The National System of Political Economy
IF we investigate the origin and progress of individual branches of industry, we shall find that they have only gradually become possessed of improved methods of operation, machinery, buildings, advantages in production, experiences, and skill, and of all those knowledges and connections which insure to them the profitable purchase of their raw materials and the profitable sale of their products. We may rest assured that it is (as a rule) incomparably easier to perfect and extend a business already established than to found a new one. We see everywhere old business establishments that have lasted for a series of generations worked with greater profits than new ones. We observe that it is the more difficult to set a new business going in proportion as fewer branches of industry of a similar character already exist in a nation; because, in that case, masters, foremen, and workmen must first be either trained up at home or procured from abroad, and because the profitableness of the business has not been sufficiently tested to give capitalists confidence in its success. If we compare the conditions of distinct classes of industry in any nation at various periods, we everywhere find, that when special causes had not operated to injure them, they have made remarkable progress, not only in regard to cheapness of prices, but also with respect to quantity and quality, from generation to generation. On the other hand, we observe that in consequence of external injurious causes, such as wars and devastation of territory, &c., or oppressive tyrannical or fanatical measures of government and finance (as e.g. the revocation of the Edict of Nantes), whole nations have been thrown back for centuries, either in their entire industry or in certain branches of it, and have in this manner been far outstripped by nations in comparison with which they had previously been far advanced.
One can see at a glance that, as in all human institutions so also in industry, a law of nature lies at the root of important achievements which has much in common with the natural law of the division of labour and of the confederation of the productive forces, whose principle, namely, consists in the circumstance that several generations following one another have equally united their forces towards the attainment of one and the same object, and have participated in like manner in the exertions needed to attain it.
It is the same principle which in the cases of hereditary kingdoms has been incomparably more favourable to the maintenance and increase of the power of the nation than the constant changes of the ruling families in the case of electoral kingdoms.
It is partly this natural law which secures to nations who have lived for a long time past under a rightly ordered constitutional form of government, such great successes in industry, commerce, and navigation.
Only through this natural law can the effect of the invention of printing on human progress be partially explained. Printing first rendered it possible to hand down the acquisitions of human knowledge and experience from the present to future generations more perfectly and completely than could be done by oral tradition.
To the recognition of this natural law is undoubtedly partly attributable the division of the people into castes, which existed among the nations of antiquity, and also the law of the old Egyptians—that the son must continue to follow the trade or profession of his father. Before the invention and general dissemination of printing took place, these regulations may have appeared to be indispensable for the maintenance and for the development of arts and trades.
Guilds and trade societies also have partly originated from this consideration. For the maintenance and bringing to perfection of the arts and sciences, and their transfer from one generation to another, we are in great measure indebted to the priestly castes of ancient nations, to the monasteries and universities.
What power and what influence have the orders of priesthood and orders of knights, as well as the papal chair, attained to, by the fact that for centuries they have aspired to one and the same aim, and that each successive generation has always continued to work where the other had left off.
The importance of this principle becomes still more evident in respect to material achievements.
Individual cities, monasteries, and corporations have erected works the total cost of which perhaps surpassed the value of their whole property at the time. They could only obtain the means for this by successive generations devoting their savings to one and the same great purpose.
Let us consider the canal and dyke system of Holland; it comprises the labours and savings of many generations. Only to a series of generations is it possible to complete systems of national transport or a complete system of fortifications and defensive works.
The system of State credit is one of the finest creations of more recent statesmanship, and a blessing for nations, inasmuch as it serves as the means of dividing among several generations the costs of those achievements and exertions of the present generation which are calculated to benefit the nationality for all future times, and which guarantee to it continued existence, growth, greatness, power, and increase of the powers of production; it becomes a curse only if it serves for useless national expenditure, and thus not merely does not further the progress of future generations, but deprives them beforehand of the means of undertaking great national works, or also if the burden of the payment of interest of the national debt is thrown on the consumptions of the working classes instead of on capital.
State debts are bills which the present generation draws on future ones. This can take place either to the special advantage of the present generation or the special advantage of the future one, or to the common advantage of both. In the first case only is this system an objectionable one. But all cases in which the object in view is the maintenance and promotion of the greatness and welfare of the nationality, so far as the means required for the purpose surpass the powers of the present generation, belong to the last category.
No expenditure of the present generation is so decidedly and specially profitable to future generations as that for the improvement of the means of transport, especially because such undertakings as a rule, besides increasing the powers of production of future generations, do also in a constantly increasing ratio not merely pay interest on the cost in the course of time, but also yield dividends. The present generation is, therefore, not merely entitled to throw on to future generations the capital outlay of these works and fair interest on it (as long as they do not yield sufficient income), but further acts unjustly towards itself and to the true fundamental principles of national economy, if it takes the burden or even any considerable part of it on its own shoulders.
If in our consideration of the subject of the continuity of national industry we revert to the main branches which constitute it, we may perceive, that while this continuity has an important influence on agriculture, yet that interruptions to it, in the case of that industry, are much less decided and much less injurious when they occur, also that their evil consequences can be much more easily and quickly made good than in the case of manufactures.
However great may be any damage or interruption to agriculture, the actual personal requirements and consumption of the agriculturist, the general diffusion of the skill and knowledge required for agriculture, and the simplicity of its operations and of the implements which it requires, suffice to prevent it from coming entirely to an end.
Even after devastations by war it quickly raises itself up again. Neither the enemy nor the foreign competitor can take away the main instrument of agriculture, the land; and it needs the oppressions of a series of generations to convert arable fields into uncultivated waste, or to deprive the inhabitants of a country of the capability of carrying on agriculture.
On manufactures, however, the least and briefest interruption has a crippling effect; a longer one is fatal. The more art and talent that any branch of manufacture requires, the larger the amounts of capital which are needful to carry it on, the more completely this capital is sunk in the special branch of industry in which it has been invested, so much the more detrimental will be the interruption. By it machinery and tools are reduced to the value of old iron and fire-wood, the buildings become ruins, the workmen and skilled artificers emigrate to other lands or seek subsistence in agricultural employment. Thus in a short time a complex combination of productive powers and of property becomes lost, which had been created only by the exertions and endeavours of several generations.
Just as by the establishment and continuance of industry one branch of trade originates, draws after it, supports and causes to flourish many others, so is the ruin of one branch of industry always the forerunner of the ruin of several others, and finally of the chief foundations of the manufacturing power of the nation.
The conviction of the great effects produced by the steady continuation of industry and of the irretrievable injuries caused by its interruption, and not the clamour and egotistical demands of manufacturers and traders for special privileges, has led to the idea of protective duties for native industry.
In cases where the protective duty cannot help, where the manufactories, for instance, suffer from want of export trade, where the Government is unable to provide any remedy for its interruption, we often see manufacturers continuing to produce at an actual loss. They want to avert, in expectation of better times, the irrecoverable injury which they would suffer from a stoppage of their works.
By free competition it is often hoped to oblige the competitor to discontinue work which has compelled the manufacturer or merchant to sell his products under their legitimate price and often at an actual loss. The object is not merely to prevent the interruption of our own industry, but also to force others to discontinue theirs in the hope later on of being able by better prices to recoup the losses which have been suffered.
In any case striving after monopoly forms part of the very nature of manufacturing industry. This circumstance tends to justify and not to discredit a protective policy; for this striving, when restricted in its operation to the home market, tends to promote cheaper prices and improvements in the art of production, and thus increases the national prosperity; while the same thing, in case it presses from without with overwhelming force on the internal industry, will occasion the interruption of work and downfall of the internal national industry.
The circumstance that there are no limits to manufacturing production (especially since it has been so extraordinarily aided and promoted by machinery) except the limits of the capital which it possesses and its means of effecting sales, enables that particular nation whose manufacturing industry has continued for a century, which has accumulated immense capitals, extended its commerce all over the world, dominated the money market by means of large institutions of credit (whose operations are able to depress the prices of fabrics and to induce merchants to export), to declare a war of extermination against the manufacturers of all other countries. Under such circumstances it is quite impossible that in other nations, 'in the natural course of things' (as Adam Smith expresses himself), merely in consequence of their progress in agriculture, immense manufactures and works should be established, or that those manufactures which have originated in consequence of the commercial interruptions caused by war should be able, 'in the natural course of things,' to continue to maintain themselves. The reason for this is the same as that why a child or a boy in wrestling with a strong man can scarcely be victorious or even offer steady resistance. The manufactories which constitute the commercial and industrial supremacy (of England) have a thousand advantages over the newly born or half-grown manufactories of other nations. The former, for instance, can obtain skilled and experienced workmen in the greatest number and at the cheapest wages, the best technical men and foremen, the most perfect and the cheapest machinery, the greatest benefit in buying and selling advantageously; further, the cheapest means of transport, as respects raw materials and also in respect of transporting goods when sold, more extended credit for the manufacturers with banks and money institutions at the lowest rates of interest, greater commercial experience, better tools, buildings, arrangements, connections, such as can only be acquired and established in the course of generations; an enormous home market, and, what is equally good, a colonial market equally enormous. Hence under all circumstances the English manufacturers can feel certainty as to the sale of large quantities of manufactured products by vigorous efforts, and consequently possess a guarantee for the continuance of their business and abundant means to sell on credit for years to come in the future, if it is required to acquire the control of a foreign market. If we enumerate and consider these advantages one after another, we may easily be convinced that in competition with such a power it is simply foolish to rest our hopes on the operation of 'the natural course of things' under free competition with such a power it is simply foolish to rest our hopes on the operation of 'the natural course of things' under free competition, where, as in our case, workmen and technical men have in the first place yet to be trained, where the manufacture of machinery and proper means of transport are merely in course of erection, where even the home market is not secured to the manufacturer—not to mention any important export market, where the credit that the manufacturer can obtain is under the most fortunate circumstances limited to the lowest point, where no man can be certain even for a day that, in consequence of English commercial crises and bank operations, masses of foreign goods may not be thrown on the home market at prices which scarcely recoup the value of the raw materials of which they are made, and which bring to a stand for years the progress of our own manufacturing industries.
It would be in vain for such nations to resign themselves to a state of perpetual subordination to the English manufacturing supremacy, and content themselves with the modest determination to supply it with what it may not be able to produce for itself or to procure elsewhere. Even by this subordination they will find no permanent benefit. What benefit is it to the people of the United States, for instance, that they sacrifice the welfare of their finest and most cultivated states, the states of free labour, and perhaps their entire future national greatness, for the advantage of supplying England with raw cotton? Do they thereby restrict the endeavours of England to procure this material from other districts of the world? In vain would the Germans be content to obtain their requirements of manufactured goods from England in exchange for their fine sheep's wool; they would by such a policy hardly prevent Australia from flooding all Europe with fine wool in the course of the next twenty years.
Such a condition of dependence appears still more deplorable when we consider that such nations lose in times of war their means of selling their agricultural products, and thereby the means of purchasing the manufacturing products of the foreigner. At such times all economical considerations and systems are thrust into the background. It is the principle of self-maintenance, of self-defence, which counsels the nations to work up their agricultural products themselves, and to dispense with the manufactured goods of the enemy. Whatever losses may be involved in adopting such a war-prohibitive system, cannot be taken into account during such a state of things. However great the exertions and the sacrifices may have been by which the agricultural nation during the time of war has called into existence manufactures and works, the competition of the manufacturing supremacy which sets in on the recurrence of peace will again destroy all these creations of the times of necessity. In short, it is an eternal alternation of erecting and destroying, of prosperity and calamity, which those nations have to undergo who do not strive to insure, through realisation of their national division of labour and through the confederation of their own powers of production, the benefits of the continuation of their own industries from generation to generation.
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