East. In fact, we make up for our own losses by re-exporting some of the Indian goods, and to such purpose that our whole trade produces an annual return of 2,000,000/.2 The various currents of this trade are so mutually interdependent that we cannot venture to cut off any one, which, considered by itself, might appear to involve a loss. 10. By such arguments as these, which long passed current in economical discussions, believers in the Balance of Trade frequently evaded some of the awkward consequences of their own opinions, and even appeared as consistent opponents of prohibition. Merchants easily assumed their own balances to be a sufficient test of the national prosperity, but when the theories thus framed were applied to limit their own dealings and to prevent them from importing the most advantageous articles of commerce, they naturally found more or less ingenious modes of meeting the awkward inference. It was better, they admitted, to import gold than silk; but by some dexterous manipulation it must be shown that the importation of silk would enable them to get more gold. And such arguments had the merit in theory of at least calling attention to the complexity of the commercial operations which it was sought to regulate by rash empirical measures. The stream of gold, it was true, could not be directed hither and thither at the arbitrary pleasure of the legislator. Unluckily, however, there were other questions of more importance in which the merchants' theories coincided only too well with the selfish prejudices of the time. Davenant accepts without hesitation the protectionist theory, which justified the English colonial policy. To prevent English merchants from importing what they pleased was a grievance which no abstract theory could be permitted to justify; but a theory which justified restraints upon colonial planters and merchants was doubly welcome. If, he says, the colonies fall into the practice of trading independently of England, the plantations which now are a main branch of our strength may come to be turned against us.' In a tract on the plantation trade he considers at length our American policy, and some of his political views are enlightened and liberal. He proposes, for Davenant, i. 90, 91. 2 Ib. ii. 18, and elsewhere. 3 Ib. i. 395. example, a scheme for a colonial union which might have placed the imperial relations of the country on a sounder footing. It is his fundamental principle that the colonial trade must be made to centre in England; but there was as yet little danger that the American colonies should rival us in manufactures which, as he says, are the natural product of a rich and numerous people on a limited territory; and thus, whilst approving the principle that we should not encourage a possible rival, his argument is chiefly directed against excessive restriction.3 There was, however, a colony nearer to our shores (he argues elaborately that it is rightfully regarded as a colony) in regard to which his policy was narrower and more acceptable. He had gradually, he says, been forced to the conclusion, from which his general dislike to restrictions had for some time withheld him,' that England ought to prohibit the exportation of Irish woollens. His reason, given with unconscious effrontery, is simply that Ireland is naturally adapted for the woollen manufacture, and might, therefore, supplant us in foreign markets." Now as the balance of our trade depended chiefly upon our exports of woollens, we should thus be ruined for the benefit of Ireland. English capital would speedily flow into that country, and our poverty be coincident with Irish wealth. When the doctrine of the Balance of Trade came into conflict with the immediate interests of the English merchant, it could be evaded under a dexterous manipulation of figures; when it appeared to fall in with his interests, it could sometimes be so manipulated as to conceal its injurious effect upon the rest of the nation, or upon our customers; but when it sanctioned the practice of national robbery, it was put forward most audaciously as a justification for undisguised selfishness. Ireland was to be ruined for the profit of English manufacturers and merchants. A policy begotten of ignorance and rapacity bore its natural fruits before the end of the century both in Ireland and America; and the revolt of the injured was probably more efficacious than the protest of speculative observers. II. I must, however, confine myself to the speculative opposition to these doctrines. The Balance of Trade theory 1 Davenant, ii. 41. 2 Ib. ii. 22. 3 Ib. ii. 37. Ib. ii. 251, &c. was confuted by more than one acute reasoner, whose arguments fell dead upon his contemporaries. In the same year with Locke's 'Considerations' appeared a pamphlet by Sir Dudley North, called 'Discourses upon Trade.' It was speedily suppressed, for some reason which does not appear. North's main argument is a significant one, which was afterwards applied more fully by Hume and Tucker. The whole world, he says, may be considered for purposes of trade as a single country. Now, any argument which would be good for limiting trade as between France and England, would be good for limiting it between Yorkshire and Middlesex. If it would be palpable injury to any given town to cut off its intercourse with its neighbours, the injury must be the same in the case of a whole district or nation. This confutation is perfect considered as an ad hominem argument; it throws the burden of proof upon those who advocate restriction; and forces them, at least, to mould their reasoning in such a form that it shall not be as applicable to the restrictions which they condemn as to those which they defend. It illustrates, too, the spontaneous disappearance of many commercial fallacies so soon as the field of observation is widened. Look at the restrictions from both sides, and the illusions, generated so long as they are contemplated simply from the merchants' or the national point of view, vanish by the simple change of perspective. North, moreover, adds some very good arguments against the usury laws and other quackery of state influence. Money, he says, is a commodity like any other, and attempts to keep it to ourselves are 'labours to hedge in the cuckoo '3. -a phrase used in the same connection by Locke in the same year. 1 12. A still more remarkable argument, however, appeared in the Considerations on the East India Trade,' published by an anonymous author in 1701. The singular acuteness Select Tracts,' p. 522. 2 Ib. p. 528. Ib. p. 542; Locke, iv. 17. Mr. McCulloch suggests-though he admits that it is a mere guess-that the author may have been a Mr. Henry Martyn, who wrote a paper or two in the 'Spectator.' As Martyn was a contributor to the British Merchant,' which was meant to support the very principles confuted by the author of the tract, the conjecture seems to be very doubtful (see Chalmers's biographical preface in the 'Spectator,' and McCulloch's introductory discourse to the Wealth of Nations,' p. xxxv.) displayed in this tract may entitle the writer to the credit of having anticipated the doctrines of a later generation with a clearness very seldom exhibited in any sphere of speculation. It seems as if he required nothing but a greater command of style, a greater confidence in his powers, and a higher estimate of the importance of his speculations, to have anticipated Adam Smith by just three-quarters of a century. He is not content with the sufficiently conclusive argument advanced by North, but takes the further and more difficult step of thoroughly working out the mode in which Free Trade operates. Beneath the fallacy of the balance of trade and the identification of money and wealth lay another fallacy, apparently more transparent, and yet so obstinately persistent, that its roots must clearly strike very deep in the minds of most observers. The fallacy is that which was made celebrated by Mandeville, and the complete confutation of which lies in the doctrine-so rarely understood, that its complete apprehension is, perhaps, the best test of a sound economist -that demand for commodities is not demand for labour. The argument of North implicitly recognises the fact that the value of Free Trade consists essentially in increasing the general efficiency of human labour. It tends to the best distribution of the forces of the race by encouraging each nation to devote itself to producing the articles in which it has the greatest advantage. But even whilst admitting this truth, most writers, till a much later period, and many at the present day, allow the old fallacy to reappear. For one moment they reach an elevation from which they can contemplate the planet as a whole, and at the next moment their vision is confined to the horizon visible from an English shopwindow. They cannot bear some of the corollaries, though they can assert the general proposition. Commerce, they admit in general terms, implies a reciprocity of advantages; but in each particular case they fancy that one side must lose and the other gain. That both sides to a bargain should be gainers sounds like a silly paradox. Commerce is regarded not as the means by which forces may be redistributed, and therefore applied more efficaciously, but as the shifting of a burden from one side to the other. 13. At the root of the whole system of fallacies lies a confusion between the true relations of exchange and production--a confusion which, as we shall presently see, the French economist endeavoured unsuccessfully to clear up. There is a vague conviction that to destroy the demand for any particular commodity is to destroy the demand for the labour which produces it, instead of to alter the distribution of the national energy. It is not perceived that the capital employed constitutes the demand for labour, and that it need not, in the long run, be diminished when a change is effected in its application, which makes labour, in general, more efficient. Foreign commerce, in short, is taken for a process of direct nutrition or waste, when its real character is a reciprocation of advantages which indirectly facilitates nutrition. The removal of restrictions is regarded as analogous to the opening of a sluice which enables the wealth accumulated on one side to drain off to the lower levels, instead of being analogous to the removal of a ligature which facilitates the process of nutrition on both sides. The confusion might be abundantly illustrated from the writings of many authors who could at times grasp the general principle. Thus, for example, a later advocate of Free Trade, Dean Tucker, who fully appreciates North's argument, begins his first tract upon the trade between England and France, published about 1750, by this curious inversion of argument. If, he says, 10,000 people in England make goods for the French, and 40,000 Frenchmen make goods for England, we must pay the 30,000 French in gold and silver, that is, be at the charge of maintaining them.' 'This,' he goes on to say, 'is the clearest and justest method of determining the balance between nation and nation; for though a difference in the value of the respective commodities may make some difference in the sums actually paid to balance accounts, yet the general principle, that labour, not money, is the riches of a people, will always prove that the advantage is on the side of the nation which has most hands employed in labour.' The conclusion of this ingenious and often sound thinker is, therefore, that a nation will be richer in proportion to the amount of labour employed on a given product, which is, in fact, nothing else than Mandeville's doctrine that the fire of London was useful, Tracts of Pol. Economy Club,' p. 315. |