ON COLONIAL TRADE.
Adam Smith, in his observations on colonial trade, has shewn, most
satisfactorily, the advantages of a free trade, and the injustice
suffered by colonies, in being prevented by their mother countries, from
selling their produce at the dearest market, and buying their
manufactures and stores at the cheapest. He has shewn, that by
permitting every country freely to exchange the produce of its industry
when and where it pleases, the best distribution of the labour of the
world will be effected, and the greatest abundance of the necessaries
and enjoyments of human life will be secured.
He has attempted also to shew, that this freedom of commerce, which
undoubtedly promotes the interest of the whole, promotes also that of
each particular country; and that the narrow policy adopted in the
countries of Europe respecting their colonies, is not less injurious to
the mother countries themselves, than to the colonies whose interests
are sacrificed.
"The monopoly of the colony trade," he says, "like all the other mean
and malignant expedients of the mercantile system, depresses the
industry of all other countries, but chiefly that of the colonies,
without, in the least, increasing, but on the contrary diminishing, that
of the country in whose favour it is established."
This part of his subject, however, is not treated in so clear and
convincing a manner as that in which he shews the injustice of this
system towards the colony.
Without affirming or denying, that the actual practice of Europe with
regard to their colonies is injurious to the mother countries, I may be
permitted to doubt whether a mother country may not sometimes be
benefited by the restraints to which she subjects her colonial
possessions. Who can doubt, for example, that if England were the
colony of France, the latter country would be benefited by a heavy
bounty paid by England on the exportation of corn, cloth, or any other
commodities? In examining the question of bounties, on the supposition
of corn being at 4_l._ per quarter in this country, we saw, that with a
bounty of 10_s._ per quarter, on exportation in England, corn would have
been reduced to 3_l._ 10_s._ in France. Now, if corn had previously been
at 3_l._ 15_s._ per quarter in France, the French consumers would have
been benefited by 5_s._ per quarter on all imported corn; if the natural
price of corn in France were before 4_l._, they would have gained the
whole bounty of 10_s._ per quarter. France would thus be benefited by
the loss sustained by England: she would not gain a part only of what
England lost, but in some cases the whole.
It may however be said, that a bounty on exportation is a measure of
internal policy, and could not easily be imposed by the mother country.
If it would suit the interests of Jamaica and Holland to make an
exchange of the commodities which they respectively produce, without the
intervention of England, it is quite certain, that by their being
prevented from so doing, the interests of Holland and Jamaica would
suffer; but if Jamaica is obliged to send her goods to England, and
there exchange them for Dutch goods, an English capital, or English
agency, will be employed in a trade in which it would not otherwise be
engaged. It is allured thither by a bounty, not paid by England, but by
Holland and Jamaica.
That the loss sustained, through a disadvantageous distribution of
labour in two countries, may be beneficial to one of them, while the
other is made to suffer more than the loss actually belonging to such a
distribution, has been stated by Adam Smith himself; which, if true,
will at once prove that a measure, which may be greatly hurtful to a
colony, may be partially beneficial to the mother country.
Speaking of treaties of commerce, he says, "When a nation binds itself
by treaty, either to permit the entry of certain goods from one foreign
country which it prohibits from all others, or to exempt the goods of
one country from duties to which it subjects those of all others, the
country, or at least the merchants and manufacturers of the country,
whose commerce is so favoured, must necessarily derive great advantage
from the treaty. Those merchants and manufacturers enjoy a sort of
monopoly in the country, which is so indulgent to them. That country
becomes a market both more extensive and more advantageous for their
goods; more extensive, because the goods of other nations, being either
excluded or subjected to heavier duties, it takes off a greater quantity
of them; more advantageous, because the merchants of the favoured
country enjoying a sort of monopoly there, will often sell their goods
for a better price than if exposed to the free competition of all other
nations."
Let the two nations, between which the commercial treaty is made, be the
mother country and her colony, and Adam Smith, it is evident, admits,
that a mother country may be benefited by oppressing her colony. It
may, however, be again remarked, that unless the monopoly of the foreign
market be in the hands of an exclusive company, no more will be paid for
commodities by foreign purchasers than by home purchasers; the price
which they will both pay will not differ greatly from their natural
price in the country where they are produced. England, for example,
will, under ordinary circumstances, always be able to buy French goods,
at the natural price of those goods in France, and France would have an
equal privilege of buying English goods at their natural price in
England. But at these prices, goods would be bought without a treaty. Of
what advantage or disadvantage then is the treaty to either party?
The disadvantage of the treaty to the importing country would be this:
it would bind her to purchase a commodity, from England for example, at
the natural price of that commodity in England, when she might perhaps
have bought it at the much lower natural price of some other country. It
occasions then a disadvantageous distribution of the general capital,
which falls chiefly on the country bound by its treaty to buy in the
least productive market; but it gives no advantage to the seller on
account of any supposed monopoly, for he is prevented by the competition
of his own countrymen from selling his goods above their natural price;
at which he would sell them, whether he exported them to France, Spain,
or the West Indies, or sold them for home consumption.
In what then does the advantage of the stipulation in the treaty
consist? It consists in this: these particular goods could not have been
made in England for exportation, but for the privilege which she alone
had of serving this particular market; for the competition of that
country, where the natural price was lower, would have deprived her of
all chance of selling those commodities. This, however, would have been
of little importance, if England were quite secure that she could sell
to the same amount any other goods which she might fabricate, either in
the French market, or with equal advantage in any other. The object
which England has in view, is, for example, to buy a quantity of French
wines of the value of 5000_l._--she desires then to sell goods
somewhere by which she may get 5000_l._ for this purpose. If France
gives her a monopoly of the cloth market, she will readily export cloth
for this purpose; but if the trade is free, the competition of other
countries may prevent the natural price of cloth in England from being
sufficiently low to enable her to get 5000_l._ by the sale of cloth, and
to obtain the usual profits by such an employment of her stock. The
industry of England must be employed then on some other commodity; but
there may be none of her productions which, at the existing value of
money, she can afford to sell at the natural price of other countries.
What is the consequence? The wine drinkers of England are still willing
to give 5000_l._ for their wine, and consequently 5000_l._ in money is
exported to France for that purpose. By this exportation of money its
value is raised in England, and lowered in other countries; and with it
the _natural price_ of all commodities produced by British industry is
also lowered. The advance in the price of money is the same thing as the
decline in the price of commodities. To obtain 5000_l._, British
commodities may now be exported; for at their reduced natural price
they may now enter into competition with the goods of other countries.
More goods are sold, however, at the low prices to obtain the 5000_l._
required, which, when obtained, will not procure the same quantity of
wine; because, whilst the diminution of money in England has lowered the
natural price of goods there, the increase of money in France has raised
the natural price of goods and wine in France. Less wine then will be
imported into England, in exchange for its commodities, when the trade
is perfectly free, than when she is peculiarly favoured by commercial
treaties. The _rate_ of profits however will not have varied; money will
have altered in relative value in the two countries, and the advantage
gained by France will be the obtaining a greater quantity of English, in
exchange for a given quantity of French goods, while the loss sustained
by England will consist in obtaining a smaller quantity of French goods
in exchange for a given quantity of those of England.
Foreign trade then, whether fettered, encouraged, or free, will always
continue, whatever may be the comparative difficulty of production in
different countries; but it can only be regulated by altering the
natural price, not the natural value at which commodities can be
produced in those countries, and that is effected by altering the
distribution of the precious metals. This explanation confirms the
opinion which I have elsewhere given, that there is not a tax, a bounty,
or a prohibition on the importation or exportation commodities which
does not occasion a different distribution of the precious metals, and
which does not therefore every where alter both the natural and the
market price of commodities.
It is evident then, that the trade with a colony may be so regulated,
that it shall at the same time be less beneficial to the colony, and
more beneficial to the mother country, than a perfectly free trade. As
it is disadvantageous to a single consumer to be restricted in his
dealings to one particular shop, so is it disadvantageous for a nation
of consumers to be obliged to purchase of one particular country. If the
shop or the country afforded the goods required the cheapest, they would
be secure of selling them without any such exclusive privilege; and if
they did not sell cheaper, the general interest would require that they
should not be encouraged to continue a trade which they could not carry
on at an equal advantage with others. The shop, or the selling country,
might lose by the change of employments, but the general benefit is
never so fully secured, as by the most productive distribution of the
general capital; that is to say, by an universally free trade.
An increase in the cost of production of a commodity, if it be an
article of the first necessity, will not necessarily diminish its
consumption; for although the general power of the purchasers to
consume, is diminished by the rise of any one commodity, yet they may
relinquish the consumption of some other commodity whose cost of
production has not risen. In that case, the quantity supplied will be in
the same proportion to the demand as before; the cost of production only
will have increased, and yet the price will rise, and must rise, to
place the profits of the producer of the enhanced commodity on a level
with the profits derived from other trades.
M. Say acknowledges that the cost of production is the foundation of
price, and yet in various parts of his book he maintains that price is
regulated by the proportion which demand bears to supply. The real and
ultimate regulator of the relative value of any two commodities, is the
cost of their production, and neither the respective quantities which
may be produced, nor the competition amongst the purchasers.
According to Adam Smith the colony trade, by being one in which British
capital only can be employed, has raised the rate of profits of all
other trades; and as in his opinion high profits, as well as high wages,
raise the prices of commodities, the monopoly of the colony trade has
been, according to him, injurious to the mother country; as it has
diminished her power of selling manufactured commodities as cheap as
other countries. He says, that "in consequence of the monopoly, the
increase of the colony trade has not so much occasioned an addition to
the trade which Great Britain had before, as a total change in its
direction. Secondly, this monopoly has necessarily contributed to keep
up the rate of profit in all the different branches of British trade,
higher than it naturally would have been, had all nations been allowed a
free trade to the British colonies." "But whatever raises in any country
the ordinary rate of profit higher than it otherwise would be,
necessarily subjects that country both to an absolute, and to a relative
disadvantage in every branch of trade of which she has not the monopoly.
It subjects her to an absolute disadvantage, because in such branches of
trade, her merchants cannot get this greater profit without selling
dearer than they otherwise would do, both the goods of foreign countries
which they import into their own, and the goods of their own country
which they export to foreign countries. Their own country must both buy
dearer and sell dearer; must both buy less and sell less; must both
enjoy less and produce less than she otherwise would do."
"Our merchants frequently complain of the high wages of British labour
as the cause of their manufactures being undersold in foreign markets;
but they are silent about the high profits of stock. They complain of
the extravagant gain of other people, but they say nothing of their
own. The high profits of British stock, however, may contribute towards
raising the price of British manufacture in many cases as much, and in
some perhaps more, than the high wages of British labour."
I allow that the monopoly of the colony trade will change, and often
prejudicially, the direction of capital; but from what I have already
said on the subject of profits, it will be seen that any change from one
foreign trade to another, or from home to foreign trade, cannot, in my
opinion, affect the rate of profits. The injury suffered will be what I
have just described; there will be a worse distribution of the general
capital and industry, and therefore less will be produced. The natural
price of commodities will be raised, and therefore, though the consumer
will be able to purchase to the same money value, he will obtain a less
quantity of commodities. It will be seen too, that if it even had the
effect of raising profits, it would not occasion the least alteration in
prices; prices being regulated neither by wages nor profits.
And does not Adam Smith agree in this opinion, when he says, that "the
prices of commodities, or the value of gold and silver, as compared with
commodities, depends upon the proportion between the _quantity of
labour_ which is necessary, in order to bring a certain quantity of gold
and silver to market, and that which is necessary to bring thither a
certain quantity of any other sort of goods?" That quantity will not be
affected, whether profits be high or low, or wages low or high. How then
can prices be raised by high profits?