from the duty, if it operate as a protecting duty; if it induce the
country which imposes it, to produce for herself that which she would
otherwise have imported. The saving of labour--the increase in the
general productiveness of the capital of the world--which is the effect
of commerce, and which a non-protecting duty would enable the country
imposing it to engross, could not be engrossed by a protecting duty,
because such a duty prevents any such increased production from
existing.
With a view to practical legislation, therefore, duties on importation
may be divided into two classes: those which have the effect of
encouraging some particular branch of domestic industry, and those which
have not.
The former are purely mischievous, both to the country imposing them,
and to those with whom it trades. They prevent a saving of labour and
capital, which, if permitted to be made, would be divided in some
proportion or other between the importing country and the countries
which buy what that country does or might export.
The other class of duties are those which do not encourage one mode of
procuring an article at the expense of another, but allow interchange to
take place just as if the duty did not exist--and to produce the saving
of labour which constitutes the motive to international as to all other
commerce. Of this kind, are duties on the importation of any commodity
which could not by any possibility be produced at home; and duties not
sufficiently high to counterbalance the difference of expense between
the production of the article at home, and its importation. Of the money
which is brought into the treasury of any country by taxes of this last
description, a part only is paid by the people of that country; the
remainder by the foreign consumers of their goods.
Nevertheless, this latter kind of taxes are in principle as ineligible
as the former, although not precisely on the same ground. A protecting
duty can never be a cause of gain, but always and necessarily of loss,
to the country imposing it, just so far as it is efficacious to its end.
A non-protecting duty on the contrary would, in most cases, be a source
of gain to the country imposing it, in so far as throwing part of the
weight of its taxes upon other people is a gain; but it would be a means
of gain which it could seldom be advisable to adopt, being so easily
counteracted by a precisely similar proceeding on the other side.
If England, in the case already supposed, sought to obtain for herself
more than her natural share of the advantage of the trade with Germany,
by imposing a duty upon cloth, Germany would only have to impose a duty
upon linen, sufficient to diminish the demand for that article about as
much as the demand for cloth had been diminished in England by the tax.
Things would then be as before, and each country would pay its own tax.
Unless, indeed, the sum of the two duties exceeded the entire advantage
of the trade; for in that case the trade, and its advantage, would cease
entirely.
There would be no advantage, therefore, in imposing duties of this kind,
with a view to gain by them, in the manner which has been pointed out.
But so long as any other kind of taxes on commodities are retained, as a
source of revenue, these may often be as unobjectionable as the rest. It
is evident, moreover, that considerations of reciprocity, which are
quite unessential when the matter in debate is a protecting duty, are of
material importance when the repeal of duties of this other description
is discussed. A country cannot be expected to renounce the power of
taxing foreigners, unless foreigners will in return practise towards
itself the same forbearance. The only mode in which a country can save
itself from being a loser by the duties imposed by other countries on
its commodities, is to impose corresponding duties on theirs. Only it
must take care that these duties be not so high as to exceed all that
remains of the advantage of the trade, and put an end to importation
altogether; causing the article to be either produced at home, or
imported from another and a dearer market.
It is not necessary to apply the principles which we have stated to the
case of bounties on exportation or importation. The application is easy,
and the conclusions present nothing of particular interest or
importance.
6. Any cause which alters the exports or imports from one country into
another, alters the division of the advantage of interchange between
those two countries. Suppose the discovery of a new process, by which
some article of export, or some article not previously exported, can be
produced so cheap as to occasion a great demand for it in other
countries. This of course produces a great influx of money from other
countries, and lowers the prices of all articles imported from them,
until the increase of importation produced by this cause has restored
the equilibrium. Thus, the country which acquires a new article of
export gets its imports cheaper. This is not a case of mere alteration
in the division of the advantage; it is a new advantage created by the
discovery.
But suppose that the invention, to which the nation is indebted for this
increase of the return to its industry, comes into use also in the other
country, and that the process is one which can be as perfectly and as
cheaply performed in the one country as in the other. The new
exportation will cease; trade will revert to its old channels, the money
which flowed in will again flow out, and the country which invented the
process will lose that increase of its gain by trade, which it had
derived from the discovery.
Now the exportation of machinery comes within the case which we have
just described.
If the fact be, that by allowing to foreigners a participation in our
machinery, we enable them to produce any of our leading articles of
export, at a lower money price than we can sell those articles, it is
certain that unless we possess as great an advantage in the production
of the machinery itself as we have in the production of other articles
by means of machinery, the permitting of its exportation would alter to
our disadvantage the division of the benefit of trade. Our exports being
diminished, we should have to pay a balance in money. This would raise,
in foreign countries, the price of everything which we import from
thence: while our incomes, being reduced in money value, would render
us less able to buy those articles even if they had not risen. The
equilibrium of exports and imports would only be restored, when either
some of the latter became so dear that we could produce them cheaper at
home, or some articles not previously exported became exportable from
the fall of prices. In the one case, we lose the benefit of importation
altogether, and are obliged to produce at home, at a greater cost. In
the other case, we continue to import, but pay dearer for our imports.
Notwithstanding what has now been observed, restrictions on the
exportation of machinery are not, in our opinion, justifiable, either on
the score of international morality or of sound policy. It is evidently
the common interest of all nations that each of them should abstain from
every measure by which the aggregate wealth of the commercial world
would be diminished, although of this smaller sum total it might thereby
be enabled to attract to itself a larger share. And the time will
certainly come when nations in general will feel the importance of this
rule, and will so direct their approbation and disapprobation as to
enforce observance of it. Moreover, a country possessing machines should
consider that if a similar advantage were extended to other countries,
they would employ it above all in the production of those articles, in
which they had already the greatest natural advantages; and if the
former country would be a loser by their improvements in the production
of articles which it sells, it would gain by their improvements in those
which it buys. The exportation of machinery may, however, be a proper
subject for adjustment with other nations, on the principle of
reciprocity. Until, by the common consent of nations, all restrictions
upon trade are done away, a nation cannot be required to abolish those
from which she derives a real advantage, without stipulating for an
equivalent.
7. The case which we have just examined, is an example in how remarkable
a manner every cause which materially influences exports, operates upon
the prices of imports. According to the ancient theory of the balance of
trade, and to the associations of the generality of what are termed
practical men to this day, the sole benefit derived from commerce
consists in the exports, and imports are rather an evil than otherwise.
Political economists, seeing the folly of these views, and clearly
perceiving that the advantage of commerce consists and must consist
solely of the imports, have occasionally suffered themselves to employ
language evincing inattention to the fact, that exports, though
unimportant in themselves, are important by their influence on imports.
So real and extensive is this influence, that every new market which is
opened for any of our goods, and every increase in the demand for our
commodities in foreign countries, enables us to supply ourselves with
foreign commodities at a smaller cost.
Let us revert to our earliest and simplest example, but which displays
the real law of interchange more luminously than any formula into which
money enters; the case of simple barter. We showed, that if at the rate
of 10 yards of cloth for 17 of linen, the demand of Germany amounted to
1000 times 10 yards of cloth, the two nations will trade together at
that rate of interchange, provided that the linen required in England be
exactly 1000 times 17 yards, neither more nor less. For the cloth and
the linen will then exactly pay for one another, and nobody on either
side will be obliged to offer what he has to sell at a lower rate, in
order to procure what he wants to buy.
Now if the increase of wealth and population in Germany should greatly
increase the demand in that country for cloth, the demand for linen in
England not increasing in the same ratio,--if, for instance, Germany
became willing, at the above rate, to take 1500 times 10 yards; is it
not evident, that to induce England to take in exchange for this the
only article which Germany by supposition has to give, the latter must
offer it at a rate more advantageous to England--at 18, or perhaps 19
yards, for 10 of cloth? So that the division of the advantage becomes
more and more favourable to a country, in proportion as the demand for
its commodities increases in foreign countries.
It is not even necessary that the country which takes its goods, should
supply it with any commodity whatever. Suppose that a country should be
opened to our merchants, disposed to buy from us in abundance, but which
can sell to us scarcely anything, as every commodity which it affords
could be got cheaper by us from some other quarter. Nevertheless, our
trade with this country will enable us to obtain from all other
countries their commodities at a lower price. At the first opening of
this commerce of mere exportation, we must have received in payment a
large quantity of money; for which our customer will have been
indemnified by other countries, in exchange for her commodities. Prices
must consequently be lower in all other countries, and higher with us,
than before the opening of the new branch of trade; and we therefore
obtain the commodities of other countries at a less cost, both as we pay
less money for them, and as that money is lower in value.
8. Another obvious application of the same principle will enable us to
explain, and to bring within the dominion of strict science, the
rivality of one exporting nation and another, or what is called, in the
language of the mercantile system, _underselling_: a subject which
political economists have taken little trouble to elucidate, from the
habit before alluded to of disregarding almost entirely, in their purely
scientific inquiries, those circumstances which affect the trade of a
country by operating immediately upon the exports.
Let us revert to our old example, and to our old figures. Suppose that
the trade between England and Germany in cloth and linen is established,
and that the rate of interchange is 10 yards of cloth for 17 of linen.
Now suppose that there arises in another country, in Flanders, for
example, a linen manufacture; and that the same causes, the working of
which in England and Germany has made 10 yards exchange for 17, would in
England and Flanders, putting Germany out of the question, have made the
rate of interchange 10 for 18. It is evident that Germany also must give
18 yards of linen for 10 of cloth, and so carry on the trade with a
diminished share of the advantage, or lose it altogether. If the play of
demand in England and Flanders had made the rate of interchange not 10
for 18 but 10 for 21, (10 to 20 being in Germany the comparative cost of
production,) it is evident that Germany could not have maintained the
competition, and would have lost, not part of her share of the
advantage, but all advantage, and the trade itself.
It would be no answer to say, that Germany could probably still have
found the means of importing cloth from England, by exporting something
else. If she had purchased cloth with anything else, she would have
purchased it dearer: as is proved by the fact, that having free choice,
she found it most advantageous to purchase it with linen. When she could
get 10 yards of cloth for 17 of linen, that was the mode in which she
could get it with least labour. Being pressed by competition, she gave
successively 17, 18, 18; but rather than give 19 yards of linen, she
perhaps would prefer to give, as costing her rather less labour, 10
yards of silk, (which we will suppose to be the quantity which in
England will purchase 10 yards of cloth.) It is obvious that, although
Germany has found the means of supplying herself with cloth, by
exporting a different article from that in which she was undersold, yet
the advantage of the trade between her and England is now shared in a
proportion much less favourable to Germany.
There is no difficulty in showing that the same series of consequences
takes place in exactly the same manner through the agency of money. The
trade in cloth and linen between England and Germany being supposed to
exist as before, Flanders produces linen at a lower price than that at
which Germany has hitherto afforded it. The exportation from Germany is
suspended; and Germany, continuing to import cloth, pays for it in
money. By so doing she lowers her own prices, and raises those in
England: she has to pay more money for cloth, and to pay it in a
currency of higher value. She thus suffers more and more as a consumer
of cloth, until by the fall of her prices she can either afford to sell
linen as cheap as Flanders, or to export some other commodity which she
could not export before. In either case, her trade resumes its course,
but with diminished advantage on her side. [4]
It is in the mode just described, that those countries which formerly
supplied Europe with manufactures, but which owed their power of doing
so not to any natural and permanent advantages, but to their more
advanced state of civilization as compared with other countries, have
lost their pre-eminence as other countries successively attained an
equal degree of civilization. Lombardy and Flanders, in the middle ages,
produced some descriptions of clothing and ornament for all Europe:
Holland, at a much later period, supplied ships, and almost all articles
which came in ships, to most other parts of the world. All these
countries have probably at this moment a much larger amount of capital
than ever they had, but having been undersold by other countries, they
have lost by far the greater part of the share which they had engrossed
to themselves of the benefit which the world derives from commerce; and
their capital yields to them in consequence a smaller proportional
return. We are aware that other causes have contributed to the same
effect, but we cannot doubt that this is a principal one.
As much as is really true of the great returns alleged to have been made
to capital during the last war, must have arisen from a similar cause.
Our exclusive command of the sea excluded from the market all by whom we
should have been undersold.
The adoption by France, Russia, the Netherlands, and the United States,
of a more severely restrictive commercial policy, subsequently to 1815,
has done great injury undoubtedly to those countries; for the duties
which they have established are intended to be, and really are, of the
class termed _protecting_; that is to say, such as force the production
of commodities by more costly processes at home, instead of suffering
them to be imported from abroad. But these duties, though chiefly
injurious to the countries imposing them, have also been highly
injurious to England. By diminishing her exportation, or preventing it
from increasing as it would otherwise have done, they have kept up the
prices of all imported commodities in England, above what those prices
would have fallen to if trade had been left free.
By another obvious application of the same reasoning, it will be seen,
that there is a real foundation for the notion, that a country may be
benefited by receiving from another country the concession of what used
to be termed commercial advantages, or by restraining its colonies from
purchasing goods of any country except itself. In the figured
illustration last used (p. 34) [not available, M.D.], it is evident,
that if England had been bound by a treaty with Germany to buy linen
exclusively from her, Germany would have retained the trade which we
supposed her to lose, and would have continued to purchase cloth at a
comparatively cheap rate from England, instead of producing it by a more
costly process at home. Suppose that England had been a colony of
Germany, and we see that by compelling colonies to deal at her shop, she
may obtain a real advantage, though of a nature which we may hazard the
assertion that the founders of our colonial policy little dreamt of.
Such an advantage, however, being gained at the expense of another
country, is, at the least, simply equivalent to a tax, or tribute. Now,
if a country has just grounds, or deems superiority of power a
sufficient ground, for exacting a tribute from another country, the most
direct mode is the best. First, because it is the most intelligible, and
has least of trick or disguise. Secondly, because it allows the people
of the country paying the tribute, to raise the money in whatever way
they consider least oppressive to themselves. Thirdly, because the
indirect mode of taxing a country, by restrictions on its commerce,
disturbs the distribution of industry most advantageous to the world at
large, and occasions a greater loss to the restricted country, and to
the other countries with which that country would have traded, than gain
to the country in whose favour the restrictions are imposed. And lastly,
because a country never could obtain such privileges from an independent
nation, and has seldom been so undisguised an oppressor as to demand
them even from its colonies, without subjecting itself to restrictions
in some degree equivalent, for the benefit of those whom it has thus
taxed. Each country, therefore, usually pays tribute to the other; and
to produce this fruitless reciprocity of exaction, the industry and
trade of both countries are diverted from the most advantageous
channels, and the return to the labour and capital of both is
diminished, in pure loss.
9. The same principles which have led to the above conclusions, also
suggest a remark of some importance with respect to the probable effect
of a change from a restricted to a comparatively free trade.
There is no doubt that our prohibiting the importation of a particular
article, which, but for the prohibition, would have been imported,
enables us to obtain our other imports at smaller cost. The article for
which we have the greatest demand, and for which our demand is most
increased by cheapness, is that which we should naturally import
preferably to any other; now of this article we should import the
quantity necessary to pay for our exports, on terms of interchange less
advantageous to us than in the case of any other commodity. If our
legislature prohibits this commodity, the other country will be obliged
to offer any other article on easier terms, in order to force a
sufficient demand for it to be an equivalent to what she purchases from
us.
The steps of the process, money being used, would be these:--We prohibit
the importation of linen. The exportation of cloth continues, but is
paid for in money. Our prices rise, those in Germany fall, until silk,
or some other article, can be imported from Germany cheaper than it can
be produced at home, and in sufficient abundance to balance the export
of cloth. Thus by sacrificing the cheapness of one commodity, we gain
the cheapness of another: but we sacrifice a greater cheapness to gain a
less, and we sacrifice cheapness in the article which we most want, and
would import by preference, while our compensation is cheapness in an
article which we either could produce more advantageously at home, or
which we have so little desire for, that it requires a species of bounty
on the article to create a demand.
Restrictions on importation do, however, tend to keep down the value and
price of our remaining imports, and to keep up the nominal or money
prices of all our other commodities, by retaining a greater quantity of
money in the country than would otherwise be there. From this it
obviously follows, that if the restrictions were removed, we should have
to pay rather more for some of the articles which we now import, while
those which we are now prevented from importing would cost us more than
might be inferred from their _present_ price in the foreign market. And
general prices would fall; to the benefit of those who have fixed sums
to receive; to the disadvantage of those who have fixed sums to pay; and
giving rise, as a general fall of prices always does, to an appearance,
though a temporary and fallacious one, of general distress. [5]
It is right to observe that the measures of the British Legislature
which have been falsely characterised as measures of free trade, must,
from their extremely insignificant extent, have produced far too little
effect in increasing our importation, to have actually led, in any
degree worth mentioning, to the results specified above.
It is of greater importance to take notice, that these effects may be
entirely obviated, if foreign countries can be prevailed upon
simultaneously to relax their restrictive systems, so as to create an
immediate increase of demand for our exports at the present prices. It
is true that exports and imports must, in the end, balance one another,
and if we increase our imports, our exports will of necessity increase
too. But it is a forced increase, produced by an efflux of money and
fall of prices; and this fall of prices being permanent, although it
would be no evil at all in a country where credit is unknown, it may be
a very serious one where large classes of persons, and the nation
itself, are under engagements to pay fixed sums of money of large
amount.
10. The only remaining application of the principle set forth in this
essay, which we think it of importance to notice specially, is the
effect produced upon a country by the annual payment of a tribute or
subsidy to a foreign power, or by the annual remittance of rents to
absentee landlords, or of any other kind of income to its absent owners.
Remittances to absentees are often very incorrectly likened in their
general character to the payment of a tribute; from which they differ in
this very material circumstance, that tribute, if not paid to a foreign
country, is not paid at all, whereas rents are paid to the landlord, and
consumed by him, even if he resides at home. The two kinds of payment,
however, have a perfect resemblance to each other in such parts of their
effects as we are about to point out.