* This distinction has been discarded in the translation, for the sake of simplification; the general term products being sufficiently intelligible and specific. Translator.
A Treatise on Political Economy
BOOK I, CHAPTER IX
OF THE DIFFERENT METHODS OF EMPLOYING COMMERCIAL INDUSTRY, AND THE MODE IN WHICH THEY CONCUR IN PRODUCTION.
Commodities are not all to be had in all places indifferently. The immediate products of the earth depend upon the local varieties of soil and climate; and even the products of industry are met with only in such places as are most favourable to their production.
Whence it follows that, where products, whether of industry or of the earth, do not grow naturally, they can not be introduced or produced in a perfect state, and fit for consumption, without undergoing a certain modification; that is to say, that of transport or conveyance.
This transfer gives occupation to what has been called commercial industry.
External commerce consists of the supply of the home market with foreign, and of foreign markets with home products.*85
Wholesale commerce is the buying of large quantities and re-selling to inferior dealers.
Retail commerce is the buying of wholesale dealers, and re-selling to consumers.
The commerce of money or specie is conducted by the banker, who receives or pays on account of other people, or gives bills, orders, or letters of credit, payable elsewhere than at the place where they are given. This is sometimes called the banking trade.*86
The broker brings buyers and sellers together.
The persons engaged in these several branches are all agents of commercial industry, whose agency tends to approximate products to the hands of the ultimate consumer. The agency of the retailer of an ounce of pepper is quite as indispensable to the consumer, as that of the merchant, who despatches his vessel to the Moluccas for a cargo; and the only reason why these different functions are not both performed by one and the same individual is, because they can be executed with more economy and convenience by two. To enter minutely into an examination of the limits and practices of these various departments of commercial industry, would be to write a treatise on commerce.*87 All we have to do in this work is, to inquire in what manner and degree they influence the production of values.
In Book II., we shall see how the actual demand for a product originating in its utility, is limited by the amount of the cost of production, and upon what principle its relative value is determined in each particular place. At present it is sufficient for the clear conception of commercial production, to consider the value of a product as a given quantity or datum. Thus, without examining the reason why oil of olives is worth at Marseilles thirty, and at Paris forty sous per lb., I shall content myself with simply stating, that whoever effects the transport of that article from Marseilles to Paris, thereby increases its value to the amount of ten sous per lb. Nor is it to be supposed, that its intrinsic value has received no accession by the transit. The value has positively augmented. The intrinsic value of silver is greater at Paris than at Lima; and the cases are precisely similar.
In fact, the transport of products can not be effected without the concurrence of a variety of means, which have each an intrinsic value of their own, and of which the actual transport itself, in the literal and confined sense of the term, is commonly not the most chargeable. There must be one commercial establishment at the place where the products are collected; another at the place it is transported to; besides package and warehousing.
There must be an advance of capital equivalent to the value transported. Moreover, there are agents, insurers, and brokers, to be paid. All these are really productive occupations, since, without their agency, the consumer can never enjoy the product; and supposing their remuneration to be reduced by competition to the lowest rate possible, he can be in no way cheaper supplied.
In commercial, as well as manufacturing industry, the discovery of a more economical or more expeditious process, the more skilful employment of natural agents, the substitution, for instance, of a canal in place of a road, or the removal of a difficulty interposed by nature or by human institutions, reduces the cost of production, and procures a gain to the consumer, without any consequent loss to the producer, who can lower his price without prejudice to himself, because his own outlay and advance are likewise reduced.
The same principles govern both external and internal commerce. The merchant that exports silks to Germany or to Russia, and sells at Petersburg for 40 cents per yard, stuffs that have cost but 30 cents at Lyons, creates a value of 10 cents per yard. If the same merchant brings a return cargo of peltry from Russia, and sells at Havre for 240 dollars what cost him at Riga but 200 dollars, or a value equivalent to 200 dollars, there will be a new value of 40 dollars, created and shared amongst the different agents engaged in this production of value, whatever nation they may belong to, and whatever be the relative importance of their respective productive agency, from the first-rate merchant to the ticket-porter inclusive.*88 And by this creation of value, the wealth of the French nation is enriched to the amount of all the gains of French industry and of French capital, in the course of this production; and the Russian nation to the amount of those of Russian industry and Russian capital. Nay, perhaps a third nation, independent both of France and of Russia, may get the whole profit accruing from the mutual commercial intercourse between these nations; and yet neither of them loses any thing, if their industry and capital have other equally lucrative employments at home. The very circumstance of the existence of an active external commerce, no matter what agents it be conducted by, is a very powerful stimulus to internal industry. The Chinese, who abandon the whole of their external commerce to other nations, must nevertheless raise an enormous gross product, otherwise they could never support, as they do, a population twice as large as that of all Europe, upon a surface of nearly equal extent. A shop-keeper in good business is quite as well off as a pedlar that travels the country with his wares on his back.*89 Commercial jealousy is, after all, nothing but prejudice: it is a wild fruit, that will drop of itself when it has arrived at maturity.
The external commerce of all countries is inconsiderable, compared with the internal. To convince ourselves of the truth of this position, it will be sufficient to take note at all numerous or even sumptuous entertainments, how very small is the proportion of values of foreign growth, in comparison with those of home production; especially, if we take into the account, as we ought to do, the value of buildings and habitations, which is necessarily of home production.*90 *91
The internal commerce of a country, though, from its minute ramification, it is less obvious and striking, besides being the most considerable, is likewise the most advantageous.*92 For both the remittances and returns of this commerce are necessarily home products. It sets in motion a double production, and the profits of it are not participated with foreigners. For this reason, roads, canals, bridges, the abolition of internal duties,*93 tolls, duties on transit,*94 which are in effect tolls, every measure, in short, which promotes internal circulation, is favourable to national wealth.
There is a further branch of commerce, called the trade of speculation, which consists in the purchase of goods at one time, to be re-sold in the same place and condition at another time, when they are expected to be dearer. Even this trade is productive; its utility consists in the employment of capital, warehouses, care in the preservation, in short, human industry in the withdrawing from circulation a commodity depressed in value by temporary superabundance, and thereby reduced in price below the charges of production, so as to discourage its production, with the design and purpose of restoring it to circulation when it shall become more scarce, and when its price shall be raised above the natural price, the charges of production, so as to throw a loss upon the consumers. The evident operation of this kind of trade is, to transport commodities in respect of time, instead of locality. If it prove an unprofitable or losing concern, it is a sign that it was useless in the particular instance, and that the commodity was not redundant at the time of purchase, and scarce at the time of re-sale. This operation has also been denominated, with much propriety, the trade of reserve.*95 Where it is directed to the buying up of the whole of an article, for the sake of exacting an exorbitant monopoly price, it is called forestalling, which is happily difficult, in proportion as the national commerce is extensive, and, consequently, the commodities in circulation both abundant and various.
The carrying trade, as Smith calls it, consists in the purchase of goods in one foreign market for re-sale in another foreign market. This branch of industry is beneficial not only to the merchant that practises it, but also to the two nations between whom it is practised; and that for reasons which have been explained while treating of external commerce. The carrying trade is but little suited to nations possessed of small capital, whereof the whole is wanted to give activity to internal industry, which is always entitled to the preference. The Dutch carry it on in ordinary times with advantage, because their population and capital are both redundant.*96 The French, in peace time, have carried on a lucrative carrying trade between the different ports of the Levant; because adventurers could procure advances of capital on better terms in France than in the Levant, and were perhaps less exposed to the oppression of the detestable government of that country. They have since been supplanted by other nations, whose possession of the carrying trade is so far from being an injury to the subjects of the Porte, that it actually keeps alive the little remaining industry of its territories. Some governments, less wise in this particular than the Turkish, have interdicted their carrying trade to foreign adventurers. If the native traders can carry on the transport to greater profit than foreigners, there is no occasion to exclude the latter; and, if it can be conducted cheaper by foreigners, their exclusion is a voluntary sacrifice of the profit of employing them. An example will serve to elucidate this position. The freight of hemp from Riga to Havre costs a Dutch skipper, say 7 dollars per ton. It must be taken for granted, that no other but the Dutchman can carry it so cheap. He makes a tender to the French government, which is a consumer of Russian hemp, to provide tonnage at 8 dollars per ton, thereby obviously securing to himself a profit of 1 dollar per ton. Suppose then, that the French government, with a view to favour the national shipping, prefers to employ French tonnage, which can not be navigated for less than 10 dollars per ton, or 11 dollars, allowing the same profit to the ship-owner—What is the consequence? The government will be out of pocket 3 dollars per ton, for the mere purpose of giving a profit of 1 dollar to the national ship-owners. And, as none but the individuals of the nation contribute towards the national expenditure, this operation will have cost to one class of Frenchmen 3 dollars for the purpose of giving to another class of Frenchmen a profit of 1 dollar only. However the numbers may vary, the result must be similar; for there is but one fair way of stating the account.
It is hardly necessary to caution the reader, that I have throughout been considering maritime industry solely in its relation to national wealth. Its influence upon national security is another thing. The art of navigation is an expedient of war, as well as of commerce. The working of a vessel is a military manœuvre; and the nation containing the larger proportion of seamen, is, therefore, ceteris paribus, the more powerful in a military point of view; consequently, political and military considerations have always interfered with national views of commerce, in matters of navigation; and England, in passing her celebrated Navigation Act, interdicting her carrying trade to all vessels, the owners and at least three-fourths of the crews whereof were not British subjects, had in view, not so much the profits of the carrying trade, as the increase of her own military marine, and the diminution of that of the other powers, especially of Holland, which then enjoyed an immense carrying trade, and was the chief object of English jealousy.
Nor can it be denied, that these views may actuate a wise national administration; assuming always, that it is an advantage to one nation to domineer over others. But these political dogmas are fast growing obsolete. Policy will some day or other be held to consist in coveting the pre-eminence of merit rather than of force. The love of domination never attains more than a factitious elevation, that is sure to make enemies of all its neighbours. It is this that engenders national debt, internal abuse, tyranny and revolution; while the sense of mutual interest begets international kindness, extends the sphere of useful intercourse, and leads to a prosperity, permanent, because it is natural.*97
Notes for this chapter
Products that are bought to be re-sold, are called merchandise; and merchandise bought for consumption is denominated commodities.*
The banker's business is not confined to dealings in metal, coined or uncoined, but is extended to dealings in paper-money, and dealings in credit, as we shall see when we come to the chapter upon money, infrà.
A complete treatise on commerce is still a desideratum in literature, notwithstanding the labours of Melon and Forbonnais, for hitherto the principles and consequences of commerce have been little understood.*
The ordinary proportions of this division will be explained, infrà, Book II. Chap. 7.
It has been often asked, Why not combine commercial with agricultural and manufacturing productions? Why, for the same reason that makes a wholesale cotton spinner, if he have a surplus of time and capital, more apt to extend his spinning concern, than to employ his labour and capital in the working up of his own filiature into muslin and printed calicoes.
It would be impossible to estimate the proportion with any tolerable accuracy, even in countries where calculations of this kind are most in vogue. Indeed, the attempt would be a sad waste of time. To say the truth, statistical statements are of little real utility; for, be their accuracy ever so well assured, they can only be correct for the moment. The only knowledge really useful is, the knowledge of general principles and laws, that is to say, the knowledge of the connexion between cause and effect, which alone can safely teach us what measures it is best to adopt in every possible emergency. The sole use of statistics in political economy is, to supply examples and illustrations of general principles. They can never be the basis of principles, which are grounded upon the nature of things; whereas statistics, in the most improved state, are only an index of their quantity.
This position may be correct or not, according to circumstances. The national wants must always, in the long run, be supplied by the national industry and exertions: but what is there to prevent a nation from exchanging the larger portion of its domestic products for the products of other nations? The people of Tyre probably consumed more products of external than of domestic industry, although indeed those external must have been purchased with domestic products. Tyre, it is true, was rather a city than a nation. Holland resembled her in many particulars. The observation applies to every community, the chief part of whose production is, the modification of external products. Translator.
[The author has here, in common with Dr. Smith, fallen into an error. Capital, whether employed in the home or foreign trade, is equally productive. If, for example, the home trade realized greater profits than foreign commerce, every cent of capital employed in the latter would, in a very little time, be withdrawn from so comparatively disadvantageous an investment. Capital will flow into the foreign, instead of the home trade, only because it will thereby yield a larger profit. The internal commerce of a country cannot therefore be said to be "the most advantageous."] American Editor.
Commerce de reserve. There is no corresponding term in English; it is intelligible enough. Translator.
The carrying trade of Holland is now almost extinct. In fact, whether or no it be suited to a given nation at a given time, depends upon a great variety of circumstances. The advantage of the neutral character gave a very large proportion of it for some years to the American Union, though notoriously deficient in capital for the purposes of internal cultivation. Translator.
[The operation of the British Navigation-acts, like all other restrictive regulations, has been prejudicial to the growth of national wealth, without, at the same time, having contributed in any degree to the establishment of the naval preponderance of Great Britain. "If it can be made to appear," says a highly distinguished political economist, "that the greater wealth which we should, in the absence of these laws, have possessed, would have supplied a revenue adequate to the maintenance of an equal number of seamen in the navy, it would follow that we are no gainers by these acts; and if it further appear that this additional revenue would have been equal to the maintenance of twice or three times as many seamen, it would be clear that we are losers by them. It is acknowledged by many of the advocates for these laws, that their tendency has not been to increase the national revenue, but in some degree the reverse.
"Our national preponderance," says, we believe, Mr. Horner, "rests on a very different basis. Our national energy and wealth originate in our freedom, and in that security of property which is its happy consequence. The number of our seamen in merchant shipping is owing to the spirit and capital of our traders, and to our great extent of coast. The magnitude of our navy is due neither to navigation-acts, nor to colonial monopolies, but to the resources of an industrious country.
"How different are the ideas suggested by such observations, from the narrow theories of those who trace our naval superiority to the operation of a few acts of Parliament! They remind us of the technical philosophy of the judge, who gravely ascribed the lamentable prevalence of duelling, not to the violence of human passions, but to a misapprehension of the law of the land! Besides, our naval greatness, as it is well remarked by Dr. Smith, was conspicuous before our navigation laws were framed. It existed then, as it had done before, and has done since, in a degree commensurate with our commerce, and with the extent of our national prosperity. These circumstances, and not navigation laws, will be found the regulators of naval power in all countries. They determine its extent among the Dutch, to whom, even in the season of their greatest strength, navigation laws were entirely unknown." Vide Edinburgh Review, vol. xiv. page 95.] American Editor.
Book I, Chapter X
End of Notes
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