§ 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.