BOOK I, CHAPTER XVII
OF THE EFFECT OF GOVERNMENT REGULATIONS INTENDED TO INFLUENCE PRODUCTION.
Strictly speaking, there is no act of government but what has some influence upon production. I shall confine myself in this chapter to such as are avowedly aimed at the exertion of such influence; reserving the effects of the monetary system, of loans, and of taxes, to be treated of in distinct chapters.
The object of governments, in their attempts to influence production, is either to prescribe the raising of particular kinds of produce which they judge more advantageous than others, or to prescribe methods of production, which they imagine preferable to other methods. The effects of this two-fold attempt upon national wealth will be investigated in the two first sections of this chapter; in the remaining two, I shall apply the same principles to the particular cases of privileged companies, and of the corn-trade, both on account of their vast importance, and for the purpose of further explaining and illustrating the principles. We shall see, by the way, what reasons and circumstances will require or justify a deviation from general principles. The grand mischiefs of authoritative interference proceed not from occasional exceptions to establish maxims, but from false ideas of the nature of things, and the false maxims built upon them. It is then that mischief is done by wholesale, and evil pursued upon system; for it is well to beware, that no set of men are more bigoted to system, than those who boast that they go upon none.
Effect of Regulations prescribing the Nature of Products.
The natural wants of society, and its circumstances for the time being, occasion a more or less lively demand for particular kinds of products. Consequently, in these branches of production, productive services are somewhat better paid than in the rest; that is to say, the profits upon land, capital and labour, devoted to those branches of production, are somewhat larger. This additional profit naturally attracts producers, and thus the nature of the products is always regulated by the wants of society. We have seen in a preceding chapter (XV.,) that these wants are more ample in proportion to the sum of gross production, and that society in the aggregate is a larger purchaser, in proportion to its means of purchasing.
When authority throws itself in the way of this natural course of things, and says, the product you are about to create, that which yields the greatest profit, and is consequently the most in request, is by no means the most suitable to your circumstances, you must undertake some other, it evidently directs a portion of the productive energies of the nation towards an object of less desire, at the expense of another of more urgent desire.
In France, about the year 1794, there were some persons persecuted, and even brought to the scaffold, for having converted cornland into pasturage. Yet the moment these unhappy people found it more profitable to feed cattle than to grow corn, one might have been sure that society stood more in need of cattle than of corn, and that greater value could be produced in one way than in the other.
But, said the public authorities, the value produced is of less importance than the nature of the product, and we would rather have you raise 10 dollars worth of grain than 20 dollars worth of butcher's meat. In this they betrayed their ignorance of this simple truth, that the greatest product is always the best; and that an estate, which should produce in butcher's meat wherewith to purchase twice as much wheat as could have been raised upon it, produces, in reality, twice as much wheat as if it had been sowed with grain; since wheat to twice the amount is to be got for its product. This way of getting wheat, they will tell you, does not increase its total quantity. True, unless it be introduced from abroad; but nevertheless, this article must at the time be relatively more plentiful than butcher's meat, because the product of two acres of wheat is given for that of one acre of pasture. And, if wheat be sufficiently scarce, and in sufficient request to make tillage more profitable than grazing, legislative interference is superfluous altogether; for self-interest will make the producer turn his attention to the former.
The only question then is, which is the most likely to know what kind of cultivation yields the largest returns, the cultivator or the government; and we may fairly take it for granted, that the cultivator, residing on the spot, making it the object of constant study and inquiry, and more interested in success than anybody, is better informed in this respect than the government.
Should it be insisted upon in argument, that the cultivator knows only the price-current of the day, and does not, like the government, provide for the future wants of the people, it may be answered, that one of the talents of a producer, and a talent his own interest obliges him assiduously to cultivate, is not the mere knowledge, but the fore-knowledge, of human wants.
An evil of the same description was occasioned, when, at another period, the proprietors were compelled to cultivate beet-root, or woad in lieu of grain: indeed, we may observe, en passant, that it is always a bad speculation to attempt raising the products of the torrid, under the sun of the temperate latitudes. The saccharine and colouring juices, raised on the European soils, with all the forcing in the world, are very inferior in quantity and quality to those that grow in profusion in other climates; while, on the other hand, those soils yield abundance of grain and fruits too bulky and heavy to be imported from a distance. In condemning our lands to the growth of products ill suited to them, instead of those they are better calculated for, and, consequently, buying very dear what we might have cheap enough, if we would consent to receive them from places where they are produced with advantage, we are ourselves the victims of our own absurdity. It is the very acme of skill, to turn the powers of nature to best account, and the height of madness to contend against them; which is in fact wasting part of our strength, in destroying those powers she designed for our aid.
Again, it is laid down as a maxim, that it is better to buy products dear, when the price remains in the country, than to get them cheap from foreign growers. On this point I must refer my readers to that analysis of production which we have just gone through. It will there be seen, that products are not to be obtained without some sacrifice,—without the consumption of commodities and productive services in some ratio or other, the value of which is in this way as completely lost to the community, as if it were to be exported.
I can hardly suppose any government will be bold enough to object, that it is indifferent about the profit, which might be derived from a more advantageous production, because it would fall to the lot of individuals. The worst governments, those which set up their own interest in the most direct opposition to that of their subjects, have by this time learnt, that the revenues of individuals are the regenerating source of public revenue; and that, even under despotic and military sway, where taxation is mere organized spoliation, the subjects can pay only what they have themselves acquired.
The maxims we have been applying to agriculture are equally applicable to manufacture. Sometimes a government entertains a notion, that the manufacture of a native raw material is better for the national industry, than the manufacture of a foreign raw material. It is in conformity to this notion, that we have seen instances of preference given to the woollen and linen above the cotton manufacture. By this conduct we contrive, as far as in us lies, to limit the bounty of nature, which pours forth in different climates a variety of materials adapted to our innumerable wants. Whenever human efforts succeed in attaching to these gifts of nature a value, that is to say, a degree of utility, whether by their import, or by any modification we may subject them to, a useful act is performed, and an item added to national wealth. The sacrifice we make to foreigners in procuring the raw material is not a whit more to be regretted, than the sacrifice of advances and consumption, that must be made in every branch of production, before we can get a new product. Personal interest is, in all cases, the best judge of the extent of the sacrifice, and of the indemnity we may expect for it; and, although this guide may sometimes mislead us, it is the safest in the long-run, as well as the least costly.
But personal interest is no longer a safe criterion, if individual interests are not left to counteract and control each other. If one individual, or one class, can call in the aid of authority to ward off the effects of competition, it acquires a privilege to the prejudice and at the cost of the whole community; it can then make sure of profits not altogether due to the productive services rendered, but composed in part of an actual tax upon consumers for its private profit; which tax it commonly shares with the authority that thus unjustly lends its support.
The legislative body has great difficulty in resisting the importunate demands for this kind of privileges; the applicants are the producers that are to benefit thereby, who can represent, with much plausibility, that their own gains are a gain to the industrious classes, and to the nation at large, their workmen and themselves being members of the industrious classes, and of the nation.
When the cotton manufacture was first introduced in France, all the merchants of Amiens, Rheims, Beauvais, &c. joined in loud remonstrances, and represented, that the industry of these towns was annihilated. Yet they do not appear less industrious or rich than they were fifty years ago; while the opulence of Rouen and all Normandy has been wonderfully increased by the new fabric.
The outcry was infinitely greater, when printed calicoes first came into fashion; all the chambers of commerce were up in arms; meetings, discussions everywhere took place; memorials and deputations poured in from every quarter, and great sums were spent in the opposition. Rouen now stood forward to represent the misery about to assail her, and painted, in moving colours, "old men, women, and children, rendered destitute; the best cultivated lands in the kingdom lying waste, and the whole of a rich and beautiful province depopulated." The city of Tours urged the lamentations of the deputies of the whole kingdom, and foretold "a commotion that would shake the frame of social order itself." Lyons could not view in silence a project "which filled all her manufactories with alarm." Never on so important an occasion had Paris presented itself at the foot of a throne, "watered with the tears of commerce." Amiens viewed the introduction of printed calicoes as the gulf that must inevitably swallow up all the manufactures of the kingdom. The memorial of that city, drawn up at a joint meeting of the three corporations, and signed unanimously, ended in these terms: "To conclude, it is enough for the eternal prohibition of the use of printed calicoes, that the whole kingdom is chilled with horror at the news of their proposed toleration. Vox populi vox dei."
Hear what Roland de la Platiere, who had the presentation of these remonstrances in quality of inspector-general of manufactures, says on this subject, "Is there a single individual at the present moment, who is mad enough to deny, that the fabric of printed calicoes employs an immense number of hands, what with the dressing of cotton, the spinning, weaving, bleaching, and printing? This article has improved the art of dyeing in a few years, more than all the other manufactures together have done in a century."
I must beg my readers to pause a moment, and reflect, what firmness and extensive information respecting the sources of public prosperity were necessary to uphold an administration against so general a clamour, supported, amongst the principal agents of authority, by other motives, besides that of public utility.
Though governments have too often presumed upon their power to benefit the general wealth, by prescribing to agriculture and manufacture the raising of particular products, they have interfered much more particularly in the concerns of commerce, especially of external commerce. These bad consequences have resulted from a general system, distinguished by the name of the exclusive or mercantile system, which attributes the profits of a nation to what is technically called a favourable balance of trade. Before we enter upon the investigation of the real effect of regulations, intended to secure to a nation this balance in its favour, it may be as well to form some notion of what it really is, and what is its professed object; which I shall attempt in the following
UPON WHAT IS CALLED THE BALANCE OF TRADE.
The comparison a nation makes between the value of its exports to, and that of its imports from, foreign countries, forms what is called the balance of its trade. If it have exported more commodities than it has imported, it is taken for granted that the nation has to receive the difference in gold and silver; and the balance of trade is then said to be in its favour; and when the case is reversed, the balance is said to be against it.
The exclusive system proceeds upon these maxims: 1. That the commerce of a nation is advantageous, in proportion as its exports exceed its imports, and as there is a larger cash balance receivable in specie, or in the precious metals: 2. That by means of duties, prohibitions, and bounties, the government can make that balance more in favour of, or less against, the nation.
These two maxims must be analysed minutely in the first place; then, let us see what is the course of practice.
When a merchant sends goods abroad, he causes them to be there sold, and receives, by the hands of his foreign correspondents, the price of his goods, in the money of the country. If he expects to make a profit upon the return cargo, he causes that price to be laid out in foreign produce, and remitted home to him. The operation is with little variation the same, when he begins at the other end; that is to say, by making purchases abroad, which he pays for by remitting domestic products thither. These operations are not always executed on account of the same merchant. It sometimes happens that the trader, who undertakes the outward, will not undertake the homeward adventure. In that case he draws bills payable after date, or upon sight, upon his correspondents, by whom the goods have been sold; these bills he sells or negotiates, to somebody, who sends them to the place they are drawn upon, where they are made use of in the purchase of fresh goods, which the last mentioned person imports himself.
In both cases, one value is exported, another value is imported in return; but we have not to stop to inquire, if any part of the value either exported or imported consisted of the precious metals. It may reasonably be assumed, that merchants, when left the free choice of what goods they will speculate in, will prefer those that offer the largest profit; that is to say, those which will bear the greatest value when they arrive at the place of destination. For example, a French merchant has consigned brandies to England, and has to receive from England for such his consignment, 1000l. sterling: he naturally sits down to calculate the difference between what he will receive, if he import his 1000l. in the shape of the precious metals, and what he will receive, if he import that sum in the shape of cotton manufactures.
If the merchant find it more advantageous to get his returns in goods than in specie, and if it be admitted, that he knows his own interest better than anybody else, the sole point left for discussion is, whether returns in specie, though less advantageous to the merchant, may not be better for the nation, than returns of any other article: whether, in short, it be desirable in a national point of view, that the precious metals should abound, in preference to any other commodity.
What are the functions of the precious metals in the community? If shaped into trinkets or plate, they serve for personal ornament, for the splendour of our domestic establishments, or for a variety of domestic purposes; they are converted into watch-cases, spoons, forks, dishes, coffee-pots; or rolled out into leaves for the embellishment of picture frames, book-binding, and the like; in which case, they form part of that portion of the capital of the community, which yields no interest, but is devoted to the production of utility or pleasure. It is doubtless an advantage to the nation, that the material, whereof this portion of its capital consists, should be cheap and abundant. The enjoyment they afford in these various ways is then obtained at a lower rate, and is more widely diffused. There are many establishments on a moderate scale, which, but for the discovery of America, would have been unable to make the show of plate that is now seen upon their tables. But this advantage must not be over-rated; there are other utilities of a much higher order. The window-glass, that keeps out the inclemency of the weather, is of much more importance to our comfort, than any species of plate whatsoever; yet no one has ever thought of encouraging its import or production by special favour or exemptions.
The other utility of the precious metals is, to act as the material of money, that is to say, of that portion of the national capital, which is employed in facilitating the interchange of existing values between one individual and another. For this purpose, is it any advantage that the material selected should be abundant and cheap? Is a nation, that is more amply provided with that material, richer than one which is more scantily supplied?
I must here take leave to anticipate a position, established in Chap. XXI. of this book, wherein the subject of money is considered, namely, that the total business of national exchange and circulation, requires a given quantity of the commodity, money, of some amount or other. There is in France a daily sale of so much wheat, cattle, fuel, property movable and immovable, which sale requires the daily intervention of a given value in the form of money, because every commodity is first converted into money, as a step towards its further conversion into other objects of desire. Now, whatever be the relative abundance or scarcity of the article money, since a given quantum is requisite for the business of circulation, the money must of course advance in value, as it declines in quantity, and decline in value as it advances in quantity. Suppose the money of France to amount now to 3000 millions of francs, and that by some event, no matter what, it be reduced to 1500 millions; the 1500 millions will be quite as valuable as the 3000 millions. The demands of circulation require the agency of an actual value of 3000 millions; that is to say, a value equivalent to 2000 millions of pounds of sugar, (taking sugar at 30 sous per lb.) or to 180 millions of hectolitres of wheat (taking wheat at 20 fr. the hectolitre). Whatever be the weight or bulk of the material, whereof it is made, the total value of the national money will still remain at that point; though in the latter case, that material will be twice as valuable as in the former. An ounce of silver will buy eight instead of four lbs. of sugar, and so of all other commodities; and the 1500 millions of coin will be equivalent to the former 3000. But the nation will be neither richer nor poorer than before. A man who goes to market with a less quantity of coin, will be able to buy with it the same quantity of commodities. A nation that has chosen gold for the material of its money, is equally rich with one that has made choice of silver, though the volume of its money be much less. Should silver become fifteen times as scarce as at present, that is to say, as scarce as gold now is, an ounce of silver would perform the same functions, in the character of money, as an ounce of gold now does; and we should be equally rich in money. Or, should it fall to a par with copper, we should not be a jot the richer in the article of money; we should merely be encumbered with a more bulky medium of circulation.
On the score, then, of the other utilities of the precious metals, and on that score only, their abundance makes a nation richer, because it extends the sphere of those utilities, and diffuses their use. In the character of money, that abundance no wise contributes to national enrichment; but the habits of the vulgar lead them to pronounce an individual rich, in proportion to the quantity of money he is possessed of; and this notion has been extended to national wealth, which is made up of the aggregate of individuals' wealth. Wealth, however, as before observed, consists, not in the matter or substance, but in the value of that matter or substance. A money of large, is worth no more than a money of small volume; neither is a money of small, of less value than one of large volume. Value, in the form of commodities, is equivalent to value to the same amount in the form of money.
It may be asked, why, then, is money so generally preferred to commodities, when the value on both sides is equal? This requires a little explanation. When I come to treat of money, it will be shown, that the coined metal of equal value commands a preference, because it insures to the holder the attainment of the objects of desire by means of one exchange instead of two. He is not, like the holder of any other commodity, obliged, in the first instance, to exchange his own commodity, money, for the purpose of obtaining, by a second exchange, the object of his desire; one act of exchange suffices; and this it is, combined with the extreme facility of apportionment, afforded by graduated denominations of the coin, which renders it so useful in exchanges of value. Every individual, who has an exchange to make, becomes a consumer of the commodity, money; that is to say, every individual in the community; which accounts for the universal preference of money to commodities at large, where the value is equal.
But this superiority of money, in the interchange between individuals, does not extend to that between nation and nation. In the latter, money, and, à fortiori, bullion, lose all the advantage of their peculiar character, as money, and are dealt with as mere commodities. The merchant, who has remittances to make from abroad, looks at nothing but the gain to be made on those remittances, and treats the precious metals as a commodity he can dispose of with more or less benefit. In his eyes, an exchange more or less is no object; for it is his business to negotiate exchanges, so as to get a profit upon them. An ordinary person might prefer to receive money instead of goods, because it is an article, whose value he is better acquainted with: but a merchant, who is apprised of the prices current in most of the markets of the world, knows how to appreciate the value he receives in return, whatever shape it may appear under.
An individual may be under the necessity of liquidating, for the purpose of giving a new direction to his capital, or of partition, or the like. A nation is never obliged to do so. This liquidation is effected with the circulating money of the nation, which it occupies only for the time; the same money going almost immediately to operate another act of liquidation or of exchange.
We have seen above (Chap. XV.) that the abundance of specie is not even necessary for the national facilitation of exchanges and sales; for that buyers really buy with products,—each with his respective portion of the products he has concurred in creating: that with this he buys money, which serves but to buy some further product; and that, in this operation, money affords but a temporary convenience; like the vehicles employed to convey to market the produce of a farm, and to bring back the articles that have been purchased with the produce. Whatever amount of money may have been employed in the purchase of liquidation, it has passed for as much as it was taken for: and, at the close of the transaction, the individual is neither richer nor poorer. The loss or profit arises out of the nature of the transaction itself, and has no reference to the medium employed in the course of it.
In no one way do the causes, that influence individual preference of money to commodities, operate upon international commerce. When the nation has a smaller stock than its necessities require, its value within the nation is raised, and foreign and native merchants are equally interested in the importation of more: when it is redundant, its relative value to commodities at large is reduced, and it becomes advantageous to export to that spot, where its command of commodities may be greater than at home. To retain it by compulsory measures, is to force individuals to keep what is a burthen to them.
And here I might, perhaps, now dismiss the subject of the balance of trade; but such is the prevailing ignorance on this topic, and so novel are the views I have been taking, even to persons of the better classes, to writers and statesmen of the purest intentions and well informed on other points, that it may be worth while to put the reader on his guard against some fallacies which are often set up in opposition to liberal principles, and are unfortunately the ground-work of the prevailing policy of most of the European States. I shall uniformly reduce the objections to the simplest terms possible, that their weight may be the more easily estimated.
It is said, that, by increasing the currency through the means of a favourable balance of trade, the total capital of a nation is augmented, and, on the contrary, by diminishing it, that capital is reduced. But it must be always kept in mind, that capital consists, not of so much silver or gold, but of the values devoted to reproductive consumption, which values necessarily assume an infinite variety of successive forms. When it is intended to vest a given capital in any concern, or to place it out at interest, the first step is undoubtedly to realize the amount, by converting into ready money the different values one has at command. The value of the capital, thus assuming the transient form of money, is quickly transmuted by one exchange after another into buildings, works, and perishable substances requisite for the projected enterprise. The ready money employed for the occasion passes again into other hands, for the purpose of facilitating fresh exchanges, as soon as it has accomplished its momentary duty; in like manner as do many other substances, the shape of which this capital successively assumes. So that the value of capital is neither lost nor impaired by parting with its value, whatever material shape it happens to be under, provided that we part with it in a way that ensures its renovation.
Suppose a French dealer in foreign commodities to consign to a foreign country a capital of 10,000 dollars in specie for the purchase of cotton; when his cotton arrives, he possesses 20,000 dollars value in cotton instead of specie, putting his profit out of the question for the moment. Has anybody lost this amount of specie? Certainly not: the adventurer has come honestly by it. A cotton manufacturer gives cash for the cargo; is he the loser of the price? No, surely: on the contrary, the article in his hands will increase to twice its value, so as to leave him a profit, after repaying all his advances. If no individual capitalist has lost the 20,000 dollars exported, how can the nation have lost them? The loss will fall on the consumer, they will tell you: in fact, all the cotton goods bought and consumed will be so much positive loss; but the same consumers might have consumed linens or woollens of exactly the same value, without one dollar of the 20,000 being sent out of the country, and yet there would equally be a loss or consumption to that amount of value. The loss of value we are now speaking of is not occasioned by the export, but by the consumption, which might have taken place without any export whatever. I may, therefore, say, with the strictest truth, that the export of the specie has caused no loss at all to the nation.
It has been urged, with much confidence, that, had the export of 20,000 dollars never been made, France would remain in possession of that additional value; in fact, that the nation has lost the amount twice over; first, by the act of export; secondly, by that of consumption: whereas, the consumption of an indigenous product would have entailed a single loss only. But I answer as before, that the export of specie has occasioned no loss; that it was balanced by equivalent value imported; and that it is so certain, that nothing has been lost except the 20,000 dollars worth of imported commodities, that I defy any one to point out any other losers than the consumers of those commodities. If there has been no loser, it is clear there can have been no loss.
Would you put a stop to the emigration of capital? It is not to be prevented by keeping the specie in the country. A man resolved to transfer his capital elsewhere can do it just as effectually by the consignment of goods, whose export is permitted. So much the better, we may be told; for our manufacturers will benefit by the exports. True; but their value exists no longer in the nation, since they bring back no return wherewith to make new purchases; there has been a transfer of so much capital from amongst you, to give activity not to your own, but to some other nation's industry. This is a real ground of apprehension. Capital naturally flows to those places that hold out security and lucrative employment, and gradually retires from countries offering no such advantages: but it may easily enough retire, without being ever converted into specie.
If the export of specie causes no diminution of national capital, provided it be followed by a corresponding return, on the other hand, its import brings no accession of capital. For, in reality, before specie can be imported, it must have been purchased by an equivalent value exported for that purpose.
On this point it has been alleged, that by sending abroad goods instead of specie, a demand is created for goods, and the producers enabled to make a profit upon their production. I answer, that, even when specie is sent abroad, that specie must have been first obtained by the export of some indigenous product; for, we may rest assured, that the foreign owner of it did not give it to the French importer for nothing; and France had nothing to offer in the first instance but her domestic products. If the supply of the precious metals in the country be more than sufficient for the wants of the country, it is a fitter object of export than another commodity; and, if more of the specie be exported than the excess of the supply above the demand for the purposes of circulation, we may calculate with certainty, that, since the value of specie must have been necessarily raised by the exportation, other specie will be imported to replace what has been withdrawn; for the purchase of which last, home products must have been sent abroad, which will have yielded a profit to the home producers. In a word, every value sent out of France, for the purchase of foreign returns for the French market, may be resolved into a product of domestic industry, given either first or last, for France has nothing else to procure them with.
Again, it has been argued, that it is better to export consumable articles, as, for instance, manufactures, and to keep at home those products not liable to consumption, or, at least, not to quick consumption, such as specie. Yet objects of quick consumption, if more in demand, are more profitable to keep than objects of slower consumption. It would often be doing a producer a very poor service, to make him substitute a quantity of commodities of slow consumption, for an equal portion of his capital of more rapid consumption. If an ironmaster were to contract for the delivery to him of a quantity of coal at a day certain, and when the day came the coal could not be procurable, and he should be offered the value in money in its stead, it would be somewhat difficult to convince him of the service done him by the delivery of money; which is an object of much slower consumption than the coal he contracted for. Should a dyer send an order for dying woods from abroad, it would be a positive injury to send him gold, on the plea, that, with equal value, it has the advantage of greater durability. He had no occasion for a durable article whatever; what he wanted was a substance, which, though decomposed in his vats, would quickly re-appear in the colours of his stuffs.
If it were no advantage to import any but the most durable items of productive capital, there are other very durable objects, such as stone or iron, that ought to share in our partiality with silver and gold. But the point of real importance is, the durability, not of any particular substance, but of the value of capital. Now the value of capital is perpetuated, notwithstanding the repeated change of the material shape in which it is vested. Nay, it cannot yield either interest or profit, unless that shape be continually varied. To confine it to the single shape of money would be to condemn it to remain unproductive.
But I will go a step further, and, having shown that there is no advantage in importing gold and silver more than any other article of merchandise, I will assert, that, supposing it were desirable to have the balance of trade always in our favour, yet it is morally impossible it should be so.
Gold and silver are like all the other substances that, in the aggregate, compose national wealth; they are useful to the community no longer than while they do not exceed the national demand for them. Any such excess must make the sellers more numerous than the buyers; consequently must depress the price in proportion, and thus create a powerful inducement to buy in the home market, in the expectation of making a profit upon the export. This may be illustrated by an example.
Suppose for a moment the internal traffic and national wealth of a given country to be such as to require the constant employ of a thousand carriages of different kinds. Suppose, too, that, by some peculiar system of commerce, we should succeed in getting more carriages annually imported, than were annually destroyed by wear and tear; so that, at the year's end, there should be 1500 instead of 1000; is it not obvious, that there would be in that case 500 lying by in the repositories quite useless, and that the owners of them, rather than suffer their value to lie dormant, would undersell each other, and even smuggle them abroad if it were practicable, in the hope of turning them to better account? In vain would the government conclude commercial treaties for the encouragement of their import: in vain would it expend its efforts in stimulating the export of other commodities, for the purpose of getting returns in the shape of carriages; the more the public authorities favoured the import, the more anxious would individuals be to export.
As it is with carriages, so is it with specie likewise. The demand is limited; it can form but a part of the aggregate wealth of the nation. That wealth can not possibly consist entirely of specie; for other things are requisite besides specie. The extent of the demand for that peculiar article is proportionate to the general wealth; in the same manner, as a greater number of carriages is wanted in a rich than in a poor country. Whatever brilliant or solid qualities the precious metals may possess, their value depends upon the use made of them, and that use is limited. Like carriages, they have a value peculiar to them; a value that diminishes in proportion to the increase of their relative plenty, in comparison with the objects of exchange, and increases in proportion to their relative scarcity.
One is told, that every thing may be procured with gold or silver. True; but upon what terms? The terms are less advantageous, when these metals are forcibly multiplied beyond the demand; hence their strong tendency to emigration under such circumstances. The export of silver from Spain was prohibited; yet Spain supplied all Europe with it. In 1812, the paper money of England having rendered superfluous all the gold money of that country, and made that metal too abundant for its other remaining uses, its relative value fell, and her guineas emigrated to France, in spite of the ease with which the coasts of an island may be guarded, and of the denunciation of capital punishment against the exporters.
To what good purpose, then, do governments labour to turn the balance of commerce in favour of their respective nations? To none whatever; unless, perhaps, to exhibit the show of financial advantages, unsupported by fact or experience. How can maxims so clear, so agreeable to plain common sense, and to facts attested by all who have made commerce their study, have yet been rejected in practice by all the ruling powers of Europe, nay, even have been attacked by a number of writers, that have evinced both genius and information on other subjects? To speak the truth, it is because the first principles of political economy are as yet but little known; because ingenious systems and reasonings have been built upon hollow foundations, and taken advantage of, on the one hand, by interested rulers, who employ prohibition as a weapon of offence or an instrument of revenue; and, on the other, by the personal avarice of merchants and manufacturers, who have a private interest in exclusive measures, and take but little pains to inquire, whether their profits arise from actual production, or from a simultaneous loss thrown upon other classes of the community.
A determination to maintain a favourable balance of trade, that is to say, to export goods and receive returns of specie, is, in fact, a determination to have no foreign trade at all; for the nation, with whom the trade is to be carried on, can only give in exchange what it has to give. If one party will receive nothing but the precious metals, the other party may come to a similar resolution; and, when both parties require the same commodity, there is no possibility of any exchange. Were it practicable to monopolize the precious metals, there are few nations in the world that would not be cut off from all hope of mutual commercial relations. If one country afford to another what the latter wants in exchange, what more would she have? or in what respect would gold be preferable? for what else can it be wanted, than as the means of subsequently purchasing the objects of desire?
The day will come, sooner or later, when people will wonder at the necessity of taking all this trouble to expose the folly of a system, so childish and absurd, and yet so often enforced at the point of the bayonet.
[END OF THE DIGRESSION UPON THE BALANCE OF TRADE.]
To resume our subject.—We have seen, that the very advantages aimed at by the means of a favourable balance of trade, are altogether illusory; and that, supposing them real, it is impossible for a nation permanently to enjoy them. It remains to be shown, what is the actual operation of regulations framed with this object in view.
By the absolute exclusion of specific manufactures of foreign fabric, a government establishes a monopoly in favour of the home producers of these articles, and in prejudice of the home consumers; that is to say, those classes of the nation which produce them, being entitled to their exclusive sale, can raise their prices above the natural rate; while the home consumers, being unable to purchase elsewhere, are compelled to pay for them unnaturally dear. If the articles be not wholly prohibited, but merely saddled with an import duty, the home producer can then increase their price by the whole amount of the duty, and the consumer will have to pay the difference. For example, if an import duty of 20 cents per dozen be laid upon earthenware plates worth 60 cents per dozen, the importer whatever country he may belong to, must charge the consumer 30 cents; and the home manufacturer of that commodity is enabled to ask 80 cents per dozen of his customers for plates of the same quality; which he could not do without the intervention of the duty because the consumer could get the same article for 60 cents: thus, a premium to the whole extent of the duty is given to the home manufacturer out of the consumer's pocket.
Should any one maintain, that the advantage of producing at home counterbalances the hardship of paying dearer for almost every article; that our own capital and labour are engaged in the production, and the profits pocketed by our own fellow-citizens; my answer is, that the foreign commodities we might import are not to be had gratis: that we must purchase them with values of home production, which would have given equal employment to our industry and capital; for we must never lose sight of this maxim, that products are always bought ultimately with products. It is most for our advantage to employ our productive powers, not in those branches in which foreigners excel us, but in those which we excel in ourselves; and with the product to purchase of others. The opposite course would be just as absurd, as if a man should wish to make his own coats and shoes. What would the world say, if, at the door of every house an import duty were laid upon coats and shoes, for the laudable purpose of compelling the inmates to make them for themselves? Would not people say with justice, Let us follow each his own pursuits, and buy what we want with what we produce, or, which comes to the same thing, with what we get for our products. The system would be precisely the same, only carried to a ridiculous extreme.
Well may it be a matter of wonder, that every nation should manifest such anxiety to obtain prohibitory regulations, if it be true that it can profit nothing by them; and lead one to suppose the two cases not parallel, because we do not find individual householders solicitous to obtain the same privilege. But the sole difference is this, that individuals are independent and consistent beings, actuated by no contrariety of will, and more interested in their character of consumers of coats and shoes to buy them cheap, than as manufacturers to sell unnaturally dear.
Who, then, are the classes of the community so importunate for prohibitions or heavy import duties? The producers of the particular commodity, that applies for protection from competition, not the consumers of that commodity. The public interest is their plea, but self-interest is evidently their object. Well, but, say these gentry, are they not the same thing? are not our gains national gains? By no means: whatever profit is acquired in this manner is so much taken out of the pockets of a neighbour and fellow-citizen, and, if the excess of charge thrown upon consumers by the monopoly could be correctly computed, it would be found, that the loss of the consumer exceeds the gain of the monopolist. Here, then, individual and public interest are in direct opposition to each other; and, since public interest is understood by the enlightened few alone, is it at all surprising, that the prohibitive system should find so many partisans and so few opponents?
There is in general far too little attention paid to the serious mischief of raising prices upon the consumers. The evil is not apparent to cursory observation, because it operates piecemeal, and is felt in a very slight degree on every purchase or act of consumption: but it is really most serious, on account of its constant recurrence and universal pressure. The whole fortune of every consumer is affected by every fluctuation of price in the articles of his consumption; the cheaper they are, the richer he is, and vice versâ. If a single article rise in price, he is so much the more poor in respect of that article; if all rise together, he is poorer in respect to the whole. And, since the whole nation is comprehended in the class of the consumers, the whole nation must in that case be the poorer. Besides which, it is crippled in the extension of the variety of its enjoyments, and prevented from obtaining products whereof it stands in need, in exchange for those wherewith it might procure them. It is of no use to assert, that, when prices are raised, what one gains another loses. For the position is not true, except in the case of monopolies; nor even to the full extent with regard to them; for the monopolist never profits to the full amount of the loss to the consumers. If the rise be occasioned by taxation or import-duty under any shape whatever, the producer gains nothing by the increase of price, but just the reverse, as we shall see by and by (Book III. Chapter VII.:) so that, in fact, he is no richer in his capacity of producer, though poorer in his quality of consumer. This is one of the most effective causes of national impoverishment, or at least one of the most powerful checks to the progress of national wealth.
For this reason, it may be perceived, that it is an absurd distinction to view with more jealousy the import of foreign objects of barren consumption, than that of raw materials for home manufacture. Whether the products consumed be of domestic or of foreign growth, a portion of wealth is destroyed in the act of consumption, and a proportionate inroad made into the wealth of the community. But that inroad is the result of the act of consumption, not of the act of dealing with the foreigner; and the resulting stimulus to national production, is the same in either case. For, wherewith was the purchase of the foreign product made? either with a domestic product or with money, which must itself have been procured with a domestic product. In buying of a foreigner, the nation really does no more than send abroad a domestic product in lieu of consuming it at home, and consume in its place the foreign product received in exchange. The individual consumer himself, probably, does not conduct this operation; commerce conducts it for him. No one country can buy of another, except with its own domestic products.
In defence of import duties it is often urged, "that when the interest of money is lower abroad than at home, the foreign has an advantage over the home producer, which must be met by a countervailing duty." The low rate of interest is, to the foreign producer, an advantage, analogous to that of the superior quality of his land. It tends to cheapen the products he raises; and it is reasonable enough that our domestic consumers should take the benefit of that cheapness. The same motive will operate here, that leads us rather to import sugar and indigo from tropical climates, than to raise them in our own.
"But capital is necessary in every branch of production: so that the foreigner, who can procure it at a lower rate of interest, has the same advantage in respect to every product; and, if the free importation be permitted, he will have an advantage over all classes of home producers." Tell me, then, how his products are to be paid for. "Why, in specie, and there lies the mischief." And how is the specie to be got to pay for them? "All the nation has, will go in that way; and when it is exhausted national misery will be complete." So then it is admitted, that before arriving at this extremity, the constant efflux of specie will gradually render it more scarce at home, and more abundant abroad; wherefore, it will gradually rise 1, 2, 3, per cent higher in value at home than abroad; which is fully sufficient to turn the tide, and make specie flow inwards faster than it flowed outwards. But it will not do so without some returns; and of what can the returns be made, but of products of the land, or the commerce of the nation? For there is no possible means of purchasing from foreign nations, otherwise than with the products of the national land and commerce; and it is better to buy of them what they can produce cheaper than ourselves, because we may rest assured, that they must take in payment what we can produce cheaper than they. This they must do, else there must be an end of all interchange.
Again, it is affirmed, and what absurd positions have not been advanced to involve these questions in obscurity? that, since almost all the nation are at the same time consumers and producers, they gain by prohibition and monopoly as much in the one capacity as they lose in the other; that the producer, who gets a monopoly-profit upon the object of his own production, is, on the other hand, the sufferer by a similar profit upon the objects of his consumption; and thus that the nation is made up of rogues and fools, who are a match for each other. It is worth remarking, that every body thinks himself more rogue than fool; for, although all are consumers as well as producers, the enormous profits made upon a single article are much more striking, than reiterated minute losses upon the numberless items of consumption. If an import duty be laid upon calicoes, the additional annual charge to each person of moderate fortune, may, perhaps, not exceed 2 ½ dollars or 3 dollars at most; and probably he does not very well comprehend the nature of the loss, or feel it much, though repeated in some degree or other upon every thing he consumes; whereas, possibly, this consumer is himself a manufacturer, say a hat-maker; and should a duty be laid upon the import of foreign hats, he will immediately see that it will raise the price of his own hats, and probably increase his annual profits by several thousand dollars. It is this delusion that makes private interest so warm an advocate for prohibitory measures, even where the whole community loses more by them as consumers, than it gains as producers.
But, even in this point of view, the exclusive system is pregnant with injustice. It is impossible that every class of production should profit by the exclusive system, supposing it to be universal, which, in point of fact, it never is in practice, though possibly it may be in law or intention. Some articles can never, from the nature of things, be derived from abroad; fresh fish, for instance, or horned cattle; as to them, therefore, import duties would be inoperative in raising the price. The same may be said of masons and carpenters' work, and of the numberless callings necessarily carried on within the community; as those of shopmen, clerks, carriers, retail dealers, and many others. The producers of immaterial products, public functionaries, and fundholders, lie under the same disability. These classes can none of them be invested with a monopoly by means of import duties, though they are subjected to the hardship of many monopolies granted in that way to other classes of producers.
Besides, the profits of monopoly are not equitably divided amongst the different classes even of those that concur in the production of the commodity, which is the subject of monopoly. If the master-adventurers, whether in agriculture, manufacture, or commerce, have the consumers at their mercy, their labourers and subordinate productive agents are still more exposed to their extortion, for reasons that will be explained in Book II. So that these latter classes participate in the loss with consumers at large, but get no share of the unnatural gains of their superiors.
Prohibitory measures, besides affecting the pockets of the consumers, often subject them to severe privations. I am ashamed to say, that, within these few years, we have had the hat-makers of Marseilles petitioning for the prohibition of the import of foreign straw or chip hats, on the plea that they injured the sale of their own felt hats; a measure that would have deprived the country people and labourers in husbandry, who are so much exposed to the sun, of a light, a cool, and cheap covering, admirably adapted to their wants, the use of which it was highly desirable to extend and encourage.
In pursuit of what it mistakes for profound policy, or to gratify feelings it supposes to be laudable, a government will sometimes prohibit or divert the course of a particular trade, and thereby do irreparable mischief to the productive powers of the nation. When Philip II. became master of Portugal, and forbade all intercourse between his new subjects and the Dutch, whom he detested, what was the consequence? The Dutch, who before resorted to Lisbon for the manufactures of India, of which they took off an immense quantity, finding this avenue closed against their industry, went straight to India for what they wanted, and, in the end, drove out the Portuguese from that quarter; and, what was meant as the deadly blow of inveterate hatred, turned out the main source of their aggrandizement. "Commerce," says Fenelon, "is like the native springs of the rock, which often cease to flow altogether, if it be attempted to alter their course."
Such are the principal evils of impediments thrown in the way of import, which are carried to the extreme point by absolute prohibition. There have, indeed, been instances of nations that have thriven under such a system; but then it was, because the causes of national prosperity were more powerful than the causes of national impoverishment. Nations resemble the human frame, which contains a vital principle, that incessantly labours to repair the inroads of excess and dissipation upon its health and constitution. Nature is active in closing the wounds and healing the bruises inflicted by our own awkwardness and intemperance. In like manner, states maintain themselves, nay, often increase in prosperity, in spite of the infinite injuries of every description, which friends as well as enemies inflict upon them. And it is worth remarking, that the most industrious nations are those, which are the most subjected to such outrage, because none others could survive them. The cry is then "our system must be the true one, for the national prosperity is advancing." Whereas, were we to take an enlarged view of the circumstances, that, for the last three centuries, have combined to develope the power and faculties of man; to survey with the eye of intelligence the progress of navigation and discovery, of invention in every branch of art and science; to take account of the variety of useful animals and vegetables that have been transplanted from one hemisphere to the other, and to give a due attention to the vast augmentation and increased scope both of science and of its practical applications, that we are daily witnesses of, we could not resist the conviction, that our actual prosperity is nothing to what it might have been; that it is engaged in a perpetual struggle against the obstacles and impediments thrown into its way; and that, even in those parts of the world where mankind is deemed the most enlightened, a great part of their time and exertions are occupied in destroying instead of multiplying their resources, in despoiling instead of assisting each other; and all for want of correct knowledge and information respecting their real interests.
But, to return to the subject, we have just been examining, the nature of the injury that a community suffers by difficulties thrown in the way of the introduction of foreign commodities. The mischief occasioned to the country that produces the prohibited article, is of the same kind and description; it is prevented from turning its capital and industry to the best account. But it is not to be supposed that the foreign nation can by this means be utterly ruined and stripped of all resource, as Napoleon seemed to imagine, when he excluded the products of Britain from the markets of the continent. To say nothing of the impossibility of effecting a complete and actual blockade of a whole country, opposed as it must be by the universal motive of self-interest, the utmost effect of it can only be to drive its production into a different channel. A nation is always competent to the purchase and consumption of the whole of its own products, for products are always bought with other products. Do you think it possible to prevent England from producing value to the amount of a million, by preventing her export of woollens to that amount? You are much mistaken if you do. England will employ the same capital and the same manual labour in the preparation of ardent spirits, by the distillation of grain or other domestic products, that were before occupied in the manufacture of woollens for the French market, and she will then no longer bring her woollens to be bartered for French brandies. A country, in one way or other, direct or indirect, always consumes the values it produces, and can consume nothing more. If it cannot exchange its products with its neighbours, it is compelled to produce values of such kinds only as it can consume at home. This is the utmost effect of prohibitions; both parties are worse provided, and neither is at all the richer.
Napoleon, doubtless, occasioned much injury, both to England and to the continent, by cramping their mutual relations of commerce as far as he possibly could. But, on the other hand, he did the continent of Europe the involuntary service of facilitating the communication between its different parts, by the universality of dominion, which his ambition had well-nigh achieved. The frontier duties between Holland, Belgium, part of Germany, Italy, and France, were demolished; and those of the other powers, with the exception of England, were far from oppressive. We may form some estimate of the benefit thence resulting to commerce, from the discontent and stagnation that have ensued upon the establishment of the present system of lining the frontier of each state with a triple guard of douaniers. All the continental states so guarded have, indeed, preserved their former means of production; but that production has been made less advantageous.
It cannot be denied, that France has gained prodigiously by the suppression of the provincial barriers and custom-houses, consequent upon her political revolution. Europe had, in like manner, gained by the partial removal of the international barriers between its different political states; and the world at large would derive similar benefit from the demolition of those, which insulate, as it were, the various communities, into which the human race is divided.
I have omitted to mention other very serious evils of the exclusive system; as, for instance, the creation of a new class of crime, that of smuggling; whereby an action, wholly innocent in itself, is made legally criminal: and persons, who are actually labouring for the general welfare, are subjected to punishment.
Smith admits of two circumstances, that, in his opinion, will justify a government in resorting to import-duties:—1. When a particular branch of industry is necessary to the public security, and the external supply cannot be safely reckoned upon. On this account a government may very wisely prohibit the import of gun-powder, if such prohibition be necessary to set the powder-mills at home in activity; for it is better to pay somewhat dear for so essential an article, than to run the risk of being unprovided in the hour of need. 2. Where a similar commodity of home produce is already saddled with a duty. The foreign article, if wholly exempt from duty, would in this case have an actual privilege; so that a duty imposed has not the effect of destroying, but of restoring the natural equilibrium and relative position of the different branches of production.
Indeed, it is impossible to find any reasonable ground for exempting the production of values by the channel of external commerce from the same pressure of taxation that weighs upon the production effected in those of agriculture and manufacture. Taxation is, doubtless, an evil, and one which should be reduced to the lowest possible degree; but when once a given amount of taxation is admitted to be necessary, it is but common justice to lay it equally on all three branches of industry. The error I wish to expose to reprobation is the notion that taxes of this kind are favourable to production. A tax can never be favourable to the public welfare, except by the good use that is made of its proceeds.
These points should never be lost sight of in the framing of commercial treaties, which are really good for nothing but to protect industry and capital, diverted into improper channels by the blunders of legislation. These it would be far wiser to remedy than to perpetuate. The healthy state of industry and wealth is the state of absolute liberty, in which each interest is left to take care of itself. The only useful protection authority can afford them is that against fraud or violence. Taxes and restrictive measures never can be a benefit: they are at the best a necessary evil; to suppose them useful to the subjects at large, is to mistake the foundation of national prosperity, and to set at naught the principles of political economy.
Import duties and prohibitions have often been resorted to as a means of retaliation: "Your government throws impediments in the way of the introduction of our national products: are not we, then, justified in equally impeding the introduction of yours?" This is the favourite plea, and the basis of most commercial treaties; but people mistake their object: granting that nations have a right to do one another as much mischief as possible, which, by the way, I can hardly admit; I am not here disputing their rights, but discussing their interests.
Undoubtedly, a nation that excludes you from all commercial intercourse with her, does you an injury;—robs you, as far as in her lies, of the benefits of external commerce; if, therefore, by the dread of retaliation, you can induce her to abandon her exclusive measures, there is no question about the expediency of such retaliation, as a matter of mere policy. But it must not be forgotten that retaliation hurts yourself as well as your rival; that it operates, not defensively against her selfish measures, but offensively against yourself, in the first instance, for the purpose of indirectly attacking her. The only point in question is this, what degree of vengeance you are animated by, and how much will you consent to throw away upon its gratification. I will not undertake to enumerate all the evils arising from treaties of commerce, or to apply the principles enforced throughout this work to all the clauses and provisions usually contained in them. I will confine myself to the remark, that almost every modern treaty of commerce has had for its basis the imaginary advantage and possibility of the liquidation of a favourable balance of trade by an import of specie. If these turn out to be chimerical, whatever advantage may have resulted from such treaties must be wholly referred to the additional freedom and facility of international communication obtained by them, and not at all to their restrictive clauses or provisoes, unless either of the contracting parties has availed itself of its superior power, to exact conditions savouring of a tributary character; as England has done in relation to Portugal. In such case, it is mere exaction and spoliation.
Again, I would observe, that the offer of peculiar advantages by one nation to another, in the way of a treaty of commerce, if not an act of hostility, is at least one of extreme odium in the eyes of other nations. For the concession to one can only be rendered effectual by refusal to others. Hence the germ of discord and of war, with all its mischiefs. It is infinitely more simple, and I hope to have shown, more profitable also, to treat all nations as friends, and impose no higher duties on the introduction of their products, than what are necessary to place them on the same footing as those of domestic growth.
Yet, notwithstanding all the mischiefs resulting from the exclusion of foreign products, which I have been depicting, it would be an act of unquestionable rashness suddenly to change even so ruinous a policy. Disease is not to be eradicated in a moment; it requires nursing and management to dispense even national benefits. Monopolies are an abuse, but an abuse in which enormous capital is vested, and numberless industrious agents employed, which deserve to be treated with consideration; for this mass of capital and industry cannot all at once find a more advantageous channel of national production. Perhaps the cure of all the partial distresses that must follow the downfall of that colossal monster in politics, the exclusive system, would be as much as the talent of any single statesman could accomplish; yet when one considers calmly the wrongs it entails when it is established, and the distresses consequent upon its overthrow, we are insensibly led to the reflection, that, if it be so difficult to set shackled industry at liberty again, with what caution ought we not to receive any proposition for enslaving her!
But governments have not been content with checking the import of foreign products. In the firm conviction, that national prosperity consists in selling without buying, and blind to the utter impossibility of the thing, they have gone beyond the mere imposition of a tax or fine upon purchasing of foreigners, and have in many instances offered rewards in the shape of bounties for selling to them.
This expedient has been employed to an extraordinary degree by the British government, which until recently always evinced the greatest anxiety to enlarge the market for British commercial and manufactured produce. It is obvious, that a merchant, who receives a bounty upon export, can, without personal loss, afford to sell his goods in a foreign market at a lower rate than prime cost. In the pithy language of Smith, "We cannot force foreigners to buy the goods of our own workmen, as we may our own countrymen; the next best expedient, it has been thought, therefore, is to pay them for buying."
In fact, if a particular commodity, by the time it has reached the French market, costs the English exporter 20 dollars, his trouble, &c. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British government pays a bounty of 2 dollars upon the export, and thereby enables him to lower his demand from 20 to 18 dollars, he may safely reckon upon a preference. Yet what is this but a free gift of two dollars from the British government to the French consumer? It may be conceived, that the merchant has no objection to this mode of dealing; for his profits are the same as if the French consumer paid the full value, or cost price, of the commodity. The British nation is the loser in this transaction, in the ratio of 10 per cent. upon the French consumption; and France remits in return a value of but 18 for what has cost 20 dollars.
When a bounty is paid, not at the moment of export, but at the commencement of productive creation, the home consumer participates with the foreigner in the advantage of the bounty; for, in that case, the article can be sold below cost price in the home as well as in the foreign market. And if, as is sometimes the case, the producer pockets the bounty, and yet keeps up the price of the commodity, the bounty is then a present of the government to the producer, over and above the ordinary profits of his industry.
When, by the means of a bounty, a product is raised either for home or foreign consumption, which would not have been raised without one, the effect is, an injurious production, one that costs more than it is worth. Suppose an article, when completely finished off, to be saleable for 5 dollars and no more, but its prime cost, including of course the profits of productive industry, to amount to 6 dollars, it is quite clear that nobody will volunteer the production, for fear of a loss of 1 dollar. But, if the government, with a view to encourage this branch of industry, be willing to defray this loss—in other words, if it offer a bounty of 1 dollar to the producer, the production can then go on, and the public revenue, that is to say, the nation at large, will be a loser of 1 dollar. And this is precisely the kind of advantage that a nation gains by encouraging a branch of production which cannot support itself: it is in fact urging the prosecution of a losing concern, the produce of which is exchanged, not for other produce, but for the bounty given by the state.
Wherever there is any thing to be made by a particular employment of industry, it wants no encouragement; where there is nothing to be made, it deserves none. There is no truth in the argument, that perhaps the state may gain, though individuals cannot; for how can the state gain, except through the medium of individuals? Perhaps it may be said, that the state receives more in duties than it pays in bounties; but suppose it does, it merely receives with one hand and pays with the other: let the duties be lowered to the whole amount of the bounty, and production will stand precisely where it did before, with this difference in its favour, viz. that the state will save the whole charge of management of the bounties, and part of that of the duties.
Though bounties are chargeable, and a dead loss to the gross national wealth, there are cases in which it is politic to incur that loss; as when a particular product is necessary to public security, and must be had at any rate, however extravagant. Louis XIV., with a view to restore the marine of France, granted a bounty of 1 dollar per ton upon every ship fitted out in France. His object was to train up sailors. So likewise when the bounty is the mere refunding of a duty previously exacted. The bounty paid by Great Britain upon the export of refined sugar is nothing more than the reimbursement of the import duties upon muscovado and molasses.
Perhaps, too, it may be wise in a government to grant a premium on a particular product, which, though it make a loss in the outset, holds out a fair prospect of profit in a few years' time. Smith thinks otherwise: hear what he says on the subject. "No regulation of commerce can increase the quantity of industry in any society, beyond what its capital can maintain. It can only divert a part of it into a direction, into which it might not otherwise have gone; and it is by no means certain, that this artificial direction is likely to be more advantageous to the society, than that into which it would have gone of its own accord. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority, which could safely be trusted, not only to no single person, but to no council or senate whatever; and which would nowhere be so dangerous, as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. Though for want of such regulations, the society should never acquire the proposed manufacture, it would not upon that account necessarily be the poorer in any one period of its duration. In every period of its duration, its whole capital and industry might still have been employed, though upon different objects, in the manner that was most advantageous at the time."
And Smith is certainly right in the main; though perhaps there are circumstances that may form exceptions to the general rule, that every one is the best judge how to employ his industry and capital. Smith wrote at a period and in a country, where personal interest is well understood, and where any profitable mode of investing capital and industry is not likely to be long overlooked. But every nation is not so far advanced in intelligence. How many countries are there, where many of the best employments of capital are altogether excluded by prejudices that the government alone can remove! How many cities and provinces, where certain established investments of capital have prevailed from time immemorial! In one place, every body invests in landed property, in another, in houses, and in others still, in public offices or national funds. Every unusual application of the power of capital is, in such places, contemplated with distrust or disdain; so that partiality shown to a profitable mode of employing industry or capital may possibly be productive of national advantage.
Moreover, a new channel of industry may ruin an unsupported speculator, though capable of yielding enormous profit, when the labourers shall have acquired practice, and the novelty has once been overcome. France at present contains the most beautiful manufactures of silk and of woollen in the world, and is probably indebted for them to the wise encouragement of Colbert's administration. He advanced to the manufacturers 2000 fr. for every loom at work; and, by the way, this species of encouragement has a very peculiar advantage. In ordinary cases, whatever the government levies upon the product of individual exertion is wholly lost to future production; but, in this instance, a part was employed in reproduction; a portion of individual revenues was thrown into the aggregate productive capital of the nation. This was a degree of wisdom one could hardly have expected, even from personal self-interest.
It would be out of place here to inquire, how wide a field bounties open to peculation, partiality, and the whole tribe of abuses incident to the management of public affairs. The most enlightened statesman is often obliged to abandon a scheme of evident public utility, by the unavoidable defects and abuses in the execution. Among these, one of the most frequent and prominent is, the risk of paying a premium, or granting a favour to the pretensions, not of merit, but of importunity. In other respects, I have no fault to find with the honours, or even pecuniary rewards publicly given to artists or mechanics, in recompense of some extraordinary achievement of genius or address. Rewards of this kind excite emulation, and enlarge the stock of general knowledge, without diverting industry or capital from their most beneficial channels. Besides, they cost nothing in comparison of bounties of another description. The bounty on the export of wheat has, by Smith's account, cost England in some years as much as a million and a half of dollars. I do not believe that the British or any other government ever spent the fiftieth part of that sum upon agriculture in any one year.
Of the Effect of Regulations fixing the Manner of Production.
The interference of the public authority, with regard to the details of agricultural production, has generally been of a beneficial kind. The impossibility of intermeddling in the minute and various details of agriculture, the vast number of agents it occupies, often widely separated in locality and pursuits, from the largest farming concerns to the little garden of the cottager, the small value of the produce in comparison with its volume, are so many obstacles that nature has placed in the way of authoritative restraint and interference. All governments, that have pretended to the least regard for the public welfare, have consequently confined themselves to the granting of premiums and encouragements, and to the diffusion of knowledge which has often contributed largely to the progress of this art. The veterinary college of Alfort, the experimental farm of Ramboullet, the introduction of the Merino breed, are real benefits to the agriculture of France, the enlargement and perfection of which she owes to the providence of the different rulers that her political troubles have successively brought into power.
A national administration that guards with vigilance the facility of communication and the quiet prosecution of the labours of husbandry, or punishes acts of culpable negligence, as the destroying of caterpillars and other noxious insects, does a service analogous to the preservation of civil order and of property, without which production must cease altogether.
The regulations relative to the felling of trees in France, however indispensable for the preservation of their growth, at least in many of their provisions, appear in others rather to operate as a discouragement of that branch of cultivation, which, though particularly adapted to certain soils and sites, and conducive to the attraction of atmospheric moisture, yet seems to be daily on the decline.
But there is no branch of industry that has suffered so much from the officious interference of authority in its details, as that of manufacture.
Much of that interference has been directed towards limiting the number of producers, either by confining them to one trade exclusively, or by exacting specific terms, on which they shall carry on their business. This system gave rise to the establishment of chartered companies and incorporated trades. The effect is always the same, whatever be the means employed. An exclusive privilege, a species of monopoly, is created, which the consumer pays for, and of which the privileged persons derive all the benefit. The monopolists can prosecute their plans of self-interest with so much the more ease and concert, because they have legal meetings and a regular organization. At such meetings, the prosperity of the corporation is mistaken for that of commerce and of the nation at large; and the last thing considered is, whether the proposed advantages be the result of actual new production, or merely a transfer from one pocket to another, from the consumers to the privileged producers. This is the true reason why those engaged in any particular branch of trade are so anxious to have themselves made the subject of regulation; and the public authorities are commonly, on their part, very ready to indulge them in what offers so fair an opportunity of raising a revenue.
Moreover, arbitrary regulations are extremely flattering to the vanity of men in power, as giving them an air of wisdom and foresight, and confirming their authority, which seems to derive additional importance from the frequency of its exercise. There is, perhaps, at this time, no country in Europe where a man is free to dispose of his industry and capital in what manner he pleases; in most places he cannot even change his occupation or place of residence at pleasure. It is not enough for a man to have the necessary qualifications of ability and inclination to become a manufacturer or dealer in the woollen or silk line, in spirits or calicoes; he must besides have served his time, or been admitted to the freedom of the craft. Freedoms and apprenticeships are likewise expedients of police, not of that wholesome branch of police, whose object is the maintenance of public and private security, and which is neither costly nor vexations; but of that sort of police which bad governments employ to preserve or extend their personal authority at any expense. By the dispensation of honorary or pecuniary advantages, authority can generally influence the chiefs and superiors it has appointed to the corporations, who think to earn those honours and emoluments by their subservience to the power that confers them. These are the ready tools for the management of the body at large, and volunteer to denounce the individuals, whose firmness may be formidable, and report those whose servility may be reckoned upon, and all under the pretext of public good. Official harangues and public addresses are never wanting in plausible reasons for the continuance of old restrictions on liberty of action, or for the establishment of new ones; for there is no cause so bad as to be without some argument or other in its favour.
The chief advantage, and the one most relied upon, is, the insurance of a more perfect execution of the products raised for consumption, and of a superiority in them highly favourable to the national commerce, and calculated to secure the continued demand of foreigners. But does this advantage result from the system in question? What security is there that the corporate body itself will always be composed of men not merely of integrity, but of scrupulous delicacy, such as would never be disposed to take in either their own countrymen or foreigners? We are told that this system facilitates the enforcement of regulations for the warranty and verification of the quality of products; but are not such regulations illusory in practice, even under the corporate system? and, supposing them absolutely necessary, is there no more simple way of enforcing them?
Neither will the length of apprenticeship be a better guarantee of the perfection of the work; the only thing to be depended upon for that perfection is the skill of the workman, and that is best attained by paying him in proportion to his superiority. "To teach any young man," says Smith, "in the completest manner how to apply the instruments, and how to construct the machines of the common mechanic trades, cannot well require the lessons of more than a few weeks, perhaps those of a few days might be sufficient. The dexterity of hand, indeed, even in common trades, cannot be acquired without much practice and experience, but a young man would practise with much more diligence and attention, if from the beginning he wrought as a journeyman, being paid in proportion to the little work which he could execute, and paying in his turn for the materials which he might sometimes spoil through awkwardness and inexperience."
Were apprentices bound out a year later, and the interval spent in schools conducted on the plan of mutual instruction, I can hardly think the products would be worse executed; and, beyond all doubt, the labouring class would be advanced a stage in civilization.
Were apprenticeships a sure means of obtaining a greater perfection of products, those of Spain would be as good as those of Britain. It was not before incorporated trades and compulsory apprenticeships had been abolished in France, that she attained that superiority of execution she has now to boast of.
Perhaps there is no one mechanic art nearly so difficult as that of the gardener or field labourer; yet this is almost the only one that has nowhere been subjected to apprenticeship. Are vegetables and fruits produced in less abundance or perfection? Were cultivators a corporate body, I suppose it would soon be asserted, that high-flavoured peaches and white-heart lettuces could not be raised without a code of some hundred well penned-articles.
After all, regulations of this nature, even admitting their utility, must be nugatory as soon as evasion is allowed; now it is notorious that there is no manufacturing towns where money will not purchase exemption. So that they are more than merely useless as a warranty of quality; inasmuch as they are the engine of the most odious injustice and extortion.
In support of these opinions, the advocates for the corporate system appeal to the example of Great Britain, where industry is well known to be greatly shackled, and yet manufactures prosper. But in this they expose their ignorance of the real causes of that prosperity. "These causes," Smith tells us, "seem to be the general liberty of trade, which, notwithstanding some restraints, is at least equal, perhaps superior, to what it is in any other country; the liberty of exporting, duty free, almost all sorts of goods, which are the produce of domestic industry, to almost any foreign country; and, what perhaps is of still greater importance, the unbounded liberty of transporting them from any one part of our own country to any other, without being obliged to give any account to any public office, without being liable to question or examination of any kind," &c. Add to these, the complete inviolability of all property whatever, either by public or private attack, the enormous capital accumulated by her industry and frugality, and lastly, the habitual exercise of attention and judgment, to which her population is trained from the earliest years; and there is no need of looking farther for the causes of the manufacturing prosperity of Britain.
Those who cite her example in justification of their desire to enthral the exertions of industry, are not perhaps aware that the most thriving towns in that kingdom, those on which her character for manufacturing pre-eminence is mainly built, are the very places where there are no incorporations of crafts and trades; Manchester, Birmingham, and Liverpool, were mere villages a century or two ago, but now rank in point of wealth and population next to London, and much before York, Canterbury, and even Bristol, cities of the greatest antiquity and privileges, and the capitals of her most thriving provinces, but still subjected to the shackles of these Gothic institutions. "The town and parish of Halifax," says Sir John Nichols, a writer of acknowledged local information, "has, within these forty years, seen the number of its inhabitants quadrupled: whilst many other towns, subjected to corporations, have experienced a sensible diminution of theirs. Houses situated within the precincts of the city of London hardly find tenants, and numbers of them remain empty; whilst Westminster, Southwark, and the other suburbs are continually increasing. These suburbs are free, whilst London supports within itself four-score and twelve exclusive companies of all kinds, of which we may see the members annually adorn, with a silly pageantry, the tumultuous triumphal procession of the Lord Mayor."
The prodigious manufacturing activity of some of the suburbs of Paris is notorious; of the Faubourg St. Antoine, in particular, where industry enjoyed many exemptions. Some products were made nowhere else. How happened it, that without apprenticeships, or the necessity of being free of the craft, the manufacturer acquired a greater degree of skill, than in the rest of the city, which was subject to those institutions that are held up as so indispensable? For a very simple reason: because self-interest is the best of all instructors.
An example or two will serve better than all reasoning in the world, to show the impediments thrown in the way of the development of industry by incorporations of trades and crafts. Argand, the inventor of the lamps that go by his name, and yield, at the same expense, triple the amount of light, was dragged before the Parlement de Paris, by the company of tinmen, locksmiths, ironmongers, and journeymen farriers, who claimed the exclusive right of making lamps. Lenoir, the celebrated Parisian philosophical and mathematical instrument maker, had set up a small furnace for the convenience of working the metals used in his business. The syndics of the founders' company came in person to demolish it; and he was obliged to apply to the king for protection. Thus was talent dependent upon court favour. The manufacture of japanned hard ware was altogether excluded from France until the era of the revolution, by the circumstance of its requiring the skill and implements of many different trades, and the necessity of being admitted to the freedom of them all, before an individual could carry it on. It would be easy to fill a volume with the recapitulation of the disheartening vexations that personal industry had to encounter in the city of Paris alone, under the corporate system; and another with that of the successful efforts made, since that system was abolished by the revolution.
For the same reason that the free suburb of a chartered town, or a free town in the midst of a country embarrassed by the officiousness of a meddling government, will exhibit an unusual degree of prosperity, a nation that enjoys the freedom of industry, in the midst of others following the corporate system, would probably reap similar advantages. Those have thriven the most, that have been the least shackled by the observance of formalities, provided, of course, that individuals be secured from the exactions of power, the chicanery of law, and the attempts of dishonesty or violence. Sully, whose whole life was spent in the study and practice of measures for improving the prosperity of France, entertained this opinion. In his memoirs, he notices the multiplicity of useless laws and ordinances, as a direct barrier to the national progress.
It may, perhaps, be alleged, that, were all occupations quite free, a large proportion of those who engaged in them would fall a sacrifice to the eagerness of competition. Possibly they might, in some few instances, although it is not very likely there should be a great excess of candidates in a line, that held out but little prospect of gain; yet, admitting the casual occurrence of this evil, it would be of infinitely less magnitude, than permanently keeping up the prices of produce at a rate that must limit its consumption, and abridge the power of purchasing in the great body of consumers.
If the measures of authority, levelled against the free disposition of each man's respective talents and capital, are criminal in the eye of sound policy, it is still more difficult to justify them upon the principles of natural right. "The patrimony of a poor man," says the author of the Wealth of Nations, "lies in the strength and dexterity of his hands: and to hinder him from employing this strength and dexterity in what manner he thinks proper, without injury to his neighbour, is a plain violation of his most sacred property."
However, as society is possessed of a natural right to regulate the exercise of any class of industry, that without regulation might prejudice the rest of the community, physicians, surgeons, and apothecaries, are with perfect justice subjected to an examination into their professional ability. The lives of their fellow-citizens are dependent upon their skill, and a test of that skill may fairly be established; but it does not seem advisable to limit the number of practitioners nor the plan of their education. Society has no interest further than to ascertain their qualification.
On the same grounds, regulation is useful and proper, when aimed at the prevention of fraud or contrivance, manifestly injurious to other kinds of production, or to the public safety, and not at prescribing the nature of the products and the methods of fabrication. Thus, a manufacturer must not be allowed to advertise his goods to the public as of better than their actual quality: the home consumer is entitled to the public protection against such a breach of faith; and so, indeed, is the mercantile character of the nation, which must suffer in the estimation and demand of foreign customers from such practices. And this is an exception to the general rule, that the best of all guarantees is the personal interest of the manufacturer. For, possibly, when about to give up business, he may find it answer to increase his profit by a breach of faith, and sacrifice a future object he is about to relinquish for a present benefit. A fraud of this kind ruined the French cloths in the Levant market, about the year 1783; since when the German and British have entirely supplanted them. We may go still further. An article often derives a value from the name, or from the place of its manufacture. When we judge from long experience, that cloths of such a denomination, and made at such a place, will be of a certain breadth and substance, it is a fraud to fabricate, under the same name and at the same place, a commodity of inferior substance and quality to the ordinary standard, and thus to send it into the world under a false certificate.
Hence we may form an opinion of the extent to which government may carry its interference with benefit. The correspondence with the sample of conditions, express or implied, must be rigidly enforced, and government should meddle with production no further. I would wish to impress upon my readers, that the mere interference is itself an evil, even where it is of use: first, because it harasses and distresses individuals; and, secondly, because it costs money, either to the nation, if it be defrayed by government, that is to say, charged upon the public purse, or to the consumer, if it be charged upon the specific article; in the latter case, the charge must of course enhance the price, thereby laying an additional tax upon the home consumer, and pro tanto discouraging the foreign demand.
If interference be an evil, a paternal government will be most sparing of its exercise. It will not trouble itself about the certification of such commodities, as the purchaser must understand better than itself; or of such as cannot well be certified by its agents; for, unfortunately, a government must always reckon upon the negligence, incapacity, and misconduct of its retainers. But some articles may well admit of certification; as gold and silver, the standard of which can only be ascertained by a complex operation of chemistry, which few purchasers know how to execute, and which, if they did, would cost them infinitely more than it can be executed for by the government in their stead.
In Great Britain, the individual inventor of a new product or of a new process may obtain the exclusive right to it, by obtaining what is called a patent. While the patent remains in force, the absence of competitors enables him to raise his price far above the ordinary return of his outlay with interest, and the wages of his own industry. Thus he receives a premium from the government, charged upon the consumers of the new article; and this premium is often very large, as may be supposed in a country so immediately productive as Great Britain, where there are consequently abundance of affluent individuals, ever on the look-out for some new object of enjoyment. Some years ago a man invented a spiral or worm spring for insertion between the leather braces of carriages, to ease their motion, and made his fortune by the patent for so trifling an invention.
Privileges of this kind no one can reasonably object to; for they neither interfere with, nor cramp any branch of industry, previously in operation. Moreover, the expense incurred is purely voluntary; and those who choose to incur it, are not obliged to renounce the satisfaction of any previous wants, either of necessity or of amusement.
However, as it is the duty of every government to aim at the constant amelioration of its subjects' condition, it cannot deprive other producers to eternity of the right to employ part of their industry and capital in this particular channel, which perhaps they might sooner or later have themselves discovered, or preclude the consumer for a very long period from the advantages of a competition-price. Foreign nations being out of its jurisdiction, would of course grant no privilege to the inventor, and would, therefore, in this particular, during the operation of the patent, be better off than the nation where the invention originated.
France has imitated the wise example of England, in assigning a limit to the duration of these patent rights, after which the invention is free for all the world to avail themselves of. It is also provided, that, if the process be capable of concealment, it shall be divulged at the expiration of the term. And the patentee, who in this case, it may be supposed, could do without the patent, has this advantage: that if his secret be discovered by any body in the interim, it cannot be made available till the expiration of the term.
Nor is it at all necessary that the government should inquire into the novelty or utility of the invention; for, if it be useless, so much the worse for the inventor, and, if it be already known, every body is competent to plead and prove that fact, and the previous right of the public; so that the only sufferer is the inventor, who has been at the expense of a patent for nothing. Thus the public is no loser by this species of encouragement, but, on the contrary, may derive prodigious advantage.
The regulations tending to direct either the object or the method of production, which have been above observed upon, by no means comprise all the measures adopted by different nations with those views. Indeed, were I to specify them all, my catalogue would soon be incomplete; for new ones are every day brought into practice. The great point is, to lay down certain principles, that may enable us beforehand to judge of their consequences. But there are two other branches of commerce, that have been the subject of more than usual regulation, and are, therefore, worthy of more special investigation. I shall devote the two succeeding sections to their exclusive examination.
Of Privileged Trading Companies.
A government sometimes grants to individual merchants, and much oftener to trading companies, the exclusive privilege of buying and selling specific articles, tobacco for example; or of trafficking with a particular country, as with India.
The privileged traders, being thus exempted from all competition by the exertion of the public authority, can raise their prices above the level that could be maintained under the operation of a free trade. This unnatural ratio of price is sometimes fixed by the government itself, which thus assigns a limit to the partiality it exercises towards the producers, and the injustice it practises upon the consumers: otherwise, the avarice of the privileged company would be bounded only by the dread of losing more by the reduction of the gross amount of its sales, in consequence of increased prices, than it would gain by their unnatural elevation. At all events, the consumer pays for the commodity more than its worth; and government generally contrives to share in the profits of the monopoly.
It has been said, for the most ruinous expedient is sure to find some plausible argument or other to support it, that the commerce with certain nations requires precautionary measures, which privileged companies only can enforce. At one time the plea is, that forts must be built, and marine establishments kept up; as if in truth it were worth while to traffic sword in hand, or an army were necessary to protect plain dealing; or as if the state did not already maintain at great charge a military force for the protection of its subjects! At another, that diplomatic address is indispensable. The Chinese, for instance, are a people so bigoted to form and prone to suspicion—so entirely independent of other nations, by reason of their remote position, the extent of their territory, and the peculiar character of their wants, that is a matter of special and precarious favour to be allowed to deal with them. We must, therefore, elect either to go without their teas, silks, and nankeens, or be content to submit to precautions, which can alone insure the continuance of the trade; for the dealings of individuals might endanger the continuance of that good humour, without which the mutual intercourse of the two nations would be at an end.
But, let me ask, is it so certain that the agents of a company, who are too apt to presume upon the support of the military power, either of the nation or at least of the company,—is it quite certain, that such agents are more likely to keep alive an amicable feeling than private traders, in whom more deference to local institutions might be expected, and who would have an immediate interest in keeping clear of any misunderstanding that should endanger both their persons and their property?
But, supposing the worst that could happen, and granting, for argument's sake, that the trade with China can not be conducted otherwise than by a privileged company, does it follow, that with out one we must needs give up the taste for Chinese productions? Certainly not. The trade in Chinese goods will always exist, for this plain reason, that it suits both parties, the Chinese and their customers. But shall we not pay dearer for those goods? There is no ground for thinking so. Three-fourths of the European states have never sent a single ship to China, and yet are abundantly supplied with teas, with silks, and with nankeens, and that too at a very cheap rate.
There is another argument of more general application, and still more frequently urged; viz. that a company, having the exclusive trade of any given country, is exempt from the effects of competition, and, therefore, buys at a less price. But, in the first place, it is not true that the exclusive privilege exempts from the effect of competition: the only competition it removes, is that of the national traders, which would be of the utmost benefit to the nation; but it excludes neither the competition of foreign companies, nor of foreign private traders. In the next place, there are many articles that would not rise in price in consequence of the competition, which some people affect to be alarmed at, though in truth it is a mere bugbear.
Suppose Marseilles, Bordeaux, L'Orient, were all to fit out vessels to bring tea from China, we have no reason to believe that all their ventures together would import more tea into France, than France could consume or dispose of. All we have to fear is, that they should not import enough. Now, if they were to import no more than other merchants would have imported for them, the demand for tea in China will have been just the same in both cases; consequently, the commodity will not have become more scare there. Our merchants would hardly have to pay dearer for it, unless the price should rise in China itself; and what sensible effect could the purchases of a few merchants of France have upon the price of an article consumed in China itself, to one hundred times the amount of the whole consumption of Europe?
But, granting that European competition would operate to raise the price of some commodities in the eastern market, is that a sufficient motive for excepting the trade to that part of the world from the general rules that are acted upon in all other branches of commerce? Are we to invest an exclusive company with the sole conduct of the import or export trade between Germany and France, for the sole purpose of getting our cottons and woollens from Germany at a cheaper rate? If the commerce of the East were put upon the same footing as foreign trade in general, the price of any one article of its produce could never long remain much above the cost of production in Asia; for the rise of price would operate as a stimulus to increased production, and the competition of sellers would soon be on a par with that of purchasers.
But, admitting the advantage of buying cheap to be as substantial as it is represented, the nation at large has a right to participate in that cheapness; the home consumers ought to buy cheap as well as the company. Whereas in practice it is just the reverse, and, for a very simple reason: the company is not exempt from competition as a purchaser, for other nations are its competitors: but as a seller it is exempt; for the rest of the nation can buy the articles it deals in nowhere else, the import by foreigners being wholly prohibited. It asks its own price, and can command the market, especially if it be attentive to keep the market always understocked, as the English call it; that is, if the supply be just so far short of the demand, as to keep alive the competition of purchasers.
In this manner, trading companies not only extort exorbitant profits from the consumer, but moreover saddle him with all the fraud and mismanagement inseparable from the conduct of these unwieldy bodies, with their cumbrous organisation of directors and factors without end, dispersed from one extremity of the globe to the other. The only check to the gross abuses of these privileged bodies is the smuggling or contraband trade, which, in this point of view, may lay claim to some degree of utility.
This analysis brings us to the point in question; are the gains of the privileged company, national gains? Undoubtedly not; for they are wholly taken from the pockets of the nation itself. The whole excess of value, paid by the consumer, beyond the rate at which free trade could afford the article, is not a value produced, but so much existing value presented by the government to the trader at the consumer's expense. It will probably be urged, that it must at least be admitted, that this profit remains and is spent at home. Granted. but by whom is it spent? that is the point. Should one member of a family possess himself of the whole family income, dress himself in fine clothes, and devour the best of every thing, what consolation would it be to the rest of the family, were he to say, what signifies it whether you or I spend the money? the income spent is the same, so it can make no difference.
The exclusive as well as excessive profits of monopoly would soon glut the privileged companies with wealth, could they depend upon the good management of their concerns; but the cupidity of agents, the long pendency of distant adventures, the difficulty of bringing factors abroad to account, and the incapacity of those interested, are causes of ruin in constant activity. Long and delicate operations of commerce require superior exertion and intelligence in the parties interested. And how can such qualities be expected in shareholders, amounting sometimes to several hundreds, all of them having other matters of more personal importance to look after?
Such are the consequences of privileges granted to trading companies: and these consequences, it must be observed, are in the nature of things inseparable; circumstances may reduce their efficacy, but can never. remove them altogether. The English East India Company has met with more success than the three or four French ones that at different times made the experiment. This company is sovereign as well as merchant; and we know, by experience, that the most detestable governments may last for several generations; witness that of the Mamelukes in Egypt.
There are some minor evils also incident to commercial privileges. The grant of exclusive rights frequently exiles from a country a branch of industry and a portion of capital that would readily have taken root there, but are compelled to settle abroad. Towards the close of the reign of Louis XIV. the French East India Company, being unable to support itself, notwithstanding its exclusive rights, transferred the exercise of its privileges to some speculators at St. Malo, in consideration of a small share in their profits. The trade began to revive under the influence of this comparative liberty, and would, on the expiration of the company's charter, in 1714, have been as active as the then melancholy condition of France would have permitted: but the company petitioned for a renewal, and obtained one, pending the ventures of some private traders. Soon afterwards, a vessel of St. Malo, commanded by a Breton of the name of Lamerville, appeared upon the French coast, on its return from the East Indies, but was refused permission to enter the harbour, on the plea, that it was in contravention of the company's rights. Consequently, he was compelled to prosecute his voyage to the nearest port in Belgium, and carried his vessel into Ostend, where he disposed of the cargo. The governor of the Low Countries, hearing of the enormous profits he had made, proposed to the captain a second voyage, with a squadron to be fitted out for the express purpose; and Lamerville afterwards performed many similar voyages for different employers, and laid the foundation of the Ostend Company.
Thus, the French consumer must necessarily have suffered by this monopoly: and so, in fact, he did. But, at any rate, it will be supposed, the company must have benefited. Just the contrary: the company was itself ruined; in spite of the monopoly of tobacco, the lotteries, and other subsidiary grants bestowed on them by the government. "In short," says Voltaire, "all that remained to France in the East was the regret of having, in the course of forty years, squandered enormous sums, to bolster up a company that never made a six-pence profit, never made any dividend from the resources of its commerce, either to its share-holders or creditors; and supported its establishments in India, solely by the underhand practice of pillage and extortion upon the natives."
The only case in which the establishment of an exclusive company is justifiable, is, when there is no other way of commencing a new trade with distant or barbarous nations. In that case, the charter is a kind of patent of invention, and confers an advantage, commensurate to the extraordinary risk and expense of the first experiment. The consumers have no reason to complain of the dearness of products, which, but for the grant of the charter, they would either not have enjoyed at all, or have enjoyed at a still dearer rate. But such grants should, like patents, be limited to such duration only, as will repay and fully indemnify the adventurers for the advances and risk incurred. Any thing further is a mere free gift to the company, at the expense of the nation at large, who have a natural right to get what they want wherever they can, and at the lowest possible price.
What has been said with respect to commercial is equally applicable to manufacturing privileges. The reason why governments are so easily entrapped into measures of this kind is, partly because they see a statement of large profits, and do not trouble themselves to inquire whence they are derived; and partly because this apparent profit is easily reduced to numerical calculation, no matter whether wrong or right, correct or incorrect; whereas the loss and mischief resulting to the nation are infinitely subdivided amongst the members of the community, and operate after all in a very indirect, complex, and general way, so as to escape and defy calculation. Some writers maintain arithmetic to be the only sure guide in political economy; for my part, I see so many detestable systems built upon arithmetical statements, that I am rather inclined to regard that science as the instrument of national calamity.
Of regulations affecting the Corn Trade.
It would seem that the general principles, which govern the commerce of all other commodities, should be equally applicable to the commerce of grain. But grain, or whatever else may happen to be the staple article of human subsistence to any people, deserves more particular notice.
It is universally found, that the numbers of mankind increase, in proportion to the supply of subsistence. The abundance and cheapness of provisions are favourable to the advance of population; their scarcity is productive of the opposite effect; but neither cause operates so rapidly as the annual succession of crops. The crop of one year may, perhaps, exceed or fall short of the usual average, by as much as one-fifth or one-fourth; but a country, that, like France, has thirty millions of inhabitants one year, cannot have thirty-six millions the next; nor could its population be reduced to twenty-four millions in the space of one year, without the most dreadful degree of suffering. Therefore it is the law of nature, that the population shall one year be superabundantly supplied with subsistence, and another year be subjected to scarcity in some degree or other of intensity.
And so, indeed, it is with all other objects of consumption; but, as the most of them are not absolutely indispensable to existence, the temporary privation of them amounts not to the absolute extinction of life. The high price of a product, which has wholly or partially failed at home, is a powerful stimulus to commerce to import it from a greater distance and at a greater expense. But it is unsafe to leave wholly to the providence of individuals the care of supplying an article of such absolute necessity: the delay of which, but for a few days, may be a national calamity; the transport of which exceeds the ordinary means of commerce; and whose weight and bulk would make its distant transport, especially by land, double or triple its average price. If the foreign supply of corn be relied upon, it may happen to be scarce and dear in the exporting and importing country at the same moment. The government of the exporting country may prohibit the export, or a maritime war may interrupt the transport. But the article is one the nation cannot do without; or even wait for a few days longer. Delay is death to a part of the population at least.
For the purpose of equalizing the average consumption to the average crop, each family ought literally to lay by, in years of plenty for the deficiency of years of scarcity. But such providence cannot be reckoned upon in the bulk of the population. A great majority, to say nothing of their utter want of foresight, are destitute of the means of keeping such a store in reserve sometimes several years together, neither have they the accommodations for housing it, or the means of taking it along with them on a casual change of abode.
Can speculative commerce be depended upon for this reserve against a deficiency? At first sight it might appear that it could, that self-interest would be an adequate motive; for the difference of the price of corn in years of abundance and those of scarcity is very great. But the recurrence of the oscillation is too irregular in distance of time, and too infrequent also, to give rise to a regular traffic, or one that can be repeated at pleasure. The purchase of the grain, the number and size of the storehouses, require a very large advance of capital and a heavy arrear of interest: it is an article that must be repeatedly shifted and turned, and is much exposed to fraud and damage, as well as to popular violence. All these are to be covered by a profit of rare occurrence. Wherefore, it is possible, that the article may not hold out sufficient temptation to the speculator, although this would be the most commendable kind of speculation, being framed upon the principle of buying from the producer when he is eager to sell, and selling to the consumer when he finds it difficult to purchase.
In default of the individual providence of the consumer, and of speculative accumulation and reserve, neither of which it would seem can be safely depended upon, can the public authority, as representing the aggregate interest, undertake the charge of providing against a scarcity with any prospect of success? I am aware, that, in a few very limited communities, blessed with a very economical government, like some of the Swiss cantons, public granaries for storing a casual surplus have answered the purpose well enough. But I should pronounce them impracticable in large and populous countries. The advance of capital and its accruing interest would affect the government in the same manner as private speculators, and even in a greater degree; for there are few governments, that can borrow on such low terms as individuals in good credit. The difficulties of managing a commercial concern, of buying, storing, and re-selling to so large an extent, would be still more insuperable. Turgot, in his letters on the commerce of grain, has clearly proved, that, in matters of this kind, a government never can expect to be served at a reasonable rate; all its agents having an interest in swelling its expenditure, and none of them in curtailing. It would be utterly impossible to answer for the tolerable conduct of a business left to the discretion of agents without any adequate control, whose actions are, for the most part, governed by the superior dignitaries of the state, who seldom have either the knowledge or condescension requisite for such details. A sudden panic in the public authorities might prematurely empty the granaries; a political measure, or a war, divert their contents to quite a different destination.
Generally speaking, it appears that there is no safe dependence for a reserve of supply against a season of scarcity, unless the business be confided to the discretionary management of mercantile houses of the first capital, credit, and intelligence, willing to undertake the purchase, and the filling and replenishment of the granaries upon certain stipulated terms, and with the prospect of such advantages, as may fairly recompense them for all their trouble. The operation would then be safe and effectual, for the contractors would give security for due performance; and it would also be cheaper executed in this way than in any other. Different establishments might be contracted with for the different cities of note; and these being thus supplied in times of scarcity from the stores in reserve, would no longer drain the country of the subsistence destined to the agricultural population.
Public stores and granaries are after all but auxiliary and temporary expedients of supply. The most abundant and advantageous supply will always be that furnished by the utmost freedom of commerce, whose duties in respect to grain consist chiefly in transporting the produce from the farmyard to the principal markets, and thence in smaller quantities from the markets of the districts where it is superabundant to those of others that may be scantily supplied; or in exporting when cheap, and importing when dear.
Popular prejudice and ignorance have universally regarded with an evil eye those concerned in the corn-trade; nor have the depositories of national authority been always exempt from similar illiberality. The main charge against them is, that they buy up corn with the express purpose of raising its price, or at least of making an unreasonable profit upon the purchase and re-sale, which is in effect so much gratuitous loss to the producer and consumer.
First, I would ask, what is meant by this charge? If it be meant to accuse the dealers of buying in plentiful seasons, when corn is cheap, and laying by in reserve against seasons of scarcity, we have just seen that this is a most beneficial operation, and the sole means of accommodating the supply of so precarious an article to the regularity of an unceasing demand. Large stores of grain laid in at a low price contribute powerfully to place the subsistence of the population beyond risk of failure, and deserve not only the protection, but the encouragement of the public authorities. But, if it be meant to charge the corn-dealers with buying up on a rising market and on the approach of scarcity, and thereby enhancing the scarcity and the price, although I admit that this operation has not the same recommendation of utility, and that the consumer is saddled with the additional cost of the operation without any direct equivalent benefit, for in this instance the deficiency of one year is not made good by the hoarded surplus of a preceding one; yet I cannot think it has ever been attended with any very alarming or fatal consequences. Corn is a commodity of most extended production; and its price cannot be arbitrarily raised, without disarming the competition of an infinity of sellers, and without an extent of dealing and of agency scarcely practicable to individuals. It is, besides, a most cumbersome and inconvenient article in comparison with its price, and, consequently, most expensive and troublesome in the carriage and warehousing. A store of any considerable value can not escape observation. And its liability to damage or decay often makes sales compulsory, and exposes the larger speculators to immense loss.
Speculative monopoly is, therefore, extremely difficult, and little to be dreaded. The kind of engrossment most prejudicial, as well as most difficult of prevention, is that practised by the domestic prudence of individuals in apprehension of a scarcity. Some, from excess of precaution, lay by rather more than they want; while farmers, farming proprietors, millers, and bakers, who habitually keep a stock on hand, take care somewhat to swell that stock, in the idea that they shall sell to a profit whatever surplus there may be; and the infinite number of these petty acts of engrossment makes them greatly exceed, in the aggregate, all the united efforts of speculation.
But what if it should turn out, after all, that even the selfish and odious views of such speculators are productive of some good? When corn is cheap, it is consumed with less providence and frugality, and used as food for the domestic animals. The distant prospect of scarcity, or even a slight rise of price, is insufficient to check this improvidence betimes. If the great holders shut up their stores, however, the consequent anticipation of a rise of price immediately puts the public on their guard, and awakens the particular frugality and care of the little consumers, of whom the great mass of consumption is composed. Ingenuity is set at work to find a substitute for the scarce article of food, and not a particle is wasted. Thus, the avarice of one part of mankind operates as a salutary check upon the improvidence of the rest; and, when the stock withheld at length appears in the market, its quantity tends to lower the price in favour of the consumer.
With regard to the tribute which the dealer is supposed to exact from both producer and consumer, it is a charge that will attach with equal justice upon every branch of commerce whatsoever. There would be some meaning in it, could products reach the hands of the consumer without any advance of capital, without warehouses, trouble, combination, or any kind of difficulty. But, so long as difficulties shall exist, nobody will be able to surmount them so cheaply, as those who make it their special business. Legislation should take an enlarged view of commerce in the aggregate, small and great; it will find its agents busied in traversing the whole surface of the territory, watching every fluctuation of demand and supply, adjusting the casual or local deficiency of price to meet the charges of production and excess of price above the capacity of consumption. Is it to the cultivator, to the consumer, or to the public administration that we can safely look for so beneficial and powerful an agency? Extend, if you please, the facility of intercourse, and particularly the capacities of internal navigation, which alone is suited to the transport of a commodity so cumbrous and bulky as grain; vigilantly watch over the personal security of the trader; and then leave him to follow his own track. Commerce cannot make good the failure of the crop; but it can distribute whatever there may be to distribute, in the manner best suited to the wants of the community, as well as to the interests of production. And doubtless it was for this reason that Smith pronounced the labour of the corn dealer to be favourable to the production of corn, in the next degree to that of the cultivator himself.
The prevalence of erroneous views of the production and commerce of articles of human subsistence, has led to a world of mischievous and contradictory laws, regulations, and ordinances, in all countries, suggested by the exigency of the moment, and often extorted by popular importunity. The danger and odium thus heaped upon the dealers in grain have frequently thrown the business into the hands of inferior persons, qualified neither by information nor ability for the business; and the usual consequence has followed; namely, that the same traffic has been carried on in secret, at far greater expense to the consumers; the dealers to whom it was abandoned being of course obliged to pay themselves for all the risk and inconvenience of the occupation.
Whenever a maximum of price has been affixed to grain, it has immediately been withdrawn or concealed. The next step was to compel the farmers to bring their grain to market, and prohibit the private sales. These violations of property, with all their usual accompaniments of inquisitorial search, personal violence, and injustice, have never afforded any considerable resource to the government employing them. In polity as well as morality, the grand secret is, not to constrain the actions, but to awaken the inclinations of mankind. Markets are not to be supplied by the terror of the bayonet or the sabre.
When the national government attempts to supply the population by becoming itself a dealer, it is sure to fail in satisfying the national wants itself, and at the same time to extinguish all the resources that freedom of commerce would offer; for nobody else will knowingly embark in a losing trade, though the government may.
During the scarcity prevalent throughout many parts of France, in the year 1775, the municipalities of Lyons and some other towns attempted to relieve the wants of the inhabitants, by buying up corn in the country, and re-selling it at a loss in the towns. To defray the expense of this operation, they at the same time obtained an increase of the octroi or tolls upon goods entering their gates. The scarcity grew worse and worse, for a very obvious reason; the ordinary dealers naturally abandoned markets where goods were sold below the cost price, and which they could not resort to without paying extra toll upon entry.
The more necessary an article is, the more dangerous it is to reduce its price below the natural level. An accidental dearness of corn, though doubtless a most unwelcome occurrence, is commonly brought about by causes out of all human power to remove. There is no wisdom in heaping one calamity upon another, and passing bad laws because there has been a bad season.
Governments have met with no better success in the matter of importation, than in the conduct of internal commerce. The enormous sacrifices made by the commune of Paris and the general government, to provision the metropolis in the winter of 1816-17 with grain imported from abroad, did not protect the consumer from an exorbitant advance in the price of bread, which was besides deficient both in weight and quality; and the supply was found inadequate after all.
On the subject of bounties on import, it is hardly necessary to touch. The most effectual bounty is the high price of the article in the country where the scarcity occurs, amounting sometimes to as much as 200 or 300 per cent. If this be not sufficient to tempt the importer, I know of no adequate inducement that the government could hold out to him.
Nations would be less subject to famine, were they to employ a greater variety of aliments. When the whole population depends upon a single product for subsistence, the misery of a scarcity is extreme. A deficiency of corn in France is as bad as one of rice in Hindostan. When their diet consists of many articles, as butcher's meat, poultry, esculent roots, vegetables, fruits, fish, &c., according to local circumstances, the supply is less precarious; for these articles seldom fail all at a time.
Scarcity would also be of less frequent occurrence, if more attention were paid to the dissemination and perfection of the art of preserving, at a cheap rate, such kinds of food, as are offered in superabundance at particular seasons and places; fish, for instance; their periodical excess might in this way be made to serve for times of scarcity. A perfect freedom of international maritime intercourse would enable the inhabitants of the temperate latitudes to partake cheaply of those productions, that nature pours forth in such profusion under a tropical sun. I know not how far it would be possible to preserve and transport the fruit of the banana; but the experiment has in a great measure succeeded with respect to the sugarcane, which furnishes, in a thousand shapes, an agreeable and wholesome article of diet, and is produced so abundantly by all parts of the world, lying within 38° of latitude, that, but for our present absurd legislative provisions, it might be had much cheaper than butcher's meat, and for the same price as many indigenous fruits and vegetables.
To return to the corn-trade, I must protest against the indiscriminate and universal application of the arguments I have adduced to show the benefits of liberty. Nothing is more dangerous in practice, than an obstinate, unbending adherence to system, particularly in its application to the wants and errors of mankind. The wiser course is, to approximate invariably to the standard of sound and acknowledged principles, to lead towards them by the never-failing influence of gradual and insensible attraction. It is well to fix beforehand a maximum of price beyond which exportation of grain shall either be prohibited, or subjected to heavy duties; for, as smuggling cannot be prevented entirely, it is better that those who are resolved to practise it should pay the insurance of the risk to the state than to individuals.
We have hitherto regarded the inflated price of grain as the only evil to be apprehended. But England, in 1815, was alarmed by a prospect of an opposite evil; viz. that its price would be reduced too low by the influx of foreign grain. The production of this article is, like that of every other, much more costly in England than in the neighbouring states, owing to a variety of causes, which it is immaterial here to explain; amongst others, chiefly to the exorbitance of her taxation. Foreign grain could be sold in England at two-thirds of its cost price to the English grower. It, therefore, became a most important question, whether it were better to permit the free importation, and thus, by exposing the home producer to a ruinous competition with the foreign grower, to render him incapable of paying his rent and taxes, to divert him from the cultivation of wheat altogether, and place England in a state of dependence for subsistence upon foreign, perhaps hostile nations; or, by excluding foreign grain from her market, to give a monopoly to the home producer, at the expense of the consumer, thereby augmenting the difficulty of subsistence to the labouring classes, and, by the advanced price of the necessaries of life, indirectly raising that of all the manufactured produce of the country, and proportionately disabling it to sustain the competition of other nations.
This great question has given rise to the most animated contest both of the tongue and the pen; and the obstinate contention of two parties, each of which had much of justice on its side, leaves the bystanders to infer, that neither has chosen to notice the grand cause of mischief; that is to say, the necessity of supporting the arrogant pretensions of England to universal influence and dominion, by sacrifices out of all proportion to her territorial extent. At all events, the great acuteness and intelligence, displayed by the combatants on either side, have thrown new light upon the interference of authority in the business of the supply of grain, and have tended to strengthen the conclusion in favour of commercial liberty.
The substance of the argument of the prohibitionists may be reduced to this; that it is expedient to encourage domestic agriculture, even at the expense of the consumer, to avoid the risk of starvation by external means; which is seriously to be apprehended on two occasions in particular; first, when the power or influence of a belligerent is able to intercept or check the import, which might become necessary; secondly, when the corn-growing countries themselves experience a scarcity, and are obliged to retain the whole of their crops for their own subsistence.
It was replied by the partisans of free-trade, that if England were to become a regular and constant importer of grain, not one, but many foreign countries would grow into a habit of supplying her: the raising of corn for her market in Poland, Spain, Barbary, and North America, would be more extensively practised, and the sale of their produce would become equally indispensable to them, as the purchase would be to England: that even Bonaparte, the most bitter enemy England had ever encountered, had taken her money for the license to export corn: that crops never fail at the same time all over the world; and that an extensive commerce of grain would lead to the formation of large stores and depôts, which will offer the best possible security against the recurrence of scarcity; and that, accordingly, as they asserted, there are no countries less subject to that calamity, or even to violent fluctuations of price, than those that grow no corn at all; for which they cited the example of Holland and other nations similarly circumstanced.
However, it cannot be disputed that, even in countries best able to reckon on commercial supply, there are many serious inconveniences to be apprehended from the ruin of internal tillage. Subsistence is the primary want of a nation, and it is neither prudent nor safe to become dependent upon distant supply. Admitting that laws, which, for the protection of the agricultural prohibit the import of grain to the prejudice of the manufacturing interest, are both unjust and impolitic, it should be recollected that, on the other hand, excessive taxation, loans, overgrown establishments, civil, military, or diplomatic, are equally impolitic and unjust, and fall more heavily upon agriculture than upon manufacture. Perhaps one abuse may make another necessary, to restore the equilibrium of production, otherwise industry would abandon one branch, and take exclusively to another, to the evident peril of the existence of society.