ON SUDDEN CHANGES IN THE CHANNELS OF TRADE.
A great manufacturing country is peculiarly exposed to temporary
reverses and contingencies, produced by the removal of capital from one
employment to another. The demands for the produce of agriculture are
uniform, they are not under the influence of fashion, prejudice, or
caprice. To sustain life, food is necessary, and the demand for food
must continue in all ages, and in all countries. It is different with
manufactures; the demand for any particular manufactured commodity, is
subject not only to the wants, but to the tastes and caprice of the
purchasers. A new tax too may destroy the comparative advantage which a
country before possessed in the manufacture of a particular commodity;
or the effects of war may so raise the freight and insurance on its
conveyance, that it can no longer enter into competition with the home
manufacture of the country to which it was before exported. In all such
cases, considerable distress, and no doubt some loss, will be
experienced by those who are engaged in the manufacture of such
commodities; and it will be felt not only at the time of the change, but
through the whole interval during which they are removing their
capitals, and the labour which they can command, from one employment to
another.
Nor will distress be experienced in that country alone where such
difficulties originate, but in the countries to which its commodities
were before exported. No country can long import unless it also exports,
or can long export unless it also imports. If then any circumstance
should occur, which should permanently prevent a country from importing
the usual amount of foreign commodities, it will necessarily diminish
the manufacture of some of those commodities which were usually
exported; and although the total value of the productions of the country
will probably be but little altered, since the same capital will be
employed, yet they will not be equally abundant and cheap; and
considerable distress will be experienced through the change of
employments. If by the employment of 10,000_l._ in the manufacture of
cotton goods for exportation, we imported annually 3000 pair of silk
stockings of the value of 2000_l._, and by the interruption of foreign
trade we should be obliged to withdraw this capital from the manufacture
of cotton, and employ it ourselves in the manufacture of stockings, we
should still obtain stockings of the value of 2000_l._ provided no part
of the capital were destroyed; but instead of having 3000 pair, we might
only have 2,500. In the removal of the capital from the cotton to the
stocking trade, much distress might be experienced, but it would not
considerably impair the value of the national property, although it
might lessen the quantity of our annual productions.
The commencement of war after a long peace, or of peace after a long
war, generally produces considerable distress in trade. It changes in a
great degree the nature of the employments to which the respective
capitals of countries were before devoted; and during the interval while
they are settling in the situations which new circumstances have made
the most beneficial, much fixed capital is unemployed, perhaps wholly
lost, and labourers are without full employment. The duration of this
distress will be longer or shorter according to the strength of that
disinclination, which most men feel to abandon that employment of their
capital to which they have long been accustomed. It is often protracted
too by the restrictions and prohibitions, to which the absurd jealousies
which prevail between the different states of the commercial
commonwealth give rise.
The distress which proceeds from a revulsion of trade, is often mistaken
for that which accompanies a diminution of the national capital, and a
retrograde state of society; and it would perhaps be difficult to point
out any marks by which they may be accurately distinguished.
When, however, such distress immediately accompanies a change from war
to peace, our knowledge of the existence of such a cause will make it
reasonable to believe, that the funds for the maintenance of labour have
rather been diverted from their usual channel than materially impaired,
and that after temporary suffering, the nation will again advance in
prosperity. It must be remembered too that the retrograde condition is
always an unnatural state of society. Man from youth grows to manhood,
then decays, and dies; but this is not the progress of nations. When
arrived to a state of the greatest vigour, their further advance may
indeed be arrested, but their natural tendency is to continue for ages,
to sustain undiminished their wealth, and their population.
In rich and powerful countries where large capitals are invested in
machinery, more distress will be experienced from a revulsion in trade,
than in poorer countries where there is proportionally a much smaller
amount of fixed, and a much larger amount of circulating capital, and
where consequently more work is done by the labour of men. It is not so
difficult to withdraw a circulating as a fixed capital, from any
employment in which it may be engaged. It is often impossible to divert
the machinery which may have been erected for one manufacture, to the
purposes of another; but the clothing, the food, and the lodging of the
labourer in one employment may be devoted to the support of the labourer
in another, or the same labourer may receive the same food, clothing,
and lodging, whilst his employment is changed. This, however, is an evil
to which a rich nation must submit; and it would not be more reasonable
to complain of it, than it would be in a rich merchant to lament that
his ship was exposed to the dangers of the sea, whilst his poor
neighbour's cottage was safe from all such hazard.
From contingencies of this kind, though in an inferior degree, even
agriculture is not exempted. War, which in a commercial country,
interrupts the commerce of states, frequently prevents the exportation
of corn from countries where it can be produced with little cost, to
others not so favourably situated. Under such circumstances an unusual
quantity of capital is drawn to agriculture, and the country which
before imported becomes independent of foreign aid. At the termination
of the war, the obstacles to importation are removed, and a competition
destructive to the home-grower commences, from which he is unable to
withdraw, without the sacrifice of a great part of his capital. The best
policy of the state would be, to lay a tax, decreasing in amount from
time to time, on the importation of foreign corn, for a limited number
of years, in order to afford to the home-grower an opportunity to
withdraw his capital gradually from the land. In so doing the country
might not be making the most advantageous distribution of its capital,
but the temporary tax to which it was subjected, would be for the
advantage of a particular class, the distribution of whose capital was
highly useful in procuring a supply of food when importation was
stopped. If such exertions in a period of emergency were followed by
risk of ruin on the termination of the difficulty, capital would shun
such an employment. Besides the usual profits of stock, farmers would
expect to be compensated for the risk which they incurred of a sudden
influx of corn, and therefore the price to the consumer, at the seasons
when he most required a supply, would be enhanced, not only by the
superior cost of growing corn at home, but also by the insurance which
he would have to pay, in the price, for the peculiar risk to which
this employment of capital was exposed. Notwithstanding then, that it
would be more productive of wealth to the country, at whatever sacrifice
of capital it might be done, to allow the importation of cheap corn, it
would perhaps be advisable to charge it with a duty for a few years.
In examining the question of rent, we found, that with every increase in
the supply of corn, and with the consequent fall of its price, capital
would be withdrawn from the poorer land; and land of a better
description, which would then pay no rent, would become the standard by
which the natural price of corn would be regulated. At 4_l._ per
quarter, land of an inferior quality, which may be designated by No. 6,
might be cultivated; at 3_l._ 10_s._ No. 5; at 3_l._ No. 4, and so on.
If corn, in consequence of permanent abundance, fell to 3_l._ 10_s._ the
capital employed on No. 6 would cease to be employed; for it was only
when corn was at 4_l._ that it could obtain the general profits, even
without paying rent: it would therefore be withdrawn to manufacture
those commodities with which all the corn grown on No. 6 would be
purchased and imported. In this employment it would necessarily be more
productive to its owner, or it would not be withdrawn from the other;
for if he could obtain more corn by growing it on land for which he paid
no rent, than by manufacturing a commodity with which he purchased it,
its price could not be under 4_l._
It has, however, been said that capital cannot be withdrawn from the
land; that it takes the form of expenses, which cannot be recovered,
such as manuring, fencing, draining, &c., which are necessarily
inseparable from the land. This is in some degree true; but that capital
which consists of cattle, sheep, hay and corn ricks, carts, &c. may be
withdrawn; and it always becomes a matter of calculation whether these
shall continue to be employed on the land, notwithstanding the low price
of corn, or whether they shall be sold, and their value transferred to
another employment.
Suppose, however, the fact to be as stated, and that no part of the
capital could be withdrawn; the farmer would continue to raise corn, and
precisely the same quantity too, at whatever price it might sell; for it
could not be his interest to produce less, and if he did not so employ
his capital, he would obtain from it no return whatever. Corn could not
be imported, because he would sell it lower than 3_l._ 10_s._ rather
than not sell it at all, and by the supposition the importer could not
sell it under that price. Although then the farmers, who cultivated land
of this quality, would undoubtedly be injured by the fall in the
exchangeable value of the commodity which they produced,--how would the
country be affected? We should have precisely the same quantity of every
commodity produced, but raw produce and corn would sell at a much
cheaper price. The capital of a country consists of its commodities, and
as these would be the same as before, reproduction would go on at the
same rate. This low price of corn would however only afford the usual
profits of stock to the land, No. 5, which would then pay no rent, and
the rent of all better land would fall: wages would also fall, and
profits would rise.
However low the price of corn might fall; if capital could not be
removed from the land, and the demand did not increase, no importation
would take place; for the same quantity as before would be produced at
home. Although there would be a different division of the produce, and
some classes would be benefited, and others injured, the aggregate of
production would be precisely the same, and the nation collectively
would neither be richer nor poorer.
But there is this advantage always resulting from a relatively low price
of corn,--that the division of the actual production is more likely to
increase the fund for the maintenance of labour, inasmuch as more will
be allotted, under the name of profit, to the productive class, a less,
under the name of rent, to the unproductive class.
This is true, even if the capital cannot be withdrawn from the land,
and must be employed there, or not be employed at all: but if great part
of the capital could be withdrawn, as it evidently could, it will be
only withdrawn, when it will yield more to the owner by being withdrawn
than by being suffered to remain where it was; it will only be withdrawn
then, when it can elsewhere be employed more productively both for the
owner and the public. He consents to sink that part of his capital which
cannot be separated from the land, because with that part which he can
take away, he can obtain a greater value, and a greater quantity of raw
produce, than by not sinking this part of the capital. His case is
precisely similar to that of a man who has erected machinery in his
manufactory at a great expense, machinery which is afterwards so much
improved upon by more modern inventions, that the commodities
manufactured by him very much sink in value. It would be entirely a
matter of calculation with him whether he should abandon the old
machinery, and erect the more perfect, _losing all the value of the
old_, or continue to avail himself of its comparatively feeble powers.
Who, under such circumstances, would exhort him to forego the use of
the better machinery, because it would deteriorate or annihilate the
value of the old? Yet this is the argument of those who would wish us to
prohibit the importation of corn, because it will deteriorate or
annihilate that part of the capital of the farmer which is for ever sunk
in land. They do not see that the end of all commerce is to increase
production, and that by increasing production, though you may occasion
partial loss, you increase the general happiness. To be consistent, they
should endeavour to arrest all improvements in agriculture and
manufactures, and all inventions of machinery; for though these
contribute to general abundance, and therefore to the general happiness,
they never fail, at the moment of their introduction, to deteriorate or
annihilate a part of the existing capital of farmers and manufacturers.
Agriculture like all other trades, and particularly in a commercial
country, is subject to a re-action, which, in an opposite direction,
succeeds the action of a strong stimulus. Thus, when war interrupts the
importation of corn, its consequent high price attracts capital to the
land, from the large profits which such an employment of it affords;
this will probably cause more capital to be employed, and more raw
produce to be brought to market than the demands of the country require.
In such case, the price of corn will fall from the effects of a glut,
and much agricultural distress will be produced, till the average supply
is brought to a level with the average demand.