[A2-4-4]Fullarton'sview (Regulation of Currencies, 1844) suffers from exaggeration.Knies, Geld and Credit, II, 285, very well shows that the "hoards" are by no means mere idle stores, and that, therefore, their void produced by the exportation of money must be soon filled up again.Adam Smith, even, may be considered a predecessor ofFullarton. (W. of N., ch. 2, p. 250, Bas.)
[A2-4-5]EvenBüsch(Werke, XIII, 26) says that the under-balance (Unterbilanz) of the Scotch vis-a-vis of England was for a long time made up in two ways, by the marriage of wealthy English heiresses and by Scotch bankrupts. Thus the troops, who, in the 17th century, were traded over to France, and in the 18th, to England by German princes, brought the money, in part, back again, which was exported by the unfavorable balance. According toList, the exported metals, after they have risen in price with us, flow back to us again; not, however, as exchangeable articles, but in the form of a loan, by which it is made possible for us to dispose of them again, and again to receive them in this shape. (Werke, II, 37.)
[A2-4-6]Thus evenJ. Steuart, Principles, IV, 2, ch. 8.
[A2-4-7]CompareSoetbeerinHirth'sAnnalen des deutschen Reiches, 1875, p. 731 ff.
[A2-4-8]British Europe had from 1854 to 1863, a yearly surplus amount (Mehrbetrag) of imports of at least 266, and at most 1190 millions of marks, in the average, 764 millions; from 1864 to 1873, of at least 802 millions, and at most 1388 millions, an average of 1104 millions; whereas, on the other hand, Australia, besides its great exportation of gold, exhibits a great excess of exports of commodities over imports. France, too, from 1867 to 1869, had attained to an average surplus importation (Mehreinfuhr) of 211 million marks; which is related to the fact that, according toL. Say, it received about from 600 to 700 million francs a year in interest from foreign countries; and that from 200 to 300 million francs were expended by foreigners, etc., traveling in France. Similarly, in the case of governing countries vis-a-vis of their dependencies; whence even the old mercantilists entertained no doubt of the enrichment of the former. Thus France, in 1787 ff., had a yearly importation of 613 million livres, and an exportation of 448 millions, because the colonies sent to France 150 millions more than they drew therefrom. (Chaptal, De l'Industrie, Fr., I, 134.) Hungary, from 1831 to 1840, had a yearly exportation of 46 million florins to Austria, and an importation of only 30 millions. (List, Zollvereinsblatt. 1843, No. 49) Algiers drew from France in 1844 to the amount of 83 million francs, and found a market there for only 8 millions (Moniteur), which no one will consider an enrichment of France. The great preponderance of French exports in 1831, 1848 and 1849, of Austrian, between 1874 and 1876, a sign of diminished purchasing capacity! When England, in March, 1877, imported to the amount of £35,230,000, and exported to the amount of £16,921,000 (against £27,451,000 and £17,739,000 in March, 1876), the Economist sees therein a sign that many outstanding debts were called in.
SECTION V.
THE ADVANTAGES OF INTERNATIONAL TRADE.
The truth that no exportation is permanently possible without importation, and that, in international trade, also, both sides better their condition, was clear to the Italians in the fifteenth century, and in the sixteenth and seventeenth centuries to the Netherlanders.[A2-5-1]
Every nation can, through its instrumentality, for the first time, acquire not only those commodities which nature entirely refuses to it, but such also which it can itself produce only at a great cost.[A2-5-2]And here it is not so much the absolute costsof production as the comparative which are decisive.[A2-5-3]The country A may be superior to the country B in all kinds of productiveness; but when this superiority for the group of commoditiesxamounts to only 50 per cent., and for the groupy, on the other hand, to 100 per cent., it is to the interest of A, which possesses only a limited quantity of the factors of production, to produce a surplus of the commoditiesy, and to exchange that surplus against what it wants ofx.[A2-5-4]B, also, would willingly agree to this, even if it were not to get the commoditiesyentirely as cheap as A might supply them, but still decidedly cheaper than their production would cost in B itself. But, if both parties derive advantage from international trade, there is no necessity whatever that this advantage should be equally great on both sides. As in every struggle over prices, the gain here also is greatest on the side of the nation whose desire to hold fast to their own commodities is farthestfrom being outweighed by the want of the foreign commodity, and which, at the same time, employs most productively the equivalent received in imports in exchange for its exports.[A2-5-5]Yet, in estimating this productiveness, it is necessary to take the whole national life into consideration.[A2-5-6]
The international distribution of the precious metals is subject to the same law. These, also, are procured most cheaply by the nation which, directly or indirectly (by the production of counter values wished for by the whole world), employs the most productive economic activity upon them, and at the same time (it may be by especially well developed credit), is in the least urgent need of them.[A2-5-7]Therefore, on the whole, their value in exchange is wont to be lowest among the richestand most highly cultivated nations.[A2-5-8]Such a relative cheapness of gold and silver is not only a symptom of economic power, but considering the preëminent energy of these very commodities, at the same time, a means to procure most foreign commodities with a smaller expenditure of one's own forces.[A2-5-9]Hence, a great change in the distribution, hitherto usual, of the precious metals, produced, possibly, by great advances made in production here, or by an increase in consumption there, or by means of commercial prohibitions, etc., may be just as advantageous to the country which receives more as hurtful for the country which pays more;[A2-5-10]and both, all the more as therevolution in prices enhances the most productive elements of the nation there, and here the most unproductive.[A2-5-11]Hence, even when it cannot, in general, be said that one branch of commerce, carried on in a normal manner, should necessarily remain behind another in economic productiveness, those which have nothing to fear from a disturbance of their balance by the measures of foreign states are distinguished by the greatest security, and those are capable of the greatest growth which exchange articles to be manufactured (Fabrikanden), and the means of subsistence against ordinary manufactured articles.[A2-5-12][A2-5-13]
[A2-5-1]M. Sanudo, in Muratori Scriptores, XXII, 950 ff., and the Netherland decree of February 3, 1501, in the Journal des Economistes, XIII, 304. Then,Salmasins, de Usuris (1638), p. 197.Child,BecherandTemplehad all made their studies in Holland. Compare, besides, evenPlato, De Rep., II, 371.
[A2-5-2]J. S. Millrightly calls it a remnant of the mercantile system thatAdam Smithstill saw the principal utility of foreign trade in the market for the home production which is thereby increased. But this utility is to be looked for not so much in what is exported as in what is imported. (Principles, II, ch. 17, 4.)
[A2-5-3]Comparev. Mangoldt, Grundriss der V. W. L., 185 ff. By the English, the discovery of this truth is attributed toRicardo, Principles, ch. 7. Compare the further development inJ. Mill, Elements (1821), III, 4, 13 seq.;Torrens, The Budget (1844) andJ. S. Mill, Essays on some unsettled Principles of Political Economy (1844), No. 1, and Principles, III, ch. 18 ff. But evenJacob, Grundsätze der Polizeigesetzgebung (1809, p. 546 ff.), was acquainted with the truth that generally both sides gained, but the one party, possibly more than the other. According toLotz, Revision (1811), I, 161, the gain and loss of each party rises and falls in proportion to the difference between the degrees of value which each party, so far as he is himself concerned, attaches to the goods given and the goods received. And evenCantillon, Nature du Commerce (1155), p. 226, 369 ff., had a presentiment of the reason why countries having a low value in exchange of money can continue notwithstanding to sell in foreign countries. And so, too,Hume, Essays (1752), On Interest, who, without looking through the spectacles of the mercantile system, perceived that countries with a flourishing trade must necessarily draw much gold and silver to themselves. Recently,Cairneshas shown by practical examples that Australia imports Irish butter and Norwegian wood, and the Barbadians meat and flour from New York, although both might themselves produce such articles cheaper. (Essays, etc., 1873. Leading Principles, 1874, p. 379.)
[A2-5-4]Thus a Kaulbach might more expertly ornament his own door and window frames than an ordinary room-painter, but does not do so, because he can employ his time to better advantage.
[A2-5-5]EvenLaw, Money and Trade, p. 31, was of opinion, that when a nation consumes its imports which are greater than its exports, it grows poorer, not in consequence of the importation, but of the consumption.Quesnaycalls attention to theplus on moins de profit qui résulte des marchandises mêmes que l'on a vendues et de celles que l'on a achetées. Souvent la perte est pour la nation qui reçoit un surplus en argent, et cette perte se trouve au[TN 128]préjudice de la distribution et de réproduction des revenus. (Max. génér., 24.)
[A2-5-6]Raudistinguishes principally whether importation brings articles of luxury or means of acquisition (Erwerbstamm) into the country. (Ansichten der V. W., 163.) Similarly,de Cazcaux, Eléments d'Economie privée et publique (1825), p. 188 ff.Schmitthenner, Zwölf Bücher vom Staate (1839), I, 497. "A favorable balance of trade does not make a people richer because they receive the metals for other values, but because they produce and sell more than they purchase and consume; the result of which naturally is that the difference must consist in values capable of being capitalized." Kaufmann draws a distinction according as the imported goods come into the country in the form of dead or interest-bearing capital. He illustrates his view by the case of a peasant who sells his seed-corn in order to purchase a finer hat with the proceeds. (Untersuchungen, I, 96, 81 seq.)
[A2-5-7]International trade makes imported commodities cheaper and exported commodities dearer, but the aggregate of consumers gain more in the former case than they lose in the latter, because they now enjoy the blessings of the international division of labor. But, even with this general enrichment, single classes of the people, and even the majority, may have to suffer; as, for instance, when in the exchange of corn against iron, the cheapening of the iron profits the people less than the consequent dearness of corn injures them. (Fawcett, Manual, 391.)
[A2-5-8]"Gold and silver are by the competition of commerce distributed in such proportions amongst the different countries of the world as to accommodate themselves to the natural traffic which would take place if no such metals existed and the trade between countries were purely a trade of barter." (Ricardo, Principles, ch. 7.) In most direct opposition to the mercantile system, he represents the distribution of the precious metals to be not the cause but the effect of national wealth. A nation rapidly growing in wealth will obtain and keep a larger quota of the general supply of gold and silver. (The high Price of Bullion, 1810.) On the other hand, it depends on the one-sided abstraction with whichRicardoloves to pursue certain assumptions, that every exportation of money is made to signify a peculiar cheapness of money, andvice versa. (Opposed byMalthus, Edinb. Rev., Febr., 1811.)Carey'sfrequently repeated assertion, that gold and silver always flow towards those markets where they are cheapest (Principles of S. Science, I, 150, and passim), confounds cause and effect.
[A2-5-9]Compare § 126, and evenKaufmann, Untersuchungen, I, 75 seq.
[A2-5-10]Let us suppose that, hitherto, the English had supplied their demand for wine from France, and paid therefor in commodities made of steel; and that now France prohibits the importation of the latter and requires gold instead. If the English take this gold out of their own circulation, the value in exchange of the gold which remains to them rises; the prices of all commodities fall, state debts and private debts become more oppressive, etc. If, to avoid this, they send their steel wares, which France has rejected, to California, to obtain gold there in exchange, they find that California has as much of steel wares as it requires, and that it can be induced to extend its consumption of them only by a corresponding lowering of their price. But if, on the other hand, the gold which has flowed towards France has produced a rise in the price of commodities, and a decrease in the exportation of commodities; and has then flowed out of the country, to Germany for instance; England may in consequence be placed in a position to effect its payments for French wine with the gold which its manufactured articles have been exchanged against in Germany. But all this always supposes that the prices of commodities have fallen in England and risen in other countries; that is, a changed and, so far as England is concerned, an unfavorable distribution of the precious metals—which is found in connection with a relatively decreased productiveness of English labor. The English cost of production may yet continue to be covered, notwithstanding; but, when it has been diminished by a lowering of wages, interest, etc., the national wealth suffers in consequence. CompareTorrens, Budget, p. 50 ff., who precisely on this bases the greater security of trade between the mother country and its colonies; and which also found expression in the Peel reform plan of 1842 ff.Adam Smithapproximated to this view when he ascribed a more favorable balance to the country which paid for its imports with its own instead of with foreign products. (W. of N., IV, ch. 3-2, p. 329, Bas.)
[A2-5-11]Compare § 141. Strongly emphasized byList, Werke II, 31, 36 seq. 48, 137.
[A2-5-12]Torrensimagines an English manufacturer who employs raw material = 100 quarters of corn and manufactured wares = 100 bales of cloth (the quarter of corn and the bale of cloth supposed to be of equal value) and whose product = 240 bales in value; and compares him with an American agriculturist who, by means of the same outlay of capital, harvests 240 quarters of corn. The trade between them restores to each not only his outlay, with twenty per cent. profit, but puts them in a position to repeat their production on a larger scale. Only the quantity of fertile land can put a limit to this growth; for corn and cloth help produce each other, and the cheapness of the one promotes the cheapness of the other, which can not, by any means, be said, for instance, of the exchange between vanilla and satin. (Budget, p. 268 ff.) CompareRoscher, Colonien, p. 277 ff.
[A2-5-13]The important controversy concerning absenteeism may be answered in accordance with the principles laid down in this chapter. The mercantile system considered the rent sent to absentee landlords or capitalists as a tribute paid to foreign countries; but certainly improperly, as such rent is only the fruit of their property which the owners might have consumed in their own country, without giving any one a particle of it. Besides, these rents are not sent in cash to foreign countries, but in the form of those commodities to the exportation of which the country is peculiarly well adapted. Let us suppose, for instance, that the Irish absentees had all left the country at once. The tradesmen, personal servants, etc., to whom they had hitherto furnished employment would be greatly embarrassed to find a market for their services, etc., but the producers of linen and meat would have largely increased their exports, because an entirely new demand for their products would have arisen through the farmers of the absentees. The reverse would necessarily happen if all absentees were suddenly called home. Absenteeism which has lasted a long time injures no one economically. Many, recently, laud it even, because it permits every nation to devote their energies to the branches of production for which they are best qualified: Paris, for instance, to theatrical and luxury wares. The savings made by the English absentees on the continent, where things are cheaper, turn eventually to the advantage of England. (Thus, evenPetty: Political Anatomy of Ireland, p. 81 ff.Foster, On the Principle of Commercial Exchanges between Great Britain and Ireland, 1804, p. 76 ff. Edinb. Rev., 1827.F. B. Hermann, Staatswirthschaftl. Untersuchungen, 355, 363 ff.Per contra, especially, Discourse of Trade and Coyn, 1697, p. 99.M. Prior, List of the Absenters of Ireland, 1730.A. Young; Tour in Ireland, 1780.Sir J. Sinclair, Hist. of the Public Revenue, 1804, III, 192 seq.Lady Morgan, On Absenteeism, 1825.) An aversion for absenteeism plays a chief part in all Carey's writings. Thus, even in his Rate of Wages, 45 ff.
On medieval complaints concerning the absenteeism of monasteries:Bodmann, Rheingauische Alterthümer, 751. From a higher point of view, it cannot, indeed, be ignored that absenteeism, largely developed, cripples the organic whole of national life. The most highly cultured and influential classes become estranged from their country, the great mass remaining behind coarser, economic production more one-sided, and all social contrasts more sharply defined. Disturbances in Rome, when Diocletian removed his residence from there; the decline of the Netherlands, very much promoted by the discontent which Philip II.'s departure for Spain produced. It was estimated, however, in 1697, that the English absentees caused a gain to France of £200,000 per annum. (Discourse of Trade, p. 93.) It is said that about 1833, 80,000 Englishmen traveled on the continent, and consumed £12,000,000 there. (Rau.) According toBrückner, the Russians who travel in foreign countries take 20,000,000 rubles a year out of the country with them. (Hildebrand'sJahrb., 1863, 59.) That the countries which receive these travelers receive no very great benefit from them, see inJ. B. Say, Cours pratique. In Paris, there were, even in 1797, so many strangers who so enhanced the rents paid formaisons garniesthat their expulsion was proposed. (A. Schmidt, Pariser Zustände, III, 78.)
SECTION VI.
INTERNATIONAL COMMERCIAL TREATIES.
All international commercial treaties have this object in common: to moderate the impediments to trade which arisefrom the differences and even from the enmities of states. According to time and character, they fall into three groups:
A.Medieval, where a barbarous state for the first time promises foreign merchants in general legal security, without which regular trade is unthinkable. Such treaties, where their provisions are not a matter of course, must be certainly considered as a salutary advance; and they may, under certain circumstances, be necessary even to-day.[A2-6-1]
B.Mercantilistictreaties, which close, perhaps, even a bloody commercial war carried on against a rival,[A2-6-2]or whichby a closer connection with a state, whose rivalry is not so much feared, are intended to moderate the worst consequences of a general seclusion.[A2-6-3]Consistently carried out, and without any regard for consequences, the mercantile system really means a war of each state against all others, and it is no mere accident that after the cessation of the wars of religion (1648) and before the beginning of the war of the French revolution (1792), commercial wars occupy the foreground. Such economic alliances as are entered into in these treaties generally unite states which, by reason of the very different nature of their land and their different national culture, are adapted to production of very different kinds, and which, at the same time, have a common political interest.[A2-6-4]Each party here agrees with the other to give a preference to its subjects in trade, to not exceed certain maxima of duties, etc.[A2-6-5]
The art of the negotiator was employed to overreach the other contractant in relation to the balance of trade.[A2-6-6]It was considered a special matter of congratulation to induce a less highly developed nation to abandon the traditional means employed to artificially elevate its industries. Hence it is, that such friendly treaties frequently contained the germs of the bitterest enmity.[A2-6-7]A popular remnant of this second grouphas been noticeable even in recent times, when in diplomatic negotiations concerning the reciprocal modification of duties, it was considered an overreaching and even as an outrage, in case one state made more "concessions" than it received:[A2-6-8]evidently, a confusion of the producers of the industry in question with the whole nation.
C.Free-tradetreaties, intended to pave the way to the general freedom of trade.[A2-6-9]Two provisions especially are characteristichere: putting the subjects of the other party on an equal footing with those of the home country in what relates to the ship-duties, etc.;[A2-6-10]and the promise that the products of the other party, as regards import duties, shall be treated like those of the most favored nation.[A2-6-11][A2-6-12]Whether this preparation for the universal freedom of trade is better made through the medium of an international treaty or of national legislation cannot be answered generally.[A2-6-13]Besides, in our day, the preference of one foreign nation would be easily evaded through the perfection of the modern means of communication.
[A2-6-1]The treaty of commerce between England and Morocco, of the 9th of December, 1856, specially covenants that the countrymen of a debtor shall not be held responsible for debts in the creation of which they had no part; that between England and Mexico, in 1826, guaranties, among other things, that prices shall be freely determined between buyers and sellers (art. 8), freedom from compulsory loans, and from forced conscription for military duty (10), the exercise of one's religion, and the inviolability of graves (13); things which were not yet matters of course in Mexico! Similar agreements between Spain and England in 1667; between Spain and Holland in 1648 and 1713; and even in 1786, between England and France. Commercial treaties of this kind are found very early and very frequently among the ancients. Compare the Arcadian-Ægean inPausan, VIII, 5, 5, which strongly recalls the Russo-English trade over Archangel; further, Corp. Inscr. Gr., II, No. 1793, 2053 b and c, 2056, 2447 b, 2675-78, 3523. That in the suburbs of Jerusalem, from Solomon to Josias, places where Astarte[TN 129]etc. was worshipped, were maintained unhindered, depends, it is said, on commercial treaties with the Phœnicians, Moabites, Ammonites. (Movers, Phönikier, III, 1, 121 ff., 206 seq.)
[A2-6-2]The two commercial treaties between Rome and Carthage, 348 and 306 before Christ (Polyb., III, 22 ff.), are a clear proof that, in the interval, the mercantile superiority of Carthage had increased. While the Romans in 348 had still the right, under certain limitations, to carry on trade in Sardinia and Africa, it was in 306 entirely denied them.
[A2-6-3]As guild-privileges make annual fairs (Jahrmärkte) and governmental fixed prices necessary.
[A2-6-4]Commercial treaty of the Venetians with the Latin empire in Constantinople, of the Genoese with the Greek after its restoration; in which, for instance, it was promised to the former, that no citizen of a state at war with Venice, should be permitted to sojourn in the Byzantine empire; to the latter, that they alone of all foreigners should enjoy freedom from taxation, and, with the Pisans, navigate the Black Sea. As long as the Dutch were the hereditary foes of Spain, they were much favored in France. Commercial treaty of 1596, putting them on an equal footing with the French; and which, considering their superiority at the time, was necessarily of greater advantage to them than to the French.Colbert'sstep to destroy this preponderance is coincident with the changed foreign policy. (Richesse de Hollande, I, 127.) In the peace of Nijmegen,[TN 130]again (art. 6 seq.), France tried to separate the Dutch from their allies by the restoration of their former rights. In the Spanish war of succession, France entered into a treaty with the arch-duke, Charles, that a common commission should fix the duties on English commodities, transfer the trade with America to an English-Spanish company, but that the French should be excluded therefrom. (Ranke, Franz. Gesch., IV, 257.)
[A2-6-5]The king of Bosporos had the rights of citizenship in Athens, and enjoyed that of freedom from taxation of his property there. In consideration of this, the Athenians were released from his corn export duties of 1/30. (Isocr., Trapez., § 71.Demosth., Lept., p. 476 ff.) Commercial treaty of Justinian with Ethiopia: the latter was to afford aid against the Persians, in return for which Byzantium promised to supply its requirement of silk no longer from Persia, but from Ethiopia. Commercial treaty between Florence and England, 1490: England promised to permit all the wool destined for Italy, except a small quantity intended for Venice only, to go over Pisa, and as a rule, not through foreigners. Florence, on the other hand, was to receive English wool only through English ships. (Rymer, Foedera, XII, 390 seq. Decima dei Fiorentini, II, 288 ff.)
[A2-6-6]The difficulties of such negotiations described by an experienced politician (probablyEden): Historical and Political Remarks on the Tariff of the French Treaty, 1787.
[A2-6-7]The Methuen treaty (1703) was considered an English master-piece, because Portugal had actually exported a great deal of Brazilian gold to England.Pombalsaid, in 1759: "Through unexampled stupidity, we permit ourselves to be clothed, etc. England robs us every year, by its industry, of the products of our mines.... A severe prohibition of the exportation of gold from Portugal might overthrow England." (Schäfer, Portug. Gesch., V, 494 ff.) And yet the treaty only says that Portugal withdraws its prohibition of English woolen wares, and restores the former duties (15 per cent.), while England continues to permit Portuguese wine to pay a duty 1/3 less than French wines! Singular doctrine ofAdam Smith(W. of N., IV, ch. 6), and still more ofMcCulloch(Comm. Dict., v. Commercial Treaties), that this commercial treaty was unfavorable to England and very favorable to Portugal, although, in fact, later a duty of only about 3 per cent. was imposed here on English commodities. (Büsch, Werke, II, 62.) The English-French commercial treaty of 1786 introduces in the place of the former prohibition, duties of 10, 12 and 15 per cent. for a number of industrial products. The French soon came to believe that they had been taken advantage of here.A. Youngfound the desire very general in the north of France, to get rid of the Eden treaty even through a war. (Travels in France, I, 73.) Many of thecahiersof the third estate demand that no treaty of commerce should be entered into without previous consultation with the industries interested. (Acad. des Sc. morales et polit., 1865, III, 214.) But in England, also, bitter complaints of the opposition, to which Pitt replied, that commercial treaties between agricultural and industrial countries result to the advantage of the latter, independent of the fact that England obtained a new market of 24,000,000, and France of only 8,000,000 persons. Compare the extracts inLauderdale, Inquiry, App., 14. Forcade: Revue des deux Mondes, 1843.
[A2-6-8]Urged very largely in southern Germany against the Prussian-French commercial treaty of 1862. But is it really an "advantage" for France to have in the interior more toiling (Plackereien) for inlanders as well as for foreigners? Or that its consumers must pay high taxes to the producers of certain wares?
[A2-6-9]Seldom in antiquity. Compare, however, Inscr. Gr., II, No. 256, and the reciprocal granting of the rights of citizenship of Athens and Rhodes. (Livy, XXXI, 15.) Among the moderns, Flanders followed free-trade principles similar to those followed later by Holland, at the beginning of the fourteenth century; for instance, it refused to gratify France by breaking off its trade with Scotland. (Rymer, Foedera, II, 388.) Florence, in 1490, promised the English, that in all treaties to be entered into with others, it would permit it to enter. In the French-Florentine commercial treaty of 1494, it is stipulated with the Florentines that their shipsGallica esse intelliganturand their merchantstanquam veri et naturales Gallietc. (Decima, II, 308.) Swedish treaty with Stralsund, 1574, that every privilege granted to a Baltic city should also be, of itself, to the advantage of Stralsund. Mutual equal treatment of subjects promised between Portugal and England, 1642; Portugal and Holland, 1661; mutual treatment on the basis of the most favored nation: between England and Portugal, 1642; Holland and Spain, in the peace of Utrecht; Spain and Portugal, 1713; Spain and Tuscany, 1731; England and Russia, 1734. But how far such principles were removed from the beginning of the eighteenth century is shown by the speech from the throne of the 28th of January, 1727, of George I., in which the Austro-Spanish treaty of 1725, that placed the subjects of Austria in the colonial empire of Spain on an equal footing with the English and Dutch, is described as a violation of the dearest interests of England, and in which it is said that England must defend its own unquestionable right against the covenant entered into to violate public faith and the most solemn treaties; that it might be that Spain thought of subjecting England once more to the popish pretender. Even in 1713, it was one of the principal points in controversy between the Tories and Whigs, whether, in a commercial treaty with France, the latter should be accorded the rights of the most favored nations. CompareDaniel Defoe, A Plan of the English Commerce, andper contra, The British Merchant.
[A2-6-10]English treaties with Prussia, 1824; the Hanse cities, 1825; with Sweden, 1826; France, 1826 (England removed the limitations still retained without compensation, in 1839); Naples, 1845; Sardinia, Holland and Belgium, 1851. Prussian treaties with Russia, 1825; Naples, 1847; Holland, 1851. French with Bolivia, 1834; Holland, 1846 (in which reciprocity is extended even to the navigation of rivers); Denmark, 1842; Venezuela, Equador and Sardinia, 1843; Russia and Chili, 1846; Belgium, 1849; and Portugal, 1853.
[A2-6-11]Marking an epoch in this respect are the treaties of the United States with Holland (Oct. 8, 1782), Sweden (April 3, 1783), Frederick the Great (Sept. 10, 1785), and England (Oct. 28, 1795); recently that entered into by Napoleon III. with England in 1860, and with the Zollverein in 1862.
[A2-6-12]The expression "most favored" is not always strictly construed. Thus, for instance, France granted the right of coast-sailing proper (cabotage) only to Spain. States frequently promise only:s'appliquer réciproquement toute faveur en matière de commerce et de navigation qu'ils accorderaient à un autre état gratuitement ou avec compensation.
[A2-6-13]Napoleon III. had a preference for commercial treaties, because these, as acts of foreign politics, lay in the plenitude of his imperial power (art. 6 of the constitution of 1852; senatus consultum of Dec. 23, 1852), while in legislation, his free trade tendencies were limited by popular representation. And so also Prussia, by its commercial treaty with him (1862), was actually freed from the hindrances which the free veto of the Zollverein-conferences would have opposed to its reform. Opposition to the treaty-form because too binding. (Chaptal, De l'Industrie Française, II, 242 ff.) The free-trade party lauds it precisely on this account. See the report of the Leipzig Chamber of Commerce for 1874-75, p. 41.]
SECTION I.
PROXIMATE ECONOMIC EFFECTS OF THE INDUSTRIAL PROTECTIVE SYSTEM.
That the principal measures which the mercantile system recommended, artificially to increase a nation's wealth, could not produce the immediate effects expected of them, has been shown, especially from the natural history of money. Their proximate economic consequences necessarily consisted in this, that they diverted the existing productive forces of the nation from their places of application (Verwendungsplätzen) hitherto, to others which the government thought more advantageous.
A. If home producers are in a condition to offer their commodities as good and as cheap as foreigners, all protection of the former by import duties, or even by prohibitions, is superfluous. The home producer has, as a rule, not only the advantage of the smaller cost of freight to the place of consumption,[A3-1-1]but that of being earlier informed, because of hisproximity to consumers, of a change in their tastes.[A3-1-2]If, indeed, foreigners could supply us better and cheaper, and if they are kept from supplying our market only by artificial means, the state compels our consumers to a sacrifice of enjoyment;[A3-1-3]and such a sacrifice as is not fully compensated for by the profit made by the favored producers in any manner. The latter are generally soon compelled by home competition to arrange their prices in accordance with the rate of profit usual in the country. If they had no "protection" they would simply employ their productive forces in other branches of production; and in those in which they were equal or even superior to foreign competitors. By means of the products thus obtained, the people might then get in exchange all those commodities from foreign countries, the production of which it is, according to the laws of the division of labor, better to leave to foreign countries.[A3-1-4]Since one nation can lastingly payanother nation only with its own products, any limitation of imports must, under otherwise equal circumstances, be attended by a corresponding limitation of exports.[A3-1-5]Directly, therefore, these hindrances to importation produce no increase, but only a change in the direction (Umlenkung) of the national forces of capital and labor; an increase, only in case that foreign producers are thereby caused to transfer their productive forces within our limits;[A3-1-6]which may certainly be considered the greatest triumph of the protective system. Hence it isabsurd when an equal extension of "protection" to all the branches of a nation's economy is demanded, as it is so frequently, in the name of justice. There is here no real protection whatever, analogous, for instance, to the protection afforded by the judge, but a favor which can be accorded to no one without injuring some one else.[A3-1-7]
[A3-1-1]It is of course different in the working (Verarbeitung) of foreign raw material. Much also depends on the situation of the industrial provinces. For instance, manufactured articles can reach the interior of Spain and the Western states of the American Union only after they have passed the industrial coast-regions of both countries. In Russia, on the other hand, the center is the principal industrial region; and hence the coast may be actually nearer to foreign than to home manufacturers. Similarly, in France, at least for iron and coal. CompareAdam Smith, W. of N., II, p. 279 Bas.
[A3-1-2]People would, however, have to calculate on the foolish luxury which despises the home product because "it came from no great distance." World-supremacy of Paris fashions! A manufacturer of excellent GermanSchaumwein(foaming wine) complained to me, in 1861, that, after suffering heavy losses, he was compelled by his customers to adopt French labels. Here, a wise prince may have a favorable influence by his example. Louis XIV. himself insisted, when his mother died, that the court should use only French articles of mourning.Gee, Trade and Navigation, p. 46. Augustus I., of Saxony, always wore home cloth. (Weisse, Museum für Sächsische Geschichte, II, 2, 109.) Similar requirements by the prince of Orange (1749) of all officials: Richesse de Hollande, II, 317. Dutch executioners were dressed in calico. (Discourse of Trade, Coyn, etc., 1697.) American popular stipulations not to wear foreign articles of luxury. (Ebeling, Geschichte und Erdbeschreibung, II, 481.) Rhode Island tailors placed the working wages for home stuffs much lower than for foreign. (II, 149.)
[A3-1-3]Prince Smithcalls protective duties scarcity-duties (Theuerungszölle). Because of this increased dearness of the "protected" commodities, consumers can no longer pay for as many other home commodities. If the industry was previously in existence, the protective duty imposed is wont to enhance the price, not only of the foreign commodity, but also of the home commodity.
[A3-1-4]If, for instance, the English had never had a protective tariff on silk, nor the French a protective tariff on iron, the former would probably get all the silk commodities they want from France and pay for them in iron ware. In this way, both nations would be well off in what concerns the relation between the cost of production and the satisfaction of wants.Saycalls protective duties a fight against nature, in which we take pains to refuse a part of the gifts which nature offers us. He leaves himself open to the charge of exaggeration, however, when he compares a nation that wants to produce everything itself to a shoemaker who wanted to be tailor, carpenter, to build houses and cultivate a farm also. Although no nation is all-sided, yet every nation is a great deal more-sided than an individual.
[A3-1-5]Whoever keeps a people from purchasing in the cheapest market, thereby prevents their selling in the dearest. (McCulloch.) It was no mere desire of revenge that induced Holland, in the 17th century, to threaten the Poles, in case the enhancement of their duties continued in Danzig and Pillau, they would supply their corn-want from Russia, (Boxhorn, Varii Tractat. polit., p. 240.) Thus the tariff-measures adopted by France against the German cattle trade and the Swedish iron trade promoted the growth of the Crefeld silk manufacture, and lessened the exportation of French wine to Sweden. When, in 1809, England heavily taxed Norwegian wood, in favor of Canada, the Norwegians began, instead of purchasing English manufactured articles, to supply themselves from Hamburg, Altona and France. (Blom, Norwegen, I, 257.)
[A3-1-6]Fr. Listassumed altogether too unconditionally such an effect from import duties to be the rule. The more developed the self-confidence of a nation is, the more vigorous the life of its industries, the more many-sided the commerce of its people; the less disposed are its industrial classes to give up their home and carry their market with them. But, for instance, Swiss labor and, still more, Swiss capital have been induced by the tariff-systems of the great neighboring countries to settle in Mühlhausen, Baden and Voralberg, or at least to establish branch houses in these places. Similarly, Neumark cloth makers were induced to emigrate to Russia, and Nürnberg industrial workmen to Austria (Roth, Geschichte des Nürnbergen Handels, II, 170) etc. CompareBurkhardt, c. Basel, I, 74;Böhmert, Arbeiterverhältnisse der Schweiz, I, 16 seq.; II, 17.
[A3-1-7]CompareAlbyin the Revue des deux Mondes, Oct., 1869, and,per contra, Cairnes, Principles, p. 458. The misfortunes of war or internal disquiet have frequently driven away the best labor-forces of an old industrial state, and thus powerfully promoted a young protective system in the neighborhood. Reception of Byzantine silk-weavers in Venice, during the crusade to Constantinople, of Flemish wool-weavers in England, under Edward III. (Rymer, Foedera, III, 1, 23) and Elizabeth; of Huguenot industrial workmen under the great elector, etc. The growth of the Zurich silk industry by the settlement there of expelled Protestants from Locarno.
England, indeed, had, up to 1849, protective duties both for industry and agriculture. But the protective duties were of no real importance, except in the case of the latter, because the greater part of England's industrial products were superior to foreign competition without the help of protective duties. Something similar is true of most duties on raw material in the United States.
SECTION II.
EFFECT OF EXPORT DUTIES, etc., ON RAW MATERIAL.—EXPORT PREMIUMS.
B. Export duties on raw material, and prohibitions of the exportation of raw material, lower the price of such articles, by preventing the competition of foreign buyers.[A3-2-1]To this loss of the producers of raw material, there is, in the long run, no corresponding gain to the manufacturers. Rather will there be, when freedom of competition prevails at home, an increased flow of the forces of production to the favored branch, because of its rate of profit, which is greater than that usual in the country, and a corresponding flow from the injured branch, until such time as the level of profit usualin the country is restored.[A3-2-2]Hence here, also, the final result is only a change of the direction, not a direct increase of the productive forces.[A3-2-3]
C. In the case of export-premiums, it is necessary to distinguish between the mere refunding back of the taxes which have been paid on the assumption of a home consumption which has not taken place (drawbacks), and the actual making of donations because of the exportation of goods (bounties). The former produces no result except to maintain the possibility of a production which would otherwise have been prevented by the tax. The latter, on the contrary, compels allthose who are subject to taxation to make a donation to one particular class of persons engaged in industry.[A3-2-4]Moreover, all consumers are compelled to pay a higher price for the commodity to the extent that the market price, inclusive of the premium to be obtained abroad, is higher than the home market price hitherto usual. But, as the cost of production has not increased, this profit of the producers, which is greater than that usual in the country, must induce other productive forces to enter into the favored branch; so that here, also, the lasting result is not a higher rate of profit of the individuals engaged in the industry, but an extension of the industry itself. Foreign countries chiefly reap the greatest advantage from this course, since they obtain the commodities at gift-prices.[A3-2-5]The premiums paid, not for exportation, but for the production of a commodity, have a meaning akin to this.[A3-2-6]Either the industry could not maintain itself without premiums, in which case the state encourages a losing production,—and the more there is produced the greater is the loss to the national economy;—or the industry might exist without the payment of premiums, and then the newly increased profitwould lead to an extension of the industry. Exportation would follow, and all the effects of export-premiums appear.[A3-2-7]
[A3-2-1]Rags in Silesia dearer than in Bohemia by the full amount of the Austrian export duties (Gutachten über die Erneuerung der Handelsverträge; 1876, p. 9). When the English export-prohibitions were extended to Scotland, the price of Scotch wool fell about 50 per cent. (A. Smith, W. of N., IV, ch. 8.) In the case of foreign raw material, the reëxportation of which is prevented, the object of such prohibitions may be largely frustrated. When England, to promote its dyeing industries, left the importation of colors entirely free, but allowed their exportation only under heavy duties (8 George I., c. 15), the importers provided the market always with somewhat less than the amount required, and thus raised the price.
[A3-2-2]Export hindrances have been continued longest in favor of manufacturing industries (Verarbeitungsindustrie), in the case of such commodities as are not intentionally produced, such as rags, ashes, etc., but which are collected only as the remains of some other kind of production or consumption. "Negative production," according toStilling, Grundsätze der Staatswirthschaft, 803, because it is desirable to produce as little as possible of such raw material. But the dearer rags, for instance, are, the more carefully are they collected.
[A3-2-3]When the French prohibition of the exportation of hemp was extended to Alsace, its production decreased from 60,000 to 40,000 cwt. (Schwerz, Landwirthschaft des Nieder-Elsasses, 378 ff.) Frederick the Great soon carried his prohibition of the exportation of raw wool to such an extent as to prohibit the exportation even of unshorn sheep, and to punish the dropping of a sheepfold by a fine of 1,000 ducats. (Preuss. Gesch. Friedrichs III., 42.) Here, also, belong prohibitions relating to the exportation of corn, which force considerable capital, etc. into industry. The prohibition of the exportation of corn in England, and the permitting of the exportation of cattle, wool, etc., was one of the principal causes why there were so many complaints at the time of the turning of land used for tillage into pasturage-land. When, in 1666, the exportation of Irish cattle to England was prohibited, it produced, at the outset, great need in Ireland, but afterwards a flourishing condition of Irish industry. (Hume, History of England, ch. 64.)
[A3-2-4]The effect must be very much the same when the right of buying up all the raw material of a certain district is granted to one factory exclusively. The elector, Augustus of Saxony, did this frequently. CompareFalke, Gesch. des Kurf., A. v. S., 190-212, 345.
[A3-2-5]As to how, by means of German drawbacks (Rückzölle) it is possible for beet-sugar to be offered at a cheaper rate in Brazil than home cane-sugar, seeWappäus, Brazilien, 1830. The French export-premiums for sugar amounted, in 1856, to over 8,000,000 francs. Frenchmen subject to taxation were obliged to pay this amount, and thus add to the already increasing price which they had to pay for that article. (Journ. des Econom., Juill., 1857.) In England, in 1742, the export-premiums for linen were defrayed by enhanced entry-duties on cambrics. (15 and 16 George II., c. 29.)
[A3-2-6]As to how English export-premiums sometimes made English commodities cheaper in Germany than in England, seeBüsch, Werke, XIII, 82. There are, indeed, gifts which may ruin the receiver of them, as, for instance, when one gets his rival intoxicated at his expense before the decisive solicitation.Timeo Danaos et dona ferentes(cited by Fox and Burke against the Eden treaty:Hansard, Parl. History, 1787, Jan. p. 402, 488).
[A3-2-7]It is said that Maria Theresa paid 1,500,000 florins a year for this purpose. (Sonnenfels, Grundsätze, II, p. 179.) England, between 1806 and 1813, altogether, £6,512,170.Colquhoun, Wohlstand, Macht, etc., Tieck's translation, I, 251.
SECTION III.
THE FREE-TRADE SCHOOL.
From what has been said, we may understand why the so-called free-trade school, with its atomistic over-valuation of the individual and the moment, rejects all those measures of the industrial protective system.[A3-3-1]As such measures really injurethe oppressed portions of the people more than they help the favored classes, their introduction, it is said, uniformly depends on this, that single classes of producers understand their private interests better than others, and are better organized than other producers and especially better than consumers, to take care of their interests.[A3-3-2]Adam Smith approves import hindrances for the purpose of artificially promoting an industry only in two cases:
A. When military safety demands it. Hence he calls the English navigation act, that great prohibitive and protective law intended to advance the merchant marine, the wisest perhaps of all English commercial regulations, although he clearly saw that it compelled England to sell her own commodities cheaper and buy foreign commodities dearer.[A3-3-3]
B. When the import duty is no more than sufficient to balance the tax imposed on the corresponding home product. Smith rightly remarks that a universally heavier taxation by the home country, but which affected all branches of its production equally, operated like diminished natural fertility, and hence does not make any equalizing tax for foreign trade necessary.
The person who has only a modest opinion of the power of his own reason, and therefore a just one of the reason of other men and other times, will not believe that a system like the industrial protective system which the greatest theorizers and practitioners favored for centuries, and which governed all highly developed countries in certain periods of their national life, proceeded entirely from error and deception. It really served, in its own time, a great and regularly occurring want; and the error consisted only in this, that, partly through improper generalization by doctrinarians and partly by the avarice of the privileged classes and the inertia of statesmen, the conditioned and transitory was looked upon as something absolute.[A3-3-4]
[A3-3-1]P. de la Court, in his freedom of trade, has in view not the interest of consumers—and least of all of the whole world—but the interest of the commercial class. Compare Tüb. Ztschr., 1862, p. 273. Similarly,Child, Discourse of Trade, 1690; whereasD. North, Discourses upon Trade (1690), may be called a free-trader in the sense in which the expression is used to-day. No nation has yet grown rich by state-measures; but peace, thrift and freedom, and nothing else, procure wealth. (Postscr.)Davenantalso zealously opposes the craving of a people to produce everything themselves, to want only to sell, etc. He considered very few laws on commerce a sign of a flourishing condition of trade. (Works, I, 99, 104 ff.; V, 379 ff., 387 seq.)Fénélon'santipathy for import and export duties in Telémaque, a part of his general opposition to thesiècle de Louis XIV. The view of the Physiocrates (La police du commerce interiéur et extérieur la plus sure, la plus exacte, la plus profitable à la nation et à l'état consiste dans la pleine liberté de la concurrence:Quesnay, Maximes générales, No. 25) is directly connected with their deepest fundamental notions ofproduit netandimpôt unique.Turgotvindicates the interests of workmen against protective duties, for whom no compensation is possible, where one industry gains by its being favored in the same way that it loses when another is favored. (Sur la Marque de Fer, I, p. 376 ff., Daire.) "Those who cry so loudly for protective duties are partly thoughtless persons who wish to avoid the consequences of bad speculations, and in part shrewd persons who would like to earn during the first years a rate of profit higher than that usual in the country." (Rossi.)Bastiatridicules the advocates of a protective tariff by the petition of the lamplighters, lamp manufacturers, etc., that to advance their industry, and indirectly almost all others, the mighty foreign competition of the sun might be removed from all houses. (Sophismes écon., ch. 7.) To him, the protective system is precisely the system of want; freedom of trade, the system of superabundance. Political economy would have fulfilled its practical calling, if, by means of universal freedom of trade, it had done away with all that is left of that system which excludes foreign commodities because they are cheap, that is, because they includeune grande proportion d'utilité gratuite. (Harmonies, p. 174, 306.)Cobden'spet expression: "Free trade, the international law of the Almighty!" (Polit. Writings, II, 110.)K. S. Zachariäcalls the protective system a step introductory to communism (Staatsw. Abh., 100), because it nearly always leads to over-population andList'ssystem, a politico-economical absurdity. (Vierzig Bücher vom Staate, VII, pp. 23, 92.)
[A3-3-2]Among the many frequently wonderful speeches by which persons engaged in industry are wont to support their motion for protective duties, etc., the following are particularly characteristic. The long struggle of English manufactures against the East Indian Company, since the later portion of the seventeenth century. ComparePollexfen, England and East India inconsistent in their Manufactures (1697), against whichDavenant, at the solicitation of the company, wrote his Essay on the E. I. Trade (1697). Prohibition of East Indian commodities, 11 and 12 Will. III., ch. 10. The struggle did not stop until the middle of the eighteenth century, when India was outflanked by English machines. When Pitt, in 1785, labored for the abolition of the tariff-barriers against Ireland, English manufacturers, and among others Robert Peel, declared that they would be forced in consequence to transfer a part of their manufactories to Ireland! (McCulloch, Literature of Political Economy, p. 55.)Saytells of a proposition made by the hat-makers of Marseilles to prohibit foreign straw hats (1. c).
[A3-3-3]W. of N., IV, ch. 2. According toRoger Coke, England's Improvement (1675), ship-building in England became dearer in a few years by about one-third, on account of the navigation act; and the wages of sailors advanced to such an extent that England lost its Russian and Greenland trade almost entirely, and the Dutch obtained the control of it. ThisJ. Child, Discourse of Trade, admits, but still calls the navigation act themagna charta maritima. Similarly,Davenant, Works, I, 397. Here the relation of the cost to the immediate product can as little decide as it can against the exercise of troops or the construction of forts.Adam Smithallows the same reasons to apply to export premiums for sail-cloth and gunpowder (IV, ch. 5). Recently, however,Bülau(Staatswirthschaftlehre, 339; Staat und Industrie, 220 seq.;) has argued against all these exceptions of Adam Smith.
[A3-3-4]Schleiermacher(Christ. Sitte, 476) calls the polemics which can see nothing but error in a refuted theory, immoral.
SECTION IV.
FURTHER EDUCATIONAL EFFECTS OF THE INDUSTRIAL PROTECTIVE SYSTEM.
The sacrifices which the protective system directly imposes on the national wealth consist in products, fewer of which with an equal straining (Anstrengung) of the productive forces of the country, are produced and enjoyed, than free trade would procure. But it is possible by its means to build up (bilden) new productive forces, to awaken slumbering ones from their sleep, which, in the long run, may be of much greater value than those sacrifices. Who would say that the cheapest education is always the most advantageous?[A3-4-1]Only by the development of industry also, does the nation's economy become mature.[A3-4-2]The merely agricultural state can attain neither to the same population nor the same energy of capital, to say nothing of the same skillfulness of labor, as the mixed agricultural and industrial state; nor can it employ its natural forces so completely to advantage.[A3-4-3]How many beds of coal, waterfalls, hours of leisure,[A3-4-4]and how much aptitude for the arts ofindustry, can be turned to scarcely any account in a merely agricultural state? If, therefore, the protective system could materially promote a national industry, or if it made such industry possible, for the first time, the sacrifice connected therewith, in the beginning, should be considered like the sacrifice of seed made by the sower;[A3-4-5]but this can be justified only on the three following conditions: that the seed is capable of germination; that the soil be fertile and properly cultivated, and the season favorable.[A3-4-6][A3-4-7]
[A3-4-1]List, Nationales System der polit. Oekonomie, kap. 12, contrasts two owners of estates, each of whom has five sons, and can save 1,000 thalers a year. The one brings his sons up as tillers of the ground (Bauern= peasants) and puts his savings out at interest. The other, on the contrary, has two of his sons educated asrational(rationelle) agriculturists, and the others as intelligent industrial workers, and at a cost which prevents the possibility of his accumulating any more capital. Which of the two has cared better for the standing, wealth, etc. of his posterity; the adherent of the "theory of exchangeable values" or the adherent of the doctrine of "the productive forces?"
[A3-4-2]The rent of the land of Gr. Botton, in Lancashire, was estimated in 1692 at £169 per annum; in 1841, at £93,916. (H. Ashworth.)