M'Culloch into the series of the productive members of human society).
We must not believe that J. B. Say has remedied this defect in the doctrine of Adam Smith by his fiction of 'immaterial goods' or products; he has thus merely somewhat varnished over the folly of its results, but not raised it out of its intrinsic absurdity. The mental (immaterial) producers are merely productive, according to his views, because they are remunerated with values of exchange, and because their attainments have been obtained by sacrificing values of exchange, and not because they produce productive powers.72 They merely seem to him an accumulated capital. M'Culloch goes still further; he says that man is as much a product of labour as the machine which he produces, and it appears to him that in all economical investigations he must be regarded from this point of view. He thinks that Smith comprehended the correctness of this principle, only he did not deduce the correct conclusion from it. Among other things he draws the conclusion that eating and drinking are productive occupations. Thomas Cooper values a clever American lawyer at 3,000 dollars, which is about three times as much as the value of a strong slave.
The errors and contradictions of the prevailing school to which we have drawn attention, can be easily corrected from the standpoint of the theory of the productive powers. Certainly those who fatten pigs or prepare pills are productive, but the instructors of youths and of adults, virtuosos, musicians, physicians, judges, and administrators, are productive in a much higher degree. The former produce values of exchange, and the latter productive powers, some by enabling the future generation to become producers, others by furthering the morality and religious character of the present generation, a third by ennobling and raising the powers of the human mind, a fourth by preserving the productive powers of his patients, a fifth by rendering human rights and justice secure, a sixth by constituting and protecting public security, a seventh by his art and by the enjoyment which it occasions fitting men the better to produce values of exchange. In the doctrine of mere values, these producers of the productive powers can of course only be taken into consideration so far as their services are rewarded by values of exchange; and this manner of regarding their services may in some instances have its practical use, as e.g. in the doctrine of public taxes, inasmuch as these have to be satisfied by values of exchange. But whenever our consideration is given to the nation (as a whole and in its international relations) it is utterly insufficient, and leads to a series of narrow-minded and false views.
The prosperity of a nation is not, as Say believes, greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion in which it has more developed its powers of production. Although laws and public institutions do not produce immediate values, they nevertheless produce productive powers, and Say is mistaken if he maintains that nations have been enabled to become wealthy under all forms of government, and that by means of laws no wealth can be created. The foreign trade of a nation must not be estimated in the way in which individual merchants judge it, solely and only according to the theory of values (i.e. by regarding merely the gain at any particular moment of some material advantage); the nation is bound to keep steadily in view all these conditions on which its present and future existence, prosperity, and power depend.
The nation must sacrifice and give up a measure of material property in order to gain culture, skill, and powers of united production; it must sacrifice some present advantages in order to insure to itself future ones. If, therefore, a manufacturing power developed in all its branches forms a fundamental condition of all higher advances in civilisation, material prosperity, and political power in every nation (a fact which, we think, we have proved from history); if it be true (as we believe we can prove) that in the present conditions of the world a new unprotected manufacturing power cannot possibly be raised up under free competition with a power which has long since grown in strength and is protected on its own territory; how can anyone possibly undertake to prove by arguments only based on the mere theory of values, that a nation ought to buy its goods like individual merchants, at places where they are to be had the cheapest—that we act foolishly if we manufacture anything at all which can be got cheaper from abroad—that we ought to place the industry of the nation at the mercy of the self-interest of individuals—that protective duties constitute monopolies, which are granted to the individual home manufacturers at the expense of the nation? It is true that protective duties at first increase the price of manufactured goods; but it is just as true, and moreover acknowledged by the prevailing economical school, that in the course of time, by the nation being enabled to build up a completely developed manufacturing power of its own, those goods are produced more cheaply at home than the price at which they can be imported from foreign parts. If, therefore, a sacrifice of value is caused by protective duties, it is made good by the gain of a power of production, which not only secures to the nation an infinitely greater amount of material goods, but also industrial independence in case of war. Through industrial independence and the internal prosperity derived from it the nation obtains the means for successfully carrying on foreign trade and for extending its mercantile marine; it increases its civilisation, perfects its institutions internally, and strengthens its external power. A nation capable of developing a manufacturing power, if it makes use of the system of protection, thus acts quite in the same spirit as that landed proprietor did who by the sacrifice of some material wealth allowed some of his children to learn a productive trade.
Into what mistakes the prevailing economical school has fallen by judging conditions according to the mere theory of values which ought properly to be judged according to the theory of powers of production, may be seen very clearly by the judgment which J. B. Say passes upon the bounties which foreign countries sometimes offer in order to facilitate exportation; he maintains that 'these are presents made to our nation.' Now if we suppose that France considers a protective duty of twenty-five per cent. sufficient for her not yet perfectly developed manufactures, while England were to grant a bounty on exportation of thirty per cent., what would be the consequence of the 'present' which in this manner the English would make to the French? The French consumers would obtain for a few years the manufactured articles which they needed much cheaper than hitherto, but the French manufactories would be ruined, and millions of men be reduced to beggary or obliged to emigrate, or to devote themselves to agriculture for employment. Under the most favourable circumstances, the present consumers and customers of the French agriculturists would be converted into competitors with the latter, agricultural production would be increased, and the consumption lowered. The necessary consequence would be diminution in value of the products, decline in the value of property, national poverty and national weakness in France. The English 'present' in mere value would be dearly paid for in loss of power; it would seem like the present which the Sultan is wont to make to his pashas by sending them valuable silken cords.
Since the time when the Trojans were 'presented' by the Greeks with a wooden horse, the acceptance of 'presents' from other nations has become for the nation which receives them a very questionable transaction. The English have given the Continent presents of immense value in the form of subsidies, but the Continental nations have paid for them dearly by the loss of power. These subsidies acted like a bounty on exportation in favour of the English, and were detrimental to the German manufactories.73 If England bound herself to-day to supply the Germans gratuitously for years with all they required in manufactured articles, we could not recommend them to accept such an offer. If the English are enabled through new inventions to produce linen forty per cent. cheaper than the Germans can by using the old process, and if in the use of their new process they merely obtain a start of a few years over the Germans, in such a case, were it not for protective duties, one of the most important and oldest branches of Germany's industry will be ruined. It will be as if a limb of the body of the German nation had been lost. And who would be consoled for the loss of an arm by knowing that he had nevertheless bought his shirts forty per cent. cheaper?
If the English very often find occasion to offer presents to foreign nations, very different are the forms in which this is done; it is not unfrequently done against their will; always does it behove foreign nations well to consider whether or not the present should be accepted. Through their position as the manufacturing and commercial monopolists of the world, their manufactories from time to time fall into the state which they call 'glut,' and which arises from what they call 'overtrading.' At such periods everybody throws his stock of goods into the steamers. After the elapse of eight days the goods are offered for sale in Hamburg, Berlin, or Frankfort, and after three weeks in New York, at fifty per cent. under their real value. The English manufacturers suffer for the moment, but they are saved, and they compensate themselves later on by better prices. The German and American manufacturers receive the blows which were deserved by the English—they are ruined. The English nation merely sees the fire and hears the report of the explosion; the fragments fall down in other countries, and if their inhabitants complain of bloody heads, the intermediate merchants and dealers say, 'The crisis has done it all!' If we consider how often by such crisis the whole manufacturing power, the system of credit, nay the agriculture, and generally the whole economical system of the nations who are placed in free competition with England, are shaken to their foundations, and that these nations have afterwards notwithstanding richly to recompense the English manufacturers by higher prices, ought we not then to become very sceptical as to the propriety of the commercial conditions of nations being regulated according to the mere theory of values and according to cosmopolitical principles? The prevailing economical school has never deemed it expedient to elucidate the causes and effects of such commercial crises.
The great statesmen of all modern nations, almost without exception, have comprehended the great influence of manufactures and manufactories on the wealth, civilisation, and power of nations, and the necessity of protecting them. Edward III. comprehended this like Elizabeth; Frederick the Great like Joseph II.; Washington like Napoleon. Without entering into the depths of the theory, their foreseeing minds comprehended the nature of industry in its entirety, and appreciated it correctly. It was reserved for the school of physiocrats to regard this nature from another point of view in consequence of a sophistical line of reasoning. Their castle in the air has disappeared; the more modern economical school itself has destroyed it; but even the latter has also not disentangled itself from the original errors, but has merely advanced somewhat farther from them. Since it did not recognise the difference between productive power and mere values of exchange, and did not investigate the former independently of the latter, but subordinated it to the theory of values of exchange, it was impossible for that school to arrive at the perception how greatly the nature of the agricultural productive power differs from the nature of the manufacturing productive power. It does not discern that through the development of a manufacturing industry in an agricultural nation a mass of mental and bodily powers, of natural powers and natural resources, and of instrumental powers too (which latter the prevailing school terms 'capital'), is brought to bear, and brought into use, which had not previously been active, and would never have come into activity but for the formation and development of an internal manufacturing power; it imagines that by the establishment of manufacturing industry these forces must be taken away from agriculture, and transferred to manufacture, whereas the latter to a great extent is a perfectly new and additional power, which, very far indeed from increasing at the expense of the agricultural interest, is often the means of helping that interest to attain a higher degree of prosperity and development.
THE NATIONAL DIVISION OF COMMERCIAL OPERATIONS AND THE CONFEDERATION OF THE NATIONAL PRODUCTIVE FORCES.
THE school is indebted to its renowned founder for the discovery of that natural law which it calls 'division of labour,' but neither Adam Smith nor any of his successors have thoroughly investigated its essential nature and character, or followed it out to its most important consequences.
The expression 'division of labour' is an indefinite one, and must necessarily produce a false or indefinite idea.
It is 'division of labour' if one savage on one and the same day goes hunting or fishing, cuts down wood, repairs his wigwam, and prepares arrows, nets, and clothes; but it is also 'division of labour' if (as Adam Smith mentions as an example) ten different persons share in the different occupations connected with the manufacture of a pin: the former is an objective, and the latter a subjective division of labour; the former hinders, the latter furthers production. The essential difference between both is, that in the former instance one person divides his work so as to produce various objects, while in the latter several persons share in the production of a single object.
Both operations, on the other hand, may be called with equal correctness a union of labour; the savage unites various tasks in his person, while in the case of the pin manufacture various persons are united in one work of production in common.
The essential character of the natural law from which the popular school explains such important phenomena in social economy, is evidently not merely a division of labour, but a division of different commercial operations between several individuals, and at the same time a confederation or union of various energies, intelligences, and powers on behalf of a common production. The cause of the productiveness of these operations is not merely that division, but essentially this union. Adam Smith well perceives this himself when he states, 'The necessaries of life of the lowest members of society are a product of joint labour and of the co-operation of a number of individuals.'74 What a pity that he did not follow out this idea (which he so clearly expresses) of united labour.
If we continue to consider the example of the pin manufacture adduced by Adam Smith in illustration of the advantages of division of labour, and seek for the causes of the phenomenon that ten persons united in that manufacture can produce an infinitely larger number of pins than if every one carried on the entire pin manufacture separately, we find that the division of commercial operations without combination of the productive powers towards one common object could but little further this production.
In order to create such a result, the different individuals must co-operate bodily as well as mentally, and work together. The one who makes the heads of the pins must be certain of the co-operation of the one who makes the points if he does not want to run the risk of producing pin heads in vain. The labour operations of all must be in the proper proportion to one another, the workmen must live as near to one another as possible, and their co-operation must be insured. Let us suppose e.g. that every one of these ten workmen lives in a different country; how often might their co-operation be interrupted by wars, interruptions of transport, commercial crises, &c.; how greatly would the cost of the product be increased, and consequently the advantage of the division of operation diminished; and would not the separation or secession of a single person from the union, throw all the others out of work?
The popular school, because it has regarded the division of operation alone as the essence of this natural law, has committed the error of applying it merely to the separate manufactory or farm; it has not perceived that the same law extends its action especially over the whole manufacturing and agricultural power, over the whole economy of the nation.
As the pin manufactory only prospers by the confederation of the productive force of the individuals, so does every kind of manufacture prosper only by the confederation of its productive forces with those of all other kinds of manufacture. For the success of a machine manufactory, for instance, it is necessary that the mines and metal works should furnish it with the necessary materials, and that all the hundred different sorts of manufactories which require machines, should buy their products from it. Without machine manufactories, a nation would in time of war be exposed to the danger of losing the greater portion of its manufacturing power.
In like manner the entire manufacturing industry of a State in connection with its agricultural interest, and the latter in connection with the former, will prosper the more the nearer they are placed to one another, and the less they are interrupted in their mutual exchanges with one another. The advantages of their confederation under one and the same political Power in times of war, of national differences, of commercial crises, failure of crops, &c., are not less perceptible than are the advantages of the union of the persons belonging to a pin manufactory under one and the same roof.
Smith affirms that the division of labour is less applicable to agriculture than to manufactures.75 Smith had in view only the separate manufactory and the separate farm. He has, however, neglected to extend his principle over whole districts and provinces. Nowhere has the division of commercial operations and the confederation of the productive powers greater influence than where every district and every province is in a position to devote itself exclusively, or at least chiefly, to those branches of agricultural production for which they are mostly fitted by nature. In one district corn and hops chiefly thrive, in another vines and fruit, in a third timber production and cattle rearing, &c. If every district is devoted to all these branches of production, it is clear that its labour and its land cannot be nearly so productive as if every separate district were devoted mainly to those branches of production for which it is specially adapted by nature, and as if it exchanged the surplus of its own special products for the surplus produce of those provinces which in the production of other necessaries of life and raw materials possess a natural advantage equally peculiar to themselves. This division of commercial operations, this confederation of the productive forces occupied in agriculture, can only take place in a country which has attained the greatest development of all branches of manufacturing industry; for in such a country only can a great demand for the greatest variety of products exist, or the demand for the surplus of agricultural productions be so certain and considerable that the producer can feel certain of disposing of any quantity of his surplus produce during this or at least during next year at suitable prices; in such a country only can considerable capital be devoted to speculation in the produce of the country and holding stocks of it, or great improvements in transport, such as canals and railway systems, lines of steamers, improved roads, be carried out profitably; and only by means of thoroughly good means of transport can every district or province convey the surplus of its peculiar products to all other provinces, even to the most distant ones, and procure in return supplies of the peculiar products of the latter. Where everybody supplies himself with what he requires, there is but little opportunity for exchange, and therefore no need for costly facilities of transport.
We may notice how the augmentation of the powers of production in consequence of the separation of occupations and the co-operation of the powers of individuals begins in the separate manufactory and extends to the united nation. The manufactory prospers so much the more in proportion as the commercial operations are divided, the more closely the workmen are united, and the more the co-operation of each person is insured for the whole. The productive powers of every separate manufactory are also increased in proportion as the whole manufacturing power of the country is developed in all its branches, and the more intimately it is united with all other branches of industry. The agricultural power of production is so much greater the more intimately a manufacturing power developed in all its branches is united locally, commercially, and politically with agriculture. In proportion as the manufacturing power is thus developed will the division of the commercial operations and the co-operation of the productive powers in agriculture also develop themselves and be raised to the highest stage of perfection. That nation will therefore possess most productive power, and will consequently be the richest, which has cultivated manufacturing industry in all branches within its territory to the highest perfection, and whose territory and agricultural production is large enough to supply its manufacturing population with the largest part of the necessaries of life and raw materials which they require.
Let us now consider the opposite side of this argument. A nation which possesses merely agriculture, and merely the most indispensable industries, is in want of the first and most necessary division of commercial operations among its inhabitants, and of the most important half of its productive powers, indeed it is in want of a useful division of commercial operations even in the separate branches of agriculture itself. A nation thus imperfect will not only be merely half as productive as a perfect nation, but with an equal or even with a much larger territory, with an equal or a much larger population, it will perhaps scarcely obtain a fifth, probably scarcely a tenth, part of that material wealth which a perfect nation is able to procure; and this for the same reason owing to which in a very complicated manufactory ten persons produce not merely ten times more, but perhaps thirty times more, than one person, or a man with one arm cannot merely work half as little, but infinitely less, than a man with two arms. This loss in productive power will be so much greater, the more that the manufacturing operations can be furthered by machinery, and the less that machinery can be applied in agriculture. A part of the productive power which the agricultural nation thus loses, will fall to the lot of that nation which exchanges its manufactured goods for agricultural products. This will, however, be a positive loss only in case the agricultural nation has already reached that stage of civilisation and political development which is necessary for the establishment of a manufacturing power. If it has not yet attained that stage, and still remains in a barbarous or half-civilised state, if its agricultural power of production has not yet developed itself even from the most primitive condition, if by the importation of foreign fabrics and the exportation of raw products its prosperity nevertheless increases considerably from year to year, and its mental and social powers continue to be awakened and increased, if such commerce as it can thus carry on is not interrupted by foreign prohibition of importation of raw products, or by wars, or if the territory of the agricultural nation is situated in a tropical climate, the gain on both sides will then be equal and in conformity with the laws of nature, because under the influence of such an exchange of the native products for foreign fabrics, a nation so situated will attain to civilisation and development of its productive powers more quickly and safely than when it has to develop them entirely out of its resources. If, however, the agricultural nation has already reached the culminating point of its agricultural development, as far as that can be attained by the influence of foreign commerce, or if the manufacturing nation refuses to take the products of the agricultural nation in exchange for its manufactured goods, and if nevertheless, owing to the successful competition of the manufacturing nation in the markets of the agricultural nation, no manufactures can spring up in the latter, in such a case the agricultural productive power of the agricultural nation is exposed to the danger of being crippled.
By a crippled state of agriculture we mean that state of things in which, from want of a powerful and steadily developing manufacturing industry, the entire increase of population tends to throw itself on agriculture for employment, consumes all the surplus agricultural production of the country, and as soon as it has considerably increased either has to emigrate or share with the agriculturists already in existence the land immediately at hand, till the landed property of every family has become so small that it produces only the most elementary and necessary portion of that family's requirements of food and raw materials, but no considerable surplus which it might exchange with the manufacturers for the manufactured products which it requires. Under a normal development of the productive powers of the State, the greater part of the increase of population of an agricultural nation (as soon as it has attained a certain degree of culture) should transfer itself to manufacturing industry, and the excess of the agricultural products should partly serve for supplying the manufacturing population with provisions and raw materials, and partly for procuring for the agriculturists the manufactured goods, machines, and utensils which they require for their consumption, and for the increase of their own production.
If this state of things sets in at the proper time, agricultural and industrial productive power will increase reciprocally, and indeed ad infinitum. The demand for agricultural products on the part of the industrial population will be so great, that no greater number of labourers will be diverted to agriculture, nor any greater division of the existing land be made, than is necessary to obtain the greatest possible surplus produce from it. In proportion to this surplus produce the population occupied in agriculture will be enabled to consume the products of the workmen employed in manufacturing. A continuous increase of the agricultural surplus produce will occasion a continuous increase of the demand for manufacturing workmen. The excess of the agricultural population will therefore continually find work in the manufactories, and the manufacturing population will at length not only equal the agricultural population in numbers, but will far exceed it. This latter is the condition of England; that which we formerly described is that of part of France and Germany. England was principally brought to this natural division of industrial pursuits between the two great branches of industry, by means of her flocks of sheep and woollen manufactures, which existed there on a large scale much sooner than in other countries. In other countries agriculture was crippled mainly by the influence of feudalism and arbitrary power. The possession of land gave influence and power, merely because by it a certain number of retainers could be maintained which the feudal proprietor could make use of in his feuds. The more vassals he possessed, so many more warriors he could muster. It was besides impossible, owing to the rudeness of those times, for the landed proprietor to consume his income in any other manner than by keeping a large number of servants, and he could not pay these better and attach them to his own person more surely than by giving them a bit of land to cultivate under the condition of rendering him personal service and of paying a smaller tax in produce. Thus the foundation for excessive division of the soil was laid in an artificial manner; and if in the present day the Government seeks by artificial means to alter that system, in so doing it is merely restoring the original state of things.
In order to restrain the continued depreciation of the agricultural power of a nation, and gradually to apply a remedy to that evil in so far as it is the result of previous institutions, no better means exists (apart from the promotion of emigration) than to establish an internal manufacturing power, by which the increase of population may be gradually drawn over to the latter, and a greater demand created for agricultural produce, by which consequently the cultivation of larger estates may be rendered more profitable, and the cultivator induced and encouraged to gain from his land the greatest possible amount of surplus produce.
The productive power of the cultivator and of the labourer in agriculture will always be greater or smaller according to the degree in which the exchange of agricultural produce for manufactures and other products of various kinds can proceed more or less readily. That in this respect the foreign trade of any nation which is but little advanced can prove in the highest degree beneficial, we have shown in another chapter by the example of England. But a nation which has already made considerable advances in civilisation, in possession of capital, and in population, will find the development of a manufacturing power of its own infinitely more beneficial to its agriculture than the most flourishing foreign trade can be without such manufactures, because it thereby secures itself against all fluctuations to which it may be exposed by war, by foreign restrictions on trade, and by commercial crises, because it thereby saves the greatest part of the costs of transport and commercial charges incurred in exporting its own products and in importing manufactured articles, because it derives the greatest advantages from the improvements in transport which are called into existence by its own manufacturing industry, while from the same cause a mass of personal and natural powers hitherto unemployed will be developed, and especially because the reciprocal exchange between manufacturing power and agricultural power is so much greater, the closer the agriculturist and manufacturer are placed to one another, and the less they are liable to be interrupted in the exchange of their various products by accidents of all kinds.
In my letters to Mr. Charles J. Ingersoll, President of the Society for Promoting Arts and Industries in Philadelphia, of the year 1828 (entitled, 'Outlines of a New System of Political Economy'), I tried to explain the advantages of a union of the manufacturing power with agriculture in one and the same country, and under one and the same political power, in the following manner. Supposing you did not understand the art of grinding corn, which has certainly been a great art in its time; supposing further that the art of baking bread had remained unknown to you, as (according to Anderson) the real art of salting herrings was still unknown to the English in the seventeenth century; supposing, therefore, that you had to send your corn to England to be ground into flour and baked into bread, how large a quantity of your corn would not the English retain as pay for the grinding and baking; how much of it would the carters, seamen, and merchants consume, who would have to be employed in exporting the corn and importing the bread; and how much would come back into the hands of those who cultivated the corn? There is no doubt that by such a process the foreign trade would receive a considerable impetus, but it is very doubtful whether this intercourse would be specially advantageous to the welfare and independence of the nation. Consider only in case of a war breaking out between your country (the United States) and Great Britain, what would be the situation of those who produced corn for the English mills and bakehouses, and on the other hand the situation of those who had become accustomed to the taste of the English bread. Just as, however, the economical prosperity of the corn-cultivating interest requires that the corn millers should live in its vicinity, so also does the prosperity of the farmer especially require that the manufacturer should live close to him, so also does the prosperity of a flat and open country require that a prosperous and industrial town should exist in its centre, and so does the prosperity of the whole agriculture of a country require that its own manufacturing power should be developed in the highest possible degree.
Let us compare the condition of agriculture in the vicinity of a populous town with its condition when carried on in distant provinces. In the latter case the farmer can only cultivate for sale those products which can bear a long transport, and which cannot be supplied at cheaper prices and in better quality from districts lying nearer to those who purchase them. A larger portion of his profits will be absorbed by the costs of transport. He will find it difficult to procure capital which he may employ usefully on his farm. From want of better examples and means of education he will not readily be led to avail himself of new processes, of better implements, and of new methods of cultivation. The labourer himself, from want of good example, of stimulus to exertion, and to emulation in the exercise of his productive powers, will only develop those powers inefficiently, and will indulge himself in loitering about and in idleness.
On the other hand, in the proximity of the town, the farmer is in a position to use every patch of land for those crops which best suit the character of the soil. He will produce the greatest variety of things to the best advantage. Garden produce, poultry, eggs, milk, butter, fruit, and especially articles which the farmer residing at a distance considers insignificant and secondary things, will bring to the farmer near the town considerable profit. While the distant farmer has to depend mainly on the mere breeding of cattle, the other will make much better profits from fattening them, and will thereby be led to perfect his cultivation of root crops and fodder. He can utilise with much profit a number of things which are of little or no use to the distant farmer; e.g. stone, sand, water power, &c. The most numerous and best machines and implements as well as all means for his instruction, are close at hand. It will be easy for him to accumulate the capital necessary for the improvement of his farm. Landed proprietors and workmen, by the means of recreation which the town affords, the emulation which it excites among them, and the facility of making profits, will be incited to exert all their mental and bodily powers for the improvement of their condition. And precisely the same difference exists between a nation which unites agriculture and manufactures on its own territory, and a nation which can only exchange its own agricultural products for foreign manufactured goods.
The whole social state of a nation will be chiefly determined by the principle of the variety and division of occupations and the cooperation of its productive powers. What the pin is in the pin manufactory, that the national well-being is to the large society which we term 'the nation.' The most important division of occupations in the nation is that between the mental and material ones. Both are mutually dependent on one another. The more the mental producers succeed in promoting morality, religion, enlightenment, increase of knowledge, extension of liberty and of perfection of political institutions—security of persons and property within the State, and the independence and power of the nation externally—so much greater will be the production of material wealth. On the other hand, the more goods that the material producers produce, the more will mental production be capable of being promoted.
The most important division of occupations, and the most important co-operation of productive powers in material production, is that of agriculture and manufacture. Both depend mutually upon one another, as we have shown.
As in the pin manufactory, so also in the nation does the productiveness of every individual—of every separate branch of production—and finally of the whole nation depend on the exertions of all individuals standing in proper relation to one another. We call this relation the balance or the harmony of the productive powers. It is possible for a nation to possess too many philosophers, and literati, and too few skilled artisans, merchants, and seamen. This is the consequence of highly advanced and learned culture which is not supported by a highly advanced manufacturing power and by an extensive internal and external trade; it is as if in a pin manufactory far more pin heads were manufactured than pin points. The surplus pin heads in such a nation are: a mass of useless books, subtle theoretical systems, and learned controversies, through which the mind of the nation is more obscured than cultivated, and is withdrawn from useful occupations; consequently its productive powers are retarded in their progress almost as much as if it possessed too many priests and too few instructors of youth, too many soldiers and too few politicians, too many administrators and too few judges and defenders of justice and right.
A nation which only carries on agriculture, is an individual who in his material production lacks one arm. Commerce is merely the medium of exchange between the agricultural and the manufacturing power, and between their separate branches. A nation which exchanges agricultural products for foreign manufactured goods is an individual with one arm, which is supported by a foreign arm. This support may be useful to it, but not so useful as if it possessed two arms itself, and this because its activity is dependent on the caprice of the foreigner. In possession of a manufacturing power of its own, it can produce as much provisions and raw materials as the home manufacturers can consume; but if dependent upon foreign manufacturers, it can merely produce as much surplus as foreign nations do not care to produce for themselves, and which they are obliged to buy from another country.
As between the different districts of one and the same country, so does the division of labour and the co-operation of the productive powers operate between the various nations of the earth. The former is conducted by internal or national, the latter by international commerce. The international co-operation of productive powers is, however, a very imperfect one, inasmuch as it may be frequently interrupted by wars, political regulations, commercial crises, &c. Although it is the most important in one sense, inasmuch as by it the various nations of the earth are connected with one another, it is nevertheless the least important with regard to the prosperity of any separate nation which is already far advanced in civilisation. This is admitted by writers of the popular school, who declare that the home market of a nation is without comparison more important than its foreign market. It follows from this, that it is the interest of every great nation to make the national confederation of its productive powers the main object of its exertions, and to consider their international confederation as second in importance to it.
Both international and national division of labour are chiefly determined by climate and by Nature herself. We cannot produce in every country tea as in China, spices as in Java, cotton as in Louisiana, or corn, wool, fruit, and manufactured goods as in the countries of the temperate zone. It would be folly for a nation to attempt to supply itself by means of national division of labour (i.e. by home production) with articles for the production of which it is not favoured by nature, and which it can procure better and cheaper by means of international division of labour (i.e. through foreign commerce). And just as much does it betoken a want of national intelligence or national industry if a nation does not employ all the natural powers which it possesses in order to satisfy its own internal wants, and then by means of the surplus of its own productions to purchase those necessary articles which nature has forbidden it to produce on its own territory.
The countries of the world most favoured by nature, with regard to both national and international division of labour, are evidently those whose soil brings forth the most common necessaries of life of the best quality and in the largest quantity, and whose climate is most conducive to bodily and mental exertion, and these are the countries of the temperate zone; for in these countries the manufacturing power especially prospers, by means of which the nation not merely attains to the highest degree of mental and social development and of political power, but is also enabled to make the countries of tropical climates and of inferior civilisation tributary in a certain measure to itself. The countries of the temperate zone therefore are above all others called upon to bring their own national division of labour to the highest perfection, and to use the international division of labour for their enrichment.
PRIVATE ECONOMY AND NATIONAL ECONOMY.
WE have proved historically that the unity of the nation forms the fundamental condition of lasting national prosperity; and we have shown that only where the interest of individuals has been subordinated to those of the nation, and where successive generations have striven for one and the same object, the nations have been brought to harmonious development of their productive powers, and how little private industry can prosper without the united efforts both of the individuals who are living at the time, and of successive generations directed to one common object. We have further tried to prove in the last chapter how the law of union of powers exhibits its beneficial operation in the individual manufactory, and how it acts with equal power on the industry of whole nations. In the present chapter we have now to demonstrate how the popular school has concealed its misunderstanding of the national interests and of the effects of national union of powers, by confounding the principles of private economy with those of national economy.
'What is prudence in the conduct of every private family,' says Adam Smith,76 'can scarce be folly in that of a great kingdom.' Every individual in pursuing his own interests necessarily promotes thereby also the interests of the community. It is evident that every individual, inasmuch as he knows his own local circumstances best and pays most attention to his occupation, is far better able to judge than the statesman or legislator how his capital can most profitably be invested. He who would venture to give advice to the people how to invest their capital would not merely take upon himself a useless task, but would also assume to himself an authority which belongs solely to the producer, and which can be entrusted to those persons least of all who consider themselves equal to so difficult a task. Adam Smith concludes from this: 'Restrictions on trade imposed on the behalf of the internal industry of a country, are mere folly; every nation, like every individual, ought to buy articles where they can be procured the cheapest; in order to attain to the highest degree of national prosperity, we have simply to follow the maxim of letting things alone (laisser faire et laisser aller).' Smith and Say compare a nation which seeks to promote its industry by protective duties, to a tailor who wants to make his own boots, and to a bootmaker who would impose a toll on those who enter his door, in order to promote his prosperity. As in all errors of the popular school, so also in this one does Thomas Cooper go to extremes in his book77 which is directed against the American system of protection. 'Political economy,' he alleges, 'is almost synonymous with the private economy of all individuals; politics are no essential ingredient of political economy; it is folly to suppose that the community is something quite different from the individuals of whom it is composed. Every individual knows best how to invest his labour and his capital. The wealth of the community is nothing else than the aggregate of the wealth of all its individual members; and if every individual can provide best for himself, that nation must be the richest in which every individual is most left to himself.' The adherents of the American system of protection had opposed themselves to this argument, which had formerly been adduced by importing merchants in favour of free trade; the American navigation laws had greatly increased the carrying trade, the foreign commerce, and fisheries of the United States; and for the mere protection of their mercantile marine millions had been annually expended on their fleet; according to his theory those laws and this expense also would be as reprehensible as protective duties. 'In any case,' exclaims Mr. Cooper, 'no commerce by sea is worth a naval war; the merchants may be left to protect themselves.'
Thus the popular school, which had begun by ignoring the principles of nationality and national interests, finally comes to the point of altogether denying their existence, and of leaving individuals to defend them as they may solely by their own individual powers.
How? Is the wisdom of private economy, also wisdom in national economy? Is it in the nature of individuals to take into consideration the wants of future centuries, as those concern the nature of the nation and the State? Let us consider only the first beginning of an American town; every individual left to himself would care merely for his own wants, or at the most for those of his nearest successors, whereas all individuals united in one community provide for the convenience and the wants of the most distant generations; they subject the present generation for this object to privations and sacrifices which no reasonable person could expect from individuals. Can the individual further take into consideration in promoting his private economy, the defence of the country, public security, and the thousand other objects which can only be attained by the aid of the whole community? Does not the State require individuals to limit their private liberty according to what these objects require? Does it not even require that they should sacrifice for these some part of their earnings, of their mental and bodily labour, nay, even their own life? We must first root out, as Cooper does, the very ideas of 'State' and 'nation' before this opinion can be entertained.
No; that may be wisdom in national economy which would be folly in private economy, and vice versâ; and owing to the very simple reason, that a tailor is no nation and a nation no tailor, that one family is something very different from a community of millions of families, that one house is something very different from a large national territory. Nor does the individual merely by understanding his own interests best, and by striving to further them, if left to his own devices, always further the interests of the community. We ask those who occupy the benches of justice, whether they do not frequently have to send individuals to the tread-mill on account of their excess of inventive power, and of their all too great industry. Robbers, thieves, smugglers, and cheats know their own local and personal circumstances and conditions extremely well, and pay the most active attention to their business; but it by no means follows therefrom, that society is in the best condition where such individuals are least restrained in the exercise of their private industry.
In a thousand cases the power of the State is compelled to impose restrictions on private industry.78 It prevents the shipowner from taking on board slaves on the west coast of Africa, and taking them over to America. It imposes regulations as to the building of steamers and the rules of navigation at sea, in order that passengers and sailors may not be sacrificed to the avarice and caprice of the captains. In England certain rules have recently been enacted with regard to shipbuilding, because an infernal union between assurance companies and shipowners has been brought to light, whereby yearly thousands of human lives and millions in value were sacrificed to the avarice of a few persons. In North America millers are bound under a penalty to pack into each cask not less than 198 lbs. of good flour, and for all market goods market inspectors are appointed, although in no other country is individual liberty more highly prized. Everywhere does the State consider it to be its duty to guard the public against danger and loss, as in the sale of necessaries of life, so also in the sale of medicines, &c.
But the cases which we have mentioned (the school will reply) concern unlawful damages to property and to the person, not the honourable exchange of useful objects, not the harmless and useful industry of private individuals; to impose restrictions on these latter the State has no right whatever. Of course not, so long as they remain harmless and useful; that which, however, is harmless and useful in itself, in general commerce with the world, can become dangerous and injurious in national internal commerce, and vice versâ. In time of peace, and considered from a cosmopolitan point of view, privateering is an injurious profession; in time of war, Governments favour it. The deliberate killing of a human being is a crime in time of peace, in war it becomes a duty. Trading in gunpowder, lead, and arms in time of peace is allowed; but whoever provides the enemy with them in time of war, is punished as a traitor.
For similar reasons the State is not merely justified in imposing, but bound to impose, certain regulations and restrictions on commerce (which is in itself harmless) for the best interests of the nation. By prohibitions and protective duties it does not give directions to individuals how to employ their productive powers and capital (as the popular school sophistically alleges); it does not tell the one, 'You must invest your money in the building of a ship, or in the erection of a manufactory;' or the other, 'You must be a naval captain or a civil engineer;' it leaves it to the judgment of every individual how and where to invest his capital, or to what vocation he will devote himself. It merely says, 'It is to the advantage of our nation that we manufacture these or the other goods ourselves; but as by free competition with foreign countries we can never obtain possession of this advantage, we have imposed restrictions on that competition, so far as in our opinion is necessary, to give those among us who invest their capital in these new branches of industry, and those who devote their bodily and mental powers to them, the requisite guarantees that they shall not lose their capital and shall not miss their vocation in life; and further to stimulate foreigners to come over to our side with their productive powers. In this manner, it does not in the least degree restrain private industry; on the contrary, it secures to the personal, natural, and moneyed powers of the nation a greater and wider field of activity. It does not thereby do something which its individual citizens could understand better and do better than it; on the contrary, it does something which the individuals, even if they understood it, would not be able to do for themselves.
The allegation of the school, that the system of protection occasions unjust and anti-economical encroachments by the power of the State against the employment of the capital and industry of private individuals, appears in the least favourable light if we consider that it is the foreign commercial regulations which allow such encroachments on our private industry to take place, and that only by the aid of the system of protection are we enabled to counteract those injurious operations of the foreign commercial policy. If the English shut out our corn from their markets, what else are they doing than compelling our agriculturists to grow so much less corn than they would have sent out to England under systems of free importation? If they put such heavy duties on our wool, our wines, or our timber, that our export trade to England wholly or in great measure ceases, what else is thereby effected than that the power of the English nation restricts proportionately our branches of production? In these cases a direction is evidently given by foreign legislation to our capital and our personal productive powers, which but for the regulations made by it they would scarcely have followed. It follows from this, that were we to disown giving, by means of our own legislation, a direction to our own national industry in accordance with our own national interests, we could not prevent foreign nations from regulating our national industry after a fashion which corresponds with their own real or presumed advantage, and which in any case operates disadvantageously to the development of our own productive powers. But can it possibly be wiser on our part, and more to the advantage of those who nationally belong to us, for us to allow our private industry to be regulated by a foreign national Legislature, in accordance with foreign national interests, rather than regulate it by means of our own Legislature and in accordance with our own interests? Does the German or American agriculturist feel himself less restricted if he has to study every year the English Acts of Parliament, in order to ascertain whether that body deems it advantageous to encourage or to impose restrictions on his production of corn or wool, than if his own Legislature imposes certain restrictions on him in respect of foreign manufactured goods, but at the same time insures him a market for all his products, of which he can never again be deprived by foreign legislation?
If the school maintains that protective duties secure to the home manufacturers a monopoly to the disadvantage of the home consumers, in so doing it makes use of a weak argument. For as every individual in the nation is free to share in the profits of the home market which is thus secured to native industry, this is in no respect a private monopoly, but a privilege, secured to all those who belong to our nation, as against those who nationally belong to foreign nations, and which is the more righteous and just inasmuch as those who nationally belong to foreign nations possess themselves the very same monopoly, and those who belong to us are merely thereby put on the same footing with them. It is neither a privilege to the exclusive advantage of the producers, nor to the exclusive disadvantage of the consumers; for if the producers at first obtain higher prices, they run great risks, and have to contend against those considerable losses and sacrifices which are always connected with all beginnings in manufacturing industry. But the consumers have ample security that these extraordinary profits shall not reach unreasonable limits, or become perpetual, by means of the competition at home which follows later on, and which, as a rule, always lowers prices further than the level at which they had steadily ranged under the free competition of the foreigner. If the agriculturists, who are the most important consumers to the manufacturers, must also pay higher prices, this disadvantage will be amply repaid to them by increased demands for agricultural products, and by increased prices obtained for the latter.
It is a further sophism, arrived at by confounding the theory of mere values with that of the powers of production, when the popular school infers from the doctrine, 'that the wealth of the nation is merely the aggregate of the wealth of all individuals in it, and that the private interest of every individual is better able than all State regulations to incite to production and accumulation of wealth,' the conclusion that the national industry would prosper best if only every individual were left undisturbed in the occupation of accumulating wealth. That doctrine can be conceded without the conclusion resulting from it at which the school desires thus to arrive; for the point in question is not (as we have shown in a previous chapter) that of immediately increasing by commercial restrictions the amount of the values of exchange in the nation, but of increasing the amount of its productive powers. But that the aggregate of the productive powers of the nation is not synonymous with the aggregate of the productive powers of all individuals, each considered separately—that the total amount of these powers depends chiefly on social and political conditions, but especially on the degree in which the nation has rendered effectual the division of labour and the confederation of the powers of production within itself—we believe we have sufficiently demonstrated in the preceding chapters.
This system everywhere takes into its consideration only individuals who are in free unrestrained intercourse among themselves, and who are contented if we leave everyone to pursue his own private interests according to his own private natural inclination. This is evidently not a system of national economy, but a system of the private economy of the human race, as that would constitute itself were there no interference on the part of any Government, were there no wars, no hostile foreign tariff restrictions. Nowhere do the advocates of that system care to point out by what means those nations which are now prosperous have raised themselves to that stage of power and prosperity which we see them maintain, and from what causes others have lost that degree of prosperity and power which they formerly maintained. We can only learn from it how in private industry, natural ability, labour and capital, are combined in order to bring into exchange valuable products, and in what manner these latter are distributed among the human race and consumed by it. But what means are to be adopted in order to bring the natural powers belonging to any individual nation into activity and value, to raise a poor and weak nation to prosperity and power, cannot be gathered from it, because the school totally ignoring politics, ignores the special conditions of the nation, and concerns itself merely about the prosperity of the whole human race. Wherever international commerce is in question, the native individual is throughout simply pitted against the foreign individual; examples from the private dealings of separate merchants are throughout the only ones adduced—goods are spoken of in general terms (without considering whether the question is one of raw products or of manufactured articles)—in order to prove that it is equally for the benefit of the nation whether its exports and imports consist of money, of raw materials, or of manufactured goods, and whether or not they balance one another. If we, for example, terrified at the commercial crises which prevail in the United States of North America like native epidemics, consult this theory as to the means of averting or diminishing them, it leaves us utterly without comfort or instruction; nay, it is indeed impossible for us to investigate these phenomena scientifically, because, under the penalty of being taken for muddleheads and ignoramuses, we must not even utter the term 'balance of trade,' while this term is, notwithstanding, made use of in all legislative assemblies, in all bureaux of administration, on every exchange. For the sake of the welfare of humanity, the belief is inculcated on us that exports always balance themselves spontaneously by imports; notwithstanding that we read in public accounts how the Bank of England comes to the assistance of the nature of things; notwithstanding that corn laws exist, which make it somewhat difficult for the agriculturist of those countries which deal with England to pay with his own produce for the manufactured goods which he consumes.
The school recognises no distinction between nations which have attained a higher degree of economical development, and those which occupy a lower stage. Everywhere it seeks to exclude the action of the power of the State; everywhere, according to it, will the individual be so much better able to produce, the less the power of the State concerns itself for him. In fact, according to this doctrine savage nations ought to be the most productive and wealthy of the earth, for nowhere is the individual left more to himself than in the savage state, nowhere is the action of the power of the State less perceptible.
Statistics and history, however, teach, on the contrary, that the necessity for the intervention of legislative power and administration is everywhere more apparent, the further the economy of the nation is developed. As individual liberty is in general a good thing so long only as it does not run counter to the interests of society, so is it reasonable to hold that private industry can only lay claim to unrestricted action so long as the latter consists with the well-being of the nation. But whenever the enterprise and activity of individuals does not suffice for this purpose, or in any case where these might become injurious to the nation, there does private industry rightly require support from the whole power of the nation, there ought it for the sake of its own interests to submit to legal restrictions.
If the school represents the free competition of all producers as the most effectual means for promoting the prosperity of the human race, it is quite right from the point of view which it assumes. On the hypothesis of a universal union, every restriction on the honest exchange of goods between various countries seems unreasonable and injurious. But so long as other nations subordinate the interests of the human race as a whole to their national interests, it is folly to speak of free competition among the individuals of various nations. The arguments of the school in favour of free competition are thus only applicable to the exchange between those who belong to one and the same nation. Every great nation, therefore, must endeavour to form an aggregate within itself, which will enter into commercial intercourse with other similar aggregates so far only as that intercourse is suitable to the interests of its own special community. These interests of the community are, however, infinitely different from the private interests of all the separate individuals of the nation, if each individual is to be regarded as existing for himself alone and not in the character of a member of the national community, if we regard (as Smith and Say do) individuals as mere producers and consumers, not citizens of states or members of nations; for as such, mere individuals do not concern themselves for the prosperity of future generations—they deem it foolish (as Mr. Cooper really demonstrates to us) to make certain and present sacrifices in order to endeavour to obtain a benefit which is as yet uncertain and lying in the vast field of the future (if even it possess any value at all); they care but little for the continuance of the nation—they would expose the ships of their merchants to become the prey of every bold pirate—they trouble themselves but little about the power, the honour, or the glory of the nation, at the most they can persuade themselves to make some material sacrifices for the education of their children, and to give them the opportunity of learning a trade, provided always that after the lapse of a few years the learners are placed in a position to earn their own bread.
Indeed, according to the prevailing theory, so analogous is national economy to private economy that J. B. Say, where (exceptionally) he allows that internal industry may be protected by the State, makes it a condition of so doing, that every probability must exist that after the lapse of a few years it will attain independence, just as a shoemaker's apprentice is allowed only a few years' time in order to perfect himself so far in his trade as to do without parental assistance.
NATIONALITY AND THE ECONOMY OF THE NATION.
THE system of the school suffers, as we have already shown in the preceding chapters, from three main defects: firstly, from boundless cosmopolitanism, which neither recognises the principle of nationality, nor takes into consideration the satisfaction of its interests; secondly, from a dead materialism, which everywhere regards chiefly the mere exchangeable value of things without taking into consideration the mental and political, the present and the future interests, and the productive powers of the nation; thirdly, from a disorganising particularism and individualism, which, ignoring the nature and character of social labour and the operation of the union of powers in their higher consequences, considers private industry only as it would develop itself under a state of free interchange with society (i.e. with the whole human race) were that race not divided into separate national societies.
Between each individual and entire humanity, however, stands THE NATION, with its special language and literature, with its peculiar origin and history, with its special manners and customs, laws and institutions, with the claims of all these for existence, independence, perfection, and continuance for the future, and with its separate territory; a society which, united by a thousand ties of mind and of interests, combines itself into one independent whole, which recognises the law of right for and within itself, and in its united character is still opposed to other societies of a similar kind in their national liberty, and consequently can only under the existing conditions of the world maintain self-existence and independence by its own power and resources. As the individual chiefly obtains by means of the nation and in the nation mental culture, power of production, security, and prosperity, so is the civilisation of the human race only conceivable and possible by means of the civilisation and development of the individual nations.
Meanwhile, however, an infinite difference exists in the condition and circumstances of the various nations: we observe among them giants and dwarfs, well-formed bodies and cripples, civilised, half-civilised, and barbarous nations; but in all of them, as in the individual human being, exists the impulse of self-preservation, the striving for improvement which is implanted by nature. It is the task of politics to civilise the barbarous nationalities, to make the small and weak ones great and strong, but, above all, to secure to them existence and continuance. It is the task of national economy to accomplish the economical development of the nation, and to prepare it for admission into the universal society of the future.
A nation in its normal state possesses one common language and literature, a territory endowed with manifold natural resources, extensive, and with convenient frontiers and a numerous population. Agriculture, manufactures, commerce, and navigation must be all developed in it proportionately; arts and sciences, educational establishments, and universal cultivation must stand in it on an equal footing with material production. Its constitution, laws, and institutions must afford to those who belong to it a high degree of security and liberty, and must promote religion, morality, and prosperity; in a word, must have the well-being of its citizens as their object. It must possess sufficient power on land and at sea to defend its independence and to protect its foreign commerce. It will possess the power of beneficially affecting the civilisation of less advanced nations, and by means of its own surplus population and of their mental and material capital to found colonies and beget new nations.
A large population, and an extensive territory endowed with manifold national resources, are essential requirements of the normal nationality; they are the fundamental conditions of mental cultivation as well as of material development and political power. A nation restricted in the number of its population and in territory, especially if it has a separate language, can only possess a crippled literature, crippled institutions for promoting art and science. A small State can never bring to complete perfection within its territory the various branches of production. In it all protection becomes mere private monopoly. Only through alliances with more powerful nations, by partly sacrificing the advantages of nationality, and by excessive energy, can it maintain with difficulty its independence.
A nation which possesses no coasts, mercantile marine, or naval power, or has not under its dominion and control the mouths of its rivers, is in its foreign commerce dependent on other countries; it can neither establish colonies of its own nor form new nations; all surplus population, mental and material means, which flows from such a nation to uncultivated countries, is lost to its own literature, civilisation and industry, and goes to the benefit of other nationalities.
A nation not bounded by seas and chains of mountains lies open to the attacks of foreign nations, and can only by great sacrifices, and in any case only very imperfectly, establish and maintain a separate tariff system of its own.
Territorial deficiencies of the nation can be remedied either by means of hereditary succession, as in the case of England and Scotland; or by purchase, as in the case of Florida and Louisiana; or by conquests, as in the case of Great Britain and Ireland.
In modern times a fourth means has been adopted, which leads to this object in a manner much more in accordance with justice and with the prosperity of nations than conquest, and which is not so dependent on accidents as hereditary succession, namely, the union of the interests of various States by means of free conventions.
By its Zollverein, the German nation first obtained one of the most important attributes of its nationality. But this measure cannot be considered complete so long as it does not extend over the whole coast, from the mouth of the Rhine to the frontier of Poland, including Holland and Denmark. A natural consequence of this union must be the admission of both these countries into the German Bund, and consequently into the German nationality, whereby the latter will at once obtain what it is now in need of, namely, fisheries and naval power, maritime commerce and colonies. Besides, both these nations belong, as respects their descent and whole character, to the German nationality. The burden of debt with which they are oppressed is merely a consequence of their unnatural endeavours to maintain themselves as independent nationalities, and it is in the nature of things that this evil should rise to a point when it will become intolerable to those two nations themselves, and when incorporation with a larger nationality must seem desirable and necessary to them.
Belgium can only remedy by means of confederation with a neighbouring larger nation her needs which are inseparable from her restricted territory and population. The United States and Canada, the more their population increases, and the more the protective system of the United States is developed, so much the more will they feel themselves drawn towards one another, and the less will it be possible for England to prevent a union between them.
As respects their economy, nations have to pass through the following stages of development: original barbarism, pastoral condition, agricultural condition, agricultural-manufacturing condition, and agricultural-manufacturing-commercial condition.
The industrial history of nations. and of none more clearly than that of England, proves that the transition from the savage state to the pastoral one, from the pastoral to the agricultural, and from agriculture to the first beginnings in manufacture and navigation, is effected most speedily and advantageously by means of free commerce with further advanced towns and countries, but that a perfectly developed manufacturing industry, an important mercantile marine, and foreign trade on a really large scale, can only be attained by means of the interposition of the power of the State.
The less any nation's agriculture has been perfected, and the more its foreign trade is in want of opportunities of exchanging the excess of native agricultural products and raw materials for foreign manufactured goods, the deeper that the nation is still sunk in barbarism and fitted only for an absolute monarchical form of government and legislation, the more will free trade (i.e. the exportation of agricultural products and the importation of manufactured goods) promote its prosperity and civilisation.
On the other hand, the more that the agriculture of a nation, its industries, and its social, political, and municipal conditions, are thoroughly developed, the less advantage will it be able to derive for the improvement of its social conditions, from the exchange of native agricultural products and raw materials for foreign manufactured goods, and the greater disadvantages will it experience from the successful competition of a foreign manufacturing power superior to its own.
Solely in nations of the latter kind, namely, those which possess all the necessary mental and material conditions and means for establishing a manufacturing power of their own, and of thereby attaining the highest degree of civilisation, and development of material prosperity and political power, but which are retarded in their progress by the competition of a foreign manufacturing Power which is already farther advanced than their own—only in such nations are commercial restrictions justifiable for the purpose of establishing and protecting their own manufacturing power; and even in them it is justifiable only until that manufacturing power is strong enough no longer to have any reason to fear foreign competition, and thenceforth only so far as may be necessary for protecting the inland manufacturing power in its very roots.
The system of protection would not merely be contrary to the principles of cosmopolitical economy, but also to the rightly understood advantage of the nation itself, were it to exclude foreign competition at once and altogether, and thus isolate from other nations the nation which is thus protected. If the manufacturing Power to be protected be still in the first period of its development, the protective duties must be very moderate, they must only rise gradually with the increase of the mental and material capital, of the technical abilities and spirit of enterprise of the nation. Neither is it at all necessary that all branches of industry should be protected in the same degree. Only the most important branches require special protection, for the working of which much outlay of capital in building and management, much machinery, and therefore much technical knowledge, skill, and experience, and many workmen are required, and whose products belong to the category of the first necessaries of life, and consequently are of the greatest importance as regards their total value as well as regards national independence (as, for example, cotton, woollen and linen manufactories, &c.). If these main branches are suitably protected and developed, all other less important branches of manufacture will rise up around them under a less degree of protection. It will be to the advantage of nations in which wages are high, and whose population is not yet great in proportion to the extent of their territory, e.g. in the United States of North America, to give less protection to manufactures in which machinery does not play an important part, than to those in which machinery does the greater part of the work, providing that those nations which supply them with similar goods allow in return free importation to their agricultural products.
The popular school betrays an utter misconception of the nature of national economical conditions if it believes that such nations can promote and further their civilisation, their prosperity, and especially their social progress, equally well by the exchange of agricultural products for manufactured goods, as by establishing a manufacturing power of their own. A mere agricultural nation can never develop to any considerable extent its home and foreign commerce, its inland means of transport, and its foreign navigation, increase its population in due proportion to their well-being, or make notable progress in its moral, intellectual, social, and political development: it will never acquire important political power, or be placed in a position to influence the cultivation and progress of less advanced nations and to form colonies of its own. A mere agricultural State is an infinitely less perfect institution than an agricultural-manufacturing State. The former is always more or less economically and politically dependent on those foreign nations which take from it agricultural products in exchange for manufactured goods. It cannot determine for itself how much it will produce; it must wait and see how much others will buy from it. These latter, on the contrary (the agricultural-manufacturing States), produce for themselves large quantities of raw materials and provisions, and supply merely the deficiency by importation from the purely agricultural nations. The purely agricultural nations are thus in the first place dependent for their power of effecting sales on the chances of a more or less plentiful harvest in the agricultural-manufacturing nations; in the next place they have to compete in these sales with other purely agricultural nations, whereby their power of sale, in itself very uncertain, thus becomes still more uncertain. Lastly, they are exposed to the danger of being totally ruined in their trading with foreign manufacturing nations by wars, or new foreign tariff regulations whereby they suffer the double disadvantage of finding no buyers for their surplus agricultural products, and of failing to obtain supplies of the manufactured goods which they require. An agricultural nation is, as we have already stated, an individual with one arm, who makes use of a foreign arm, but who cannot make sure of the use of it in all cases; an agricultural-manufacturing nation is an individual who has two arms of his own always at his disposal.
It is a fundamental error of the school when it represents the system of protection as a mere device of speculative politicians which is contrary to nature. History is there to prove that protective regulations originated either in the natural efforts of nations to attain to prosperity, independence, and power, or in consequence of wars and of the hostile commercial legislation of predominating manufacturing nations.
The idea of independence and power originates in the very idea of 'the nation.' The school never takes this into consideration, because it does not make the economy of the separate nation, but the economy of society generally, i.e. of the whole human race, the object of its investigations. If we imagine, for instance, that all nations were united by means of a universal confederation, their individual independence and power would cease to be an object of regard. The security for the independence of every nation would in such a case rest on the legal provisions of the universal society, just as e.g. the security of the independence of the states of Rhode Island and Delaware lies in the union of all the free states constituting the American Union. Since the first foundation of that Union it has never yet occurred to any of these smaller states to care for the enlargement of its own political power, or to consider its independence less secured than is that of the largest states of the Union.
In proportion, however, as the principle of a universal confederation of nations is reasonable, in just the same degree would a given nation act contrary to reason if, in anticipation of the great advantages to be expected from such a union, and from a state of universal and perpetual peace, it were to regulate the principles of its national policy as though this universal confederation of nations existed already. We ask, would not every sane person consider a government to be insane which, in consideration of the benefits and the reasonableness of a state of universal and perpetual peace, proposed to disband its armies, destroy its fleet, and demolish its fortresses? But such a government would be doing nothing different in principle from what the popular school requires from governments when, because of the advantages which would be derivable from general free trade, it urges that they should abandon the advantages derivable from protection.
War has a ruinous effect on the reciprocal commercial relations between nation and nation. The agriculturist living in one country is by it forcibly separated from the manufacturer living in another country. While, however, the manufacturer (especially if he belongs to a nation powerful at sea, and carrying on extensive commerce) readily finds compensation from the agriculturists of his own country, or from those of other accessible agricultural countries, the inhabitant of the purely agricultural country suffers doubly through this interruption of intercourse.
The market for his agricultural products will fail him entirely, and he will consequently lose the means of paying for those manufactured goods which have become necessaries to him owing to previously existing trade; his power both of production and consumption will be diminished.
If, however, one agricultural nation whose production and consumption are thus diminished by war has already made considerable advances in population, civilisation, and agriculture, manufactures and factories will spring up in it in consequence of the interruption of international commerce by war. War acts on it like a prohibitive tariff system. It thereby becomes acquainted with the great advantages of a manufacturing power of its own, it becomes convinced by practical experience that it has gained more than it has lost by the commercial interruptions which war has occasioned. The conviction gains ground in it, that it is called to pass from the condition of a mere agricultural State to the condition of an agricultural-manufacturing State, and in consequence of this transition, to attain to the highest degree of prosperity, civilisation, and power. But if after such a nation has already made considerable progress in the manufacturing career which was opened to it by war, peace is again established, and should both nations then contemplate the resumption of their previously existing commercial intercourse, they will both find that during the war new interests have been formed, which would be destroyed by re-establishing the former commercial interchange.79 The former agricultural nation will feel, that in order to resume the sale of its agricultural products to the foreigner, it would have to sacrifice its own manufacturing industry which has in the meanwhile been created; the manufacturing nation will feel that a portion of its home agricultural production, which has been formed during the war, would again be destroyed by free importation. Both, therefore, try to protect these interests by means of imposing duties on imports. This is the history of commercial politics during the last fifty years.
It is war that has called into existence the more recent systems of protection; and we do not hesitate to assert, that it would have been to the interest of the manufacturing nations of the second and third rank to retain a protective policy and further develop it, even if England after the conclusion of peace had not committed the monstrous mistake of imposing restrictions on the importation of necessaries of life and of raw materials, and consequently of allowing the motives which had led to the system of protection in the time of the war, to continue during peace. As an uncivilised nation, having a barbarous system of agriculture, can make progress only by commerce with civilised manufacturing nations, so after it has attained to a certain degree of culture, in no other way can it reach the highest grade of prosperity, civilisation, and power, than by possessing a manufacturing industry of its own. A war which leads to the change of the purely agricultural State into an agricultural-manufacturing State is therefore a blessing to a nation, just as the War of Independence of the United States of North America, in spite of the enormous sacrifices which it required, has become a blessing to all future generations. But a peace which throws back into a purely agricultural condition a nation which is fitted to develop a manufacturing power of its own, becomes a curse to it, and is incomparably more injurious to it than a war.
It is fortunate for the manufacturing Powers of the second and third rank, that England after the restoration of the general peace has herself imposed a limit to her main tendency (of monopolising the manufacturing market of the whole earth), by imposing restrictions on the importation of foreign means of subsistence and raw materials. Certainly the English agriculturists, who had enjoyed a monopoly of supplying the English market with products during the war, would of course have painfully felt the foreign competition, but that only at first; at a later period (as we will show more particularly elsewhere), these losses would have been made up to them tenfold by the fact that England had obtained a monopoly of manufacturing for the whole world. But it would have been still more injudicious if the manufacturing nations of the second and third rank, after their own manufacturing power had just been called into existence, in consequence of wars lasting for twenty-five years, and after (in consequence of twenty-five years' exclusion of their agricultural products from the English market) that power has been strengthened so far that possibly it only required another ten or fifteen years of strict protection in order to sustain successfully free competition with English manufactures—if (we say) these nations, after having endured the sacrifices of half a century, were to give up the immense advantages of possessing a manufacturing power of their own, and were to descend once more from the high state of culture, prosperity, and independence, which is peculiar to agricultural-manufacturing countries, to the low position of dependent agricultural nations, merely because it now pleases the English nation to perceive its error and the closely impending advances of the Continental nations which enter into competition with it.
Supposing also that the manufacturing interest of England should obtain sufficient influence to force the House of Lords, which chiefly consists of large landed proprietors, and the House of Commons, composed mostly of country squires, to make concessions in respect of the importation of agricultural products, who would guarantee that after a lapse of a few years a new Tory ministry would not under different circumstances again pass a new Corn Law? Who can guarantee that a new naval war or a new Continental system may not separate the agriculturists of the Continent from the manufacturers of the island kingdom, and compel the Continental nations to recommence their manufacturing career, and to spend their best energies in overcoming its primary difficulties, merely in order at a later period to sacrifice everything again at the conclusion of peace.
In this manner the school would condemn the Continental nations for ever to be rolling the stone of Sisyphus, for ever to erect manufactories in time of war in order to allow them to fall to ruin in time of peace.
To results so absurd as these the school could never have arrived had it not (in spite of the name which it gives to the science which it professes) completely excluded politics from that science, had it not completely ignored the very existence of nationality, and left entirely out of consideration the effects of war on the commercial intercourse between separate nations.
How utterly different is the relation of the agriculturist to the manufacturer if both live in one and the same country, and are consequently really connected with one another by perpetual peace. Under those circumstances, every extension or improvement of an already existing manufactory increases the demand for agricultural products. This demand is no uncertain one; it is not dependent on foreign commercial regulations or foreign commercial fluctuations, on foreign political commotions or wars, on foreign inventions and improvements, or on foreign harvests; the native agriculturist has not to share it with other nations, it is certain to him every year. However the crops of other nations may turn out, whatever misunderstandings may spring up in the political world, he can depend on the sale of his own produce, and on obtaining the manufactured goods which he needs at suitable and regular prices. On the other hand, every improvement of the native agriculture, every new method of culture, acts as a stimulant on the native manufacture, because every augmentation of native agricultural production must result in a proportionate augmentation of native manufacturing production. Thus, by means of this reciprocal action, progress is insured for all time to both these main sources of the nation's strength and support.
Political power not merely secures to the nation the increase of its prosperity by foreign commerce and by colonies abroad, it also secures to it the possession of internal prosperity, and secures to it its own existence, which is far more important to it than mere material wealth. England has obtained political power by means of her navigation laws; and by means of political power she has been placed in a position to extend her manufacturing power over other nations. Poland, however, was struck out of the list of nations because she did not possess a vigorous middle class, which could only have been called into existence by the establishment of an internal manufacturing power.
The school cannot deny that the internal market of a nation is ten times more important to it than its external one, even where the latter is in the most flourishing condition; but it has omitted to draw from this the conclusion, which is very obvious, that it is ten times more important to cultivate and secure the home market, than to seek for wealth abroad, and that only in those nations which have developed their internal industry to a high degree can foreign commerce attain importance.
The school has formed its estimate of the nature and character of the market only from a cosmopolitical, but not from a political point of view. Most of the maritime countries of the European continent are situated in the natural market district of the manufacturers of London, Liverpool, or Manchester; only very few of the inland manufacturers of other nations can, under free trade, maintain in their own seaports the same prices as the English manufacturers. The possession of larger capital, a larger home market of their own, which enables them to manufacture on a larger scale and consequently more cheaply, greater progress in manufacture itself, and finally cheaper sea transport, give at the present time to the English manufacturers advantages over the manufacturers of other countries, which can only be gradually diverted to the native industry of the latter by means of long and continuous protection of their home market, and through perfection of their inland means of transport. The market of the inhabitants of its coasts is, however, of great importance to every nation, both with reference to the home market, and to foreign commerce; and a nation the market of whose coasts belongs more to the foreigner than to itself, is a divided nation not merely in economical respects, but also in political ones. Indeed, there can be no more injurious position for a nation, whether in its economical or political aspect, than if its seaports sympathise more with the foreigner than with itself.
Science must not deny the nature of special national circumstances, nor ignore and misrepresent it, in order to promote cosmopolitical objects. Those objects can only be attained by paying regard to nature, and by trying to lead the separate nations in accordance with it to a higher aim. We may see what small success has hitherto attended the doctrines of the school in practice. This is not so much the fault of practical statesmen, by whom the character of the national circumstances has been comprehended tolerably correctly, as the fault of the theories themselves, the practice of which (inasmuch as they are opposed to all experience) must necessarily err. Have those theories prevented nations (like those of South America) from introducing the protectionist system, which is contrary to the requirements of their national circumstances? Or have they prevented the extension of protectionism to the production of provisions and raw materials, which, however, needs no protection, and in which the restriction of commercial intercourse must be disadvantageous under all circumstances to both nations—to that which imposes, as well as to that which suffers from such restrictions?80 Has this theory prevented the finer manufactured goods, which are essentially articles of luxury, from being comprehended among objects requiring protection, while it is nevertheless clear that these can be exposed to competition without the least danger to the prosperity of the nation? No; the theory has till now not effected any thorough reform, and further will never effect any, so long as it stands opposed to the very nature of things. But it can and must effect great reforms as soon as it consents to base itself on that nature.
It will first of all establish a benefit extending to all nations, to the prosperity and progress of the whole human race, if it shows that the prevention of free trade in natural products and raw materials causes to the nation itself which prevents it the greatest disadvantage, and that the system of protection can be justified solely and only for the purpose of the industrial development of the nation. It may then, by thus basing the system of protection as regards manufactures on correct principles, induce nations which at present adopt a rigidly prohibitive system, as e.g. the French, to give up the prohibitive system by degrees. The manufacturers will not oppose such a change as soon as they become convinced that the theorists, very far from planning the ruin of existing manufactures, consider their preservation and their further development as the basis of every sensible commercial policy.
If the theory will teach the Germans, that they can further their manufacturing power advantageously only by protective duties previously fixed, and on a gradually increasing scale at first, but afterwards gradually diminishing, and that under all circumstances partial but carefully limited foreign competition is really beneficial to their own manufacturing progress, it will render far better service in the end to the cause of free trade than if it simply helps to strangle German industry.
The theory must not expect from the United States of North America that they are to sacrifice to free competition from the foreigner, those manufactures in which they are protected by cheap raw materials and provisions, and by machine power. It will, however, meet no contradiction if it maintains that the United States, as long as wages are disproportionately higher there than in the older civilised States, can best promote the development of their productive powers, their civilisation and political power, by allowing the free import as much as possible of those manufactured articles in the cost of which wages are a principal element, provided that other countries admit their agricultural products and raw materials.
The theory of free trade will then find admission into Spain, Portugal, Naples, Turkey, Egypt, and all barbarous and half-civilised or hot countries. In such countries as these the foolish idea will not be held any longer, of wanting to establish (in their present state of culture) a manufacturing power of their own by means of the system of protection.
England will then give up the idea that she is designed to monopolise the manufacturing power of the whole world. She will no longer require that France, Germany, and North America should sacrifice their own manufactures in consideration of the concession by England of permitting the import, duty free, of agricultural products and raw materials. She will recognise the legitimacy of protective systems in those nations, although she will herself more and more favour free trade; the theory having taught her that a nation which has already attained manufacturing supremacy, can only protect its own manufacturers and merchants against retrogression and indolence, by the free importation of means of subsistence and raw materials, and by the competition of foreign manufactured goods.
England will then follow a practice totally opposed to her present commercial policy, instead of lecturing, as hitherto, other nations to adopt free trade, whilst herself maintaining the strictest prohibitory system; she will herself permit competition without regard to the foreign systems of protection. She will defer her hopes of the general adoption of free trade, until other nations have no longer to fear that the ruin of their manufactories would result from free competition.
Meanwhile, and until that period has arrived, England will be able to compensate herself for the losses which she suffers from foreign systems of protection, in respect of her export trade in manufactures of every-day use, by a greater export of goods of finer quality, and by opening, establishing, and cultivating new markets for her manufactures.
She will endeavour to bring about peace in Spain, in the East, and in the states of Central and South America, and will use her influence in all the barbarous and half-civilised countries of Central and South America, of Asia and Africa, in order that powerful and civilised governments may be formed in them, that security of persons and of property may be introduced into them, for the construction in them of roads and canals, the promotion of education and civilisation, morality and industry, and for rooting out fanaticism, superstition, and idleness. If concurrently with these endeavours she abolishes her restrictions on the importation of provisions and raw materials, she will increase her exports of manufactures immensely, and much more successfully than by continually speculating on the ruin of the Continental manufactories.
If, however, these operations of civilisation on the part of England are to be successful as respects barbarous and half-civilised nations, she must not act in an exclusive manner, she must not endeavour by special commercial privileges, such as, for instance, she has managed to procure in Brazil, to monopolise these markets, and to shut out other nations from them. Such a policy as the latter will always excite the just jealousy of other nations, and give them a motive for opposing the exertions of England. It is evident that this selfish policy is the cause why the influence of the civilised powers on the civilisation of such countries as we have specified has been hitherto so unimportant. England ought therefore to introduce into the law of nations the maxim: that in all such countries the commerce of all manufacturing nations should have equal rights. England would thereby not merely secure the aid of all civilised powers in her own work of civilisation, but also no disadvantage would result to her own commerce if similar experiments of civilisation were undertaken by other manufacturing nations. On account of their superiority in all branches of manufacture and commerce, the English would everywhere always obtain the greatest share of the exports to such markets.
The striving and ceaseless intrigues of the English against the manufactures of other nations might still be justified, if a world-manufacturing monopoly were indispensable for the prosperity of England, if it could not be proved by evidence that the nations which aspire, after the example of England, to attain to a large manufacturing power can very well attain their object without the humiliation of England; that England need not become poorer than she is because others become richer; and that nature offers sufficient means for the creation in Germany, France, and North America (without detriment to the prosperity of England), of a manufacturing power equal to that of the English.
With regard to this, it must further be remarked, that every nation which gains entire possession of its own home market for manufactures, gains entire possession of its own home market for manufactures, gains in the course of time, by its home production and consumption of manufactured goods, infinitely more than the nation which has hitherto provided the former with manufactured goods loses by being excluded; because a nation which manufactures for itself, and which is perfectly developed in its economical conditions, becomes more than proportionately richer and more populous, consequently is enabled to consume infinitely more fabrics, than it could import while depending on a foreign manufacturing nation for its supply.
As respects the exportation of manufactured goods, however, the countries of the temperate zone (being specially fitted by nature for manufacturing) have a special field for their efforts in supplying the consumption of the countries of the torrid zone, which latter provide the former with colonial produce in exchange for their manufactured goods. The consumption of manufactured goods by the countries of the torrid zone, however, is partly determined by their ability to produce a surplus of the articles peculiar to their climate, and partly according to the proportion in which the countries of the temperate zone augment their demand for the products of the torrid zone.
If it can now be proved, that in the course of time the countries of the torrid zone can produce sugar, rice, cotton, coffee, &c. to an extent five or ten times greater than hitherto, and that the countries of the temperate zone can consume five or ten times more of these articles than hitherto, it will be simultaneously proved that the countries of the temperate zone can increase their exportation of manufactured goods to the countries of the torrid zone by from five to ten times their present total quantity.
The capability of the Continental nations to increase their consumption of colonial produce thus considerably, is indicated by the increase of consumption in England for the last fifty years; in reference to which it must further be borne in mind, that that increase would probably have become very much greater still were it not for the excessive taxes on consumption.
Of the possibility of augmenting the productions of the torrid zone, Holland in Sumatra and Java, and England in the East Indies, have given us during the last five years irrefragable proofs. England has quadrupled her importation of sugar from the East Indies from 1835 to 1839; her importation of coffee has increased even in a still larger proportion, while the importation of East India cotton is also greatly increasing. In one word, the latest English papers (February, 1840) announced with great rejoicing that the capability of the East Indies for the production of these articles is unlimited, and that the time is not far distant when England will make herself independent of the importation of these articles from America and the West Indies. Holland on her part is already embarrassed for means of sale of her colonial products, and seeks actively for new markets. Let us further remember that North America continues to augment her cotton production—that in Texas a State has risen up which without doubt will become possessed of the whole of Mexico, and will make out of that fertile country a territory such as the Southern States of the North American Union now are. We may well imagine that order and law, industry and intelligence, will extend themselves gradually over the South American States from Panama to Cape Horn, then over the whole of Africa and Asia, and augment everywhere production and a surplus of products; and we may then comprehend without difficulty that here there is room enough for more than one nation for the sale of manufactured goods.
By calculating the area of the land which has up to this time been actually used for the production of colonial produce, and comparing it with the entire area which is fitted by nature for such production, we shall find that at present scarcely the fiftieth part of the land fitted for this production is actually used.
How, then, could England be able to monopolise the manufacturing markets of all countries which yield colonial produce, if she is able to supply her own entire requirements of such produce by means of importation from the East Indies alone? How can England indulge the hope of selling manufactured goods to countries whose colonial products she cannot take in exchange? Or how can a great demand for colonial produce spring up in the continent of Europe, if the Continent is not enabled by its manufacturing production to pay for, and thus to consume, these goods?
It is therefore evident, that keeping down the manufacturing industry of the Continent, though it certainly hinders the progress of the Continental nations, does not in the least further the prosperity of England.
It is further clear, that, at present, as well as for some long time to come, the countries of the torrid zone will offer to all nations which are fitted for manufacturing production abundant materials for exchange.
Lastly, it is evident that a world-manufacturing monopoly such as is at present established by the free competition of English manufactured goods on the European and American continents is not in the least more conducive to the welfare of the human race than the system of protection, which aims at developingthe manufacturing power of the whole temperate zone, for the benefit of the agriculture of the whole torrid zone.
The advance which England has made in manufactures, navigation, and commerce, need therefore not discourage any other nation which is fitted for manufacturing production, by the possession of suitable territory, of national power and intelligence, from entering into the lists with England's manufacturing supremacy. A future is approaching for manufactures, commerce, and navigation which will surpass the present as much as the present surpasses the past. Let us only have the courage to believe in a great national future, and in that belief to march onward. But above all things we must have enough national spirit at once to plant and protect the tree, which will yield its first richest fruits only to future generations. We must first gain possession of the home market of our own nation, at least as respects articles of general necessity, and try to procure the products of tropical countries direct from those countries which allow us to pay for them with our own manufactured goods. This is especially the task which the German commercial union has to solve, if the German nation is not to remain far behind the French and North Americans, nay, far behind even the Russians.
POPULAR AND STATE FINANCIAL ADMINISTRATION, POLITICAL AND NATIONAL ECONOMY.
THAT which has reference to the raising, the expending, and the administration of the material means of government of a community (the financial economy of the State), must necessarily be distinguished everywhere from those institutions, regulations, laws, and conditions on which the economy of the individual subjects of a State is dependent, and by which it is regulated; i.e. from the economy of the people. The necessity for this distinction is apparent in reference to all political communities, whether these comprise a whole nation or merely fractions of a nation, and whether they are small or large.
In a confederated State, the financial economy of the State is again divided into the financial economy of the separate states and the financial economy of the entire union.
The economy of the people becomes identical with national economy where the State or the confederated State embraces a whole nation fitted for independence by the number of its population, the extent of its territory, by its political institutions, civilisation, wealth, and power, and thus fitted for stability and political influence. The economy of the people and national economy are, under these circumstances, one and the same. They constitute with the financial economy of the State the political economy of the nation.
But, on the other hand, in States whose population and territory merely consist of the fraction of a nation or of a national territory, which neither by complete and direct union, nor by means of a federal union with other fractions, constitutes a whole, we can only take into consideration an 'economy of the people' which is directly opposed to 'private economy' or to 'financial economy of the State.'
In such an imperfect political condition, the objects and requirements of a great nationality cannot be taken into consideration; especially is it impossible to regulate the economy of the people with reference to the development of a nation complete in itself, and with a view to its independence, permanence, and power. Here politics must necessarily remain excluded from economy, here can one only take account of the natural laws of social economy, as these would develop and shape themselves if no large united nationality or national economy existed anywhere.
It is from this standpoint that that science has been cultivated in Germany which was formerly called 'State administration,' then 'national economy,' then 'political economy,' then 'popular administration,' without anyone having clearly apprehended the fundamental error of these systems.
The true conception and real character of national economy could not be recognised because no economically united nation was in existence, and because for the distinct and definite term 'nation' men had everywhere substituted the general and vague term 'society,' an idea which is as applicable to entire humanity, or to a small country, or to a single town, as to the nation.
THE MANUFACTURING POWER AND THE PERSONAL, SOCIAL, AND POLITICAL PRODUCTIVE POWERS OF THE NATION.
IN a country devoted to mere raw agriculture, dullness of mind, awkwardness of body, obstinate adherence to old notions, customs, methods, and processes, want of culture, of prosperity, and of liberty, prevail. The spirit of striving for a steady increase in mental and bodily acquirements, of emulation, and of liberty, characterise, on the contrary, a State devoted to manufactures and commerce.
The cause of this difference lies partly in the different kind of social habits and of education which respectively characterise these two classes of people, partly in the different character of their occupation and in the things which are requisite for it. The agricultural population lives dispersed over the whole surface of the country; and also, in respect to mental and material intercourse, agriculturists are widely separated from one another. One agriculturist does almost precisely what the other does; the one produces, as a rule, what the other produces. The surplus produce and the requirements of all are almost alike; everybody is himself the best consumer of his own products; here, therefore, little inducement exists for mental intercourse or material exchange. The agriculturist has to deal less with his fellow-men than with inanimate nature. Accustomed to reap only after a long lapse of time where he has sown, and to leave the success of his exertions to the will of a higher power, contentment with little, patience, resignation, but also negligence and mental laziness, become to him a second nature. As his occupation keeps him apart from intercourse with his fellow-men, so also does the conduct of his ordinary business require but little mental exertion and bodily skill on his part. He learns it by imitation in the narrow circle of the family in which he was born, and the idea that it might be conducted differently and better seldom occurs to him. From the cradle to the grave he moves always in the same limited circle of men and of circumstances. Examples of special prosperity in consequence of extraordinary mental and bodily exertions are seldom brought before his eyes. The possession of means or a state of poverty are transmitted by inheritance in the occupation of mere agriculture from generation to generation, and almost all that power which originates in emulation lies dead.
The nature of manufactures is fundamentally different from that of agriculture. Drawn towards one another by their business, manufacturers live only in society, and consequently only in commercial intercourse and by means of that intercourse. The manufacturer procures from the market all that he requires of the necessaries of life and raw materials, and only the smallest part of his own products is destined for his own consumption. If the agriculturist expects a blessing on his exertions chiefly from nature, the prosperity and existence of the manufacturer mainly depend on his commercial intercourse. While the agriculturist does not know the purchasers of his produce, or at any rate need have little anxiety as to disposing of it, the very existence of the manufacturer depends on his customers. The prices of raw materials, of the necessaries of life and wages, of goods and of money, vary incessantly; the manufacturer is never certain how his profits will turn out. The favour of nature and mere ordinary industry do not guarantee to him existence and prosperity as they do to the agriculturist; both these depend entirely upon his own intelligence and activity. He must strive to gain more than enough in order to be certain of having enough of what is absolutely necessary; he must endeavour to become rich in order not to be reduced to poverty. If he goes on somewhat faster than others, he thrives; if he goes slower, he is certain of ruin. He must always buy and sell, exchange and make bargains. Everywhere he has to deal with men, with changing circumstances, with laws and regulations; he has a hundred times more opportunity for developing his mind than the agriculturist. In order to qualify himself for conducting his business, he must become acquainted with foreign men and foreign countries; in order to establish that business, he must make unusual efforts. While the agriculturist simply has to do with his own neighbourhood, the trade of the manufacturer extends itself over all countries and parts of the world. The desire to gain the respect of his fellow-citizens or to retain it, and the continual competition of his rivals, which perpetually threaten his existence and prosperity, are to him a sharp stimulus to uninterrupted activity, to ceaseless progress. Thousands of examples prove to him, that by extraordinary performances and exertions it is possible for a man to raise himself from the lowest degree of well-being and position to the highest social rank, but that, on the other hand, by mental inactivity and negligence, he can sink from the most respectable to the meanest position. These circumstances produce in the manufacturer an energy which is not observable in the mere agriculturist.
If we regard manufacturing occupations as a whole, it must be evident at the first glance that they develop and bring into action an incomparably greater variety and higher type of mental qualities and abilities than agriculture does. Adam Smith certainly expressed one of those paradoxical opinions which (according to Dugald Stewart, his biographer) he was very fond of, when he maintained that agriculture requires more skill than manufactures and commerce. Without entering into the investigation whether the construction of a clock requires more skill than the management of a farm, we have merely to observe that all agricultural occupations are of the same kind, while in manufactures a thousand-fold variety exists. It must also not be forgotten, that for the purpose of the present comparison, agriculture must be regarded as it exists in the primitive state, and not as it has been improved by the influence of manufactures. If the condition of English agriculturists appeared to Adam Smith much nobler than the condition of English manufacturers, he had forgotten that the condition of the former has been thus ennobled through the influence of manufactures and commerce.
It is evident that by agriculture merely personal qualities of the same kind are put into requisition, and merely those which combine bodily power and perseverance in executing raw and manual labour with the simple idea of order; while manufactures require a thousand-fold variety of mental ability, skill, and experience. The demand for such a variety of talents makes it easy for every individual in a manufacturing State to find an occupation and vocation corresponding with his individual abilities and taste, while in an agricultural State but little choice exists. In the former mental gifts are infinitely more prized than in the latter, where as a rule the usefulness of a man is determined according to his bodily strength. The labour of the weak and the cripple in the former is not unfrequently valued at a much higher rate than that of the strongest man is in the latter. Every power, even the smallest, that of children and women, of cripples and old men, finds in manufactures employment and remuneration.
Manufactures are at once the offspring, and at the same time the supporters and the nurses, of science and the arts. We may observe how little the condition of raw agriculture puts sciences and arts into requisition, how little of either is necessary to prepare the rude implements which it employs. It is true that agriculture at first had, by yielding rents of land, made it possible for men to devote themselves to science and art; but without manufactures they have always remained private treasures, and have only extended their beneficial effects in a very slight degree to the masses. In the manufacturing State the industry of the masses is enlightened by science, and the sciences and arts are supported by the industry of the masses. There scarcely exists a manufacturing business which has not relations to physics, mechanics, chemistry, mathematics, or to the art of design, &c. No progress, no new discoveries and inventions, can be made in these sciences by which a hundred industries and processes could not be improved or altered. In the manufacturing State, therefore, sciences and arts must necessarily become popular. The necessity for education and instruction, through writings and lectures by a number of persons who have to bring into practice the results of scientific investigations, induces men of special talents to devote themselves to instruction and authorship. The competition of such talents, owing to the large demand for their efforts, creates both a division and co-operation of scientific activity, which has a most beneficial influence not merely on the further progress of science itself, but also on the further perfection of the arts and of industries. The effects of these improvements are soon afterwards extended even to agriculture. Nowhere can more perfect agricultural machines and implements be found, nowhere is agriculture carried on with so much intelligence, as in countries where industry flourishes. Under the influence of manufactures, agriculture itself is raised to a skilled industry, an art, a science.
The sciences and industry in combination have produced that great material power which in the new state of society has replaced with tenfold benefits the slave labour of ancient times, and which is destined to exercise on the condition of the masses, on the civilisation of barbarous countries, on the peopling of uninhabited lands, and on the power of the nations of primitive culture, such an immeasurable influence—namely, the power of machinery.
A manufacturing nation has a hundred times more opportunities of applying the power of machinery than an agricultural nation. A cripple can accomplish by directing a steam engine a hundred times more than the strongest man can with his mere hand.
The power of machinery, combined with the perfection of transport facilities in modern times, affords to the manufacturing State an immense superiority over the mere agricultural State. It is evident that canals, railways, and steam navigation are called into existence only by means of the manufacturing power, and can only by means of it be extended over the whole surface of the country. In the mere agricultural State, where everybody produces for himself the greater part of what he requires, and consumes himself the greater part of what he produces, where the individuals among themselves can only carry on a small amount of goods and passenger traffic, it is impossible that a sufficiently large traffic in either goods or passengers can take place to defray the costs of the erection and maintenance of the machinery of transport.
New inventions and improvements in the mere agricultural State are of but little value. Those who occupy themselves with such things in such a State fall themselves, as a rule, a sacrifice to their investigations and endeavours, while in the manufacturing State there is no path which leads more rapidly to wealth and position than that of invention and discovery. Thus, in the manufacturing State genius is valued and rewarded more highly than skill, and skill more highly than mere physical force. In the agricultural State, however, excepting in the public service, the reverse is almost the rule.
As, however, manufactures operate beneficially on the development of the mental powers of the nation, so also do they act on the development of the physical power of labour, by affording to the labourers means of enjoyment, inducements to exert their powers, and opportunities for making use of them. It is an undisputed observation, that in flourishing manufacturing States the workman, irrespective of the aid which he obtains from better machinery and tools, accomplishes a far larger day's work than in mere agricultural countries.
Moreover, the circumstance that in manufacturing States the value of time is recognised much more than in agricultural States, affords proof of the higher standing in the former of the power of labour. The degree of civilisation of a nation and the value of its labour power cannot be estimated more accurately than according to the degree of the value which it attributes to time. The savage lies for days idle in his hut. How can the shepherd learn to estimate the value of time, to whom time is simply a burden which his pastoral pipe or sleep alone makes tolerable to him? How can a slave, a serf, a peasant, subject to tributes of forced labour, learn to value time, he to whom labour is penalty, and idleness gain? Nations only arrive at the recognition of the value of time through industry. At present time gained brings gain of profit; loss of time, loss of profit. The zeal of the manufacturer to utilise his time in the highest possible degree imparts itself to the agriculturist. Through the increased demand for agricultural products caused by manufactures, the rent and therefore the value of land is raised, larger capital is employed in cultivating it, profits are increased, a larger produce must be obtained from the soil in order to be able to provide for the increased rent and interest of capital, and for the increased consumption. One is in a position to offer higher wages, but one also requires more work to be done. The workman begins to feel that he possesses in his bodily powers, and in the skill with which he uses them, the means of improving his condition. He begins to comprehend why the Englishman says, 'Time is money.'
Owing to the isolation in which the agriculturist lives, and to his limited education, he is but little capable of adding anything to general civilisation or learning to estimate the value of political institutions, and much less still to take an active part in the administration of public affairs and of justice, or to defend his liberty and rights. Hence he is mostly in a state of dependence on the landed proprietor. Everywhere merely agricultural nations have lived in slavery, or oppressed by despotism, feudalism, or priestcraft. The mere exclusive possession of the soil gave the despot, the oligarchy, or the priestly caste a power over the mass of the agricultural population, of which the latter could not rid themselves of their own accord.
Under the powerful influence of habit, everywhere among merely agricultural nations has the yoke which brute force or superstition and priestcraft imposed upon them so grown into their very flesh, that they come to regard it as a necessary constituent of their own body, as a condition of their very existence.
On the other hand, the separation and variety of the operations of business, and the confederation of the productive powers, press with irresistible force the various manufacturers towards one another. Friction produces sparks of the mind, as well as those of natural fire. Mental friction, however, only exists where people live together closely, where frequent contact in commercial, scientific, social, civil, and political matters exists, where there is large interchange both of goods and ideas. The more men live together in one and the same place, the more every one of these men depends in his business on the co-operation of all others, the more the business of every one of these individuals requires knowledge, circumspection, education, and the less that obstinacy, lawlessness, oppression and arrogant opposition to justice interfere with the exertions of all these individuals and with the objects at which they aim, so much the more perfect will the civil institutions be found, so much larger will be the degree of liberty enjoyed, so much more opportunity will be given for self-improvement and for co-operation in the improvement of others. Therefore liberty and civilisation have everywhere and at all times emanated from towns; in ancient times in Greece and Italy; in the Middle Ages in Italy, Germany, Belgium, and Holland; later on in England, and still more recently in North America and France.
But there are two kinds of towns, one of which we may term the productive, the other the consuming kind. There are towns which work up raw materials, and pay the country districts for these, as well as for the means of subsistence which they require, by means of manufactured goods. These are the manufacturing towns, the productive ones. The more that these prosper, the more the agriculture of the country prospers, and the more powers that agriculture unfolds, so much the greater do those manufacturing towns become. But there are also towns where those live who simply consume the rents of the land. In all countries which are civilised to some extent, a large portion of the national income is consumed as rent in the towns. It would be false, however, were we to maintain as a general principle that this consumption is injurious to production, or does not tend to promote it. For the possibility of securing to oneself an independent life by the acquisition of rents, is a powerful stimulus to economy and to the utilisation of savings in agriculture and in agricultural improvements. Moreover, the man who lives on rents, stimulated by the inclination to distinguish himself before his fellow-citizens, supported by his education and his independent position, will promote civilisation, the efficiency of public institutions, of State administration, science and art. But the degree in which rent influences in this manner the industry, prosperity, and civilisation of the nation will always depend on the degree of liberty which that nation has already obtained. That inclination to become useful to the commonwealth by voluntary activity, and to distinguish oneself before one's fellow-citizens, will only develop itself in countries where this activity leads to public recognition, to public esteem, and to offices of honour, but not in countries where every attempt to gain public esteem and every manifestation of independence is regarded by the ruling power with a jealous eye. In such countries the man of independent income will give himself up to debauchery and idleness, and because in this manner he brings useful industry into contempt, and injures the morality as well as the industrious impulse of the nation, he will radically imperil the nation's productive power. Even if under such conditions the manufactures of towns are to some extent promoted by the consumption of the rentier, such manufactures are nevertheless to be regarded as barren and unsound fruits, and especially they will aid very little in promoting the civilisation, prosperity, and liberty of the nation. Inasmuch as a sound manufacturing industry especially tends to produce liberty and civilisation, it may also be said that through it rent itself is redeemed from forming a fund for idleness, debauchery, and immorality, and is converted into a fund for promoting mental culture, and consequently that through it the merely consuming towns are changed into productive towns. Another element by which the consuming towns are supported is, the consumption of the public servants and of the State administration. These also may occasion some apparent prosperity in a town; but whether such consumption especially promotes or is injurious to the productive power, prosperity, and institutions of the nation, depends altogether on the question how far the functions of the consumers tend to promote or to injure those powers.
From this the reason is evident why in mere agricultural States large towns can exist, which, although they contain a large number of wealthy inhabitants and manifold trades, exercise only a very inconsiderable influence on the civilisation, liberty, and productive power of the nation. The persons engaged in those trades necessarily participate in the views of their customers; they are to be regarded in a great measure as mere domestic servants of the rentiers and public employes. In contrast to great luxury in those towns, poverty, misery, narrow-mindedness, and a slavish disposition are found among the inhabitants of the surrounding country districts. A prosperous effect of manufactures on the civilisation, the improvement of public institutions, and the liberty of the nation, is only perceptible if in a country a manufacturing power is established which, quite independently of the rentiers and public servants, works for the large mass of the agricultural population or for export trade, and consumes the products of that population in large quantities for working up in manufacture and for subsistence. The more such a sound and healthy manufacturing power increases in strength, the more will it draw to its side the manufacturing power which originated in the consumption above named, and also the rentiers and public servants, and the more also will the public institutions be regulated with a view to the interest of the commonwealth.
Let us consider the condition of a large town in which the manufacturers are numerous, independent, lovers of liberty, educated, and wealthy, where the merchants participate in their interests and position, where the rentiers feel themselves compelled to gain the respect of the public, where the public servants are subject to the control of public opinion, where the men of science and art work for the public at large, and draw from it their means of subsistence; let us consider the mass of mental and material means which are combined together in such a narrow space, and further how closely this mass of power is united through the law of the division of the operations of business and the confederation of powers; we may note again how quickly every improvement, every progress in public institutions, and in social and economical conditions, on the one hand, and how, on the other hand, every retrogression, every injury of the public interests, must be felt by this mass; then, again, how easily this mass, living in one and the same place, can come to an agreement as to their common objects and regulations, and what enormous means it can concentrate on the spot for these purposes; and finally, in what a close union a community so powerful, enlightened, and liberty-loving, stands in relation to other similar communities in the same nation—if we duly consider all these things, we shall easily be convinced that the influence on the maintenance and improvement of the public welfare exercised by an agricultural population living dispersed over the whole surface of the country (however large its aggregate number may be) will be but slight in comparison with that of towns, whose whole power (as we have shown) depends upon the prosperity of their manufactures and of those trades which are allied to and dependent on them.
The predominating influence of the towns on the political and municipal conditions of the nation, far from being disadvantageous to the rural population, is of inestimable advantage to it. The advantages which the towns enjoy make them feel it a duty to raise the agriculturists to the enjoyment of similar liberty, cultivation, and prosperity; for the larger the sum of these mental and social advantages is among the rural population, the larger will be the amount of the provisions and raw materials which they send into the towns, the greater also will be the quantity of the manufactured goods which they purchase from the towns, and consequently the prosperity of the towns. The country derives energy, civilisation, liberty, and good institutions from the towns, but the towns insure to themselves the possession of liberty and good institutions by raising the country people to be partakers of these acquisitions. Agriculture, which hitherto merely supported landowners and their servants, now furnishes the commonwealth with the most independent and sturdy defenders of its liberty. In the culture of the soil, also, every class is now able to improve its position. The labourer can raise himself to become a farmer, the farmer to become a landed proprietor. The capital and the means of transport which industry creates and establishes now give prosperity to agriculture everywhere. Serfdom, feudal burdens, laws and regulations which injure industry and liberty, disappear. The landed proprietor will now derive a hundred times more income from his forest possessions than from his hunting. Those who formerly from the miserable produce of serf labour scarcely obtained the means of leading a rude country life, whose sole pleasure consisted in the keeping of horses and dogs and chasing game, who therefore resented every infringement of these pleasures as a crime against their dignity as lords of the soil, are now enabled by the augmentation of their rents (the produce of free labour) to spend a portion of the year in the towns. There, through the drama and music, through art and reading, their manners are softened; they learn by intercourse with artists and learned men to esteem mind and talents. From mere Nimrods they become cultivated men. The aspect of an industrious community, in which everybody is striving to improve his condition, awakens in them also the spirit of improvement. They pursue instruction and new ideas instead of stags and hares. Returning to the country, they offer to the middle and small farmer examples worthy of imitation, and they gain his respect instead of his curse.
The more industry and agriculture flourish, the less can the human mind be held in chains, and the more are we compelled to give way to the spirit of toleration, and to put real morality and religious influence in the place of compulsion of conscience. Everywhere has industry given birth to tolerance; everywhere has it converted the priests into teachers of the people and into learned men. Everywhere have the cultivation of national language and literature, have the civilising arts, and the perfection of municipal institutions kept equal pace with the development of manufactures and commerce. It is from manufactures that the nation's capability originates of carrying on foreign trade with less civilised nations, of increasing its mercantile marine, of establishing a naval power, and by founding colonies, of utilising its surplus population for the further augmentation of the national prosperity and the national power.
Comparative statistics show that by the complete and relatively equal cultivation of manufactures and agriculture in a nation endowed with a sufficiently large and fertile territory, a population twice or three times as large can be maintained, and maintained, moreover, in a far higher degree of well-being than in a country devoted exclusively to agriculture. From this it follows that all the mental powers of a nation, its State revenues, its material and mental means of defence, and its security for national independence, are increased in equal proportion by establishing in it a manufacturing power.
At a time where technical and mechanical science exercise such immense influence on the methods of warfare, where all warlike operations depend so much on the condition of the national revenue, where successful defence greatly depends on the questions, whether the mass of the nation is rich or poor, intelligent or stupid, energetic or sunk in apathy; whether its sympathies are given exclusively to the fatherland or partly to foreign countries; whether it can muster many or but few defenders of the country—at such a time, more than ever before, must the value of manufactures be estimated from a political point of view.
THE MANUFACTURING POWER AND THE NATURAL PRODUCTIVE POWERS OF THE NATION.
THE more that man and the community perfect themselves, the more are they enabled to make use of the natural powers which are within their reach for the accomplishment of their objects, and the more does the sphere of what is within their reach extend itself.
The hunter does not employ the thousandth part, the shepherd not the hundredth part, of those natural advantages which surround him. The sea, foreign climates and countries, yield him either none, or at least only an inconsiderable amount of enjoyment, assistance, or stimulants to exertion.
In the case of a people in a primitive agricultural condition, a large portion of the existing natural resources lies yet unutilised, and man still continues limited to his nearest surroundings. The greater part of the water power and wind power which exists, or can be obtained, is unemployed; the various mineral products which the manufacturers so well understand how to utilise profitably, lie dead; various sorts of fuel are wasted or regarded (as, for instance, peat turf) as a mere hindrance to cultivation; stone, sand, and lime are used but little as building materials; the rivers, instead of being means of freight and transport for man, or of fertilising the neighbouring fields, are allowed to devastate the country by floods; warmer climates and the sea yield to the agricultural country but few of their products.
In fact, in the agricultural State, that power of nature on which production especially depends, the natural fertility of the soil, can only be utilised to a smaller extent so long as agriculture is not supported by manufacturing industry.
Every district in the agricultural State must itself produce as much of the things necessary to it as it requires to use, for it can neither effect considerable sales of that which it has in excess to other districts, nor procure that which it requires from other districts. A district may be ever so fertile and adapted for the culture of plants yielding oil, dyeing materials, and fodder, yet it must plant forests for fuel, because to procure fuel from distant mountain districts, over wretched country roads, would be too expensive. Land which if utilised for the cultivation of the vine and for garden produce could be made to yield three to four times more returns must be used for cultivating corn and fodder. He who could most profitably devote himself solely to the breeding of cattle must also fatten them: on the other hand, he who could most profitably devote himself merely to fattening stock, must also carry on cattle breeding. How advantageous it would be to make use of mineral manures (gypsum, lime, marl), or to burn peat, coal, &c. instead of wood, and to bring the forest lands under cultivation; but in such a State there exists no means of transport by means of which these articles can be conveyed with advantage for more than very short distances. What rich returns would the meadows in the valleys yield, if irrigation works on a large scale were established—the rivers now merely serve to wash down and carry away the fertile soil.
Through the establishment of manufacturing power in an agricultural State, roads are made, railways constructed, canals excavated, rivers rendered navigable, and lines of steamers established. By these not merely is the surplus produce of the agricultural land converted into machinery for yielding income, not merely are the powers of labour of those who are employed by it brought into activity, not only is the agricultural population enabled to obtain from the natural resources which it possesses an infinitely greater return than before, but all minerals, all metals, which heretofore were lying idle in the earth are now rendered useful and valuable. Articles which could formerly only bear a freight of a few miles, such as salt, coals, stone, marble, slate, gypsum, lime, timber, bark, &c., can now be distributed over the surface of an entire kingdom. Hence such articles, formerly quite valueless, can now assume a degree of importance in the statistical returns of the national produce, which far surpasses the total of the entire agricultural production in previous times. Not a cubic foot of water-fall will then exist which is not made to perform some service; even in the most distant districts of a manufacturing country, timber and fuel will now become valuable, of which previously no one knew how to make any use.
Through the introduction of manufactures, a demand for a quantity of articles of food and raw materials is created, to the production of which certain districts can be far more profitably devoted than to the growth of corn (the usual staple article of rude agricultural countries). The demand which now springs up for milk, butter, and meat adds a higher value to the existing pasture land, and leads to the breaking up of fallows and the erection of works of irrigation. The demand for fruit and garden produce converts the former bare agricultural land into vegetable gardens and orchards.
The loss which the mere agricultural State sustains by not making use of these natural powers, is so much the greater the more it is fitted by nature for carrying on manufactures, and the more its territory is adapted for the production of raw materials and natural powers which manufacturers specially require; that loss will therefore be the greatest in mountainous and hilly countries less suitable for agriculture on the whole, but which offer to manufactures plenty of water power, of minerals, timber, and stone, and to the farmer the opportunity of cultivating the products which are specially required by the manufacturer.
Countries with a temperate climate are (almost without exception) adapted for factories and manufacturing industry. The moderate temperature of the air promotes the development and exertion of power far more than a hot temperature. But the severe season of the year, which appears to the superficial observer as an unfavourable effect of nature, is the most powerful promoter of habits of energetic activity, of forethought, order, and economy. A man who has the prospect before him of six months in which he is not merely unable to obtain any fruits from the earth, but also requires special provisions and clothing materials for the sustenance of himself and his cattle, and for protection against the effects of cold, must necessarily become far more industrious and economical than the one who merely requires protection from the rain, and into whose mouth the fruits are ready to drop during the whole year. Diligence, economy, order, and forethought are at first produced by necessity, afterwards by habit, and by the steady cultivation of those virtues. Morality goes hand in hand with the exertion of one's powers and economy, and immorality with idleness and extravagance: each are reciprocally fertile sources, the one of power, the other of weakness.
An agricultural nation, which inhabits a country of temperate climate, leaves therefore the richest part of its natural resources unutilised.
The school, inasmuch as, in judging the influences of climate on the production of wealth, it has not distinguished between agriculture and manufacturing industry, has fallen into the gravest errors in respect to the advantages and disadvantages of protective regulations, which we cannot here omit thoroughly to expose, although we have already made mention of them in general terms elsewhere.
In order to prove that it is foolish to seek to produce everything in one and the same country, the school asks the question: whether it would be reasonable if we sought to produce wine by growing grapes in Scottish and English greenhouses? It is of course possible to produce wine in this manner, only it would be of much worse quality and more expensive than that which England and Scotland could procure in exchange for their manufactured goods. To anyone who either is unwilling or unable to penetrate more deeply into the nature of things, this argument is a striking one, and the school is indebted to it for a large portion of its popularity; at any rate among the French vine growers and silk manufacturers, and among the North American cotton planters and cotton merchants. Regarded in the light of day, however, it is fundamentally false, since restrictions on commercial intercourse operate quite differently on the productive power of agriculture than they do on the productive power of manufacturing industry.
Let us first see how they operate on agriculture.
If France rejects from her frontiers German fat cattle, or corn, what will she effect thereby? In the first place, Germany will thereby be unable to buy French wines. France will therefore have to use those portions of her soil which are fitted for the cultivation of the vine less profitably in proportion as this destruction of commercial interchange lessens her exportation of wines. So many fewer persons will be exclusively occupied with the cultivation of the vine, and therefore so much less native agricultural products will be required, which these persons would have consumed, who would have otherwise devoted themselves exclusively to vine culture. This will be the case in the production of oil as well as in that of wine. France will therefore always lose in her agricultural power on other points much more than she gains on one single point, because by her exclusion of the German cattle she protects a trade in the rearing and fattening of cattle which had not been spontaneously developed, and for which, therefore, probably the agriculture of those districts where this branch of industry has had to be artificially developed is not adapted. Thus will it be if we consider France merely as an agricultural State opposed to Germany as a merely agricultural State, and if we also assume that Germany will not retaliate on that policy by a similar one. This policy, however, appears still more injurious if we assume that Germany, as she will be compelled to out of regard to her own interests, adopts similarly restrictive measures, and if we consider that France is not merely an agricultural, but also a manufacturing State. Germany will, namely, not merely impose higher duties on French wines, but on all those French products which Germany either produces herself, or can more or less do without, or procure elsewhere; she will further restrict the importation of those manufactured goods which she cannot at present produce with special benefit, but which she can procure from other places than from France. The disadvantage which France has brought upon herself by those restrictions, thus appears twice or three times greater than the advantage. It is evident that in France only so many persons can be employed in the cultivation of the vine, in the cultivation of olives, and in manufacturing industry, as the means of subsistence, and raw materials which France either produces herself or procures from abroad, are able to support and employ. But we have seen that the restriction of importation has not increased the agricultural production, but has merely transferred it from one district to another. If free course had been permitted to the interchange of products, the importation of products and raw materials, and consequently the sale of wine, oil, and manufactured goods, would have continually increased, and consequently the number of persons employed in the cultivation of the vine and olives, and in manufactures; while with the increasing traffic, on the one hand, the means of subsistence and raw materials, and, on the other hand, the demand for her manufactured products, would have augmented. The augmentation of this population would have produced a larger demand for those provisions and raw materials which cannot easily be imported from abroad, and for which the native agriculture possesses a natural monopoly; the native agriculture therefore would thus have obtained a far greater profit. The demand for those agricultural products for which the character of the French soil is specially adapted, would be much more considerable under this free interchange than that produced artificially by restriction. One agriculturist would not have lost what another gained; the whole agriculture of the country would have gained, but still more the manufacturing industry. Through restriction, the agricultural power of the country therefore is not increased, but limited; and besides this, that manufacturing power is annihilated which would have grown up from the augmentation of the internal agriculture, as well as from the foreign importation of provisions and raw materials. All that has been attained through the restriction is an increase of prices in favour of the agriculturists of one district at the expense of the agriculturists of another district, but above all, at the expense of the total productive force of the country.
The disadvantages of such restrictions on the interchange of products are still more clearly brought to light in the case of England than in that of France. Through the corn laws, on doubt, a quantity of unfertile land is brought under cultivation; but it is a question whether these lands would not have been brought under cultivation without them. The more wool, timber, cattle, and corn that England would have imported, the more manufactured goods would she have sold, the greater number of workmen would have been enabled to live in England, the higher would the prosperity of the working classes have risen. England would probably have doubled the number of her workmen. Every single workman would have lived better, would have been better able to cultivate a garden for his pleasure and for the production of useful vegetables, and would have supported himself and his family much better. It is evident that such a large augmentation of the working population, as well as of its prosperity and of the amount of what it consumed, would have produced an enormous demand for those products for which the island possesses a natural monopoly, and it is more than probable that thereby double and three times as much land could have been brought into cultivation than by unnatural restrictions. The proof of this may be seen in the vicinity of every large town. However large the mass of products may be which is brought into this town from distant districts for miles around it, one cannot discover a single tract of land uncultivated, however much that land may have been neglected by nature. If you forbid the importation into such a town of corn from distant districts, you thereby merely effect a diminution of its population, of its manufacturing industry, and its prosperity, and compel the farmer who lives near the town to devote himself to less profitable culture.
It will be perceived that thus far we are quite in accord with the prevailing theory. With regard to the interchange of raw products, the school is perfectly correct in supposing that the most extensive liberty of commerce is, under all circumstances, most advantageous to the individual as well as to the entire State.81 One can, indeed, augment this production by restrictions; but the advantage obtained thereby is merely apparent. We only thereby divert, as the school says, capital and labour into another and less useful channel. But the manufacturing productive power, on the contrary, is governed by other laws, which have, unfortunately, entirely escaped the observation of the school.
If restriction on the importation of raw products hinder (as we have seen) the utilisation of the natural resources and powers of a State, restrictions on the importation of manufactured goods, on the contrary, call into life and activity (in the case of a populous country already far advanced in agriculture and civilisation) a mass of natural powers; indeed, without doubt, the greater half of all natural powers, which in the merely agricultural State lie idle and dead for ever. If, on the one hand, restrictions on the importation of raw products are a hindrance to the development not only of the manufacturing, but also of the agricultural productive, powers of a State, on the other hand, an internal manufacturing productive power produced by restrictions on the importation of foreign manufactures, stimulates the whole agricultural productive powers of a State to a degree which the most flourishing foreign trade is never able to do. If the importation of raw products makes the foreign country dependent on us and takes from it the means of manufacturing for itself, so in like manner, by the importation of foreign manufactures, are we rendered dependent on the foreign country, and the means are taken from us of manufacturing for ourselves. If the importation of products and raw materials withdraws from the foreign country the material for the employment and support of its population and diverts it to our nation, so does the importation of manufactured fabrics take from us the opportunity of increasing our own population and of providing it with employment. If the importation of natural products and raw materials increases the influence of our nation on the affairs of the world and gives us the means of carrying on commerce with all other nations and countries, so by the importation of manufactured fabrics are we chained to the most advanced manufacturing nation, which can rule over us almost as it pleases, as England rules over Portugal. In short, history and statistics alike prove the correctness of the dictum expressed by the ministers of George I.: that nations are richer and more powerful the more they export manufactured goods, and import the means of subsistence and raw materials. In fact, it may be proved that entire nations have been ruined merely because they have exported only means of subsistence and raw materials, and have imported only manufactured goods. Montesquieu,82 who understood better than anyone either before or after him how to learn from History the lessons which she imparts to the legislator and politician, has well perceived this, although it was impossible for him in his times, when political economy was as yet but little studied, clearly to unfold the causes of it. In contradiction to the groundless system of the physiocratic school, he maintained that Poland would be more prosperous if she gave up altogether foreign commerce, i.e. if she established a manufacturing power of her own, and worked up and consumed her own raw materials and means of subsistence. Only by the development of an internal manufacturing power, by free, populous, and industrious cities, could Poland obtain a strong internal organisation, national industry, liberty, and wealth; only thus could she maintain her independence and political superiority over less cultivated neighbours. Instead of foreign manufactured goods she should have introduced (as England did at one time, when she was on the same footing as regards culture with Poland) foreign manufacturers and foreign manufacturing capital. Her aristocracy, however, preferred to export the paltry fruits of serf labour to foreign markets, and to obtain in return the cheap and fine goods made by foreign countries. Their successors now may answer the question: whether it is advisable for a nation to buy the fabrics of a foreign country so long as its own native manufactures are not yet sufficiently strengthened to be able to compete in prices and quality with the foreigner. The aristocracy of other countries may bear her fate in mind whenever they are instigated by feudal inclinations; they may then cast a glance at the English aristocracy in order to inform themselves as to what is the value to the great landed proprietors of a strengthened manufacturing power, of free municipal institutions, and of wealthy towns.
Without here entering on an inquiry whether it would have been possible for the elective kings of Poland, under the circumstances under which they were placed, to introduce such a commercial system as the hereditary kings of England have gradually developed and established, let us imagine that it had been done by them: can we not perceive what rich fruits such a system would have yielded to the Polish nation? By the aid of large and industrious towns, the crown would have been rendered hereditary, the nobility would have been obliged to make it convenient to take part in legislation in a House of Peers, and to emancipate their serfs; agriculture would have developed itself, as it has developed itself in England; the Polish nobility would now be rich and respected; the Polish nation would, even if not so respected and influential in the affairs of the world as the English nation is, would have long ago become so civilised and powerful as to extend its influence over the less cultivated East. Without a manufacturing power she has become ruined and partitioned, and were she not so already she must have become so. Of its own accord and spontaneously no manufacturing power was developed in her; it could not be so, because its efforts would have been always frustrated by further advanced nations. Without a system of protection, and under a system of free trade with further advanced nations, even if Poland had retained her independence up to the present time, she could never have carried on anything more than a crippled agriculture; she could never have become rich, powerful, and outwardly influential.
By the circumstance that so many natural resources and natural powers are converted by the manufacturing power into productive capital is the fact chiefly to be accounted for, that protective regulations act so powerfully on the augmentation of national wealth. This prosperity is not a false appearance, like the effects of restrictions on the trade in mere natural products, it is a reality. They are natural powers which are otherwise quite dead—natural resources which are otherwise quite valueless, which an agricultural nation calls to life and renders valuable by establishing a manufacturing power of its own.
It is an old observation, that the human race, like the various breeds of animals, is improved mentally and bodily by crossings; that man, if a few families always intermarry amongst one another, just as the plant if the seed is always sown in the same soil, gradually degenerates. We seem obliged to attribute to this law of nature the circumstance that among many wild or half-wild tribes in Africa and Asia, whose numbers are limited, the men choose their wives from foreign tribes. The fact which experience shows, that the oligarchies of small municipal republics, who continually intermarry among themselves, gradually die out or visibly degenerate, appears similarly attributable to such a natural law. It is undeniable that the mixing of two quite different races results, almost without exception, in a powerful and fine future progeny; and this observation extends to the mixing of the white race with the black in the third and the fourth generation. This observation seems to confirm more than any other thing the fact, that those nations which have emanated from a crossing of race frequently repeated and comprising the whole nation, have surpassed all other nations in power and energy of the mind and character, in intelligence, bodily strength, and personal beauty.83
We think we may conclude from this that men need not necessarily be such dull, clumsy, and unintellectual beings as we perceive them to be when occupied in crippled agriculture in small villages, where a few families have for thousands of years intermarried only with one another; where for centuries it has occurred to no one to make use of an implement of a new form, or to adopt a new method of culture, to alter the style of a single article of clothing, or to adopt a new idea; where the greatest art consisted, not in exerting one's bodily and mental powers in order to obtain as much enjoyment as possible, but to dispense with as much of it as possible.
This condition of things is entirely changed (and for the best purposes of the improvement of race of a whole nation) by establishing a manufacturing power. While a large portion of the increase of the agricultural population goes over into the manufacturing community, while the agricultural population of various districts becomes mixed by marriages between one another and with the manufacturing population, the mental, moral, and physical stagnation of the population is broken up. The intercourse which manufactures and the commerce between various nations and districts which is based upon them bring about, brings new blood into the whole nation as well as into separate communities and families.
The development of the manufacturing power has no less important an influence on the improvement of the breeds of cattle. Everywhere, where woollen manufactures have been established, the race of sheep has quickly been improved. Owing to a greater demand for good meat, which a numerous manufacturing population creates, the agriculturist will endeavour to introduce better breeds of cattle. The greater demand for 'horses of luxury' is followed by the improvement of the breeds of horses. We shall then no longer see those wretched primitive breeds of cattle, horses, and sheep, which having resulted from the crippled state of agriculture and everywhere from neglect of crossing of breeds, exhibit a side spectacle worthy of their clumsy owners.
How much do the productive powers of the nations already owe to the importation of foreign breeds of animals and to the improvement of the native breeds; and how much has yet to be done in this respect! All the silkworms of Europe are derived from a few eggs, which (under Constantine) were brought to Constantinople in hollow sticks, by Greek monks from China, where their exportation was strictly prohibited. France is indebted to the importation of the Thibet goat for a beautiful product of her industry. It is very much to be regretted, that hitherto the breeding and improving of animals has been chiefly carried on in order to satisfy the requirements of luxury, and not in order to promote the welfare of the large masses. The descriptions of travellers show that in some countries of Asia a race of cattle has been seen which combines considerable draught power with great swiftness of pace, so that they can be used with almost the same advantage as horses for riding and driving. What immense advantages would such a breed of cattle confer on the smaller agriculturists of Europe! What an increase in means of subsistence, productive power, and convenience, would the working classes thereby obtain! But even far more than by improved breeds, and importation from one country into another of various animals, has the productive power of the human race been increased by the improvement and importation of trees and plants. This is at once evident, if we compare the original plants as they have sprung from the bosom of nature, with their improved species. How little do the primitive plants of the various species of corn and of fruit trees, of edible vegetables and of the olive, resemble in form and utility their improved offspring! What masses of means of nourishment, of enjoyment, and comfort, and what opportunities for the useful application of human powers, have been derived from them! The potato, the beet-root, the cultivation of root crops for cattle, together with the improved systems of manuring and improved agricultural machines, have increased ten-fold the returns of agriculture, as it is at present carried on by the Asiatic tribes.
Science has already done much with regard to the discovery of new plants and the improvement of them; but governments have not yet devoted to this important object so much attention as they ought to have done, in the interests of economy. Quite recently, species of grass are said to have been discovered in the savannas of North America, which from the poorest soil yield a higher produce than any fodder plants, which are as yet known to us, do from the richest soil. It is very probable that in the wild regions of America, Asia, Africa, and Australia, a quantity of plants still vegetate uselessly, the transplantation and improvement of which might infinitely augment the prosperity of the inhabitants of temperate climates.
It is clear that most of the improvements and transportations of animals and vegetables, most of the new discoveries which are made with respect to them, as well as all other progress, inventions, and discoveries, are chiefly calculated to benefit the countries of the temperate zone, and of those most of all, the manufacturing countries.
THE MANUFACTURING POWER AND THE INSTRUMENTAL POWERS (MATERIAL CAPITAL) OF THE NATION.
THE nation derives its productive power from the mental and physical powers of the individuals; from their social, municipal, and political conditions and institutions; from the natural resources placed at its disposal, or from the instruments it possesses as the material products of former mental and bodily exertions (material, agricultural, manufacturing, and commercial capital). In the last two chapters we have dealt with the influence of manufactures on the three first-named sources of the national productive powers; the present and the following chapter are devoted to the demonstration of its influence on the one last named.
That which we understand by the term 'instrumental powers' is called 'capital' by the school. It matters but little by what word an object is signified, but it matters very much (especially with regard to scientific investigations) that the word selected should always indicate one and the same object, and never more or less. As often, therefore, as different branches of a matter are discussed, the necessity for a distinction arises. The school now understands by the term 'capital' not merely the material, but also all mental and social means of and aids to production. It clearly ought, therefore, to specify wherever it speaks of capital, whether the material capital, the material instruments of production, or the mental capital, the moral and physical powers which are inherent in individuals, or which individuals derive from social, municipal, and political conditions, are meant. The omission of this distinction, where it ought to be drawn, must necessarily lead to false reasoning, or else serve to conceal false reasoning. Mean-while, however, as it is not so much our business to found a new nomenclature as to expose the errors committed under the cover of an inexact and inadequate nomenclature, we will adopt the term 'capital,' but distinguish between mental and material capital, between material, agricultural, manufacturing, and commercial capital, between private and national capital.
Adam Smith (by means of the common expression, capital) urges the following argument against the protective commercial policy which is adopted to the present day by all his followers: 'A country can indeed by means of such (protective) regulations produce a special description of manufactures sooner than without them; and this special kind of manufactures will be able to yield after some time as cheap or still cheaper productions than the foreign country. But although in this manner we can succeed in directing national industry sooner into those channels into which it would later have flowed of its own accord, it does not in the least follow that the total amount of industry or of the incomes of the community can be increased by means of such measures. The industry of the community can only be augmented in proportion as its capital increases, and the capital of the community can only increase in accordance with the savings which it gradually makes from its income. Now, the immediate effect of these measures is to decrease the income of the community. But it is certain that that which decreases that income cannot increase the capital more quickly than it would have been increased by itself, if it, as well as industry, had been left free.'84
As a proof of this argument, the founder of the school adduces the well-known example, refuted by us in the previous chapter, how foolish it would be to plant the vine in Scotland.
In the same chapter he states, the annual income of the community is nothing else but the value in exchange of those objects which the national industry produces annually.
In the above-named argument lies the chief proof of the school against the protective commercial policy. It admits that by measures of protection manufactories can be established and enabled to produce manufactured goods as cheap or even cheaper than they can be obtained from abroad; but it maintains that the immediate effect of these measures is to decrease the income of the community (the value in exchange of those things which the national industry produces annually). It thereby weakens its power of acquiring capital, for capital is formed by the savings which the nation makes out of its annual income; the total of the capital, however, determines the total of the national industry, and the latter can only increase in proportion to the former. It therefore weakens its industry by means of those measures—by producing an industry which, in the nature of things, if they had been left to their own free course would have originated of its own accord.
It is firstly to be remarked in opposition to this reasoning, that Adam Smith has merely taken the word capital in that sense in which it is necessarily taken by rentiers or merchants in their book-keeping and their balance-sheets, namely, as the grand total of their values of exchange in contradistinction to the income accruing therefrom.
He has forgotten that he himself includes (in his definition of capital) the mental and bodily abilities of the producers under this term.
He wrongly maintains that the revenues of the nation are dependent only on the sum of its material capital. His own work, on the contrary, contains a thousand proofs that these revenues are chiefly conditional on the sum of its mental and bodily powers, and on the degree to which they are perfected, in social and political respects (especially by means of more perfect division of labour and confederation of the national productive powers), and that although measures of protection require sacrifices of material goods for a time, these sacrifices are made good a hundred-fold in powers, in the ability to acquire values of exchange, and are consequently merely reproductive outlay by the nation.
He has forgotten that the ability of the whole nation to increase the sum of its material capital consists mainly in the possibility of converting unused natural powers into material capital, into valuable and income-producing instruments, and that in the case of the merely agricultural nation a mass of natural powers lies idle or dead which can bequickened into activity only by manufactures. He has not considered the influence of manufactures on the internal and external commerce, on the civilisation and power of the nation, and on the maintenance of its independence, as well as on the capability arising from these of gaining material wealth.
He has e.g. not taken into consideration what a mass of capital the English have obtained by means of colonisation (Martin estimates the amount of this at more than two and ahalf milliards of pounds sterling).
He, who nevertheless elsewhere proves so clearly that the capital employed in intermediate commerce is not to be regarded as belonging to any given nation, so long as it is not equally embodied in that nation's land, has here not duly considered that the nationalisation of such capital is most effectually realised by favouring the nation's inland manufactures.
He has not taken into account, that by the policy of favouring native manufacture a mass of foreign capital, mental as well as material, is attracted into the country.
He falsely maintains that these manufactures have originated in the natural course of things and of their own accord; notwithstanding that in every nation the political power interferes to give to this so-called natural course an artificial direction for the nation's own special advantage.
He has illustrated his argument, founded on an ambiguous expression and consequently fundamentally wrong, by a fundamentally wrong example, in seeking to prove that because it would be foolish to produce wine in Scotland by artificial methods, therefore it would be foolish to establish manufactures by artificial methods.
He reduces the process of the formation of capital in the nation to the operation of a private rentier, whose income is determined by the value of his material capital, and who can only increase his income by savings which he again turns into capital.
He does not consider that this theory of savings, which in the merchant's office is quite correct, if followed by a whole nation must lead to poverty, barbarism, powerlessness, and decay of national progress. Where everyone saves and economises as much as he possibly can, no motive can exist for production. Where everyone merely takes thought for the accumulation of values of exchange, the mental power required for production vanishes. A nation consisting of such insane misers would give up the defence of the nation from fear of the expenses of war, and would only learn the truth after all its property had been sacrificed to foreign extortion, that the wealth of nations is to be attained in a manner different to that of the private rentier.
The private rentier himself, as the father of a family, must follow a totally different theory to the shopkeeper theory of the material values of exchange which is here set up. He must at least expend on the education of his heirs as much value of exchange as will enable them to administer the property which is some day to fall to their lot.
The building up of the material national capital takes place in quite another manner than by mere saving as in the case of the rentier, namely, in the same manner as the building up of the productive powers, chiefly by means of the reciprocal action between the mental and material national capital, and between the agricultural, manufacturing, and commercial capital.
The augmentation of the national material capital is dependent on the augmentation of the national mental capital, and vice versâ.
The formation of the material agricultural capital is dependent on the formation of the material manufacturing capital, and vice versâ.
The material commercial capital acts everywhere as an intermediary, helping and compensating between both.
In the uncivilised state, in the state of the hunter and the fisher, the powers of nature yield almost everything, capital is almost nil. Foreign commerce increases the latter, but also in so doing (through fire-arms, powder, lead) totally destroys the productiveness of the former. The theory of savings cannot profit the hunter; he must be ruined or become a shepherd.
In the pastoral state the material capital increases quickly, but only so far as the powers of nature afford spontaneously nourishment to the cattle. The increase of population, however, follows closely upon the increase of flocks and herds and of the means of subsistence. On the one hand, the flocks and herds as well as pastures become divided into smaller shares; on the other hand, foreign commerce offers inducements to consumption. It would be in vain to preach to the pastoral nation the theory of savings; it must sink into poverty or pass over into the agricultural State.
To the agricultural nation is open an immense, but at the same time limited, field for enriching itself by utilising the dormant powers of nature.
The agriculturist for himself alone can save provisions, improve his fields, increase his cattle; but the increase of the means of subsistence always follows the increase of population. The material capital (namely, cultivated land and cattle), in proportion as the former becomes more fertile and the latter increase, becomes divided among a larger number of persons. Inasmuch, however, as the surface of the land cannot be increased by industry, and the land cannot be utilised up to the measure of its natural capacity, for want of means of transport, which (as we showed in the preceding chapter) must remain imperfect in such a state of things owing to lack of intercourse; and as moreover the merely agricultural nation is mostly in want of those instruments, intelligence, motives to exertion, and also of that energy and social development which are imparted to the nation through manufactures and the commerce which originates from them, the mere agricultural population soon reaches a point in which the increase of material agricultural capital can no longer keep pace with the increase of population, and where consequently individual poverty increases more and more, notwithstanding that the total capital of the nation is continually increasing.
In such a condition the most important product of the nation consists of men, who, as they cannot find sufficient support in their own country, emigrate to other countries. It can be but little consolation to such a country, that the school regards man as an accumulated capital; for the exportation of men does not occasion return freights, but, on the contrary, causes the unproductive export of considerable amounts of material values(in the shape of implements, utensils, money, &c.).
It is clear that in such a state of things, where the national division of labour is not properly developed, neither industry nor economy can bring about the augmentation of the material capital (material enrichment of individuals).
The agricultural country is, of course, rarely quite without any foreign commerce, and foreign commerce, as far as it extends, also supplies the place of internal manufactures with regard to the augmentation of capital, inasmuch as it places the manufacturer of the foreign country in commercial relation with the agriculturist of the home country. This, however, takes place only partially and very imperfectly: firstly, because this commerce extends merely to special staple products, and chiefly only to those districts which are situated on the sea-coast and on navigable rivers; and secondly, because it is in any case but a very irregular one, and is liable to be frequently interrupted by wars, fluctuations in trade and changes in commercial legislation, by specially rich harvests, and by foreign importations.
The augmentation of the material agricultural capital can only take place on a large scale, with regularity and continuously, if a completely developed manufacturing power is established in the midst of the agriculturists.
By far the greatest portion of the material capital of a nation is bound to its land and soil. In every nation the value of landed property, of dwelling houses in rural districts and in towns, of workshops, manufactories, waterworks, mines, &c. amounts to from two-thirds to nine-tenths of the entire property of the nation. It must therefore be accepted as a rule, that all that increases or decreases the value of the fixed property, increases or decreases the total of the material capital of the nation. Now, it is evident that the capital value of land of equal natural fertility is incomparably larger in the proximity of a small town than in remote districts; that this value is incomparably larger still in the neighbourhood of a large town than in that of a small one; and that in manufacturing nations these values are beyond all comparison greater than in mere agricultural nations. We may observe (inversely) that the value of the dwelling houses and manufacturing buildings in towns, and that of building land, rises or falls (as a rule) in the same ratio in which the commercial intercourse of the town with the agriculturists is extended or restricted, or in which the prosperity of these agriculturists progresses or recedes. From this it is evident that the augmentation of the agricultural capital is dependent on the augmentation of the manufacturing capital; and (inversely) the latter on the former.85
This reciprocal action is, however, in the case of the change from the agricultural state into the manufacturing state much stronger on the part of manufacture than on the part of agriculture. For as the increase of capital which results from the change from the condition of the mere hunter to the pastoral condition is chiefly effected by the rapid increase of flocks and herds, as the increase of capital resulting from the change from the pastoral condition into the agricultural condition is chiefly effected by the rapid increase in cultivated land and in surplus produce, so, in the event of a change from the agricultural condition into the manufacturing condition, is the augmentation of the material capital of the nation chiefly effected by those values and powers which are devoted to the establishment of manufactures, because thereby a mass of formerly unutilised natural and mental powers are converted into mental and material capital. Far from hindering the saving of material capital, the establishment of manufactures is the first thing which affords to the nation the means of employing its agricultural savings in an economical manner, and it is the first means by which the nation can be incited to agricultural economy.
In the legislative bodies of North America it has often been mentioned that corn there rots in the ear from want of sale, because its value will not pay the expense of harvesting it. In Hungary it is asserted that the agriculturist is almost choked with excess of produce, while manufactured goods are three to four times dearer there than in England. Germany even can remember such times. In agricultural States, therefore, all surplus agricultural produce is not material capital. By means of manufactures it first becomes commercial capital by being warehoused, and then by being sold to the manufacturers it is turned into manufacturing capital. What may be unutilised stock in the hand of the agriculturist, becomes productive capital in the hand of the manufacturer, and vice versâ.
Production renders consumption possible, and the desire to consume incites to production. The mere agricultural nation is in its consumption dependent on foreign conditions, and if these are not favourable to it, that production dies out which would have arisen in consequence of the desire to consume. But in that nation which combines manufactures with agriculture in its territory, the reciprocal inducement continually exists, and therefore, also, there will be continuous increase of production and with it augmentation of capital on both sides.
As the agricultural-manufacturing nation is (for the reasons which we have already given) always incomparably richer in material capital than the mere agricultural nation (which is evident at a glance), so in the former the rate of interest is always much lower, and larger capital and more favourable conditions are at the disposal of men of enterprise, than in the purely agricultural nation. It follows that the former can always victoriously compete with the newly formed manufactories in the agricultural nation; that the agricultural nation remains continually in debt to the manufacturing nation, and that in the markets of the former continual fluctuations in the prices of produce and manufactured goods and in the value of money take place, whereby the accumulation of material wealth in the purely agricultural nation is no less endangered than its morality and its habits of economy.
The school distinguishes fixed capital from circulating capital, and classes under the former in a most remarkable manner a multitude of things which are in circulation without making any practical application whatever of this distinction. The only case in which such a distinction can be of value, it passes by without notice. The material as well as the mental capital is (namely) bound in a great measure to agriculture, to manufactures, to commerce, or to special branches of either—nay often, indeed, to special localities. Fruit trees, when cut down, are clearly not of the same value to the manufacturer (if he uses them for woodwork) as they are to the agriculturist (if he uses them for the production of fruit). Sheep, if, as has already frequently happened in Germany and North America, they have to be slaughtered in masses, have evidently not the value which they would possess when used for the production of wool. Vineyards have (as such) a value which, if used as arable fields, they would lose. Ships, if used for timber or for firewood, have a much lower value than when they serve as means of transport. What use can be made of manufacturing buildings, water-power, and machinery if the spinning industry is ruined? In like manner individuals lose, as a rule, the greatest part of their productive power, consisting in experience, habits, and skill, when they are displaced. The school gives to all these objects and properties the general name of capital, and would transplant them (by virtue of this terminology) at its pleasure from one field of employment to another. J. B. Say thus advises the English to divert their manufacturing capital to agriculture. How this wonder is to be accomplished he has not informed us, and it has probably remained a secret to English statesmen to the present day. Say has in this place evidently confounded private capital with national capital. A manufacturer or merchant can withdraw his capital from manufactures or from commerce by selling his works or his ships and buying landed property with the proceeds. A whole nation, however, could not effect this operation except by sacrificing a large portion of its material and mental capital. The reason why the school so deliberately obscures things which are so clear is apparent enough. If things are called by their proper names, it is easily comprehended that the transfer of the productive powers of a nation from one field of employment to another is subject to difficulties and hazards which do not always speak in favour of 'free trade,' but very often in favour of national protection.
THE MANUFACTURING POWER AND THE AGRICULTURAL INTEREST.
IF protective duties in favour of home manufactures proved disadvantageous to the consumers of manufactured goods and served only to enrich the manufacturer, this disadvantage would especially be felt by the landed proprietor and the agriculturist, the most numerous and important class of those consumers. But it can be proved that even this class derives far greater advantages from the establishment of manufactures, than the manufacturers themselves do; for by means of these manufactures a demand for greater variety and for larger quantities of agricultural products is created, the value in exchange of these products is raised, the agriculturist is placed in a position to utilise his land and his powers of labour more profitably. Hence emanates an increase of rent, of profits, and wages; and the augmentation of rents and capital is followed by an increase in the selling value of land and in the wages of labour.
The selling value of landed property is nothing else than capitalised rent; it is dependent, on the one hand, on the amount and the value of the rent, but, on the other hand, and chiefly, on the quantities of mental and material capital existing in the nation.
Every individual and social improvement, especially every augmentation of productive power in the nation, but, most of all, of the manufacturing power, raises the amount of rents, while at the same time it lessens the proportion which rent bears to the gross produce. In an agricultural nation little developed and scantily peopled, e.g. in Poland, the proportion of rent amounts to one-half or one-third the gross produce; in a well-developed, populous, and wealthy nation, e.g. England, it only amounts to one-fourth or one-fifth part of that produce. Nevertheless, the actual worth of this smaller proportion is disproportionately greater than the worth of that larger proportion—in money value especially, and still more in manufactured goods. For the fifth part of twenty-five bushels (the average produce of wheat in England) equals five bushels; the third part, however, of nine bushels (the average produce of wheat in Poland) amounts only to three bushels; further, these five bushels in England are worth on an average 25s. to 30s.; while these three bushels in the interior of Poland are at the most worth 8s. to 9s.; and finally, manufactured goods in England are at least twice as cheap as in Poland: consequently the English landed proprietor is able to buy for his 30s. of money-rent ten yards of cloth, but the Polish landowner for his 9s. of rent can obtain scarcely two yards, from which it is evident that the English landed proprietor by the fifth part of the gross produce is as rentier three times, and as consumer of manufactured goods five times, better off than the Polish landowner is by the third part of his gross produce. But that farmers and agricultural labourers also must in England (especially as consumers of manufactured goods) be disproportionately better off than in Poland, is shown by the fact that out of the produce of twenty-five bushels in England twenty bushels go for sowing, for cultivation of the field, wages, and profits : half of which (or ten bushels) devoted to the last two items have an average value of 60s. or twenty yards of cloth (at 3s. per yard), while from the produce of nine bushels in Poland only six bushels go for sowing, cultivation of the field, profit, and wages, half of which, or three bushels, devoted to the last two items, have merely a value of 10s. to 12s. or three and a half yards of cloth.
Rent is a chief means of usefully employing material capital. Its price, therefore, depends also on the quantity of the capital existing in the nation and the proportion of the supply of it to the demand. By the surplus of the capital which accumulates in a manufacturing nation as the result of its home and foreign commerce, by the low rate of interest which there exists, and the circumstance that in a manufacturing and commercial nation a number of individuals who have become wealthy are always seeking to invest their surplus capital in land, the selling price of a given amount of rent of land is always disproportionately higher in such a nation than in the mere agricultural nation. In Poland the rent of land is sold at ten or twenty years' purchase; in England at thirty or forty years' purchase.
In the proportion in which the selling value of the rent of land is higher in the manufacturing and commercial nation than in the agricultural nation, so also is the selling value of the land itself higher in the former than in the latter. For land of equal natural fertility in each country, the value is in England ten to twenty times higher than in Poland.
That manufactures have an influence on the amount of rent, and therefore on the value in exchange of the land, is a fact which Adam Smith certainly notices at the conclusion of the ninth chapter of his first book, but only incidentally and without bringing the vast importance of manufactures in this respect properly to light. He there distinguishes those causes which influence directly the augmentation of rent (such as the improvement of the land itself, the increase in the number and the value of the cattle maintained upon it) from those causes which have only an indirect influence on that augmentation, among which latter he classes manufactures. In this manner he places the main cause of the augmentation of the rent and of the value of land (namely, the manufactures) in the background so that it is scarcely perceptible; while he places the improvement of the land itself and the increase of cattle, which are themselves for the most part the result of manufactures and of the commerce proceeding from them, as the chief cause, or at least as an equal cause, of that augmentation.
Adam Smith and his followers have not recognised by any means to its full extent the value of manufactures in this respect.
We have remarked that in consequence of manufactures and of the commerce connected with them, the value of land of equal natural fertility in England is ten to twenty times greater than in Poland. If we now compare the total produce of the English manufacturing production and of the English manufacturing capital with the total produce of the English agricultural production and of the English agricultural capital, we shall find that the greatest part of the wealth of the nation shows itself in the thus increased value of landed property.
MacQueen86 has prepared the following estimate of the national wealth and national income of England:
From this estimate it may be seen:
It must here, above all things, be noted that the 218 millions manufacturing capital, with an annual production of 259½ millions, constitute the chief reason why the English agricultural capital could have attained to the enormous amount of 3,311 millions, and its annual produce to the sum of 539 millions. By far the greatest part of the agricultural capital consists in the value of land and cattle. Manufactures, by doubling and trebling the population of the country, by furnishing the means for an immense foreign commerce, for the acquisition and exploration of a number of colonies, and for a large mercantile marine, have increased in the same proportion the demand for means of subsistence and raw materials, have afforded to the agriculturist at once the means and the motive for satisfying this increased demand, have increased the exchangeable value of these products, and thus caused the proportionate increase in the amount and the selling value of the rent of land, consequently of the land itself. Were these 218 millions of manufacturing and commercial capital destroyed, we should see not merely the 259½ millions manufacturing production, but also the greatest part of the 3,311 millions agricultural capital, and consequently of the 539 millions agricultural production, disappear. The English national production would not merely lose 259½ millions (the value of its manufacturing production), but the value of land would decline to the value which it has in Poland, i.e. to the tenth or twentieth part of its present value.
From this it follows that all capital which is devoted by the agricultural nation in a profitable manner to manufactures, increases in the course of time the value of the land tenfold. Experience and statistics everywhere confirm this statement. Everywhere it has been seen that in consequence of the establishment of manufactures the value of land and also that of the stock of capital rapidly increases. Let anyone compare these values in France (in 1789 and in 1840), in North America (in 1820 and in 1830), or in Germany (in 1830 and in 1840), how they have corresponded with a less developed or a more fully developed condition of manufactures, and he will find our observation everywhere confirmed.
The reason for this appearance lies in the increased power of production in the nation, which emanates from the regular division of labour and from the strengthened confederation of the national powers, also from a better use of the mental and natural powers placed at the disposal of the nation, and from foreign commerce.
These are the very same causes and effects which we may perceive in respect to improved means of transport; which not merely yield in themselves a revenue, and through it a return for the capital spent upon them, but also powerfully promote the development of manufactures and agriculture, whereby they increase in the course of time the value of the landed property within their districts to tenfold the value of the actual material capital which has been employed in creating them. The agriculturist, in comparison with the undertaker of such works (improved means of transport), has the great advantage of being quite sure of his tenfold gain on his invested capital and of obtaining this profit without making any sacrifices, while the contractor for the works must stake his whole capital. The position of the agriculturist is equally favourable as compared with that of the erector of new manufactories.
If, however, this effect of manufactures on agricultural production, on rent, and therefore on the value of landed property, is so considerable and advantageous for all who are interested in agriculture; how, then, can it be maintained that protective measures would favour manufactures merely at the cost of the agriculturists?
The material prosperity of agriculturists, as well as of all other private persons, principally depends on the point that the value of what they produce shall exceed the value of what they consume. It, therefore, is not so important to them that manufactured goods should be cheap, as especially that a large demand for various agricultural products should exist, and that these should bear a high value in exchange. Now, if measures of protection operate so that the agriculturist gains more by the improvement of the market for his own produce than he loses by the increase of the prices of such manufactured goods as he requires to buy, he cannot rightly be described as making a sacrifice in favour of the manufacturer. This effect is, however, always observable in the case of all nations who are capable of establishing a manufacturing power of their own, and in their case is most apparent during the first period of the rise of the native manufacturing industry; since just at that time most of the capital transferred to manufacturing industry is spent on the erection of dwelling houses and manufactories, the application of water power, &c., an expenditure which chiefly benefits the agriculturist. However much in the beginning the advantages of the greater sale of agricultural produce and of its increased value outweighs the disadvantage of the increased price of manufactured goods, so must this favourable condition always increase further to the advantage of the agriculturists, because the flourishing of the manufactories always tends in the course of time continually more and more to increase the prices obtainable for agricultural produce and to lessen the prices of manufactured goods.
Further, the prosperity of the agriculturist and landed proprietor is especially dependent on the circumstance that the value of the instrument from which his income is derived, namely, his landed property, at least maintains its former position. This is not merely the chief condition of his prosperity, but frequently of his entire economical existence. For instance, it frequently happens that the annual production of the agriculturist exceeds his consumption, and nevertheless he finds himself ruined. This occurs if while his landed property is encumbered with money debts, the general credit becomes fluctuating; if on one side the demand for money capital exceeds the supply of it, and on the other hand the supply of land exceeds the demand. In such cases a general withdrawal of money loans and a general offer of land for sale arises, and consequently land becomes almost valueless, and a large number of the most enterprising, active, and economical land cultivators are ruined, not because their consumption has exceeded their production, but because the instrument of their production, their landed property, has lost in their hands a considerable portion of its value, in consequence of causes over which they had no control; further, because their credit has thereby become destroyed; and finally, because the amount of the money debts with which their landed property is encumbered is no longer in proportion to the money value of their possessions, which has become depressed by the general worthlessness of landed property. Such crises have occurred in Germany and North America during the last fifty years more than once, and in this manner a large proportion of the German nobility find themselves no longer in possession of property or landed estate, without having clearly perceived that they really owe this fate to the policy adopted by their brothers in England, the Tories whom they regard as so well disposed. The condition of the agriculturist and landed proprietor is, however, totally different in countries where manufactures flourish vigorously. There, while the productive capabilities of the land and the prices of produce are increased, he not merely gains the amount by which the value of his production exceeds the value of his consumption; he gains, as landed proprietor, not only an increase of annual rent, but the amount of capital represented by the increase of rent. His property doubles and trebles itself in value, not because he works more, improves his fields more, or saves more, but because the value of his property has been increased in consequence of the establishment of manufactures. This effect affords to him means and inducement for greater mental and bodily exertions, for improvement of his land, for the increase of his live stock, and for greater economy, notwithstanding increased consumption. With the increase in the value of his land his credit is raised, and with it the capability of procuring the material capital required for his improvements.
Adam Smith passes over these conditions of the exchangeable value of land in silence. J. B. Say, on the contrary, believes that the exchangeable value of land is of little importance, inasmuch as, whether its value be high or low, it always serves equally well for production. It is sad to read from an author whom his German translators regard as a universal national authority, such fundamentally wrong views about a matter which affects so deeply the prosperity of nations. We, on the contrary, believe it essential to maintain that there is no surer test of national prosperity than the rising and falling of the value of the land, and that fluctuations and crises in that are to be classed among the most ruinous of all plagues that can befall a country.
Into this erroneous view the school has also been led by its predilection for the theory of free trade (as it desires the latter term to be understood). For nowhere are fluctuations and crises in the value and price of land greater than in those purely agricultural nations which are in unrestricted commercial intercourse with rich and powerful manufacturing and commercial nations.
Foreign commerce also, it is true, acts on the increase of rent and the value of land, but it does so incomparably less decidedly, uniformly, and permanently, than the establishment of home manufactures, the continuous regular increase of manufacturing production, and the exchange of home manufacturing products for home agricultural products.
So long as the agricultural nation still possesses a large quantity of uncultivated or badly cultivated land, so long as it produces staple articles which are readily taken by the richer manufacturing nation in exchange for manufactured goods, so long as these articles are easy of transport, so long also as the demand for them is lasting and capable of annual increase at a rate corresponding with the growth of the productive powers of the agricultural nation, and so long as it is not interrupted by wars or foreign tariff regulations, under such circumstances foreign commerce has a powerful effect on the increase of rents and on the exchangeable value of land. But as soon as any one of these conditions fails or ceases to operate, foreign commerce may become the cause of national stagnation, nay frequently of considerable and long-continued retrogression.
The fickleness of foreign demand has the most baneful effect of all in this respect, if in consequence of wars, failure of crops, diminution of importation from other parts, or owing to any other circumstances and occurrences, the manufacturing nation requires larger quantities especially of the necessaries of life or raw materials, or of the special staple articles referred to, and then if this demand again to a great extent ceases, in consequence of the restoration of peace, of rich harvests, of larger importation from other countries, or in consequence of political measures. If the demand lasts merely for a short time, some benefit may result from it to the agricultural nation; but if it last for years or a series of years then all the circumstances of the agricultural nation, the scale of expenditure of all private establishments, will have become regulated by it. The producer becomes accustomed to a certain scale of consumption; and certain enjoyments, which under other circumstances he would have regarded as luxuries, become necessaries to him. Relying on the increased yield and value of his landed property, he undertakes improvements in cultivation, in buildings, and makes purchases which otherwise he would never have done. Purchases and sales, contracts of letting land, loans, are concluded according to the scale of increased rents and values. The State itself does not hesitate to increase its expenses in accordance with the increased prosperity of private persons. But if this demand afterwards suddenly ceases, disproportion between production and consumption follows; disproportion between the decreased values of land and the money encumbrances upon it which continue undiminished in amount; disproportion between the money rent payable under the leases, and the money produce of the land which has been taken on lease; disproportion between national income and national expenditure; and in consequence of these disproportions, bankruptcy, embarrassment, discouragement, retrogression in the economical as well as in the mental and political development of the nation. Agricultural prosperity would under these circumstances act like the stimulant of opium or strong drink, stimulating merely for a moment, but weakening for a whole lifetime. It would be like Franklin's flash of lightning, which for a moment displayed the objects in a shining light, but only to throw them back into deeper darkness.
A period of temporary and passing prosperity in agriculture is a far greater misfortune than uniform and lasting poverty. If prosperity is to bring real benefit to individuals and nations, it must be continuous. It, however, becomes continuous only in case it increases gradually, and in case the nation possesses guarantees for this increase and for its duration. A lower value of land is incomparably better than fluctuations in its value; it is only a gradual but steady increase in that value that affords to the nation lasting prosperity. And only by the possession of a manufacturing power of their own, can well-developed nations possess any guarantee for the steady and permanent increase of that value.
To how very small an extent clear ideas prevail as to the effect of a home manufacturing power on the rent and value of land in comparison with the effect which foreign trade has on them, is shown most plainly by the circumstance that the proprietors of vineyards in France still always believe that they are injuriously affected by the French system of protection, and demand the greatest possible freedom of commerce with England in hopes of thereby increasing their rents.
Dr. Bowring, in his report of the commercial relations existing between England and France, the fundamental tendency of which is to show the benefit to France which a larger importation of English fabrics and a consequently increasing exportation of French wines would occasion, has adduced facts from which the most striking proof against his own argument can be brought.
Dr. Bowring quotes the importation of French wines into the Netherlands (2,515,193 gallons, 1829) against the annual importation into England (431,509 gallons) to prove how greatly the sale of French wines in England could be increased by freer commercial interchange between the two countries.
Now supposing (although it is more than improbable that the sale of French wines in England would not find obstacles in the predilection existing there for spirituous liquors, for strong beer, and for the strong and cheap wines of Portugal, Spain, Sicily, Teneriffe, Madeira, and the Cape)—supposing that England really was to extend her consumption of French wines to the same proportion as that of the Netherlands, she would certainly (calculating according to her population) be able to increase her consumption to five or six million gallons (i.e. to from ten to fifteen fold her present amount); and from a superficial point of view this certainly appears to promise great advantage to France, and to the French vineyard proprietors.
If, however, we investigate this matter to the bottom, we obtain another result. By as much freedom of trade as is possible—we will not say complete freedom of trade, although the latter would have to be accepted according to the principle enunciated, and to Bowring's arguments—it can scarcely be doubted that the English would draw to themselves a large part of the French market for manufactured goods (especially as regards the manufactures of woollens, cotton, linen, iron, and pottery). On the most moderate estimate we must assume, that in consequence of this decreased French manufacturing production one million fewer inhabitants would live in the French towns, and that one million fewer persons would be employed in agriculture for the purpose of supplying the citizens of those towns with raw material and necessaries of life. Now, Dr. Bowring himself estimates the consumption of the country population in France at 16½ gallons per head, and that of the town population at double that quantity, or 33 gallons per head. Thus in consequence of the diminution of the home manufacturing power effected by free trade, the internal consumption of wines would decrease by 50 million gallons, while the exportation of wine could only increase by 5 or 6 million gallons. Such a result could scarcely be to the special advantage of the French proprietors of vineyards, since the internal demand for wines would necessarily suffer ten times more than the external demand could possibly gain.
In one word: it is evident as respects the production of wine, as also in that of meat, of corn, and of raw materials and provisions generally, that in the case of a great nation well fitted to establish a manufacturing power of its own, the internal manufacturing production occasions ten to twenty times more demand for the agricultural products of temperate climates, consequently acts ten to twenty times more effectually on the increase of the rent and exchangeable value of real estate, than the most flourishing exportation of such products can do. The most convincing proof of this may also be seen in the amount of rents and the exchangeable value of land near large towns, as compared with their amount and value in distant provinces, even though these latter are connected with the capital by good roads and conveniences for commercial intercourse.
The doctrine of rent can either be considered from the point of view of values or from the point of view of productive powers; it can further be considered with respect merely to private relations, namely, the relations between landed proprietor, farmer, and labourer, or with especial regard to the social and national relations and conditions. The school has taken up this doctrine chiefly from the sole point of view of private economy. So far as we know, for instance, nothing has been adduced by it to show how the consumption of the rents of the nation is the more advantageous the more it takes place in the proximity of the place whence it is derived, but how nevertheless in the various States that consumption takes place principally at the seat of the sovereign (e.g. in absolute monarchies mostly in the national metropolis), far away from the provinces where it is produced, and therefore in a manner the least advantageous to agriculture, to the most useful industries, and to the development of the mental powers of the nation. Where the landowning aristocracy possess no rights and no political influence unless they live at the Court, or occupy offices of State, and where all public power and influence is centralised in the national metropolis, landowners are attracted to that central point, where almost exclusively they can find the means of satisfying their ambition, and opportunities for spending the income of their landed property in a pleasant manner; and the more that most landowners get accustomed to live in the capital, and the less that a residence in the provinces offers to each individual opportunities for social intercourse and for mental and material enjoyments of a more refined character, the more will provincial life repel him and the metropolis attract him. The province thereby loses and the metropolis gains almost all those means of mental improvement which result from the spending of rents, especially those manufactures and mental producers which would have been maintained by the rent. The metropolis under those circumstances, indeed, appears extremely attractive because it unites in itself all the talents of the intellectual workers and the greatest part of the material trades which produce articles of luxury. But the provinces are thereby deprived of those mental powers, of those material means, and especially of those industries, which chiefly enable the agriculturist to undertake agricultural improvements, and stimulate him to effect them.
In these circumstances lies to a great extent the reason why in France, especially under absolute monarchy, alongside of a metropolis surpassing in intellect and splendour all towns of the European continent, agriculture made but slight progress, and the provinces were deficient in mental culture and in useful industries. But the more that the landed aristocracy gains in independence of the Court, and in influence in legislation and administration, the more that the representative system and the system of administration grants to the towns and provinces the right of administering their own local affairs and of taking part in the legislation and government of the State, and consequently the more that respect and influence can be attained in the provinces and by living there, so much the more will the landed aristocracy, and the educated and well-to-do citizens, be drawn to those localities from which they derived their rents, the greater also will be the influence of the expenditure of those rents on the development of the mental powers and social institutions, on the promotion of agriculture, and on the development of those industries which are useful to the great masses of the people in the province.
The economical conditions of England afford proof of this observation. The fact that the English landed proprietor lives for the greatest portion of the year on his estates, promotes in manifold ways the improvement of English agriculture: directly, because the resident landowner devotes a portion of his rent to undertaking on his own account improvements in agriculture, or to supporting such improvements when undertaken by his tenants; indirectly, because his own consumption tends to support the manufactures and agencies of mental improvement and civilisation existing in the neighbourhood. From these circumstances it can further partly be explained why in Germany and in Switzerland, in spite of the want of large towns, of important means of transport, and of national institutions, agriculture and civilisation in general are in a much higher condition than in France.
But the great error into which in this matter Adam Smith and his school have fallen is that which we have already before indicated, but which can be here more clearly shown, viz. that he did not clearly recognise the influence of manufactures on the increase of rents, on the market value of landed property itself, and on the agricultural capital, and did not state this by any means to its full extent, but, on the contrary, has drawn a comparison between agriculture and manufactures in such a manner that he would make it appear that agriculture is far more valuable and important to a nation than manufactures, and that the prosperity resulting from it is far more lasting than the prosperity resulting from the latter. Adam Smith in so doing merely sanctioned the erroneous view of the physiocratic school, although in a somewhat modified manner. He was evidently misled by the circumstance that—as we have already demonstrated by the statistical conditions of England—the material agricultural capital is (even in the richest manufacturing country) ten to twenty times more important than the material manufacturing capital; in fact, even the annual agricultural production far exceeds in value the total manufacturing capital. The same circumstance may also have induced the physiocratic school to over-estimate the value of agriculture in comparison with manufactures. Superficially considered, it certainly appears as if agriculture enriches a country ten times more, and consequently deserves ten times more consideration, and is ten times more important to the State than manufactures. This, however, is merely apparent. If we investigate the causes of this agricultural prosperity to their basis, we find them principally in the existence of manufactures. It is those 218 millions of manufacturing capital which have principally called into existence those 3,311 millions of agricultural capital. The same consideration holds good as respects means of transport; it is the money expended in constructing them which has made those lands which are within the reach of the canals more valuable. If the means of transport along a canal be destroyed, we may use the water which has been hitherto employed for transport, for irrigating meadows—apparently, therefore, for increasing agricultural capital and agricultural rents, &c.; but even supposing that by such a process the value of these meadows rose to millions, this alteration, apparently profitable to agriculture, will nevertheless lower the total value of the landed property which is within reach of the canal ten times more.
Considered from this point of view, from the circumstance that the total manufacturing capital of a country is so small in comparison with its total agricultural capital, conclusions must be drawn of a totally different character from those which the present and preceding school have drawn from it. The maintenance and augmentation of the manufacturing power seem now, even to the agriculturist, the more valuable, the less capital as compared with agriculture it requires to absorb in itself and to put into circulation. Yes, it must now become evident to the agriculturist, and especially to the rent-owners and the landed proprietors of a country, that it would be to their interest to maintain and develop an internal manufacturing power, even had they to procure the requisite capital without hope of direct recompense; just as it is to their interest to construct canals, railways, and roads even if these undertakings yield no real nett profit. Let us apply the foregoing considerations to those industries which lie nearest and are most necessary to agriculture, e.g. flour mills; and there will be no room for doubt as to the correctness of our views. Compare, on the one hand, the value of landed property and rent in a district where a mill is not within reach of the agriculturist, with their value in those districts where this industry is carried on in their very midst, and we shall find that already this single industry has a considerable effect on the value of land and on rent; that there, under similar conditions of natural fertility, the total value of the land has not merely increased to double, but to ten or twenty times more than the cost of erecting the mill amounted to; and that the landed proprietors would have obtained considerable advantage by the erection of the mill, even if they had built it at their common expense and presented it to the miller. The latter circumstance, in fact, takes place every day in the backwoods of North America, where, in cases when an individual has not adequate capital to erect such works entirely at his own expense, the landowner gladly helps him by contributing labour, by team work, free gifts of timber, &c. In fact, the same thing also occurred, although in another form, in countries of earlier civilisation; here must undoubtedly be sought the origin of many ancient feudal 'common mill' rights.
As it is in the case of the corn mill, so is it in those of saw, oil, and plaster mills, so is it in that of iron works; everywhere it can be proved that the rent and the value of landed property rise in proportion as the property lies nearer to these industries, and especially according as they are in closer or less close commercial relations with agriculture.
And why should this not be the case with woollen, flax, hemp, paper, and cotton mills? Why not with all manufacturing industries? We see, at least, everywhere that rent and value of landed property rise in exactly the same proportion with the proximity of that property to the town, and with the degree in which the town is populous and industrious. If in such comparatively small districts we calculate the value of the landed property and the capital expended thereon, and, on the other hand, the value of the capital employed in various industries, and compare their total amount, we shall find everywhere that the former is at least ten times larger than the latter. But it would be folly to conclude from this that a nation obtains greater advantages by investing its material capital in agriculture than in manufactures, and that the former is in itself more favourable to the augmentation of capital than the latter. The increase of the material agricultural capital depends for the most part on the increase of the material manufacturing capital; and nations which do not recognise this truth, however much they may be favoured by nature in agriculture, will not only not progress, but will retrograde in wealth, population, culture, and power.
We see, nevertheless, how the proprietors of rent and of landed property not unfrequently regard those fiscal and political regulations which aim at the establishment of a native manufacturing power as privileges which serve merely to enrich the manufacturers, the burden of which they (the landed interest) have exclusively to bear. They, who at the beginning of their agricultural operations so clearly perceived what great advantages they might obtain if a corn mill, a saw mill, or an iron work were established in their neighbourhood, that they themselves submitted to the greatest sacrifices in order to contribute towards the erection of such works, can no longer, when their interests as agriculturists have somewhat improved, comprehend what immense advantages the total agricultural interest of the country would derive from a perfectly developed national industry of its own, and how its own advantage demands that it should submit to those sacrifices without which this object cannot be attained. It therefore happens, that, only in a few and only in very well-educated nations, the mind of each separate landed proprietor, though it is generally keenly enough alive to those interests which lie close at hand, is sagacious enough to appreciate those greater ones which are manifest to a more extended view.
It must not, moreover, be forgotten that the popular theory has materially contributed to confuse the opinions of landed proprietors. Smith and Say endeavoured everywhere to represent the exertions of manufacturers to obtain measures of protection as inspirations of mere self-interest, and to praise, on the contrary, the generosity and disinterestedness of the landed proprietors, who are far from claiming any such measures for themselves. It appears, however, that the landed proprietors have merely become mindful of and been stimulated to the virtue of disinterestedness, which is so highly attributed to them, in order to rid themselves of it. For in the greatest number of, and in the most important, manufacturing states, these landowners have also recently demanded and obtained measures of protection, although (as we have shown in another place) it is to their own greatest injury. If the landed proprietors formerly made sacrifices to establish a national manufacturing power of their own, they did what the agriculturist in a country place does when he makes sacrifices in order that a corn mill or an iron forge may be established in his vicinity. If the landed proprietors now require protection also for their agriculture, they do what those former landed proprietors would have done if, after the mill has been erected by their aid, they required the miller to help in cultivating their fields. Without doubt that would be a foolish demand. Agriculture can only progress, the rent and value of land can only increase, in the ratio in which manufactures and commerce flourish; and manufactures cannot flourish if the importation of raw materials and provisions is restricted. This the manufacturers everywhere felt. For the fact, however, that the landed proprietors notwithstanding obtained measures of protection in most large states, there is a double reason. Firstly, in states having representative government, the landowner's influence is paramount in legislation, and the manufacturers did not venture to oppose themselves perseveringly to the foolish demand of the landowners, fearing lest they might thereby incline the latter to favour the principles of free trade; they preferred to agree with the landed proprietors.
It was then insinuated by the school to the landed proprietors that it is just as foolish to establish manufactures by artificial means as it would be to produce wine in cold climates in green-houses; that manufactures would originate in the natural course of things of their own accord; that agriculture affords incomparably more opportunity for the increase of capital than manufactures; that the capital of the nation is not to be augmented by artificial measures; that laws and State regulations can only induce a condition of things less favourable to the augmentation of wealth. Finally, where the admission could not be avoided that manufactures had an influence over agriculture, it was sought at least to represent that influence to be as little and as uncertain as possible. In any case (it was said) if manufactures had an influence over agriculture, at least everything is injurious to agriculture that is injurious to manufactures, and accordingly manufactures also had an influence on the increase of the rent of land, but merely an indirect one. But, on the other hand, the increase of population and of cattle, the improvements in agriculture, the perfection of the means of transport, &c. had a direct influence on the increase of rent. The case is the same here in reference to this distinction between direct and indirect influence as on many other points where the school draws this distinction (e.g. in respect of the results of mental culture), and here also is the example already mentioned by us applicable; it is like the fruit of the tree, which clearly (in the sense of the school) is an indirect result, inasmuch as it grows on the twig, which again is a fruit of the branch, this again is a fruit of the trunk, and the latter a fruit of the root, which alone is a direct product of the soil. Or would it not be just as sophistical to speak of the population, the stock of cattle, the means of transport, &c. as direct causes; but of manufactures, on the contrary, as an indirect cause of the augmentation of rents, while, nevertheless, one's very eyesight teaches one in every large manufacturing country that manufactures themselves are a chief cause of the augmentation of population, of the stock of cattle, and of means of transport, &c.? And would it be logical and just to co-ordinate these effects of manufactures with their cause—in fact, to put these results of manufactures at the head as main causes, and to put the manufactures themselves as an indirect (consequently, almost as a secondary) cause behind the former? And what else can have induced so deeply investigating a genius as Adam Smith to make use of an argument so perverted and so little in accordance with the actual nature of things, than a desire to put especially into the shade manufactures, and their influence on the prosperity and the power of the nation, and on the augmentation of the rent and the value of the land? And from what other motive can this have taken place than a wish to avoid explanations whose results would speak too loudly in favour of the system of protection? The school has been especially unfortunate since the time of Adam Smith in its investigations as to the nature of rent. Ricardo, and after him Mill, M'Culloch, and others, are of opinion that rent is paid on account of the natural productive fertility inherent in the land itself. Ricardo has based a whole system on this notion. If he had made an excursion to Canada, he would have been able to make observations there in every valley, on every hill, which would have convinced him that his theory is based on sand. As he, however, only took into account the circumstances of England, he fell into the erroneous idea that these English fields and meadows for whose pretended natural productive capability such handsome rents are now paid, have at all times been the same fields and meadows. The original natural productive capability of land is evidently so unimportant, and affords to the person using it so small an excess of products, that the rent derivable from it alone is not worth mentioning. All Canada in its original state (inhabited merely by hunters) would yield in meat and skins scarcely enough income to pay the salary of a single Oxonian professor of political economy. The natural productive capability of the soil in Malta consists of rocks, which would scarcely have yielded a rent at any time. If we follow up with the mind's eye the course of the civilisation of whole nations, and of their conversion from the condition of hunters to the pastoral condition, and from this to that of agriculturists, &c., we may easily convince ourselves that the rent everywhere was originally nil, and that it rose everywhere with the progress of civilisation, of population, and with the increase of mental and material capital. By comparing the mere agricultural nation with the agricultural, manufacturing, and commercial nation, it will be seen that in the latter twenty times more people live on rents than in the former. According to Marshal's statistics of Great Britain, for example, in England and Scotland 16,537,398 human beings were living in 1831, among whom were 1,116,398 rentiers. We could scarcely find in Poland on an equal space of land the twentieth part of this number. If we descend from generals to particulars and investigate the origin and cause of the rental of separate estates, we find everywhere that it is the result of a productive capability which has been bestowed on it not spontaneously by nature, but chiefly (directly or indirectly) through the mental and material labour and capital employed thereon and through the development of society. We see, indeed, how pieces of land yield rents which the hand of men has never stirred by cultivation, as, for instance, quarries, sand pits, pasture grounds; but this rent is merely the effect of the increase of culture, capital, and population in the vicinity. We see, on the other hand, that those pieces of land bring most rent whose natural productive capability has been totally destroyed, and which serve for no other use than for men to eat and drink, sit, sleep, or walk, work, or enjoy themselves, teach or be taught upon, viz. building sites.
The basis of rent is the exclusive benefit or advantage which the ground yields to that individual at whose exclusive disposal it is placed, and the greatness of this benefit is determined especially according to the amount of available mental and material capital in the community in which he is placed, and also according to the opportunity which the special situation and peculiar character of the property and the utilisation of capital previously invested therein affords to the person exclusively possessing the property for obtaining material values, or for satisfying mental and bodily requirements and enjoyments.
Rent is the interest of a capital which is fixed to a natural fund, or which is a capitalised natural fund. The territory, however, of that nation which has merely capitalised the natural funds devoted to agriculture, and which does so in that imperfect manner which is the case in mere agriculture, yields incomparably less rent than the territory of that nation which combines agricultural and manufacturing industry on its territory. The rentiers of such a country live mostly in the same nation which supplies the manufactured goods. But when the nation which is far advanced in agriculture and population establishes a manufacturing industry of its own, it capitalises (as we have already proved in a former chapter) not merely those powers of nature which are specially serviceable for manufactures and were hitherto unemployed, but also the greatest part of the manufacturing powers serving for agriculture. The increase of rent in such a nation, therefore, infinitely exceeds the interest of the material capital required to develop the manufacturing power.
THE MANUFACTURING POWER AND COMMERCE.
WE have hitherto merely spoken of the relations between agriculture and manufactures, because they form the fundamental ingredients of the national production, and because, before obtaining a clear view of their mutual relations, it is impossible to comprehend correctly the actual function and position of commerce. Commerce is also certainly productive (as the school maintains); but it is so in quite a different manner from agriculture and manufactures. These latter actually produce goods, commerce only brings about the exchange of the goods between agriculturists and manufacturers, between producers and consumers. From this it follows that commerce must be regulated according to the interests and wants of agriculture and manufactures, not vice versâ.
But the school has exactly reversed this last dictum by adopting as a favourite expression the saying of old Gourney, 'Laissez faire, laissez passer,' an expression which sounds no less agreeably to robbers, cheats, and thieves than to the merchant, and is on that account rather doubtful as a maxim. This perversity of surrendering the interests of manufactures and agriculture to the demands of commerce, without reservation, is a natural consequence of that theory which everywhere merely takes into consideration present values, but nowhere the powers that produce them, and regards the whole world as but one indivisible republic of merchants. The school does not discern that the merchant may be accomplishing his purpose (viz. gain of values by exchange) at the expense of the agriculturists and manufacturers, at the expense of the nation's productive powers, and indeed of its independence. It is all the same to him; and according to the character of his business and occupation, he need not trouble himself much respecting the manner in which the goods imported or exported by him act on the morality, the prosperity, or the power of the nation. He imports poisons as readily as medicines. He enervates whole nations through opium and spirituous liquors. Whether he by his importations and smugglings brings occupation and sustenance to hundreds of thousands, or whether they are thereby reduced to beggary, does not signify to him as a man of business, if only his own balance is increased thereby. Then if those who have been reduced to want bread seek to escape the misery in their fatherland by emigrating, he can still obtain profit by the business of arranging their emigration. In the time of war he provides the enemy with arms and ammunition. He would, if it were possible, sell fields and meadows to foreign countries, and when he had sold the last bit of land would place himself on board his ship and export himself.
It is therefore evident that the interest of individual merchants and the interest of the commerce of a whole nation are widely different things. In this sense Montesquieu has well said, 'If the State imposes restrictions on the individual merchant, it does so in the interest of commerce, and his trade is nowhere more restricted than in free and rich nations, and nowhere less so than in nations governed by despots.'87 Commerce emanates from manufactures and agriculture, and no nation which has not brought within its own borders both these main branches of production to a high state of development can attain (in our days) to any considerable amount of internal and external commerce. In former times there certainly existed separate cities or leagues of cities which were enabled by means of foreign manufacturers and foreign agriculturists to carry on a large exchange trade; but since the great agricultural manufacturing commercial states have sprung up, we can no longer think of originating a mere exchange trade such as the Hanse Towns possessed. In any case such a trade is of so precarious a character, that it hardly deserves consideration in comparison with that which is based on the nation's own production.
The most important objects of internal commerce are articles of food, salt, fuel, and building material, clothing materials, then agricultural and manufacturing utensils and implements, and the raw materials of agricultural and mining production which are necessary for manufactures. The extent of this internal interchange is beyond all comparison greater in a nation in which manufacturing industry has attained a high stage of development than in a merely agricultural nation. At times in the latter the agriculturist lives chiefly on his own productions. From want of much demand for various products and lack of means of transport, he is obliged to produce for himself all his requirements without regard to what his land is more specially fitted to produce; from want of means of exchange he must manufacture himself the greater part of the manufactured articles which he requires. Fuel, building materials, provisions, and mineral products can find only a very limited market because of the absence of improved means of transport, and hence cannot serve as articles for a distant trade.
Owing to the limited market and the limited demand for such products, no inducement for storing them or for the accumulation of capital exists. Hence the capital devoted by mere agricultural nations to internal commerce is almost nil; hence all articles of production, which depend especially on good or bad weather, are subject to extraordinary fluctuation in prices; hence the danger of scarcity and famine is therefore greater the more any nation restricts itself to agriculture.
The internal commerce of a nation mainly arises in consequence of and in proportion to the activity of its internal manufactures, of the improved means of transport called forth by them, and of the increase of population, and attains an importance which is ten to twenty fold greater than the internal trade of a merely agricultural nation, and five to ten fold that of the most flourishing foreign trade. If anyone will compare the internal commerce of England with that of Poland or Spain, he will find this observation confirmed.
The foreign commerce of agricultural nations of the temperate zone, so long as it is limited to provisions and raw materials, cannot attain to importance.
Firstly, because the exports of the agricultural nation are directed to a few manufacturing nations, which themselves carry on agriculture, and which indeed, because of their manufactures and their extended commerce, carry it on on a much more perfect system than the mere agricultural nation; that export trade is therefore neither certain nor uniform. The trade in mere products is always a matter of extraordinary speculation, whose benefits fall mostly to the speculating merchants, but not to the agriculturists or to the productive power of the agricultural nation.
Secondly, because the exchange of agricultural products for foreign manufactured goods is liable to be greatly interrupted by the commercial restrictions of foreign states and by wars.
Thirdly, because the export of mere products chiefly benefits countries which are situated near sea coasts and the banks of navigable rivers, and does not benefit the inland territory, which constitutes the greater part of the territory of the agricultural nation.
Fourthly and finally, because the foreign manufacturing nation may find it to its interest to procure its means of subsistence and raw materials from other countries and newly formed colonies.
Thus the export of German wool to England is diminished by importations into England from Australia; the exports of French and German wines to England by importations from Spain, Portugal, Sicily, the Spanish and Portuguese islands, and from the Cape; the exports of Prussian timber by importations from Canada. In fact, preparations have already been made to supply England with cotton chiefly from the East Indies. If the English succeed in restoring the old commercial route, if the new State of Texas becomes strong, if civilisation in Syria and Egypt, in Mexico and the South American states progresses, the cotton planters of the United States will also begin to perceive that their own internal market will afford them the safest, most uniform, and constant demand.
In temperate climates, by far the largest part of a nation's foreign commerce originates in its internal manufactures, and can only be maintained and augmented by means of its own manufacturing power.
Those nations only which produce all kinds of manufactured goods at the cheapest prices, can have commercial connections with the people of all climates and of every degree of civilisation; can supply all requirements, or if they cease, create new ones; can take in exchange every kind of raw materials and means of subsistence. Such nations only can freight ships with a variety of objects, such as are required by a distant market which has no internal manufactured goods of its own. Only when the export freights themselves suffice to indemnify the voyage, can ships be loaded with less valuable return freights.
The most important articles of importation of the nations of the temperate zone consist in the products of tropical climates, in sugar, coffee, cotton, tobacco, tea, dye stuffs, cacao, spices, and generally in those articles which are known under the name of colonial produce. By far the greatest part of these products is paid for with manufactured goods. In this interchange chiefly consists the cause of the progress of industry in manufacturing countries of the temperate zone, and of the progress of civilisation and production in the countries of the torrid zone. This constitutes the division of labour, and combination of the powers of production to their greatest extent, as these never existed in ancient times, and as they first originated from the Dutch and English.
Before the discovery of the route round the Cape, the East still far surpassed Europe in manufactures. Besides the precious metals and small quantities of cloth, linen, arms, iron goods, and some fabrics of luxury, European articles were but little used there. The transport by land rendered both inward and outward conveyance expensive. The export of ordinary agricultural products and common manufactured goods, even if they had been produced in excess, in exchange for the silks and cotton stuffs, sugar, and spices, of the East, could not be hoped for. Whatever we may, therefore, read of the importance of Oriental commerce in those times, must always be understood relatively; it was important only for that time, but unimportant compared with what it is now.
The trade in the products of the torrid zone became more important to Europe through the acquisition of larger quantities of the precious metals in the interior and from America, and through the direct intercourse with the East by the route round the Cape. It could not, however, attain to universal importance as long as the East produced more manufactured goods than she required.
This commerce attained its present importance through the colonisation of Europeans in the East and West Indies, and in North and South America through the transplantation of the sugar cane, of the coffee tree, of cotton, rice, indigo, &c., through the transportation of negroes as slaves to America and the West Indies, then through the successful competition of the European with the East Indian manufacturers, and especially through the extension of the Dutch and English sovereignty in foreign parts of the world, while these nations, in contrast to the Spaniards and Portuguese, sought and found their advantage more in the exchange of manufactured goods for colonial goods, than in extortion.
This commerce at present employs the most important part of the large shipping trade and of the commercial and manufacturing capital of Europe which is employed in foreign commerce; and all the hundreds of millions in value of such products which are transported annually from the countries of the torrid zone to those of the temperate zone are, with but little exception, paid for in manufactured goods.
The exchange of colonial products for manufactured goods is of manifold use to the productive powers of the countries of the temperate zone. These articles serve either, as e.g. sugar, coffee, tea, tobacco, partly as stimulants to agricultural and manufacturing production, partly as actual means of nourishment; the production of the manufactured goods which are required to pay for the colonial products, occupies a larger number of manufacturers; manufactories and manufacturing business can be conducted on a much larger scale, and consequently more profitably; this commerce, again, employs a larger number of ships, of seamen, and merchants; and through the manifold increase of the population thus occasioned, the demand for native agricultural products is again very greatly increased.
In consequence of the reciprocal operation which goes on between manufacturing production and the productions of the torrid zone, the English consume on an average two to three times more colonial produce than the French, three to four times more than the Germans, five to ten times more than the Poles.
Moreover, the further extension of which colonial production is still capable, may be recognised from a superficial calculation of the area which is required for the production of those colonial goods which are at present brought into commerce.
If we take the present consumption of cotton at ten million centners, and the average produce of an acre (40,000 square feet) only at eight centners, this production requires not more than 1¼ million acres of land. If we estimate the quantity of sugar brought into commerce at 14 million centners, and the produce of an acre at 10 centners, this total production requires merely 1½ million acres.
If we assume for the remaining articles (coffee, rice, indigo, spices, &c.) as much as for these two main articles, all the colonial goods at present brought into commerce require no more than seven to eight million acres, an area which is probably not the fiftieth part of the surface of the earth which is suitable for the culture of such articles.
The English in the East Indies, the French in the Antilles, the Dutch in Java and Sumatra, have recently afforded actual proof of the possibility of increasing these productions in an extraordinary manner.
England, especially, has increased her imports of cotton from the East Indies fourfold, and the English papers confidently maintain that Great Britain (especially if she succeeds in getting possession of the old commercial route to the East Indies) could procure all her requirements of colonial products in the course of a few years from India. This anticipation will not appear exaggerated if we take into consideration the immense extent of the English East Indian territory, its fertility, and the cheap wages paid in those countries.
While England in this manner gains advantage from the East Indies, the progress in cultivation of the Dutch in the islands will increase; in consequence of the dissolution of the Turkish Empire a great portion of Africa and the west and middle of Asia will become productive; the Texans will extend North American cultivation over the whole of Mexico; orderly governments will settle down in South America and promote the yield of the immense productive capacity of these tropical countries.
If thus the countries of the torrid zone produce enormously greater quantities of colonial goods than heretofore, they will supply themselves with the means of taking from the countries of the temperate zone much larger quantities of manufactured goods; and from the larger sale of manufactured goods the manufacturers will be enabled to consume larger quantities of colonial goods. In consequence of this increased production, and increase of the means of exchange, the commercial intercourse between the agriculturists of the torrid zone and the manufacturers of the temperate zone, i.e. the great commerce of the world, will increase in future in a far larger proportion than it has done in the course of the last century.
This present increase, and that yet to be anticipated, of the now great commerce of the world, has its origin partly in the great progress of the manufacturing powers of production, partly in the perfection of the means of transport by water and by land, partly in political events and developments.
Through machinery and new inventions the imperfect manufacturing industry of the East has been destroyed for the benefit of the European manufacturing power, and the latter enabled to supply the countries of the torrid zone with large quantities of fabrics at the cheapest prices; and thus to give them motives for augmenting their own powers of labour and production.
In consequence of the great improvements in means of transport, the countries of the torrid zone have been brought infinitely nearer to the countries of the temperate zone; their mutual commercial intercourse has infinitely increased through diminution of risk, of time employed and of freights, and through greater regularity; and it will increase infinitely more as soon as steam navigation has become general, and the systems of railways extend themselves to the interior of Asia, Africa, and South America.
Through the secession of South America from Spain and Portugal, and through the dissolution of the Turkish Empire, a mass of the most fertile territories of the earth have been liberated, which now await with longing desire for the civilised nations of the earth to lead them in peaceful concord along the path of the security of law and order, of civilisation and prosperity; and which require nothing more than that manufactured goods should be brought to them, and their own productions taken in exchange.
One may see that there is sufficient room here for all countries of Europe and North America which are fitted to develop a manufacturing power of their own, to bring their manufacturing production into full activity, to augment their own consumption of the products of tropical countries, and to extend in the same proportion their direct commercial intercourse with the latter.
THE MANUFACTURING POWER AND NAVIGATION, NAVAL POWER AND COLONISATION.
MANUFACTURES as the basis of a large home and foreign commerce are also the fundamental conditions of the existence of any considerable mercantile marine. Since the most important function of inland transport consists in supplying manufacturers with fuel and building materials, raw materials and means of subsistence, the coast and river navigation cannot well prosper in a merely agricultural State. The coast navigation, however, is the school and the depôt of sailors, ships' captains, and of shipbuilding, and hence in merely agricultural countries the main foundation for any large maritime navigation is lacking.
International commerce consists principally (as we have shown in the previous chapter) in the interchange of manufactured goods for raw materials and natural products, and especially for the products of tropical countries. But the agricultural countries of the temperate zone have merely to offer to the countries of the torrid zone what they themselves produce, or what they cannot make use of, namely, raw materials and articles of food; hence direct commercial intercourse between them and the countries of the torrid zone, and the ocean transport which arises from it, is not to be expected. Their consumption of colonial produce must be limited to those quantities for which they can pay by the sale of agricultural products and raw materials to the manufacturing and commercial nations; they must consequently procure these articles second-hand. In the commercial intercourse between an agricultural nation and a manufacturing commercial nation, however, the greatest part of the sea transport must fall to the latter, even if it is not in its power by means of navigation laws to secure the lion's share to itself.
Besides internal and international commerce, sea fisheries occupy a considerable number of ships; but again from this branch of industry, as a rule, nothing or very little falls to the agricultural nation; as there cannot exist in it much demand for the produce of the sea, and the manufacturing commercial nations are, out of regard to the maintenance of their naval power, accustomed to protect their home market exclusively for their own sea fisheries.
The fleet recruits its sailors and pilots from the private mercantile marine, and experience has as yet always taught that able sailors cannot be quickly drilled like land troops, but must be trained up by serving in the coasting and international navigation and in sea fisheries. The naval power of nations will therefore always be on the same footing with these branches of maritime industry, it will consequently in the case of the mere agricultural nation be almost nil.
The highest means of development of the manufacturing power, of the internal and external commerce proceeding from it, of any considerable coast and sea navigation, of extensive sea fisheries, and consequently of a respectable naval power, are colonies.
The mother nation supplies the colonies with manufactured goods, and obtains in return their surplus produce of agricultural products and raw materials; this interchange gives activity to its manufactures, augments thereby its population and the demand for its internal agricultural products, and enlarges its mercantile marine and naval power. The superior power of the mother country in population, capital, and enterprising spirit, obtains through colonisation an advantageous outlet, which is again made good with interest by the fact that a considerable portion of those who have enriched themselves in the colony bring back the capital which they have acquired there, and pour it into the lap of the mother nation, or expend their income in it.
Agricultural nations, which already need the means of forming colonies, also do not possess the power of utilising and maintaining them. What the colonies require, cannot be offered by them, and what they can offer the colony itself possesses.
The exchange of manufactured goods for natural products is the fundamental condition on which the position of the present colonies continues. On that account the United States of North America seceded from England as soon as they felt the necessity and the power of manufacturing for themselves, of carrying on for themselves navigation and commerce with the countries of the torrid zone; on that account Canada will also secede after she has reached the same point, on that account independent agricultural manufacturing commercial States will also arise in the countries of temperate climate in Australia in the course of time.
But this exchange between the countries of the temperate zone and the countries of the torrid zone is based upon natural causes, and will be so for all time. Hence India has given up her manufacturing power with her independence to England; hence all Asiatic countries of the torrid zone will pass gradually under the dominion of the manufacturing commercial nations of the temperate zone; hence the islands of the torrid zone which are at present dependent colonies can hardly ever liberate themselves from that condition; and the States of South America will always remain dependent to a certain degree on the manufacturing commercial nations.
England owes her immense colonial possessions solely to her surpassing manufacturing power. If the other European nations wish also to partake of the profitable business of cultivating waste territories and civilising barbarous nations, or nations once civilised but which are again sunk in barbarism, they must commence with the development of their own internal manufacturing powers, of their mercantile marine, and of their naval power. And should they be hindered in these endeavours by England's manufacturing, commercial, and naval supremacy, in the union of their powers lies the only means of reducing such unreasonable pretensions to reasonable ones.
THE MANUFACTURING POWER AND THE INSTRUMENTS OF CIRCULATION.
IF the experience of the last twenty-five years has confirmed, as being partly correct, the principles which have been set up by the prevailing theory in contradiction to the ideas of the so-called 'mercantile' system on the circulation of the precious metals and on the balance of trade, it has, on the other hand, brought to light important weak points in that theory respecting those subjects.
Experience has proved repeatedly (and especially in Russia and North America) that in agricultural nations, whose manufacturing market is exposed to the free competition of a nation which has attained manufacturing supremacy, the value of the importation of manufactured goods exceeds frequently to an enormous extent the value of the agricultural products which are exported, and that thereby at times suddenly an extraordinary exportation of precious metals is occasioned, whereby the economy of the agricultural nation, especially if its internal interchange is chiefly based on paper circulation, falls into confusion, and national calamities are the result.
The popular theory maintains that if we provide ourselves with the precious metals in the same manner as every other article, it is in the main indifferent whether large or small quantities of precious metals are in circulation, as it merely depends on the relation of the price of any article in exchange whether that article shall be cheap or dear; a derangement in the rate of exchange acts simply like a premium on a larger exportation of goods from that country, in favour of which it oscillates from time to time: consequently the stock of metallic money and the balance between the imports and exports, as well as all the other economical circumstances of the nation, would regulate themselves in the safest and best manner by the operation of the natural course of things.
This argument is perfectly correct as respects the internal interchange of a nation; it is demonstrated in the commercial intercourse between town and town, between town and country districts, between province and province, as in the union between State and State. Any political economist would be deserving of pity who believed that the balance of the mutual imports and exports between the various states of the American Union or the German Zollverein, or between England, Scotland, and Ireland, can be regulated better through State regulations and laws than through free interchange. On the hypothesis that a similar union existed between the various states and nations of the earth, the argument of the theory of trusting to the natural course of things would be quite consistent. Nothing, however, is more contrary to experience than to suppose under the existing conditions of the world that in international exchange things act with similar effect.
The imports and exports of independent nations are regulated and controlled at present not by what the popular theory calls the natural course of things, but mostly by the commercial policy and the power of the nation, by the influence of these on the conditions of the world and on foreign countries and peoples, by colonial possessions and internal credit establishments, or by war and peace. Here, accordingly, all conditions shape themselves in an entirely different manner than between societies which are united by political, legal, and administrative bonds in a state of unbroken peace and of perfect unity of interests.
Let us take into consideration as an example the conditions between England and North America. If England from time to time throws large masses of manufactured goods on to the North American market; if the Bank of England stimulates or restricts, in an extraordinary degree, the exports to North America and the credit granted to her by its raising or lowering its discount rates; if, in addition to and as a consequence of this extraordinary glut of the American market for manufactured goods, it happens that the English manufactured goods can be obtained cheaper in North America than in England, nay, sometimes much below the cost price of production; if thus North America gets into a state of perpetual indebtedness and of an unfavourable condition of exchange towards England, yet would this disorganised state of things readily rectify itself under a state of perfectly unrestricted exchange between the two countries. North America produces tobacco, timber, corn, and all sorts of means of subsistence very much cheaper than England does. The more English manufactured goods go to North America, the greater are the means and inducements to the American planter to produce commodities of value sufficient to exchange for them; the more credit is given to him the greater is the impulse to procure for himself the means of discharging his liabilities; the more the rate of exchange on England is to the disadvantage of North America, the greater is the inducement to export American agricultural products, and hence the more successful will be the competition of the American agriculturist in the English produce market.
In consequence of these exportations the adverse rate of exchange would speedily rectify itself; indeed, it could not even reach any very unfavourable point, because the certain anticipation in North America that the indebtedness which had been contracted through the large importation of manufactured goods in the course of the present year, would equalise itself through the surplus production and increased exports of the coming year, would be followed by easier accommodation in the money market and in credit.
Such would be the state of things if the interchange between the English manufacturer and the American agriculturist were as little restricted as the interchange between the English manufacturer and the Irish agriculturist is. But they are and must be different: if England imposes a duty on American tobacco of from five hundred to one thousand per cent.; if she renders the importation of American timber impossible by her tariffs, and admits the American means of subsistence only in the event of famine, for at present the American agricultural production cannot balance itself with the American consumption of English manufactured goods, nor can the debt incurred for those goods be liquidated by agricultural products; at present the American exports to England are limited by narrow bounds, while the English exports to North America are practically unlimited; the rate of exchange between both countries under such circumstances cannot equalise itself, and the indebtedness of America towards England must be discharged by exports of bullion to the latter country.
These exports of bullion, however, as they undermine the American system of paper circulation, necessarily lead to the ruin of the credit of the American banks, and therewith to general revolutions in the prices of landed property and of the goods in circulation, and especially to those general confusions of prices and credit which derange and overturn the economy of the nation, and with which, we may observe, that the North American free States are visited whenever they have found themselves unable to restore a balance between their imports and their exports by State tariff regulations.
It cannot afford any great consolation to the North American that in consequence of bankruptcies and diminished consumption, the imports and exports between both countries are at a later period restored to a tolerable proportion to one another. For the destruction and convulsions of commerce and in credit, as well as the reduction in consumption, are attended with disadvantages to the welfare and happiness of individuals and to public order, from which one cannot very quickly recover and the frequent repetition of which must necessarily leave permanently ruinous consequences.
Still less can it afford any consolation to the North Americans, if the popular theory maintains that it is an indifferent matter whether large or small quantities of precious metals are in circulation; that we exchange products merely for products; whether this exchange is made by means of large or small quantities of metallic circulation is of no importance to individuals. To the producer or proprietor it certainly may be of no consequence whether the object of his production or of his possession is worth 100 centimes or 100 francs, provided always that he can procure with the 100 centimes as large a quantity of objects of necessity and of enjoyment as he can with the 100 francs. But low or high prices are thus a matter of indifference only in case they remain on the same footing uninterruptedly for a long period of time.
If, however, they fluctuate frequently and violently, disarrangements arise which throw the economy of every individual, as well as that of society, into confusion. Whoever has purchased raw materials at high prices, cannot under low prices, by the sale of his manufactured article, realise again that sum in precious metals which his raw materials have cost him. Whoever has bought at high prices landed property and has left a portion of the purchase money as a mortgage debt upon it, loses his ability of payment and his property; because, under diminished prices, probably the value of the entire property will scarcely equal the amount of the mortgage. Whoever has taken leases of property under a state of high prices, finds himself ruined by the decrease in prices, or at least unable to fulfil the covenants of his leases. The greater the rising and falling of prices, and the more frequently that fluctuations occur, the more ruinous is their effect on the economical conditions of the nation and especially on credit. But nowhere are these disadvantageous effects of the unusual influx or efflux of precious metals seen in a more glaring light than in those countries which are entirely dependent on foreign nations in respect of their manufacturing requirements and the sale of their own products, and whose commercial transactions are chiefly based on paper circulation.
It is acknowledged that the quantity of bank notes which a country is able to put into and to maintain in circulation, is dependent on the largeness of the amount of metallic money which it possesses. Every bank will endeavour to extend or limit its paper circulation and its business in proportion to the amount of precious metals lying in its vaults. If the increase in its own money capital or in deposits is large, it will give more credit; and through this credit, increase the credit given by its debtors, and by so doing raise the amount of consumption and prices; especially those of landed property. If, on the contrary, an efflux of precious metals is perceptible, such a bank will limit its credit, and thereby occasion restriction of credit and consumption by its debtors, and by the debtors of its debtors, and so on to those who by credit are engaged in bringing into consumption the imported manufactured goods. In such countries, therefore, the whole system of credit, the market for goods and products, and especially the money value of all landed property, is thrown into confusion by any unusual drain of metallic money.
The cause of the latest as well as of former American commercial crises, has been alleged to exist in the American banking and paper system. The truth is that the banks have helped to bring about these crises in the manner above named, but the main cause of their occurrence is that since the introduction of the 'compromise' bill the value of the English manufactured goods has far surpassed the value of the exported American products, and that thereby the United States have become indebted to the English to the amount of several hundreds of millions for which they could not pay in products. The proof that these crises are occasioned by disproportionate importation is, that they have always taken place whenever (in consequence of peace having set in or of a reduction being made in the American customs duties) importation of manufactured goods into the United States has been unusually large, and that they have never occurred as long as the imports of goods have been prevented by customs duties on imports from exceeding the value of the exports of produce.
The blame for these crises has further been laid on the large capital which has been expended in the United States in the construction of canals and railways, and which has mostly been procured from England by means of loans. The truth is that these loans have merely assisted in delaying the crises for several years, and in increasing it when it arose; but these very loans themselves have evidently been incurred through the inequality which had arisen between the imports and exports, and but for that inequality would not have been made and could not have been made.
While North America became indebted to the English for large sums through the large importation of manufactured goods which could not be paid for in produce, but only in the precious metals, the English were enabled, and in consequence of the unequal rates of exchange and interest found it to their advantage, to have this balance paid for in American railway, canal, and bank stocks, or in American State paper.
The more the import of manufactured goods into America surpassed her exports in produce, and the greater that the demand for such paper in England became, the more were the North Americans incited to embark in public enterprises; and the more that capital was invested in such enterprises in North America, the greater was the demand for English manufactured goods, and at the same time the disproportion between the American imports and exports.
If on the one hand the importation of English manufactured goods into North America was promoted by the credit given by the American banks, the Bank of England on the other side through the credit facilities which it gave and by its low rates of discount operated in the same direction. It has been proved by an official account of the English Committee on Trade and Manufactures, that the Bank of England lessened (in consequence of these discounts) the cash in its possession from eight million pounds to two millions. It thereby on the one hand weakened the effect of the American protective system to the advantage of the English competition with the American manufactories; on the other hand it thus offered facilities for, and stimulated, the placing of American stocks and State paper in England. For as long as money could be got in England at three per cent. the American contractors and loan procurers who offered six per cent. interest had no lack of buyers of their paper in England.
These conditions of exchange afforded the appearance of much prosperity, although under them the American manufactories were being gradually crushed. For the American agriculturists sold a great part of that surplus produce which under free trade they would have sold to England, or which under a moderate system of protection of their own manufactories they would have sold to the working men employed therein, to those workmen who were employed in public works and who were paid with English capital. Such an unnatural state of things could not, however, last long in the face of opposing and divided national interests, and the break up of it was the more disadvantageous to North America the longer it was repressed. As a creditor can keep the debtor on his legs for a long time by renewals of credit, but the bankruptcy of the debtor must become so much the greater the longer he is enabled to prolong a course of ruinous trading by means of continually augmented credit from the creditor, so was it also in this case.
The cause of the bankruptcy in America was the unusual export of bullion which took place from England to foreign countries in consequence of insufficient crops and in consequence of the Continental protective systems. We say in consequence of the Continental protective systems, because the English—if the European Continental markets had remained open to them—would have covered their extraordinary importations of corn from the Continent chiefly by means of extraordinary export of English manufactured goods to the Continent, and because the English bullion—even had it flown over for a time to the continent—would again have found its way back to England in a short time in consequence of the augmented export of manufactured goods. In such a case the Continental manufactories would undoubtedly have fallen a sacrifice to the English-American commercial operations.
As matters stood, however, the Bank of England could only help itself by limiting its credit and increasing its rate of discount. In consequence of this measure not only the demand for more American stocks and State paper fell off in England, but also such paper as was already in circulation now forced itself more on the market. The United States were thereby not merely deprived of the means of covering their current deficit by the further sale of paper, but payment of the whole debt they had contracted in the course of many years with England by means of their sales of stocks and State paper became liable to be demanded in money. It now appeared that the cash circulation in America really belonged to the English. It appeared yet further that the English could dispose of that ready money on whose possession the whole bank and paper system of the United States was based, according to their own inclination. If, however, they disposed of it, the American bank and paper system would tumble down like a house built of cards, and with it the foundation would fall whereon rested the prices of landed property, consequently the economical means of existence of a great number of private persons.
The American banks tried to avoid their fall by suspending specie payments, and indeed this was the only means of at least modifying it; on the one hand they tried by this means to gain time so as to decrease the debt of the United States through the yield of the new cotton crops and to pay it off by degrees in this manner; on the other hand they hoped by means of the reduction of credit occasioned by the suspension to lessen the imports of English manufactured goods and to equalise them in future with their own country's exports.
How far the exportation of cotton can afford the means of balancing the importation of manufactured goods is, however, very doubtful. For more than twenty years the production of this article has constantly outstripped the consumption, so that with the increased production the prices have fallen more and more. Hence it happens that, on the one hand, the cotton manufacturers are exposed to severe competition with linen manufactures, perfected as these are by greatly improved machinery; while the cotton planters, on the other hand, are exposed to it from the planters of Texas, Egypt, Brazil, and the East Indies.
It must, in any case, be borne in mind that the exports of cotton of North America benefit those States to the least extent which consume most of the English manufactured goods.
In these States, namely, those which derive from the cultivation of corn and from cattle-breeding the chief means of procuring manufactured goods, a crisis of another kind now manifests itself. In consequence of the large importation of English manufactured goods the American manufactures were depressed. All increase in population and capital was thereby forced to the new settlements in the west. Every new settlement increases at the commencement the demand for agricultural products, but yields after the lapse of a few years considerable surplus of them. This has already taken place in those settlements. The Western States will therefore pour, in the course of the next few years, into the Eastern States considerable surplus produce, by the newly constructed canals and railways; while in the Eastern States, in consequence of their manufactories being depressed by foreign competition, the number of consumers has decreased and must continually decrease. From this, depreciation in the value of produce and of land must necessarily result, and if the Union does not soon prepare to stop up the sources from which the above-described money crises emanate, a general bankruptcy of the agriculturists in the corn-producing States is unavoidable.
The commercial conditions between England and North America which we have above explained, therefore teach:
These doctrines are also confirmed by the experience of Russia. We may remember to what convulsions public credit in the Russian Empire was subjected as long as the market there was open to the overwhelming consignments of English manufactured goods, and that since the introduction of the tariff of 1821 no similar convulsion has occurred in Russia.
The popular theory has evidently fallen into the opposite extreme to the errors of the so-called mercantile system. It would be of course false if we maintained that the wealth of nations consisted merely in precious metals; that a nation can only become wealthy if it exports more goods than it imports, and if hence the balance is discharged by the importation of precious metals. But it is also erroneous if the popular theory maintains, under the existing conditions of the world, that it does not signify how much or how little precious metals circulate in a nation; that the fear of possessing too little of the precious metals is a frivolous one, that we ought rather to further their exportation than favour their importation, &c. &c. This manner of reasoning would only be correct in case we could consider all nations and countries as united under one and the same system of law; if no commercial restrictions of any kind against the exportation of our products existed in those nations for whose manufactured goods we can only repay with the productions of our agriculture; if the changes wrought by war and peace caused no fluctuations in production and consumption, in prices, and on the money market; if the great credit institutions do not seek to extend their influence over other nations for the special interest of the nation to which they belong. But as long as separate national interests exist, a wise State policy will advise every great nation to guard itself by its commercial system against extraordinary money fluctuations and revolutions in prices which overturn its whole internal economy, and it will attain this purpose only by placing its internal manufacturing production in a position of proper equality with its internal agricultural production and its imports with its exports.
The prevailing theory has evidently not sufficiently discriminated between the mere possession of the precious metals and the power of disposition of the precious metals in international interchange. Even in private exchange, the necessity of this distinction is clearly evident. No one wishes to keep money by him, everyone tries to remove it from the house as soon as possible; but everybody at the same time seeks to be able to dispose at any time of the sums which he requires. The indifference in regard to the actual possession of ready money is manifested everywhere in proportion to wealth. The richer the individual is, the less he cares about the actual possession of ready money if only he is able at any hour to dispose of the ready cash lying in the safes of other individuals; the poorer, however, the individual is, and the smaller his power of disposing of the ready money lying in other people's hands, the more anxiously must he take care to have in readiness what is required. The same is the case with nations which are rich in industry or poor in industry. If England cares but little as a rule about how great or how small a quantity of gold or silver bars are exported out of the country, she is perfectly well aware that an extraordinary export of precious metals occasions on the one hand a rise in the value of money and in discount rates, on the other hand a fall in the prices of fabrics, and that she can regain through larger exportation of fabrics or through realisation of foreign stocks and State paper speedy possession of the ready money required for her trade. England resembles the rich banker who, without having a thaler in his pocket, can draw for any sum he pleases on neighbouring or more distant business connections. If, however, in the case of merely agricultural nations extraordinary exports of coin take place, they are not in the same favourable position, because their means of procuring the ready money they require are very limited, not merely on account of the small value in exchange of their products and agricultural values, but also on account of the hindrances which foreign laws put in the way of their exportation. They resemble the poor man who can draw no bills on his business friends, but who is drawn upon if the rich man gets into any difficulty; but who is drawn upon if the rich man gets into any difficulty; who can, therefore, not even call what is actually in his hands, his own.
A nation obtains the power of disposition of the amount of ready money which is always required for its internal trade, mainly through the possession or the production of those goods and values whose facility of exchange approaches most nearly to that of the precious metals.
The diversity of this property of the facility of exchange in respect to the various articles of commerce and of property, has been as little taken into consideration by the popular school of economists in judging of international commerce, as the power of disposition of the precious metals. If we consider in this respect the various articles of value existing in private interchange, we perceive that many of them are fixed in such a way that their value is exchangeable only on the spot where they are, and that even there their exchange is attended with great costs and difficulties. To that class belong more than three-fourths of all national property—namely, immovable properties and fixed plant and instruments. However large the landed property of an individual may be, he cannot send his fields and meadows to town in order to obtain money or goods for them. He can, indeed, raise mortgages on such property, but he must first find a lender on them; and the further from his estate that such an individual resides, the smaller will be the probability of the borrower's requirements being satisfied.
Next after property thus fixed to the locality, the greatest part of agricultural products (excepting colonial produce and a few less valuable articles) have in regard to international intercourse the least facility for exchange. The greatest part of these values, as e.g. building materials and wood for fuel, bread stuffs, &c., fruit, and cattle, can only be sold within a reasonable distance of the place where they are produced, and if a great surplus of them exists they have to be warehoused in order to become realisable. So far as such products can be exported to foreign countries their sale again is limited to certain manufacturing and commercial nations, and in these also their sale is generally limited by duties on importation and is affected by the larger or smaller produce of the purchasing nation's own harvests. The inland territories of North America might be completely overstocked with cattle and products, but it would not be possible for them to produce through exportation of this excess considerable amounts of the precious metals from South America, from England, or from the European continent. The valuable manufactured goods of common use, on the other hand, possess incomparably greater facilities for exchange. They find at ordinary times a sale in all open markets of the world; and at extraordinary crises they also find a sale (at lower prices) in those markets whose protective tariffs are calculated to operate adversely merely in ordinary times. The power of exchange of these articles clearly approaches most nearly to that of the precious metals, and the experience of England shows that if in consequence of deficient harvests money crises occur, the increased exportation of fabrics, and of foreign stocks and State paper, quickly rectifies the balance. The latter, the foreign stocks and State paper, which are evidently the results of former favourable balances of exchange caused by exportations of fabrics, constitute in the hands of the nation which is rich in manufacturing industry so many bills which can be drawn on the agricultural nation, which at the time of an extraordinary demand for the precious metals are indeed drawn with loss to the individual owner of them (like the manufactured goods at the time of money crises), but, nevertheless, with immense advantage to the maintenance of the economical conditions of that nation which is rich in manufacturing industry.
However much the doctrine of the balance of trade may have been scorned by the popular school, observations like those above described encourage us nevertheless to express the opinion that between large and independent nations something of the nature of a balance of trade must exist; that it is dangerous for great nations to remain for a long period at very considerable disadvantage in respect of this balance, and that a considerable and lasting efflux of the precious metals must always be followed as a consequence by important revolutions in the system of credit and in the condition of prices in the interior of the nation. We are far from wishing in these remarks to revive the doctrine of the balance of trade as it existed under the so-called 'mercantile system,' and to maintain that the nation ought to impose obstacles in the way of the exportation of precious metals, or that we must keep a specially exact account with each individual nation, or that in the commerce between great nations a few millions difference between the imports and exports is of great moment. What we deny is merely this: that a great and independent nation, as Adam Smith maintains at the conclusion of his chapter devoted to this subject,88 'may continually import every year considerably larger values in products and fabrics than it exports; that the quantities of precious metals existing in such a nation may decrease considerably from year to year and be replaced by paper circulation in the interior; moreover, that such a nation may allow its indebtedness towards another nation continually to increase and expand, and at the same time nevertheless make progress from year to year in prosperity.'89
This opinion, expressed by Adam Smith and maintained since that time by his school, is alone that which we here characterise as one that has been contradicted a hundred times by experience, as one that is contrary in the very nature of things to common sense, in one word (to retort upon Adam Smith his own energetic expression) as 'an absurdity.'
It must be well understood that we are not speaking here of countries which carry on the production of the precious metals themselves at a profit, from which therefore the export of these articles has quite the character of an export of manufactured goods. We are also not speaking of that difference in the balance of trade which must necessarily arise if the nation rates its exports and imports at those prices which they have in their own seaport towns. That in such a case the amount of imports of every nation must exceed its exports by the total amount of the nation's own commercial profits (a circumstance which speaks to its advantage rather than to its disadvantage), is clear and indisputable. Still less do we mean to deny the extraordinary cases where the greater exportation rather denotes loss of value than gain, as e.g. if property is lost by shipwreck. The popular school has made clever use of all those delusions arising from a shopkeeper-like calculation and comparison of the value of the exchanges arising from the exports and imports, in order to make us disbelieve in the disadvantages which result from a real and enormous disproportion between the exports and imports of any great and independent nation, even though such disproportion be not permanent, which shows itself in such immense sums as for instance in the case of France in 1786 and 1789, in that of Russia in 1820 and 1821, and in that of the United States of North America after the 'Compromise Bill.'
Finally, we desire to speak (and this must be specially noted) not of colonies, not of dependent countries, not of small states or of single independent towns, but of entire, great, independent nations, which possess a commercial system of their own, a national system of agriculture and industry, a national system of money and credit.
It evidently consists with the character of colonies that their exports can surpass their imports considerably and continuously, without thereby involving any conclusion as to the decrease or increase of their prosperity. The colony always prospers in the proportion in which the total amountof its exports and imports increases year by year. If its export of colonial produce exceeds its imports of manufactured goods considerably and lastingly, the main cause of this may be that the landed proprietors of the colony live in the mother country, and that they receive their income in the shape of colonial goods, in produce, or in the money which has been obtained for them. If, however, the exports of fabrics to the colony exceed the imports of colonial goods considerably, this may be chiefly due to the fact that by emigrations or loans from year to year large masses of capital go to the colony. This latter circumstance is, of course, of the utmost advantage to the prosperity of the colony. It can continue for centuries and yet commercial crises under such circumstances may be infrequent or impossible, because the colony is endangered neither by wars nor by hostile commercial measures, nor by operations of the national bank of the mother country, because it possesses no independent system of commerce, credit, and industry peculiar to itself, but is, on the contrary, supported and constantly upheld by the institutions of credit and political measures of the mother country.
Such a condition existed for more than a century with advantage between North America and England, exists still between England and Canada, and will probably exist for centuries between England and Australia.
This condition becomes fundamentally changed, however, from the moment in which the colony appears as an independent nation with every claim to the attributes of a great and independent nationality—in order that it may develop a power and policy of its own and its own special system of commerce and credit. The former colony then enacts laws for the special benefit of its own navigation and naval power—it establishes in favour of its own internal industry a customs tariff of its own; it establishes a national bank of its own, &c., provided namely that the new nation thus passing from the position of a colony to independence feels itself capable, by reason of the mental, physical, and economical endowments which it possesses, of becoming an industrial and commercial nation. The mother country, in consequence, places restrictions, on its side, on the navigation, commerce, and agricultural production of the former colony, and acts, by its institutions of credit, exclusively for the maintenance of its own national economical conditions.
But it is precisely the instance of the North American colonies as they existed before the American War of Independence by which Adam Smith seeks to prove the above-mentioned highly paradoxical opinion: that a country can continually increase its exportation of gold and silver, decrease its circulation of the precious metals, extend its paper circulation, and increase its debts contracted with other nations while enjoying simultaneously steadily increasing prosperity; Adam Smith has been very careful not to cite the example of two nations which have been independent of one another for some time, and whose interests of navigation, commerce, industry, and agriculture are in competition with those of other rival nations, in proof of his opinion—he merely shows us the relation of a colony to its mother country. If he had lived to the present time and only written his book now, he would have been very careful not to cite the example of North America, as this example proves in our days just the opposite of what he attempts by it to demonstrate.
Under such circumstances, however, it may be urged against us that it would be incomparably more to the advantage of the United States if they returned again to the position of an English colony. To this we answer, yes, provided always that the United States do not know how to utilise their national independence so as to cultivate and develop a national industry of their own, and a self-supporting system of commerce and credit which is independent of the world outside. But (it may be urged) is it not evident that if the United States had continued to exist as a British colony, no English corn law would ever have been passed; that England would never have imposed such high duties on American tobacco; that continual quantities of timber would have been exported from the United States to England; that England, far from ever entertaining the idea of promoting the production of cotton in other countries, would have endeavoured to give the citizens of the United States a monopoly in this article, and to maintain it; that consequently commercial crises such as have occurred within the last decades in North America, would have been impossible? Yes; if the United States do not manufacture, if they do not found a durable system of credit of their own; if they do not desire or are not able to develop a naval power. But then, in that case, the citizens of Boston have thrown the tea into the sea in vain; then all their declamation as to independence and future national greatness is in vain: then indeed would they do better if they re-enter as soon as possible into dependence on England as her colony. In that event England will favour them instead of imposing restrictions on them; she will rather impose restrictions on them; she will rather impose restrictions on those who compete with the North Americans in cotton culture and corn production, &c. than raise up with all possible energy competitors against them. The Bank of England will then establish branch banks in the United States, the English Government will promote emigration and the export of capital to America, and through the entire destruction of the American manufactories, as well as by favouring the export of American raw materials and agricultural produce to England, take maternal care to prevent commercial crises in North America, and to keep the imports and exports of the colony always at a proper balance with one another. In one word, the American slaveholders and cotton planters will then realise the fulfilment of their finest dreams. In fact, such a position has already for some time past appeared to the patriotism, the interests, and requirements of these planters more desirable than the national independence and greatness of the United States. Only in the first emotions of liberty and independence did they dream of industrial independence. They soon, however, grew cooler, and for the last quarter of a century the industrial prosperity of the middle and eastern states is to them an abomination; they try to persuade the Congress that the prosperity of America depends on the industrial sovereignty of England over North America. What else can be meant by the assertion that the United States would be richer and more prosperous if they again went over to England as a colony?
In general it appears to us that the defenders of free trade would argue more consistently in regard to money crises and the balance of trade, as well as to manufacturing industry, if they openly advised all nations to prefer to subject themselves to the English as dependencies of England, and to demand in exchange the benefits of becoming English colonies, which condition of dependence would be, in economical respects, clearly more favourable to them than the condition of half independence in which those nations live who, without maintaining an independent system of industry, commerce, and credit of their own, nevertheless always want to assume towards England the attitude of independence. Do not we see what Portugal would have gained if she had been governed since the Methuen Treaty by an English viceroy—if England had transplanted her laws and her national spirit to Portugal, and taken that country (like the East Indian Empire) altogether under her wings? Do not we perceive how advantageous such a condition would be to Germany—to the whole European continent?
India, it is true, has lost her manufacturing power to England, but has she not gained considerably in her internal agricultural production and in the exportation of her agricultural products? Have not the former wars under her Nabobs ceased? Are not the native Indian princes and kings extremely well off? Have they not preserved their large private revenues? Do not they find themselves thereby completely relieved of the weighty cares of government?
Moreover, it is worthy of notice (though it is so after the manner of those who, like Adam Smith, make their strong points in maintaining paradoxical opinions) that this renowned author, in spite of all his arguments against the existence of a balance of trade, maintains, nevertheless, the existence of a thing which he calls the balance between the consumption and production of a nation, which, however, when brought to light, means nothing else but our actual balance of trade. A nation whose exports and imports tolerably well balance each other, may rest assured that, in respect of its national interchange, it does not consume much more in value than it produces, while a nation which for a series of years (as the United States of America have done in recent years) imports larger quantities in value of foreign manufactured goods than it exports in value of products of its own, may rest assured that, in respect to international interchange, it consumes considerably larger quantities in value of foreign goods than it produces at home. For what else did the crises of France (1786-1789), of Russia (1820-1821), and of the United States since 1833, prove?
In concluding this chapter we must be permitted to put a few questions to those who consider the whole doctrine of the balance of trade as a mere exploded fallacy.
How is it that a decidedly and continuously disadvantageous balance of trade has always and without exception been accompanied in those countries to whose detriment it existed (with the exception of colonies) by internal commercial crises, revolutions in prices, financial difficulties, and general bankruptcies, both in the public institutions of credit, and among the individual merchants, manufacturers, and agriculturists?
How is it that in those nations which possessed a balance of trade decidedly in their favour, the opposite appearances have always been observed, and that commercial crises in the countries with which such nations were connected commercially, have only affected such nations detrimentally for periods which passed away very quickly?
How is it that since Russia has produced for herself the greatest part of the manufactured goods which she requires, the balance of trade has been decidedly and lastingly in her favour, that since that time nothing has been heard of economical convulsions in Russia, and that since that time the internal prosperity of that empire has increased year by year?
How is it that in the United States of North America the same effects have always resulted from similar causes?
How is it that in the United States of North America, under the large importation of manufactured goods which followed the 'Compromise Bill,' the balance of trade was for a series of years so decidedly adverse to them, and that this appearance was accompanied by such great and continuous convulsions in the internal economy of that nation?
How is it that we, at the present moment, see the United States so glutted with primitive products of all kinds (cotton, tobacco, cattle, corn, &c.) that the prices of them have fallen everywhere one-half, and that at the same time these states are unable to balance their exports with their imports, to satisfy their debt contracted with England, and to put their credit again on sound footing?
How is it, if no balance of trade exists, or if it does not signify whether it is in our favour or not, if it is a matter of indifference whether much or little of the precious metals flows to foreign countries, that England in the case of failures of harvests (the only case where the balance is adverse to her) strives, with fear and trembling, to equalise her exports with her imports, that she then carefully estimates every ounce of gold or silver which is imported or exported, that her national bank endeavours most anxiously to stop the exportation of precious metals and to promote their importation—how is it, we ask, if the balance of trade is an 'exploded fallacy,' that at such a time no English newspaper can be read wherein this 'exploded fallacy' is not treated as a matter of the most important concern to the nation?
How is it that, in the United States of North America, the same people who before the Compromise Bill spoke of the balance of trade as an exploded fallacy, since the Compromise Bill cannot cease speaking of this exploded fallacy as a matter of the utmost importance to their country?
How is it, if the nature of things itself always suffices to provide every country with exactly the quantity of precious metals which it requires, that the Bank of England tries to turn this socalled nature of things in her own favour by limiting her credits and increasing her rates of discount, and that the American banks are obliged from time to time to suspend their cash payments till the imports of the United States are reduced to a tolerably even balance with the exports?
THE MANUFACTURING POWER AND THE PRINCIPLE OF STABILITY AND CONTINUITY OF WORK.
IF we investigate the origin and progress of individual branches of industry, we shall find that they have only gradually become possessed of improved methods of operation, machinery, buildings, advantages in production, experiences, and skill, and of all those knowledges and connections which insure to them the profitable purchase of their raw materials and the profitable sale of their products. We may rest assured that it is (as a rule) incomparably easier to perfect and extend a business already established than to found a new one. We see everywhere old business establishments that have lasted for a series of generations worked with greater profits than new ones. We observe that it is the more difficult to set a new business going in proportion as fewer branches of industry of a similar character already exist in a nation; because, in that case, masters, foremen, and workmen must first be either trained up at home or procured from abroad, and because the profitableness of the business has not been sufficiently tested to give capitalists confidence in its success. If we compare the conditions of distinct classes of industry in any nation at various periods, we everywhere find, that when special causes had not operated to injure them, they have made remarkable progress, not only in regard to cheapness of prices, but also with respect to quantity and quality, from generation to generation. On the other hand, we observe that in consequence of external injurious causes, such as wars and devastation of territory, &c., or oppressive tyrannical or fanatical measures of government and finance (as e.g. the revocation of the Edict of Nantes), whole nations have been thrown back for centuries, either in their entire industry or in certain branches of it, and have in this manner been far outstripped by nations in comparison with which they had previously been far advanced.
One can see at a glance that, as in all human institutions so also in industry, a law of nature lies at the root of important achievements which has much in common with the natural law of the division of labour and of the confederation of the productive forces, whose principle, namely, consists in the circumstance that several generations following one another have equally united their forces towards the attainment of one and the same object, and have participated in like manner in the exertions needed to attain it.
It is the same principle which in the cases of hereditary kingdoms has been incomparably more favourable to the maintenance and increase of the power of the nation than the constant changes of the ruling families in the case of electoral kingdoms.
It is partly this natural law which secures to nations who have lived for a long time past under a rightly ordered constitutional form of government, such great successes in industry, commerce, and navigation.
Only through this natural law can the effect of the invention of printing on human progress be partially explained. Printing first rendered it possible to hand down the acquisitions of human knowledge and experience from the present to future generations more perfectly and completely than could be done by oral tradition.
To the recognition of this natural law is undoubtedly partly attributable the division of the people into castes, which existed among the nations of antiquity, and also the law of the old Egyptians—that the son must continue to follow the trade or profession of his father. Before the invention and general dissemination of printing took place, these regulations may have appeared to be indispensable for the maintenance and for the development of arts and trades.
Guilds and trade societies also have partly originated from this consideration. For the maintenance and bringing to perfection of the arts and sciences, and their transfer from one generation to another, we are in great measure indebted to the priestly castes of ancient nations, to the monasteries and universities.
What power and what influence have the orders of priesthood and orders of knights, as well as the papal chair, attained to, by the fact that for centuries they have aspired to one and the same aim, and that each successive generation has always continued to work where the other had left off.
The importance of this principle becomes still more evident in respect to material achievements.
Individual cities, monasteries, and corporations have erected works the total cost of which perhaps surpassed the value of their whole property at the time. They could only obtain the means for this by successive generations devoting their savings to one and the same great purpose.
Let us consider the canal and dyke system of Holland; it comprises the labours and savings of many generations. Only to a series of generations is it possible to complete systems of national transport or a complete system of fortifications and defensive works.
The system of State credit is one of the finest creations of more recent statesmanship, and a blessing for nations, inasmuch as it serves as the means of dividing among several generations the costs of those achievements and exertions of the present generation which are calculated to benefit the nationality for all future times, and which guarantee to it continued existence, growth, greatness, power, and increase of the powers of production; it becomes a curse only if it serves for useless national expenditure, and thus not merely does not further the progress of future generations, but deprives them beforehand of the means of undertaking great national works, or also if the burden of the payment of interest of the national debt is thrown on the consumptions of the working classes instead of on capital.
State debts are bills which the present generation draws on future ones. This can take place either to the special advantage of the present generation or the special advantage of the future one, or to the common advantage of both. In the first case only is this system an objectionable one. But all cases in which the object in view is the maintenance and promotion of the greatness and welfare of the nationality, so far as the means required for the purpose surpass the powers of the present generation, belong to the last category.
No expenditure of the present generation is so decidedly and specially profitable to future generations as that for the improvement of the means of transport, especially because such undertakings as a rule, besides increasing the powers of production of future generations, do also in a constantly increasing ratio not merely pay interest on the cost in the course of time, but also yield dividends. The present generation is, therefore, not merely entitled to throw on to future generations the capital outlay of these works and fair interest on it (as long as they do not yield sufficient income), but further acts unjustly towards itself and to the true fundamental principles of national economy, if it takes the burden or even any considerable part of it on its own shoulders.
If in our consideration of the subject of the continuity of national industry we revert to the main branches which constitute it, we may perceive, that while this continuity has an important influence on agriculture, yet that interruptions to it, in the case of that industry, are much less decided and much less injurious when they occur, also that their evil consequences can be much more easily and quickly made good than in the case of manufactures.
However great may be any damage or interruption to agriculture, the actual personal requirements and consumption of the agriculturist, the general diffusion of the skill and knowledge required for agriculture, and the simplicity of its operations and of the implements which it requires, suffice to prevent it from coming entirely to an end.
Even after devastations by war it quickly raises itself up again. Neither the enemy nor the foreign competitor can take away the main instrument of agriculture, the land; and it needs the oppressions of a series of generations to convert arable fields into uncultivated waste, or to deprive the inhabitants of a country of the capability of carrying on agriculture.
On manufactures, however, the least and briefest interruption has a crippling effect; a longer one is fatal. The more art and talent that any branch of manufacture requires, the larger the amounts of capital which are needful to carry it on, the more completely this capital is sunk in the special branch of industry in which it has been invested, so much the more detrimental will be the interruption. By it machinery and tools are reduced to the value of old iron and fire-wood, the buildings become ruins, the workmen and skilled artificers emigrate to other lands or seek subsistence in agricultural employment. Thus in a short time a complex combination of productive powers and of property becomes lost, which had been created only by the exertions and endeavours of several generations.
Just as by the establishment and continuance of industry one branch of trade originates, draws after it, supports and causes to flourish many others, so is the ruin of one branch of industry always the forerunner of the ruin of several others, and finally of the chief foundations of the manufacturing power of the nation.
The conviction of the great effects produced by the steady continuation of industry and of the irretrievable injuries caused by its interruption, and not the clamour and egotistical demands of manufacturers and traders for special privileges, has led to the idea of protective duties for native industry.
In cases where the protective duty cannot help, where the manufactories, for instance, suffer from want of export trade, where the Government is unable to provide any remedy for its interruption, we often see manufacturers continuing to produce at an actual loss. They want to avert, in expectation of better times, the irrecoverable injury which they would suffer from a stoppage of their works.
By free competition it is often hoped to oblige the competitor to discontinue work which has compelled the manufacturer or merchant to sell his products under their legitimate price and often at an actual loss. The object is not merely to prevent the interruption of our own industry, but also to force others to discontinue theirs in the hope later on of being able by better prices to recoup the losses which have been suffered.
In any case striving after monopoly forms part of the very nature of manufacturing industry. This circumstance tends to justify and not to discredit a protective policy; for this striving, when restricted in its operation to the home market, tends to promote cheaper prices and improvements in the art of production, and thus increases the national prosperity; while the same thing, in case it presses from without with overwhelming force on the internal industry, will occasion the interruption of work and downfall of the internal national industry.
The circumstance that there are no limits to manufacturing production (especially since it has been so extraordinarily aided and promoted by machinery) except the limits of the capital which it possesses and its means of effecting sales, enables that particular nation whose manufacturing industry has continued for a century, which has accumulated immense capitals, extended its commerce all over the world, dominated the money market by means of large institutions of credit (whose operations are able to depress the prices of fabrics and to induce merchants to export), to declare a war of extermination against the manufacturers of all other countries. Under such circumstances it is quite impossible that in other nations, 'in the natural course of things' (as Adam Smith expresses himself), merely in consequence of their progress in agriculture, immense manufactures and works should be established, or that those manufactures which have originated in consequence of the commercial interruptions caused by war should be able, 'in the natural course of things,' to continue to maintain themselves. The reason for this is the same as that why a child or a boy in wrestling with a strong man can scarcely be victorious or even offer steady resistance. The manufactories which constitute the commercial and industrial supremacy (of England) have a thousand advantages over the newly born or half-grown manufactories of other nations. The former, for instance, can obtain skilled and experienced workmen in the greatest number and at the cheapest wages, the best technical men and foremen, the most perfect and the cheapest machinery, the greatest benefit in buying and selling advantageously; further, the cheapest means of transport, as respects raw materials and also in respect of transporting goods when sold, more extended credit for the manufacturers with banks and money institutions at the lowest rates of interest, greater commercial experience, better tools, buildings, arrangements, connections, such as can only be acquired and established in the course of generations; an enormous home market, and, what is equally good, a colonial market equally enormous. Hence under all circumstances the English manufacturers can feel certainty as to the sale of large quantities of manufactured products by vigorous efforts, and consequently possess a guarantee for the continuance of their business and abundant means to sell on credit for years to come in the future, if it is required to acquire the control of a foreign market. If we enumerate and consider these advantages one after another, we may easily be convinced that in competition with such a power it is simply foolish to rest our hopes on the operation of 'the natural course of things' under free competition with such a power it is simply foolish to rest our hopes on the operation of 'the natural course of things' under free competition, where, as in our case, workmen and technical men have in the first place yet to be trained, where the manufacture of machinery and proper means of transport are merely in course of erection, where even the home market is not secured to the manufacturer—not to mention any important export market, where the credit that the manufacturer can obtain is under the most fortunate circumstances limited to the lowest point, where no man can be certain even for a day that, in consequence of English commercial crises and bank operations, masses of foreign goods may not be thrown on the home market at prices which scarcely recoup the value of the raw materials of which they are made, and which bring to a stand for years the progress of our own manufacturing industries.
It would be in vain for such nations to resign themselves to a state of perpetual subordination to the English manufacturing supremacy, and content themselves with the modest determination to supply it with what it may not be able to produce for itself or to procure elsewhere. Even by this subordination they will find no permanent benefit. What benefit is it to the people of the United States, for instance, that they sacrifice the welfare of their finest and most cultivated states, the states of free labour, and perhaps their entire future national greatness, for the advantage of supplying England with raw cotton? Do they thereby restrict the endeavours of England to procure this material from other districts of the world? In vain would the Germans be content to obtain their requirements of manufactured goods from England in exchange for their fine sheep's wool; they would by such a policy hardly prevent Australia from flooding all Europe with fine wool in the course of the next twenty years.
Such a condition of dependence appears still more deplorable when we consider that such nations lose in times of war their means of selling their agricultural products, and thereby the means of purchasing the manufacturing products of the foreigner. At such times all economical considerations and systems are thrust into the background. It is the principle of self-maintenance, of self-defence, which counsels the nations to work up their agricultural products themselves, and to dispense with the manufactured goods of the enemy. Whatever losses may be involved in adopting such a war-prohibitive system, cannot be taken into account during such a state of things. However great the exertions and the sacrifices may have been by which the agricultural nation during the time of war has called into existence manufactures and works, the competition of the manufacturing supremacy which sets in on the recurrence of peace will again destroy all these creations of the times of necessity. In short, it is an eternal alternation of erecting and destroying, of prosperity and calamity, which those nations have to undergo who do not strive to insure, through realisation of their national division of labour and through the confederation of their own powers of production, the benefits of the continuation of their own industries from generation to generation.
THE MANUFACTURING POWER AND THE INDUCEMENT TO PRODUCTION AND CONSUMPTION.
IN society man is not merely productive owing to the circumstance that he directly brings forth products or creates powers of production, but he also becomes productive by creating inducements to production and to consumption, or to the formation of productive powers.
The artist by his works acts in the first place on the ennobling and refinement of the human spirit and on the productive power of society; but inasmuch as the enjoyment of art presupposes the possession of those material means whereby it must be purchased, the artist also offers inducements to material production and to thrift.
Books and newspapers act on the mental and material production by giving information; but their acquisition costs money, and so far the enjoyment which they afford is also an inducement to material production.
The education of youth ennobles society; but what great exertions do parents make to obtain the means of giving their children a good education!
What immense performances in both mental and material production arise out of the endeavour to move in better society!
We can live as well in a house made of boards as in a villa, we can protect ourselves for a few florins against rain and cold as well as by means of the finest and most elegant clothing. Ornaments and utensils of gold and silver add no more to comfort than those of iron and tin; but the distinction connected with the possession of the former acts as an inducement to exertions of the body and the mind, and to order and thrift; and to such inducements society owes a large part of its productiveness. Even the man living on his private property who merely occupies himself with preserving, increasing, and consuming his income, acts in manifold ways on mental and material production: firstly, by supporting through his consumption art and science, and artistic trades; next, by discharging, as it were, the function of a preserver and augmenter of the material capital of society; finally, by inciting through his display all other classes of society to emulation. As a whole school is encouraged to exertions by the offer of prizes, although only a few become winners of the principal prizes, so does the possession of large property, and the appearance and display connected with it, act on civil society. This action of course ceases when the great property is the fruit of usurpation, of extortion, or fraud, or where the possession of it and the enjoyment of its fruits cannot be openly displayed.
Manufacturing production yields either productive instruments or the means of satisfying the necessities of life and the means of display. The last two advantages are frequently combined. The various ranks of society are everywhere distinguished by the manner in which and where they live, and how they are furnished and clothed, by the costliness of their equipages and the quality, number, and external appearance of their servants. Where the commercial production is on a low scale, this distinction is but slight, i.e. almost all people live badly and are poorly clothed, emulation is nowhere observable. It originates and increases according to the ratio in which industries flourish. In flourishing manufacturing countries almost everyone lives and dresses well, although in the quality of manufactured goods which are consumed the most manifold degrees of difference take place. No one who feels that he has any power in him to work is willing to appear outwardly needy. Manufacturing industry, therefore, furthers production by the community by means of inducements which agriculture, with its mean domestic manufacture, its productions of raw materials and provisions, cannot offer.
There is of course an important difference between various modes of living, and everyone feels some inducement to eat and drink well; but we do not dine in public; and a German proverb says strikingly, 'Man sieht mir auf den Kragen, nicht auf den Magen' (One looks at my shirt collar, not at my stomach). If we are accustomed from youth to rough and simple fare, we seldom wish for better. The consumption of provisions also is restricted to very narrow limits where it is confined to articles produced in the immediate neighbourhood. These limits are extended in countries of temperate climate, in the first instance, by procuring the products of tropical climates. But as respects the quantity and the quality of these products, in the enjoyment of which the whole population of a country can participate, they can only be procured (as we have shown in a former chapter) by means of foreign commerce in manufactured goods.
Colonial products, so far as they do not consist of raw materials for manufacturing purposes, evidently act more as stimulants than necessary means of subsistence. No one will deny that barley coffee without sugar is as nutritious as mocha coffee with sugar; and admitting also that these products contain some nutritious matter, their value in this respect is nevertheless so unimportant that they can scarcely be considered as substitutes for native provisions. With regard to spices and tobacco, they are certainly mere stimulants, i.e. they chiefly produce a useful effect on society only so far as they augment the enjoyments of the masses, and incite them to mental and bodily labour.
In many countries very erroneous notions prevail among those who live by salaries or rents, respecting what they are accustomed to call the luxurious habits of the lower classes; such persons are shocked to observe that labourers drink coffee with sugar, and regret the times when they were satisfied with gruel; they deplore that the peasant has exchanged his poor clothing of coarse homespun for woollen cloth; they express fears that the maid-servant will soon not be distinguishable from the lady of the house; they praise the legal restrictions on dress of previous centuries. But if we compare the result of the labour of the workman in countries where he is clad and nourished like the well-to-do man with the result of his labour where he has to be satisfied with the coarsest food and clothing, we shall find that the increase of his comfort in the former case has been attained not at the expense of the general welfare, but to the advantage of the productive powers of the community. The day's work of the workman is double or three times greater in the former case than in the latter. Attempts to regulate dress and restrictions on luxury have destroyed wholesome emulation in the large masses of society, and have merely tended to the increase of mental and bodily idleness.
In any case products must be created before they can be consumed, and thus production must necessarily generally precede consumption. In popular and national practice, however, consumption frequently precedes production. Manufacturing nations, supported by large capital and less restricted in their production than mere agricultural nations, make, as a rule, advances to the latter on the yield of future crops; the latter thus consume before they produce—they produce later on because they have previously consumed. The same thing manifests itself in a much greater degree in the relation between town and country: the closer the manufacturer is to the agriculturist, the more will the former offer to the latter both an inducement to consume and means for consumption, the more also will the latter feel himself stimulated to greater production.
Among the most potent stimulants are those afforded by the civil and political institutions of the country. Where it is not possible to raise oneself by honest exertions and by prosperity from one class of society to another, from the lowest to the highest; where the possessor necessarily hesitates to show his property publicly or to enjoy the fruits of it because it would expose his property to risk, or lest he should be accused of arrogance or impropriety; where persons engaged in trade are excluded from public honour, from taking part in administration, legislation, and juries; where distinguished achievements in agriculture, industry, and commerce do not lead also to public esteem and to social and civil distinction, there the most important motives for consumption as well as for production are wanting.
Every law, every public regulation, has a strengthening or weakening effect on production or on consumption or on the productive forces.
The granting of patent privileges offers a prize to inventive minds. The hope of obtaining the prize arouses the mental powers, and gives them a direction towards industrial improvements. It brings honour to the inventive mind in society, and roots out the prejudice for old customs and modes of operation so injurious among uneducated nations. It provides the man who merely possesses mental faculties for new inventions with the material means which he requires, inasmuch as capitalists are thus incited to support the inventor, by being assured of participation in the anticipated profits.
Protective duties act as stimulants on all those branches of internal industry the produce of which foreign countries can provide better than the home country, but of the production of which the home country is capable. They guarantee a reward to the man of enterprise and to the workman for acquiring new knowledge and skill, and offer to the inland and foreign capitalist means for investing his capital for a definite and certain time in a specially remunerative manner.
CUSTOMS DUTIES AS A CHIEF MEANS OF ESTABLISHING AND PROTECTING THE INTERNAL MANUFACTURING POWER.
IT is not part of our plan to treat of those means of promoting internal industry whose efficacy and applicability are nowhere called in question. To these belong e.g. educational establishments (especially technical schools), industrial exhibitions, offers of prizes, transport improvements, patent laws, &c.; in short, all those laws and institutions by means of which industry is furthered, and internal and external commerce facilitated and regulated. We have here merely to speak of the institution of customs duties as a means for the development of industry.
According to our system, prohibitions of, or duties on, exports can only be thought of as exceptional things; the imports of natural products must everywhere be subject to revenue duties only, and never to duties intended to protect native agricultural production. In manufacturing states, articles of luxury from warm climates are chiefly subject to duties for revenue, but not the common necessaries of life, as e.g. corn or fat cattle; but the countries of warmer climate or countries of smaller population or limited territory, or countries not yet sufficiently populous, or such as are still far behind in civilisation and in their social and political institutions, are those which should only impose mere revenue duties on manufactured goods.
Revenue duties of every kind, however, should everywhere be so moderate as not essentially to restrict importation and consumption; because, otherwise, not only would the internal productive power be weakened, but the object of raising revenue be defeated.
Measures of protection are justifiable only for the purpose of furthering and protecting the internal manufacturing power, and only in the case of nations which through an extensive and compact territory, large population, possession of natural resources, far advanced agriculture, a high degree of civilisation and political development, are qualified to maintain an equal rank with the principal agricultural manufacturing commercial nations, with the greatest naval and military powers.
Protection can be afforded, either by the prohibition of certain manufactured articles, or by rates of duty which amount wholly, or at least partly, to prohibition, or by moderate import duties. None of these kinds of protection are invariably beneficial or invariably objectionable; and it depends on the special circumstances of the nation and on the condition of its industry which of these is the right one to be applied to it.
War exercises a great influence on the selection of the precise system of protection, inasmuch as it effects a compulsory prohibitive system. In time of war, exchange between the belligerent parties ceases, and every nation must endeavour, without regard to its economical conditions, to be sufficient to itself. Hence, on the one hand, in the less advanced manufacturing nations commercial industry, on the other hand, in the most advanced manufacturing nation agricultural production, becomes stimulated in an extraordinary manner, indeed to such a degree that it appears advisable to the less advanced manufacturing nation (especially if war has continued for several years) to allow the exclusion which war has occasioned of those manufactured articles in which it cannot yet freely compete with the most advanced manufacturing nation, to continue for some time during peace.
France and Germany were in this condition after the general peace. If in 1815 France had allowed English competition, as Germany, Russia, and North America did, she would also have experienced the same fate; the greatest part of her manufactories which had sprung up during the war would have come to grief; the progress which has since been made in all branches of manufacture, in improving the internal means of transport, in foreign commerce, in steam river and sea navigation, in the increase in the value of land (which, by the way, has doubled in value during this time in France), in the augmentation of population and of the State's revenues, could not have been hoped for. The manufactories of France at that time were still in their childhood; the country possessed but few canals; the mines had been but little worked; political convulsions and wars had not yet permitted considerable capital to accumulate, sufficient technical cultivation to exist, a sufficient number of really qualified workmen or an industrial and enterprising spirit to have been called into existence; the mind of the nation was still turned more towards war than towards the arts of peace; the small capital which a state of war permitted to accumulate, still flowed principally into agriculture, which had declined very much indeed. Then, for the first time, could France perceive what progress England had made during the war; then, for the first time, was it possible for France to import from England machinery, artificers, workmen, capital, and the spirit of enterprise; then, to secure the home market exclusively for the benefit of home industry, demanded the exertion of her best powers, and the utilisation of all her natural resources. The effects of this protective policy are very evident; nothing but blind cosmopolitanism can ignore them, or maintain that France would have, under a policy of free competition with other nations, made greater progress. Does not the experience of Germany, the United States of America, and Russia, conclusively prove the contrary?
If we maintain that the prohibitive system has been useful to France since 1815, we do not by that contention wish to defend either her mistakes or her excess of protection, nor the utility or necessity of her continued maintenance of that excessive protective policy. It was an error for France to restrict the importation of raw materials and agricultural products (pig-iron, coal, wool, corn, cattle) by import duties; it would be a further error if France, after her manufacturing power has become sufficiently strong and established, were not willing to revert gradually to a moderate system of protection, and by permitting a limited amount of competition incite her manufacturers to emulation.
In regard to protective duties it is especially important to discriminate between the case of a nation which contemplates passing from a policy of free competition to one of protection, and that of a nation which proposes to exchange a policy of prohibition for one of moderate protection; in the former case the duties imposed at first must be low, and be gradually increased, in the latter they must be high at first and be gradually diminished.
A nation which has been formerly insufficiently protected by customs duties, but which feels itself called upon to make greater progress in manufactures, must first of all endeavour to develop those manufactures which produce articles of general consumption. In the first place the total value of such industrial products is incomparably greater than the total value of the much more expensive fabrics of luxury. The former class of manufactures, therefore, brings into motion large masses of natural, mental, and personal productive powers, and gives—by the fact that it requires large capital—inducements for considerable saving of capital, and for bringing over to its aid foreign capital and powers of all kinds. The development of these branches of manufacture thus tends powerfully to promote the increase of population, the prosperity of home agriculture, and also especially the increase of the trade with foreign countries, inasmuch as less cultivated countries chiefly require manufactured goods of common use, and the countries of temperate climates are principally enabled by the production of these articles to carry on direct interchange with the countries of tropical climates. A country e.g. which has to import cotton yarns and cotton goods cannot carry on direct trade with Egypt, Louisiana, or Brazil, because it cannot supply those countries with the cotton goods which they require, and cannot take from them their raw cotton. Furthermore, these articles, on account of the magnitude of their total value, serve especially to equalise the exports of the nation tolerably well with its imports, and always to retain in the nation the amount of circulating medium which it requires, or to provide it with the same. Thus it is by the prosperity and preservation of these important branches of industry that the industrial independence of the nation is gained and maintained, for the disturbance of trade resulting from wars is of little importance if it merely hinders the purchase of expensive articles of luxury, but, on the other hand, it always occasions great calamities if it is attended by scarcity and rise in price of common manufactured goods, and by the interruption of a previously considerable sale of agricultural products. Finally, the evasion of customs duties by smuggling and false declarations of value is much less to be feared in the case of these articles, and can be much more easily prevented than in the case of costly fabrics of luxury.
Manufactures and manufactories are always plants of slow growth, and every protective duty which suddenly breaks off formerly existing commercial connections must be detrimental to the nation for whose benefit it is professedly introduced. Such duties ought only to be increased in the ratio in which capital, technical abilities, and the spirit of enterprise are increasing in the nation or are being attracted to it from abroad, in the ratio in which the nation is in a condition to utilise for itself its surplus of raw materials and natural products which it had previously exported. It is, however, of special importance that the scale by which the import duties are increased should be determined beforehand, so that an assured remuneration can be offered to the capitalists, artificers, and workmen, who are found in the nation or who can be attracted to it from abroad. It is indispensable to maintain these scales of duty inviolably, and not to diminish them before the appointed time, because the very fear of any such breach of promise would already destroy for the most part the effect of that assurance of remuneration.
To what extent import duties should be increased in the case of a change from free competition to the protective system, and how much they ought to be diminished in the case of a change from a system of prohibition to a moderate system of protection, cannot be determined theoretically: that depends on the special conditions as well as on the relative conditions in which the less advanced nation is placed in relation to the more advanced ones. The United States of North America e.g. have to take into special consideration their exports of raw cotton to England, and of agricultural and maritime products to the English colonies, also the high rate of wages existing in the United States; whereby they again profit by the fact that they can depend more than any other nation on attracting to themselves English capital, artificers, men of enterprise, and workmen.
It may in general be assumed that where any technical industry cannot be established by means of an original protection of forty to sixty per cent. and cannot continue to maintain itself under a continued protection of twenty to thirty per cent. the fundamental conditions of manufacturing power are lacking.
The causes of such incapacity can be removed more or less readily: to the class more readily removable belong want of internal means of transport, want of technical knowledge, of experienced workmen, and of the spirit of industrial enterprise; to the class which it is more difficult to remove belong the lack of industrious disposition, civilisation, education, morality, and love of justice on the part of the people; want of a sound and vigorous system of agriculture, and hence of material capital; but especially defective political institutions, and want of civil liberty and of security of justice; and finally, want of compactness of territory, whereby it is rendered impossible to put down contraband trade.
Those industries which merely produce expensive articles of luxury require the least consideration and the least amount of protection; firstly, because their production requires and assumes the existence of a high degree of technical attainment and skill; secondly, because their total value is inconsiderable in proportion to that of the whole national production, and the imports of them can be readily paid for by means of agricultural products and raw materials, or with manufactured products of common use; further, because the interruption of their importation occasions no important inconvenience in time of war; lastly, because high protective duties on these articles can be most readily evaded by smuggling.
Nations which have not yet made considerable advances in technical art and in the manufacture of machinery should allow all complicated machinery to be imported free of duty, or at least only levy a small duty upon them, until they themselves are in a position to produce them as readily as the most advanced nation. Machine manufactories are in a certain sense the manufacturers of manufactories, and every tax on the importation of foreign machinery is a restriction on the internal manufacturing power. Since it is, however, of the greatest importance, because of its great influence on the whole manufacturing power, that the nation should not be dependent on the chances and changes of war in respect of its machinery, this particular branch of manufacture has very special claims for the direct support of the State in case it should not be able under moderate import duties to meet competition. The State should at least encourage and directly support its home manufactories of machinery, so far as their maintenance and development may be necessary to provide at the commencement of a time of war the most necessary requirements, and under a longer interruption by war to serve as patterns for the erection of new machine factories.
Drawbacks can according to our system only be entertained in cases where half-manufactured goods which are still imported from abroad, as for instance cotton yarn, must be subjected to a considerable protective duty in order to enable the country gradually to produce them itself.
Bounties are objectionable as permanent measures to render the exports and the competition of the native manufactories possible with the manufactories of further advanced nations in neutral markets; but they are still more objectionable as the means of getting possession of the inland markets for manufactured goods of nations which have themselves already made progress in manufactures. Yet there are cases where they are to be justified as temporary means of encouragement, namely, where the slumbering spirit of enterprise of a nation merely requires stimulus and assistance in the first period of its revival, in order to evoke in it a powerful and lasting production and an export trade to countries which themselves do not possess flourishing manufactures. But even in these cases it ought to be considered whether the State would not do better by making advances free of interest and granting special privileges to individual men of enterprise, or whether it would not be still more to the purpose to promote the formation of companies to carry into effect such primary experimental adventures, to advance to such companies a portion of their requisite share capital out of the State treasury, and to allow to the private persons taking shares in them a preferential interest on their invested capital. As instances of the cases referred to, we may mention experimental undertakings in trade and navigation to distant countries, to which the commerce of private persons has not yet been extended; the establishment of lines of steamers to distant countries; the founding of new colonies, &c.
THE CUSTOMS SYSTEM AND THE POPULAR SCHOOL.
THE popular school does not discriminate (in respect of the operation of protective duties) between natural or primitive products and manufactured products. It perverts the fact that such duties always operate injuriously on the production of primitive or natural products, into the false conclusion that they exercise an equally detrimental influence on the production of manufactured goods.
The school recognises no distinction in reference to the establishment of manufacturing industry in a State between those nations which are not adapted for such industry and those which, owing to the nature of their territory, to perfectly developed agriculture, to their civilisation, and to their just claims for guarantees for their future prosperity, for their permanence, and for their power, are clearly qualified to establish such an industry for themselves.
The school fails to perceive that under a system of perfectly free competition with more advanced manufacturing nations, a nation which is less advanced than those, although well fitted for manufacturing, can never attain to a perfectly developed manufacturing power of its own, nor to perfect national independence, without protective duties.
It does not take into account the influence of war on the necessity for a protective system; especially it does not perceive that war effects a compulsory prohibitive system, and that the prohibitive system of the custom-house is but a necessary continuation of that prohibitive system which war has brought about.
It seeks to adduce the benefits which result from free internal trade as a proof that nations can only attain to the highest degree of prosperity and power by absolute freedom in international trade; whereas history everywhere proves the contrary.
It maintains that protective measures afford a monopoly to inland manufacturers, and thus tend to induce indolence; while, nevertheless, all the time internal competition amply suffices as a stimulus to emulation among manufacturers and traders.
It would have us believe that protective duties on manufactured goods benefit manufacturers at the expense of agriculturists; whereas it can be proved that enormous benefits accrue to home agriculture from the existence of a home manufacturing power, compared to which the sacrifices which the former has to make to the protective system are inconsiderable.
As a main point against protective duties, the popular school adduces the expenses of the custom-house system and the evils caused by contraband trade. These evils cannot be denied; but can they be taken seriously into account in comparison of measures which exercise such enormous influence on the existence, the power, and the prosperity of the nation? Can the evils of standing armies and wars constitute an adequate motive for the nation to neglect means of defence? If it is maintained that protective duties which far exceed the limit which offers an assured remuneration to smuggling, serve merely to favour contraband trade, but not to benefit home manufactures, that can apply only to ill-regulated customs establishments, to countries of small extent and irregular frontiers, to the consumption which takes place on the frontiers, and only to high duties on articles of luxury of no great aggregate bulk.
But experience everywhere teaches us that with well-ordered customs establishments, and with wisely devised tariffs, the objects of protective duties in large and compact states cannot be materially impeded by contraband trade.
So far as regards the mere expenses of the customs system, a large portion of these would, if it were abolished, have to be incurred in the collection of revenue duties; and that revenue duties can be dispensed with by great nations, even the school itself does not maintain.
Moreover, the school itself does not condemn all protective duties.
Adam Smith allows in three cases the special protection of internal industry: firstly, as a measure of retaliation in case a foreign nation imposes restrictions on our imports, and there is hope of inducing it by means of reprisals to repeal those restrictions; secondly, for the defence of the nation, in case those manufacturing requirements which are necessary for defensive purposes could not under open competition be produced at home; thirdly, as a means of equalisation in case the products of foreigners are taxed lower than those of our home producers. J. B. Say objects to protection in all these cases, but admits it in a fourth case—namely, when some branch of industry is expected to become after the lapse of a few years so remunerative that it will then no longer need protection.
Thus it is Adam Smith who wants to introduce the principle of retaliation into commercial policy—a principle which would lead to the most absurd and most ruinous measures, especially if the retaliatory duties, as Smith demands, are to be repealed as soon as the foreign nation agrees to abolish its restrictions. Supposing Germany made reprisals against England, because of the duties imposed by the latter on German corn and timber, by excluding from Germany English manufactured goods, and by this exclusion called artificially into existence a manufacturing power of her own; must Germany then allow this manufacturing industry, created at immense sacrifice, to come to grief in case England should be induced to reopen her ports to German corn and timber? What folly! It would have been ten times better than that if Germany had submitted quietly to all measures of restriction on the part of England, and had discouraged the growth of any manufacturing power of her own which might grow up notwithstanding the English import prohibitions, instead of stimulating its growth.
The principle of retaliation is reasonable and applicable only if it coincides with the principle of the industrial development of the nation, if it serves as it were as an assistance to this object.
Yes, it is reasonable and beneficial that other nations should retaliate against the English import restrictions on their agricultural products, by imposing restrictions on the importation of manufactured goods, but only when those nations are qualified to establish a manufacturing power of their own and to maintain it for all times.
By the second exception, Adam Smith really justifies not merely the necessity of protecting such manufactures as supply the immediate requirements of war, such as, for instance, manufactories of arms and powder, but the whole system of protection as we understand it; for by the establishment in the nation of a manufacturing power of its own, protection to native industry tends to the augmentation of the nation's population, of its material wealth, of its machine power, of its independence, and of all mental powers, and, therefore, of its means of national defence, in an infinitely higher degree than it could do by merely manufacturing arms and powder.
The same must be said of Adam Smith's third exception. If the burden of taxation to which our productions are subjected, affords a just ground for imposing protective duties on the less taxed products of foreign countries, why should not also the other disadvantages to which our manufacturing industry is subjected in comparison with that of the foreigner afford just grounds for protecting our native industry against the overwhelming competition of foreign industry?
J. B. Say has clearly perceived the contradictory character of this exception, but the exception substituted by him is no better; for in a nation qualified by nature and by its degree of culture to establish a manufacturing power of its own, almost every branch of industry must become remunerative under continued and powerful protection; and it is ridiculous to allow a nation merely a few years for the task of bringing to perfection one great branch of national industry or the whole industry of the nation; just as a shoemaker's apprentice is allowed only a few years to learn shoemaking.
In its eternal declamations on the immense advantages of absolute freedom of trade, and the disadvantages of protection, the popular school is accustomed to rely on the examples of a few nations; that of Switzerland is quoted to prove that industry can prosper without protective duties, and that absolute liberty of international commerce forms the safest basis of national prosperity. The fate of Spain is quoted to exhibit to all nations which seek aid and preservation in the protective system, a frightful example of its ruinous effects. The case of England, which, as we have shown in a former chapter, affords such an excellent example for imitation to all nations which are capable of developing a manufacturing power, is adduced by these theorists merely to support their allegation that capability for manufacturing production is a natural gift exclusively peculiar to certain countries, like the capability to produce Burgundy wines; and that nature has bestowed on England, above all other countries of the earth, the destiny and the ability to devote herself to manufacturing industry and to an extensive commerce.
Let us now take these examples more closely into consideration.
As for Switzerland, it must be remarked in the first place that she does not constitute a nation, at least not one of normal magnitude which can be ranked as a great nation, but is merely a conglomeration of municipalities. Possessing no sea-coast, hemmed in between three great nations, she lacks all inducement to strive to obtain a native commercial marine, or direct trade with tropical countries; she need pay no regard to the establishment of a naval power, or to founding or acquiring colonies. Switzerland laid the foundation of her present very moderate degree of prosperity at the time when she still belonged to the German Empire. Since that time, she has been almost entirely free from internal wars, her capital has been permitted to increase from generation to generation, as scarcely any of it was required by her municipal governments for discharging their expenses. Amid the devastations occasioned by the despotism, fanaticism, wars, and revolutions, with which Europe was perturbed during the last centuries, Switzerland offered an asylum to all who desired to transfer their capital and talents to another country than their own, and thus acquired considerable wealth from abroad. Germany has never adopted strong commercial restrictions against Switzerland, and a large part of the manufactured products of the latter has obtained a market in Germany. Moreover, the industry of Switzerland was never a national one, one comprising the production of articles of common use, but chiefly an industry in articles of luxury, the products of which could be easily smuggled into the neighbouring countries or transported to distant parts of the world. Furthermore, her territory is most favourably situated for intermediate trade, and in this respect is in some measure privileged. Again, their excellent opportunity of becoming acquainted with the languages, laws, institutions, and circumstances of the three nations which adjoin her must have given the Swiss important advantages in intermediate commerce and in every other respect. Civil and religious liberty and universal education have evoked in the Swiss, activity and a spirit of enterprise which, in view of the narrow limits of their country's internal agriculture, and of her internal resources for supporting her population, drove the Swiss to foreign countries, where they amassed wealth, by means of military service, by commerce, by industries of every kind, in order to bring it home to their fatherland. If under such special circumstances they managed to acquire mental and material resources, in order to develop a few branches of industry for producing articles of luxury, if these industries could maintain themselves without protective duties by sales to foreign countries, it cannot thence be concluded that great nations could follow a similar policy under wholly different circumstances. In her small national expenditure Switzerland possesses an advantage which great nations could only attain if they, like Switzerland, resolved themselves into mere municipalities and thus exposed their nationality to foreign attacks.
That Spain acted foolishly in preventing the exportation of the precious metals, especially since she herself produced such a large excess of these articles, must be admitted by every reasonable person. It is a mistake, however, to attribute the decline of the industry and national well-being of Spain to her restrictions against the importation of manufactured goods. If Spain had not expelled the Moors and Jews, and had never had an Inquisition; if Charles V. had permitted religious liberty in Spain; if the priests and monks had been changed into teachers of the people, and their immense property secularised, or at least reduced to what was actually necessary for their maintenance; if, in consequence of these measures, civil liberty had gained a firm footing, the feudal nobility had been reformed and the monarchy limited; if, in a word, Spain had politically developed herself in consequence of a Reformation, as England did, and if the same spirit had extended to her colonies, a prohibitive and protective policy would have had similar effects in Spain as it had in England, and this all the more because at the time of Charles V. the Spaniards were more advanced than the English and French in every respect, and the Netherlands only (of all countries) occupied a more advanced position than Spain, whose industrial and commercial spirit might have been transferred to Spain by means of the protective policy, provided that the institutions and conditions of Spain were such as would have invited foreign talents and capital to her shores, instead of driving her own native talents and capital into foreign countries.
To what causes England owes her manufacturing and commercial supremacy, we have shown in our fifth chapter.
It is especially owing to her civil, mental, and religious liberty, to the nature and excellence of her political institutions, that the commercial policy of England has been enabled to make the most of the natural riches of the country, and fully to develop the productive powers of the nation. But who would deny that other nations are capable of raising themselves to the same degree of liberty? Who would venture to maintain that nature has denied to other nations the means which are requisite for manufacturing industry?
In the latter respect the great natural wealth in coal and iron which England possesses has often been adduced as a reason why the English are specially destined to be a manufacturing nation. It is true that in this respect England is greatly favoured by nature; but against this it may be stated that even in respect of these natural products, nature has not treated other countries merely like a stepmother; for the most part the want of good transport facilities is the chief obstacle to the full utilisation of these products by other nations; that other countries possess enormous unemployed water power, which is cheaper than steam power; that where it is necessary they are able to counterbalance the want of coal by the use of other fuels; that many other countries possess inexhaustible means for the production of iron, and that they are also able to procure these raw materials from abroad by commercial exchange.
In conclusion, we must not omit here to make mention of commercial treaties based on mutual concessions of duties. The school objects to these conventions as unnecessary and detrimental, whereas they appear to us as the most effective means of gradually diminishing the respective restrictions on trade, and of leading the nations of the world gradually to freedom of international intercourse. Of course, the specimens of such treaties which the world has hitherto seen, are not very encouraging for imitation. We have shown in former chapters what injurious effects the Methuen Treaty has produced in Portugal, and the Eden Treaty has produced in France. It is on these injurious effects of reciprocal alleviation of duties, that the objections of the school to commercial treaties appear principally to be founded. Its principle of absolute commercial liberty has evidently experienced a practical contradiction in these cases, inasmuch as, according to that principle, those treaties ought to have operated beneficially to both contracting nations, but not to the ruin of the one, and to the immense advantage of the other. If, however, we investigate the cause of this disproportionate effect, we find that Portugal and France, in consequence of those conventions, abandoned in favour of England the progress they had already made in manufacturing industry, as well as that which they could expect to make in it in the future, with the expectation of increasing by that means their exportation of natural products to England; that, accordingly, both those nations have declined, in consequence of the treaties thus concluded, from a higher to a lower standpoint of industrial development. From this, however, it merely follows that a nation acts foolishly if it sacrifices its manufacturing power to foreign competition by commercial treaties, and thereby binds itself to remain for all future time dependent on the low standpoint of merely agricultural industry; but it does not in the least follow from this, that those treaties are also detrimental and objectionable whereby the reciprocal exchange of agricultural products and raw materials, or the reciprocal exchange of manufactured products, is promoted.
We have previously explained that free trade in agricultural products and raw materials is useful to all nations at all stages of their industrial development; from this it follows that every commercial treaty which mitigates or removes prohibitions and restrictions on freedom of trade in such articles must have a beneficial effect on both contracting nations, as e.g. a convention between France and England whereby the mutual exchange of wines and brandies for pig-iron and coal, or a treaty between France and Germany whereby the mutual exchange of wine, oil, and dried fruit, for corn, wool, and cattle, were promoted.
According to our former deductions, protection is only beneficial to the prosperity of the nation so far as it corresponds with the degree of the nation's industrial development. Every exaggeration of protection is detrimental; nations can only obtain a perfect manufacturing power by degrees. On that account also, two nations which stand at different stages of industrial cultivation, can with mutual benefit make reciprocal concessions by treaty in respect to the exchange of their various manufacturing products. The less advanced nation can, while it is not yet able to produce for itself with profit finer manufactured goods, such as fine cotton and silk fabrics, nevertheless supply the further advanced nation with a portion of its requirements of coarser manufactured goods.
Such treaties might be still more allowable and beneficial between nations which stand at about the same degree of industrial development, between which, therefore, competition is not overwhelming, destructive, or repressive, nor tending to give a monopoly of everything to one side, but merely acts, as competition in the inland trade does, as an incentive to mutual emulation, perfection, and cheapening of production. This is the case with most of the Continental nations. France, Austria, and the German Zollverein might, for instance, anticipate only very prosperous effects from moderately low reciprocal protective duties. Also, between these countries and Russia mutual concessions could be made to the advantage of all sides. What they all have to fear at this time is solely the preponderating competition of England.
Thus it appears also from this point of view, that the supremacy of that island in manufactures, in trade, in navigation, and in her colonial empire, constitutes the greatest existing impediment to all nations drawing nearer to one another; although it must be at the same time admitted that England, in striving for this supremacy, has immeasurably increased, and is still daily increasing, the productive power of the entire human race.
[66.] It is alleged that Adam Smith intended to have dedicated his great work to Quesnay.—TR. (See Life of Smith, published by T. and J. Allman, 1825.)
[67.] The Christian religion inculcates perpetual peace. But until the promise, 'There shall be one fold and one shepherd,' has been fulfilled, the principle of the Quakers, however true it be in itself, can scarcely be acted upon. There is no better proof for the Divine origin of the Christian religion than that its doctrines and promises are in perfect agreement with the demands of both the material and spiritual well-being of the human race.
[68.] This statement was probably accurate up to the period when List wrote, but a notable exception to it may now be adduced. The commercial union of the various German states under the Zollverein preceded by many years their political union under the Empire, and powerfully promoted it.—TR.
[69.] This is true respecting Spain up to the period of her invasion by Napoleon, but not subsequently. Our author's conclusions are, however, scarcely invalidated by that exception.—TR.
[70.] Say states in his Economie Politique Pratique, vol. iii. p. 242, 'Les lois ne peuvent pas créer des richesses.' Certainly they cannot do this, but they create productive power, which is more important than riches, i.e. than possession of values of exchange.
[71.] Wealth of Nations, Book IV. chap. ii.
[72.] From the great number of passages wherein J. B. Say explains this view, we merely quote the newest—from the sixth volume of Economie Politique Pratique, p. 307: 'Le talent d'un avocat, d'un médecin, qui a été acquis au prix de quelque sacrifice et qui produit un revenu, est une valeur capitale, non transmissible à la vérité, mais qui réside néanmoins dans un corps visible, celui de la personne qui le possède.'
[73.] See Appendix A.
[74.] Wealth of Nations, Book I. chap. i.
[75.] Wealth of Nations, Book I. chap. i.
[76.] Wealth of Nations, Book IV. chap. ii.
[77.] Lectures on Political Economy, by Thomas Cooper, pp. 1, 15, 19, 117.
[78.] See Appendix B.
[79.] Vide Wealth of Nations, Book IV. chap. ii, (TR.)
[80.] See Appendix C.
[81.] See Appendix C.
[82.] Esprit des Lois, Livre XX. chap. xxiii.
[83.] According to Chardin, the Guebres, an unmixed tribe of the old Persians, are an ugly, deformed, and clumsy race, like all nations of Mongol descent, while the Persian nobility, which for centuries has intermarried with Georgian and Circassian women, is distinguished for beauty and strength. Dr. Pritchard remarks that the unmixed Celts of the Scottish Highlands are far behind the Scottish Lowlanders (descendants of Saxons and Celts) in height, bodily power, and fine figure. Pallas makes similar observations respecting the descendants of the Russians and Tartars in comparison with the unmixed tribes to which they are related. Azara affirms that the descendants of the Spaniards and the natives of Paraguay are a much more handsome and powerful race of men than their ancestors on both sides. The advantages of the crossing of race are not only apparent in the mixing of different nations, but also in the mixing of different family stocks in one and the same nation. Thus the Creole negroes far surpass those negroes who have sprung from unmixed tribes, and who have come direct from Africa to America, in mental gifts as well as in bodily power. The Caribbeans, the only Indian race which chooses regularly its women from neighbouring tribes, are in every respect superior to all other American tribes. If this is a law of nature, the rise and progress which the cities of the Middle Ages displayed shortly after their foundation, as well as the energy and fine bodily appearance of the American people, are hence partly explained.
[84.] Wealth of Nations, Book IV. chap. ii.
[85.] Compare the following paragraph, which appeared in the Times during 1883:
[86.] General Statistics of the British Empire. London, 1836.
[87.] Esprit des Lois, Book XX. chap. xii.
[88.] Wealth of Nations, Book IV. chapter iii.
[89.] See Appendix D.