It is not sufficiently borne in mind, also, that the whole
progress of civilization results in a differentiation of new wants
and desires. To take but a single instance, with the growth of the
artistic sense the articles of common use change their entire
form; and the advances in the arts disclose new commodities which
satisfy the world’s desires, and for these new satisfactions
people are willing to work and produce in order to attain them.
With education also comes a wider horizon and a more refined
perception of taste, which creates wants for new things for which
the mind before had no desires. A little reflection, therefore,
must inevitably lead us to see that no person, no community, ever
had, or probably ever will have, all its wants satisfied. So far
as we know man, it does not seem possible that there will ever be
a falling off in demand, because of a satiety of all material
satisfactions.
§ 4. Origin and Explanation of the notion of general Over-Supply.
I have already described the state of the markets for commodities which
accompanies what is termed a commercial crisis. At such times there is
really an excess of all commodities above the money demand: in other
words, there is an under-supply of money. From the sudden annihilation of
a great mass of credit, every one dislikes to part with ready money, and
many are anxious to procure it at any sacrifice. Almost everybody,
therefore, is a seller, and there are scarcely any buyers: so that there
may really be, though only while the crisis lasts, an extreme depression
of general prices, from what may be indiscriminately called a glut of
commodities or a dearth of money. But it is a great error to suppose, with
Sismondi, that a commercial crisis is the effect of a general excess of
production. It is simply the consequence of an excess of speculative
purchases. It is not a gradual advent of low prices, but a sudden recoil
from prices extravagantly high: its immediate cause is a contraction of
credit, and the remedy is, not a diminution of supply, but the restoration
of confidence. It is also evident that this temporary derangement of
markets is an evil only because it is temporary. The fall being solely of
money prices, if prices did not rise again no dealer would lose, since the
smaller price would be worth as much to him as the larger price was
before. In no matter does this phenomenon answer to the description which
these celebrated economists have given of the evil of over-production.
That permanent decline in the circumstances of producers, for want of
markets, which those writers contemplate, is a conception to which the
nature of a commercial crisis gives no support.
The other phenomenon from which the notion of a general excess of wealth
and superfluity of accumulation seems to derive countenance is one of a
more permanent nature, namely, the fall of profits and interest which
naturally takes place with the progress of population and production. The
cause of this decline of profit is the increased cost of maintaining
labor, which results from an increase of population and of the demand for
food, outstripping the advance of agricultural improvement. This important
feature in the economical progress of nations will receive full
consideration and discussion in the succeeding book.(256) It is obviously
a totally different thing from a want of market for commodities, though
often confounded with it in the complaints of the producing and trading
classes. The true interpretation of the modern or present state of
industrial economy is, that there is hardly any amount of business which
may not be done, if people will be content to do it on small profits; and
this all active and intelligent persons in business perfectly well know:
but even those who comply with the necessities of their time grumble at
what they comply with, and wish that there were less capital,(257) or, as
they express it, less competition, in order that there might be greater
profits. Low profits, however, are a different thing from deficiency of
demand, and the production and accumulation which merely reduce profits
can not be called excess of supply or of production. What the phenomenon
really is, and its effects and necessary limits, will be seen when we
treat of that express subject.
Chapter XII. Of Some Peculiar Cases Of Value.
§ 1. Values of commodities which have a joint cost of production.
The general laws of value, in all the more important cases of the
interchange of commodities in the same country, have now been
investigated. We examined, first, the case of monopoly, in which the value
is determined by either a natural or an artificial limitation of quantity,
that is, by demand and supply: secondly, the case of free competition,
when the article can be produced in indefinite quantity at the same cost;
in which case the permanent value is determined by the cost of production,
and only the fluctuations by supply and demand: thirdly, a mixed case,
that of the articles which can be produced in indefinite quantity, but not
at the same cost; in which case the permanent value is determined by the
greatest cost which it is necessary to incur in order to obtain the
required supply: and, lastly, we have found that money itself is a
commodity of the third class; that its value, in a state of freedom, is
governed by the same laws as the values of other commodities of its class;
and that prices, therefore, follow the same laws as values.
From this it appears that demand and supply govern the fluctuations of
values and prices in all cases, and the permanent values and prices of all
things of which the supply is determined by any agency other than that of
free competition: but that, under the _regime_ of competition, things are,
on the average, exchanged for each other at such values, and sold at such
prices, as afford equal expectation of advantage to all classes of
producers; which can only be when things exchange for one another in the
ratio of their cost of production.
Here, again, is a distinct recognition of the true meaning of cost
of production, and its ruling influence within a competing group,
which has been seen in its full significance by Mr. Cairnes.
It sometimes happens [however] that two different commodities have what
may be termed a joint cost of production. They are both products of the
same operation, or set of operations, and the outlay is incurred for the
sake of both together, not part for one and part for the other. The same
outlay would have to be incurred for either of the two, if the other were
not wanted or used at all. There are not a few instances of commodities
thus associated in their production. For example, coke and coal-gas are
both produced from the same material, and by the same operation. In a more
partial sense, mutton and wool are an example; beef, hides, and tallow;
calves and dairy produce; chickens and eggs. Cost of production can have
nothing to do with deciding the value of the associated commodities
relatively to each other. It only decides their joint value. Cost of
production does not determine their prices, but the sum of their prices. A
principle is wanting to apportion the expenses of production between the
two.
Since cost of production here fails us, we must revert to a law of value
anterior to cost of production, and more fundamental, the law of demand
and supply. The law is, that the demand for a commodity varies with its
value, and that the value adjusts itself so that the demand shall be equal
to the supply. This supplies the principle of repartition which we are in
quest of.
Suppose that a certain quantity of gas is produced and sold at a certain
price, and that the residuum of coke is offered at a price which, together
with that of the gas, repays the expenses with the ordinary rate of
profit. Suppose, too, that, at the price put upon the gas and coke
respectively, the whole of the gas finds an easy market, without either
surplus or deficiency, but that purchasers can not be found for all the
coke corresponding to it. The coke will be offered at a lower price in
order to force a market. But this lower price, together with the price of
the gas, will not be remunerating; the manufacture, as a whole, will not
pay its expenses with the ordinary profit, and will not, on these terms,
continue to be carried on. The gas, therefore, must be sold at a higher
price, to make up for the deficiency on the coke. The demand consequently
contracting, the production will be somewhat reduced; and prices will
become stationary when, by the joint effect of the rise of gas and the
fall of coke, so much less of the first is sold, and so much more of the
second, that there is now a market for all the coke which results from the
existing extent of the gas-manufacture.
Or suppose the reverse case; that more coke is wanted at the present
prices than can be supplied by the operations required by the existing
demand for gas. Coke, being now in deficiency, will rise in price. The
whole operation will yield more than the usual rate of profit, and
additional capital will be attracted to the manufacture. The unsatisfied
demand for coke will be supplied; but this can not be done without
increasing the supply of gas too; and, as the existing demand was fully
supplied already, an increased quantity can only find a market by lowering
the price. Equilibrium will be attained when the demand for each article
fits so well with the demand for the other, that the quantity required of
each is exactly as much as is generated in producing the quantity required
of the other.
When, therefore, two or more commodities have a joint cost of production,
their natural values relatively to each other are those which will create
a demand for each, in the ratio of the quantities in which they are sent
forth by the productive process.
§ 2. Values of the different kinds of agricultural produce.
Another case of value which merits attention is that of the different
kinds of agricultural produce. The case would present nothing peculiar, if
different agricultural products were either grown indiscriminately and
with equal advantage on the same soils, or wholly on different soils. The
difficulty arises from two things: first, that most soils are fitter for
one kind of produce than another, without being absolutely unfit for any;
and, secondly, the rotation of crops.
For simplicity, we will confine our supposition to two kinds of
agricultural produce; for instance, wheat and oats. If all soils were
equally adapted for wheat and for oats, both would be grown
indiscriminately on all soils, and their relative cost of production,
being the same everywhere, would govern their relative value. If the same
labor which grows three quarters of wheat on any given soil would always
grow on that soil five quarters of oats, the three and the five quarters
would be of the same value. The fact is, that both wheat and oats can be
grown on almost any soil which is capable of producing either.
It is evident that each grain will be cultivated in preference on the
soils which are better adapted for it than for the other; and, if the
demand is supplied from these alone, the values of the two grains will
have no reference to one another. But when the demand for both is such as
to require that each should be grown not only on the soils peculiarly
fitted for it, but on the medium soils which, without being specifically
adapted to either, are about equally suited for both, the cost of
production on those medium soils will determine the relative value of the
two grains; while the rent of the soils specifically adapted to each will
be regulated by their productive power, considered with reference to that
one [grain] alone to which they are peculiarly applicable. Thus far the
question presents no difficulty, to any one to whom the general principles
of value are familiar.
[Illustration: Agricultural Produce.]
This may be easily shown by a diagram, in which A represents the
grade of land best adapted for oats; B, C, D, respectively, lands
of diminishing productiveness for oats, until E is reached, which
is, perhaps, equally good for oats or wheat; _a_, _b_, _c_, _d_,
and E likewise represent the wheat-lands, the best beginning with
_a_. The rent of A, or B, is determined by a comparison with
whatever grade of land planted in oats is cultivated at the least
return, as E, for example. So, if all the wheat-lands are
cultivated, land _a_, or _b_, is compared with E, but in regard to
the capacity of E to produce wheat.
It may happen, however, that the demand for one of the two, as for example
wheat, may so outstrip the demand for the other, as not only to occupy the
soils specially suited for wheat, but to engross entirely those equally
suitable to both, and even encroach upon those which are better adapted to
oats. To create an inducement for this unequal apportionment of the
cultivation, wheat must be relatively dearer, and oats cheaper, than
according to the cost of their production on the medium land. Their
relative value must be in proportion to the cost on that quality of land,
whatever it may be, on which the comparative demand for the two grains
requires that both of them should be grown. If, from the state of the
demand, the two cultivations meet on land more favorable to one than to
the other, that one will be cheaper and the other dearer, in relation to
each other and to things in general, than if the proportional demand were
as we at first supposed.
As in the diagram just mentioned, if the demand for wheat forces
its cultivation downward not only on to land E, suited to either
indifferently, but, still farther on, to lands still less adapted
for wheat (although good land for oats), wheat may be pushed down
one stem of the V and up the other to D, or even to C. Then the
value of wheat will be regulated by the cost of production on C,
and the rent will be determined by a comparison between the
productiveness of _a_, _b_, etc. (running downward through E),
with C. The price of wheat will be high relatively to oats, which
are now cultivated only on lands, A, B, better suited to growing
oats, and whose cost of production on C is much less than on D or
E.
Here, then, we obtain a fresh illustration, in a somewhat different
manner, of the operation of demand, not as an occasional disturber of
value, but as a permanent regulator of it, conjoined with, or
supplementary to, cost of production.
Chapter XIII. Of International Trade.
§ 1. Cost of Production not a regulator of international values. Extension
of the word “international.”
Some things it is physically impossible to produce, except in particular
circumstances of heat, soil, water, or atmosphere. But there are many
things which, though they could be produced at home without difficulty,
and in any quantity, are yet imported from a distance. The explanation
which would be popularly given of this would be, that it is cheaper to
import than to produce them: and this is the true reason. But this reason
itself requires that a reason be given for it. Of two things produced in
the same place, if one is cheaper than the other, the reason is that it
can be produced with less labor and capital, or, in a word, at less cost.
Is this also the reason as between things produced in different places?
Are things never imported but from places where they can be produced with
less labor (or less of the other element of cost, time) than in the place
to which they are brought? Does the law, that permanent value is
proportioned to cost of production, hold good between commodities produced
in distant places, as it does between those produced in adjacent places?
We shall find that it does not. A thing may sometimes be sold cheapest, by
being produced in some other place than that at which it can be produced
with the smallest amount of labor and abstinence.
This could not happen between adjacent places. If the north bank of the
Thames possessed an advantage over the south bank in the production of
shoes, no shoes would be produced on the south side; the shoemakers would
remove themselves and their capitals to the north bank, or would have
established themselves there originally; for, being competitors in the
same market with those on the north side, they could not compensate
themselves for their disadvantage at the expense of the consumer; the
amount of it would fall entirely on their profits; and they would not long
content themselves with a smaller profit, when, by simply crossing a
river, they could increase it. But between distant places, and especially
between different countries, profits may continue different; because
persons do not usually remove themselves or their capitals to a distant
place without a very strong motive. If capital removed to remote parts of
the world as readily, and for as small an inducement, as it moves to
another quarter of the same town—if people would transport their
manufactories to America or China whenever they could save a small
percentage in their expenses by it—profits would be alike (or equivalent)
all over the world, and all things would be produced in the places where
the same labor and capital would produce them in greatest quantity and of
best quality. A tendency may, even now, be observed toward such a state of
things: capital is becoming more and more cosmopolitan; there is so much
greater similarity of manners and institutions than formerly, and so much
less alienation of feeling, among the more civilized countries, that both
population and capital now move from one of those countries to another on
much less temptation than heretofore. But there are still extraordinary
differences, both of wages and of profits, between different parts of the
world.
Between all distant places, therefore, in some degree, but especially
between different countries (whether under the same supreme government or
not), there may exist great inequalities in the return to labor and
capital, without causing them to move from one place to the other in such
quantity as to level those inequalities. The capital belonging to a
country will, to a great extent, remain in the country, even if there be
no mode of employing it in which it would not be more productive
elsewhere. Yet even a country thus circumstanced might, and probably
would, carry on trade with other countries. It would export articles of
some sort, even to places which could make them with less labor than
itself; because those countries, supposing them to have an advantage over
it in all productions, would have a greater advantage in some things than
in others, and would find it their interest to import the articles in
which their advantage was smallest, that they might employ more of their
labor and capital on those in which it was greatest.
It might seem that a special theory of value is required for
international trade, as compared with domestic trade, for the
particular reason that in the former there exists _no free
movement of labor and capital_ from one trading country to
another. But we shall see that no new theory is necessary. As
before pointed out,(258) commodities exchange for each other at
their relative costs wherever there is that free competition which
insures perfect facility of movement for labor and capital. It has
been usually assumed that capital and labor move freely as between
different parts of the same country, but not between different
countries. This, however, is not consistent with the facts. We saw
that there were non-competing industrial groups within the same
nation. Mr. Mill here, in a pointed way, suggests this, when he
speaks of “distant places.” The addition, therefore, made to Mr.
Mill’s exposition by Mr. Cairnes(259) is, that the word
“international” (in default of a better term) should be applied to
those conditions either within a country, or between two
countries, which, because of the actual immobility of labor and
capital from one occupation to another, furnishes a substantial
interference with industrial competition. The obstacles to the
free movement of labor and capital which produce the conditions
called “international” are: 1. “Geographical distance; 2.
Difference in political institutions; 3. Difference in language,
religion, and social customs—in a word, in forms of civilization.”
These differences exist between Maine and Montana; or even between
two adjoining States, Ohio and Kentucky, one a free and the other
an old slave State. Labor and capital have not in the past moved
freely even across Mason and Dixon’s line. There is, therefore, no
treatment of international trade and values separate from the laws
of value already laid down concerning non-competing groups, since
there is also no free competition between all the industrial
groups within a country.
§ 2. Interchange of commodities between distance places determined by
differences not in their absolute, but in the comparative, costs of
production.
As I have said elsewhere(260) after Ricardo (the thinker who has done most
toward clearing up this subject),(261) “it is not a difference in the
_absolute_ cost of production which determines the interchange, but a
difference in the _comparative_ cost. It may be to our advantage to
procure iron from Sweden in exchange for cottons, even although the mines
of England as well as her manufactories should be more productive than
those of Sweden; for if we have an advantage of one half in cottons, and
only an advantage of a quarter in iron, and could sell our cottons to
Sweden at the price which Sweden must pay for them if she produced them
herself, we should obtain our iron with an advantage [over Sweden] of one
half, as well as our cottons. We may often, by trading with foreigners,
obtain their commodities at a smaller expense of labor and capital than
they cost to the foreigners themselves. The bargain is still advantageous
to the foreigner, because the commodity which he receives in exchange,
though it has cost us less, would have cost him more.”
This may be illustrated as follows:
Articles England. Sweden.
interchanged.
Cotton. 10 days’ labor 15 days’ labor
produces _x_ yds. produces _x_ yds.
Iron. 12 days’ labor 15 days’ labor
produces _y_ cwts. produces _y_ cwts.
Here England has the advantage over Sweden in both cotton and
iron, since she can produce _x_ yards of cotton in ten days’ labor
to fifteen days in Sweden, and _y_ cwts. of iron in twelve days’
labor to fifteen days in Sweden. The ship which takes _x_ yards of
cotton to Sweden, and there exchanges it, as may be done, for _y_
cwts. of iron, brings back to England that which cost Sweden
fifteen days’ labor, while the cotton with which the iron was
bought cost England only ten days’ labor. So that England also got
her iron at an advantage over Sweden of one half of ten days’
labor; and yet England had an absolute advantage over Sweden in
iron of a less amount (i.e., of one fourth of twelve days’ labor).
It is to be distinctly understood that by difference in
_comparative cost_ we mean a difference in the comparative cost of
producing two or more articles in the _same country_, and not the
difference of cost of the same article in the different trading
countries. In this example, for instance, it is the difference in
the comparative costs in England of both cotton and iron (not the
different costs of cotton in England and Sweden) which gives the
reason for the existence of the foreign trade.
To illustrate the cases in which interchange of commodities will not, and
those in which it will, take place between two countries, the supposition
may be made that the United States has an advantage over England in the
production both of iron and of corn. It may first be supposed that the
advantage is of equal amount in both commodities; the iron and the corn,
each of which required 100 days’ labor in the United States, requiring
each 150 days’ labor in England. It would follow that the iron of 150
days’ labor in England, if sent to the United States, would be equal to
the iron of 100 days’ labor in the United States; if exchanged for corn,
therefore, it would exchange for the corn of only 100 days’ labor. But the
corn of 100 days’ labor in the United States was supposed to be the same
quantity with that of 150 days’ labor in England. With 150 days’ labor in
iron, therefore, England would only get as much corn in the United States
as she could raise with 150 days’ labor at home; and she would, in
importing it, have the cost of carriage besides. In these circumstances no
exchange would take place. In this case the comparative costs of the two
articles in England and in the United States were supposed to be the same,
though the absolute costs were different; on which supposition we see that
there would be no labor saved to either country by confining its industry
to one of the two productions and importing the other.
It is otherwise when the comparative and not merely the absolute costs of
the two articles are different in the two countries. If, while the iron
produced with 100 days’ labor in the United States was produced with 150
days’ labor in England, the corn which was produced in the United States
with 100 days’ labor could not be produced in England with less than 200
days’ labor, an adequate motive to exchange would immediately arise. With
a quantity of iron which England produced with 150 days’ labor, she would
be able to purchase as much corn in the United States as was there
produced with 100 days’ labor; but the quantity which was there produced
with 100 days’ labor would be as great as the quantity produced in England
with 200 days’ labor. By importing corn, therefore, from the United
States, and paying for it with iron, England would obtain for 150 days’
labor what would otherwise cost her 200, being a saving of 50 days’ labor
on each repetition of the transaction; and not merely a saving to England,
but a saving absolutely; for it is not obtained at the expense of the
United States, who, with corn that cost her 100 days’ labor, has purchased
iron which, if produced at home, would have cost her the same. The United
States, therefore, on this supposition, loses nothing; but also she
derives no advantage from the trade, the imported iron costing her as much
as if it were made at home. To enable the United States to gain anything
by the interchange, something must be abated from the gain of England: the
corn produced in the United States by 100 days’ labor must be able to
purchase from England more iron than the United States could produce by
that amount of labor; more, therefore, than England could produce by 150
days’ labor, England thus obtaining the corn which would have cost her 200
days at a cost exceeding 150, though short of 200. England, therefore, no
longer gains the whole of the labor which is saved to the two jointly by
trading with one another.(262)
The case in which both England and the United States would gain
from the trade may be thus briefly shown:
Articles United States. England.
interchanged.
Corn. 100 days’ labor 200 days’ labor
produces _x_ bus. produces _x_ bus.
Iron. 125 days’ labor 150 days’ labor
produces _y_ tons. produces _y_ tons.
The ship which carries _x_ bushels of corn from the United States
to England can there exchange it for at least _y_ tons of iron
(costing England 150 days’ labor, since _x_ bushels in England
would cost 200 days’ labor), and bring it home, gaining for the
United States the difference between the 100 days’ labor in corn,
paid for the _y_ tons of iron, and the 125 days which the iron
would have cost here if produced at home. In this case the United
States has an advantage over England in both corn and iron, but
still an international trade will spring up, because the United
States will derive a gain owing to the less cost of corn as
compared with the cost of iron. Our _comparative_ advantage is in
corn. England, also, by sending to the United States _y_ tons of
iron, gets in return for it _x_ bushels of corn. To produce the
corn herself would have cost her 200 days’ labor, but she bought
that corn by only 150 days’ labor spent on iron. England’s
_comparative_ advantage is in iron. Then both countries will gain.
Mr. Bowen(263) gives an instance of international trade where one
country has the advantage in both of the commodities entering into
the exchange: “The inhabitants of Barbadoes, favored by their
tropical climate and fertile soil, can raise provisions cheaper
than we can in the United States. And yet Barbadoes buys nearly
all her provisions from this country. Why is this so? Because,
though Barbadoes has the advantage over us in the ability to raise
provisions cheaply, she has a still greater advantage over us in
her power to produce sugar and molasses. If she has an advantage
of one fourth in raising provisions, she has an advantage of one
half in regard to products exclusively tropical; and it is better
for her to employ all her labor and capital in that branch of
production in which her advantage is greatest. She can thus, by
trading with us, obtain our breadstuffs and meat at a smaller
expense of labor and capital than they cost ourselves. If, for
instance, a barrel of flour costs ten days’ labor in the United
States and only eight days’ labor in Barbadoes, the people of
Barbadoes can still profitably buy the flour from this country, if
they can pay for it with sugar which cost them only six days’
labor; and the people of this country can profitably sell them the
flour, or buy from them the sugar, provided the sugar, if raised
in the United States, would cost eleven days’ labor.... The United
States receive sugar, which would have cost them eleven days’
labor, by paying for it with flour which costs them but ten days.
Barbadoes receives flour, which would have cost her eight days’
labor, by paying for it with sugar which costs her but six days.
If Barbadoes produced both commodities with greater facility, but
greater in precisely the same degree, there would be no motive for
interchange.”
It may be said, however, that in practice no business-man
considers the question of “comparative cost” in making shipments
of goods abroad; that all he thinks of is whether the price here,
for example, is less than it is in London. And yet the very fact
that the prices are less here implies that gold is of high value
relatively to the given commodity; while in London, if money is to
be sent back in payment, and if prices are high there, that
implies that gold is there of less comparative value than
commodities, and consequently that gold is the cheapest article to
send to the United States. The doctrine, then, is as true of gold,
or the precious metals, as it is of other commodities.(264) It may
be stated in the following language of Mr. Cairnes: “The proximate
condition determining international exchange is the state of
comparative prices in the exchanging countries as regards the
commodities which form the subject of the trade. But comparative
prices within the limits of each country are determined by two
distinct principles—within the range of effective industrial
competition, by cost of production; outside that range, by
reciprocal demand.”(265)
§ 3. The direct benefits of commerce consist in increased Efficiency of
the productive powers of the World.
From this exposition we perceive in what consists the benefit of
international exchange, or, in other words, foreign commerce. Setting
aside its enabling countries to obtain commodities which they could not
themselves produce at all, its advantage consists in a more efficient
employment of the productive forces of the world. If two countries which
traded together attempted, as far as was physically possible, to produce
for themselves what they now import from one another, the labor and
capital of the two countries would not be so productive, the two together
would not obtain from their industry so great a quantity of commodities,
as when each employs itself in producing, both for itself and for the
other, the things in which its labor is relatively most efficient. The
addition thus made to the produce of the two combined constitutes the
advantage of the trade. It is possible that one of the two countries may
be altogether inferior to the other in productive capacities, and that its
labor and capital could be employed to greatest advantage by being removed
bodily to the other. The labor and capital which have been sunk in
rendering Holland habitable would have produced a much greater return if
transported to America or Ireland. The produce of the whole world would be
greater, or the labor less, than it is, if everything were produced where
there is the greatest absolute facility for its production. But nations do
not, at least in modern times, emigrate _en masse_; and, while the labor
and capital of a country remain in the country, they are most beneficially
employed in producing, for foreign markets as well as for its own, the
things in which it lies under the least disadvantage, if there be none in
which it possesses an advantage.
The fundamental ground on which all trade, or all exchange of
commodities, rests, is division of labor, or separation of
employments. Beyond the ordinary gain from division of labor,
arising from increased dexterity, there exist gains arising from
the development of “the special capacities or resources possessed
by particular individuals or localities.” International exchanges
call out chiefly the special advantages offered by particular
_localities_ for the prosecution of particular industries.
“The only case, indeed, in which _personal aptitudes_ go for much
in the commerce of nations is where the nations concerned occupy
different grades in the scale of civilization.... The most
striking example which the world has ever seen of a foreign trade
determined by the peculiar personal qualities of those engaged in
ministering to it is that which was furnished by the Southern
States of the American Union previous to the abolition of slavery.
The effect of that institution was to give a very distinct
industrial character to the laboring population of those States
which unfitted them for all but a very limited number of
occupations, but gave them a certain special fitness for these.
Almost the entire industry of the country was consequently turned
to the production of two or three crude commodities, in raising
which the industry of slaves was found to be effective; and these
were used, through an exchange with foreign countries, as the
means of supplying the inhabitants with all other requisites....
In the main, however, it would seem that this cause [personal
aptitudes] does not go for very much in international
commerce.”(266)
In brief, then, international trade is but an extension of the
principle of division of labor; and the gains to increased
productiveness, arising from the latter, are exactly the same as
those from the former.
§ 4. —Not in a Vent for exports, nor in the gains of Merchants.
According to the doctrine now stated, the only direct advantage of foreign
commerce consists in the imports. A country obtains things which it either
could not have produced at all, or which it must have produced at a
greater expense of capital and labor than the cost of the things which it
exports to pay for them. It thus obtains a more ample supply of the
commodities it wants, for the same labor and capital; or the same supply,
for less labor and capital, leaving the surplus disposable to produce
other things. The vulgar theory disregards this benefit and deems the
advantage of commerce to reside in the exports: as if not what a country
obtains, but what it parts with, by its foreign trade, was supposed to
constitute the gain to it. An extended market for its produce—an abundant
consumption for its goods—a vent for its surplus—are the phrases by which
it has been customary to designate the uses and recommendations of
commerce with foreign countries. This notion is intelligible, when we
consider that the authors and leaders of opinion on mercantile questions
have always hitherto been the selling class. It is in truth a surviving
relic of the Mercantile Theory, according to which, money being the only
wealth, selling, or, in other words, exchanging goods for money, was (to
countries without mines of their own) the only way of growing rich—and
importation of goods, that is to say, parting with money, was so much
subtracted from the benefit.
The notion that money alone is wealth has been long defunct, but it has
left many of its progeny behind it. Adam Smith’s theory of the benefit of
foreign trade was, that it afforded an outlet for the surplus produce of a
country, and enabled a portion of the capital of the country to replace
itself with a profit. The expression, surplus produce, seems to imply that
a country is under some kind of necessity of producing the corn or cloth
which it exports; so that the portion which it does not itself consume, if
not wanted and consumed elsewhere, would either be produced in sheer
waste, or, if it were not produced, the corresponding portion of capital
would remain idle, and the mass of productions in the country would be
diminished by so much. Either of these suppositions would be entirely
erroneous. The country produces an exportable article in excess of its own
wants from no inherent necessity, but as the cheapest mode of supplying
itself with other things. If prevented from exporting this surplus, it
would cease to produce it, and would no longer import anything, being
unable to give an equivalent; but the labor and capital which had been
employed in producing with a view to exportation would find employment in
producing those desirable objects which were previously brought from
abroad; or, if some of them could not be produced, in producing
substitutes for them. These articles would, of course, be produced at a
greater cost than that of the things with which they had previously been
purchased from foreign countries. But the value and price of the articles
would rise in proportion; and the capital would just as much be replaced,
with the ordinary profit, from the returns, as it was when employed in
producing for the foreign market. The only losers (after the temporary
inconvenience of the change) would be the consumers of the heretofore
imported articles, who would be obliged either to do without them,
consuming in lieu of them something which they did not like as well, or to
pay a higher price for them than before.
If it be said that the capital now employed in foreign trade could not
find employment in supplying the home market, I might reply that this is
the fallacy of general over-production, discussed in a former chapter; but
the thing is in this particular case too evident to require an appeal to
any general theory. We not only see that the capital of the merchant would
find employment, but we see what employment. There would be employment
created, equal to that which would be taken away. Exportation ceasing,
importation to an equal value would cease also, and all that part of the
income of the country which had been expended in imported commodities
would be ready to expend itself on the same things produced at home, or on
others instead of them. Commerce is virtually a mode of cheapening
production; and in all such cases the consumer is the person ultimately
benefited; the dealer, in the end, is sure to get his profit, whether the
buyer obtains much or little for his money.
_E converso_, if for any reason, such as a removal of duties,
capital should be withdrawn from the production of articles
consumed at home, and imported commodities should entirely take
their place, the very importation of the foreign commodities would
imply that an increased corresponding production was going on in
this country with which to pay for the imported goods. The capital
thus thrown out of employment in an industry in which we had no
comparative advantage (when competition became free) would
necessarily be employed in the industries in which we had an
advantage, and would supply—and the transferred capital would be
the only means of supplying—the commodities which would be sent
abroad to pay for those, which by the supposition are now
imported, but were formerly produced at home. The result is a
greater productiveness of industry, and so a greater sum from
which both labor and capital may be rewarded. Whenever capital,
unrestrained by artificial support, leaves one employment as
unprofitable, it means that that employment is naturally, and in
itself, less productive than the usual run of other industries in
the country, and so less profitable to both labor and capital than
the majority of other occupations.
§ 5. Indirect benefits of Commerce, Economical and Moral; still greater
than the Direct.
Such, then, is the direct economical advantage of foreign trade. But there
are, besides, indirect effects, which must be counted as benefits of a
high order. (1) One is, the tendency of every extension of the market to
improve the processes of production. A country which produces for a larger
market than its own can introduce a more extended division of labor, can
make greater use of machinery, and is more likely to make inventions and
improvements in the processes of production. Whatever causes a greater
quantity of anything to be produced in the same place tends to the general
increase of the productive powers of the world.(267) There is (2) another
consideration, principally applicable to an early stage of industrial
advancement. The opening of a foreign trade, by making them acquainted
with new objects, or tempting them by the easier acquisition of things
which they had not previously thought attainable, sometimes works a sort
of industrial revolution in a country whose resources were previously
undeveloped for want of energy and ambition in the people; inducing those
who were satisfied with scanty comforts and little work to work harder for
the gratification of their new tastes, and even to save, and accumulate
capital, for the still more complete satisfaction of those tastes at a
future time.
But (3) the economical advantages of commerce are surpassed in importance
by those of its effects which are intellectual and moral. It is hardly
possible to overrate the value, in the present low state of human
improvement, of placing human beings in contact with persons dissimilar to
themselves, and with modes of thought and action unlike those with which
they are familiar. Commerce is now, what war once was, the principal
source of this contact. Such communication has always been, and is
peculiarly in the present age, one of the primary sources of progress.
Finally, (4) commerce first taught nations to see with goodwill the wealth
and prosperity of one another. Before, the patriot, unless sufficiently
advanced in culture to feel the world his country, wished all countries
weak, poor, and ill-governed but his own: he now sees in their wealth and
progress a direct source of wealth and progress to his own country. It is
commerce which is rapidly rendering war obsolete, by strengthening and
multiplying the personal interests which are in natural opposition to it.
And it may be said without exaggeration that the great extent and rapid
increase of international trade, in being the principal guarantee of the
peace of the world, is the great permanent security for the uninterrupted
progress of the ideas, the institutions, and the character of the human
race.
Chapter XIV. Of International Values.
§ 1. The values of imported commodities depend on the Terms of
international interchange.
The values of commodities produced at the same place, or in places
sufficiently adjacent for capital to move freely between them—let us say,
for simplicity, of commodities produced in the same country—depend
(temporary fluctuations apart) upon their cost of production. But the
value of a commodity brought from a distant place, especially from a
foreign country, does not depend on its cost of production in the place
from whence it comes. On what, then, does it depend? The value of a thing
in any place depends on the cost of its acquisition in that place; which,
in the case of an imported article, means the cost of production of the
thing which is exported to pay for it.
If, then, the United States imports wine from Spain, giving for every pipe
of wine a bale of cloth, the exchange value of a pipe of wine in the
United States will not depend upon what the production of the wine may
have cost in Spain, but upon what the production of the cloth has cost in
the United States. Though the wine may have cost in Spain the equivalent
of only ten days’ labor, yet, if the cloth costs in the United States
twenty days’ labor, the wine, when brought to the United States, will
exchange for the produce of twenty days’ American labor, _plus_ the cost
of carriage, including the usual profit on the importer’s capital during
the time it is locked up and withheld from other employment.(268)
The value, then, in any country, of a foreign commodity, depends on the
quantity of home produce which must be given to the foreign country in
exchange for it. In other words, the values of foreign commodities depend
on the terms of international exchange. What, then, do these depend upon?
What is it which, in the case supposed, causes a pipe of wine from Spain
to be exchanged with the United States for exactly that quantity of cloth?
We have seen that it is not their cost of production. If the cloth and the
wine were both made in Spain, they would exchange at their cost of
production in Spain; if they were both made in the United States, they
would [possibly] exchange at their cost of production in the United
States: but all the cloth being made in the United States, and all the
wine in Spain, they are in circumstances to which we have already
determined that the law of cost of production is not applicable. We must
accordingly, as we have done before in a similar embarrassment, fall back upon an antecedent law, that of supply and demand; and in this we shall again find the solution of our difficulty. |
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