ON GROSS AND NET REVENUE.
Adam Smith constantly magnifies the advantages which a country derives
from a large gross, rather than a large net income. "In proportion as a
greater share of the capital of a country is employed in agriculture,"
he says, "the greater will be the quantity of productive labour which it
puts into motion within the country; as will likewise be the value which
its employment adds to the annual produce of the land and labour of the
society. After agriculture, the capital employed in manufactures puts
into motion the greatest quantity of productive labour, and adds the
greatest value to the annual produce. That which is employed in the
trade of exportation has the least effect of any of the three."[43]
Granting for a moment that this were true; what would be the advantage
resulting to a country from the employment of a great quantity of
productive labour, if, whether it employed that quantity or a smaller,
its net rent and profits together would be the same. The whole produce
of the land and labour of every country is divided into three portions;
of these, one portion is devoted to wages, another to profits, and the
other to rent. It is from the two last portions only, that any
deductions can be made for taxes, or for savings; the former, if
moderate, constituting always the necessary expenses of production. To
an individual, with a capital of 20,000_l._, whose profits were 2000_l._
per annum, it would be a matter quite indifferent, whether his capital
would employ a hundred, or a thousand men, whether the commodity
produced sold for 10,000_l._, or for 20,000_l._, provided, in all cases,
his profits were not diminished below 2000_l._ Is not the real interest
of the nation similar? Provided its net real income, its rent and
profits be the same, it is of no importance whether the nation consists
of ten or of twelve millions of inhabitants. Its power of supporting
fleets and armies, and all species of unproductive labour, must be in
proportion to its net, and not in proportion to its gross income. If
five millions of men could produce as much food and clothing as was
necessary for ten millions, food and clothing for five millions would be
the net revenue. Would it be of any advantage to the country, that to
produce this same net revenue, seven millions of men should be required,
that is to say, that seven millions should be employed to produce food
and clothing sufficient for twelve millions? The food and clothing of
five millions would be still the net revenue. The employing a greater
number of men would enable us neither to add a man to our army and navy,
nor to contribute one guinea more in taxes.
It is not on the grounds of any supposed advantage accruing from a large
population, or of the happiness that may be enjoyed by a greater number
of human beings, that Adam Smith supports the preference of that
employment of capital, which gives motion to the greatest quantity of
industry, but expressly on the ground of its increasing the power of the
country; for he says, that "the riches, and, so far as power depends
upon riches, the power of every country must always be in proportion to
the value of its annual produce, the fund from which all taxes must
ultimately be paid." It must however be obvious, that the power of
paying taxes, is in proportion to the net, and not in proportion to the
gross revenue.
In the distribution of employments amongst all countries, the capital of
poorer nations will be naturally employed in those pursuits, wherein a
great quantity of labour is supported at home, because in such countries
the food and necessaries for an increasing population can be most easily
procured. In rich countries, on the contrary, where food is dear,
capital will naturally flow, when trade is free, into those occupations,
wherein the least quantity of labour is required to be maintained at
home: such as the carrying trade, the distant foreign trade, where
profits are in proportion to the capital, and not in proportion to the
quantity of labour employed.[44]
Although I admit, that from the nature of rent, a given capital employed
in agriculture, on any but the land last cultivated, puts in motion a
greater quantity of labour than an equal capital employed in
manufactures and trade, yet I cannot admit that there is any difference
in the quantity of labour employed by a capital engaged in the home
trade, and an equal capital engaged in the foreign trade.
"The capital which sends Scots manufactures to London, and brings back
English corn and manufactures to Edinburgh," says Adam Smith,
"necessarily replaces, by every such operation, two British capitals
which had both been employed in the agriculture or manufactures of Great
Britain.
"The capital employed in purchasing foreign goods for home consumption,
when this purchase is made with the produce of domestic industry,
replaces too, by every such operation, two distinct capitals; but one of
them only is employed in supporting domestic industry. The capital which
sends British goods to Portugal, and brings back Portuguese goods to
Great Britain, replaces, by every such operation, only one British
capital, the other is a Portuguese one. Though the returns, therefore,
of the foreign trade of consumption should be as quick as the home
trade, the capital employed in it will give but one half the
encouragement to the industry or productive labour of the country."
This argument appears to me to be fallacious; for though two capitals,
one Portuguese and one English, be employed, as Dr. Smith supposes,
still a capital will be employed in the foreign trade, double of what
would be employed in the home trade. Suppose that Scotland employs a
capital of a thousand pounds in making linen, which she exchanges for
the produce of a similar capital employed in making silks in England.
Two thousand pounds, and a proportional quantity of labour will be
employed by the two countries. Suppose now, that England discovers, that
she can import more linen from Germany, for the silks which she before
exported to Scotland, and that Scotland discovers that she can obtain
more silks from France in return for her linen, than she before obtained
from England,--will not England and Scotland immediately cease trading
with each other, and will not the home trade of consumption be changed
for a foreign trade of consumption? But although two additional
capitals will enter into this trade, the capital of Germany and that of
France, will not the same amount of Scotch and of English capital
continue to be employed, and will it not give motion to the same
quantity of industry as when it was engaged in the home trade?