Chap 3c, Part 2: Unreasonableness

PART 2: the Unreasonableness of those extraordinary Restraints on other Principles

30 In Part 1, I showed how unnecessary it is to lay extraordinary restraints on foreign imports from those countries with a disadvantageous balance of trade, even on the principles of the commercial system.

Equilibrium Fallacy

31 Nothing, however, can be more absurd than this whole doctrine of the balance of trade, on which these restraints and almost all the other regulations of commerce are founded.

  • This doctrine supposes that when two places trade with one another, neither of them loses or gains if the balance be even.
  • But if it leans in any degree to one side, that one of them loses and the other gains, in proportion to its declension from the exact equilibrium.
    • Both suppositions are false.
  • A trade, which is forced by means of bounties and monopolies, may be, and commonly is, disadvantageous to the country in whose favour it is meant to be established.
  • But that trade which, without force or constraint, is naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both.

32 By advantage or gain, I do not mean the increase of the amount of gold and silver.

  • I mean the increase of:
    • the exchangeable value of the annual produce of the land and labour of the country, or
    • the annual revenue of its inhabitants

33 If the balance is even, and if the two countries trade their native commodities, they will both gain equally or very near equally.

  • Each will afford a market for the other’s surplus produce.
    • Each will replace the capital employed in raising the other’s surplus.
      • This capital will be distributed among its people.
        • It will give revenue and maintenance to them.
      • Some of the people will indirectly derive their revenue and maintenance from the other country.
  • The commodities exchanged are supposed to be of equal value.
  • The two capitals employed in raising those commodities will be equal or very nearly equal, on most occasions.
    • The distribution of those commodities will afford the revenue and maintenance to the people of both countries, which will be equal, or very nearly equal.
      • This revenue and maintenance will vary relative to their dealings.
        • For example, if these annually amount to £1 million on each side, each of them would afford an annual revenue of £1 million to the people of the other country.

34 If one of them exported only native commodities while the other exported only foreign goods, the balance would still be even.

  • Commodities being paid for with commodities.
  • They would both gain, but not equally.
    • The people of the country which exported only native commodities would get the greatest revenue from the trade.
  • For example, if England imports only French commodities from France in exchange for East India goods:
    • It would give more revenue to the French than to the English.
    • The whole French capital employed in it would be distributed among the French.
    • But only the English capital employed in producing English commodities which bought the East India goods would be distributed among the English.
      • Most of it would replace the capitals employed producing East India goods in distant countries.
    • If the capitals were equal, the French capital would increase French revenue much more than English capital would increase the English revenue.
    • France would carry on a direct foreign trade of consumption with England.
      • England would carry on a round-about trade with France.

35 There is probably no trade between any two countries which consists in:

  • all native commodities on both sides, or
  • all native commodities on one side and all foreign goods on the other.

Almost all countries trade partly native and partly foreign goods.

  • The principal gainer will always be the country which:
    • exports the most native commodities
    • the least foreign goods

36 If England paid for imported French goods with gold and silver, the balance would be supposed uneven since commodities are not paid with commodities.

  • In this case, the trade would give more revenue to France than England.
    • The capital which produced the English goods that bought this gold and silver, would be distributed to the English and will give revenue to them.
      • The whole English capital would not be reduced by this exportation of gold and silver.
      • On the contrary, its capital would be increased in most cases.
  • Only exported goods have a higher demand overseas than at home.
    • Consequently, the returns will be more valuable at home than the commodities exported.
  • If English tobacco worth £100,000 is sent to France to buy wine worth £110,000 in England, this exchange will increase English capital by £10,000.
    • If £100,000 of English gold bought French wine worth £110,000 in England, this exchange will increase English capital by £10,000.
  • A merchant who has £110,000 worth of wine is richer than one who only has £100,000 worth of gold.
    • The richer merchant can:
      • mobilize more industry
      • give revenue, maintenance, and employment to more people
  • But the capital of the country is equal to the capitals of all its inhabitants.
    • The quantity of industry which can be annually maintained in it is equal to what all those capitals can maintain.
  • This exchange must increase:
    • the country’s capital
    • the amount of industry maintained in it
  • It would be more advantageous for England to buy French wines with its own hardware and cloth than with the tobacco of Virginia or the gold and silver of Brazil and Peru.
  • “A direct foreign trade of consumption is always more advantageous than a roundabout one.”
    • A round-about foreign trade of consumption, done with gold and silver, is not less advantageous than any other round-about one.
  • A country which has no mines is not more likely to run out of gold and silver by the annual exportation of those metals than one which does not grow tobacco by the like annual exportation of tobacco.
    • A country which has means to buy tobacco or gold and silver will never be long in want of it.

37 “It is said, It is a losing trade which a workman carries on with the alehouse;

  • The trade which a manufacturing country naturally carries on with a wine country may be considered as a trade of the same nature.
    • I answer, that the trade with the alehouse is not necessarily a losing trade.
      • In its own nature, it is just as advantageous as any other.
      • Although it is more liable to be abused.
    • The employment of a brewer and a liquor retailer are as necessary divisions of labour as any other.
      • It is generally more advantageous for a worker to buy liquor from the brewer than to brew it himself.
        • If he is a poor worker, it will be better for him to buy it little by little from the retailer than to buy a large amount from the brewer.
          • He might buy too much liquor.
        • It is advantageous to many workers that all these trades should be free, even though this freedom may be abused in all of them.
  • Though individuals may sometimes ruin their fortunes by drinking too much liquor, there is no risk that a nation should do so.
    • In every country, many people spend more on liquors than they can afford.
      • But there are always more who spend less.
  • The cheapness of wine seems to be a cause of sobriety and not of drunkenness.
    • The people of the wine countries are generally the soberest people in Europe.
      • This is proven by the Spaniards, Italians, and the people of southern France.
  • People are seldom guilty of excess in their daily fare.
    • Nobody affects the character of liberality and good fellowship by being profuse of a liquor which is as cheap as small beer.
  • On the contrary, drunkenness is a common vice in countries:
    • which produce no grapes due to excessive heat or cold
    • where wine is dear
  • Drunkenness is common in the northern and tropical nations, such as the coast of Guinea.
    • Wine is much cheaper in southern France than in northern France.
      • When a French regiment from the north goes to the south, the soldiers become debauched by the cheapness of good wine.
      • After a few months, most of them become as sober as the rest of the people.
  • If the duties on foreign wines and the excises on malt, beer, and ale were removed all at once, it might create a temporary drunkenness among the middle and lower class people in Great Britain.
    • It would probably be soon followed by a permanent and almost universal sobriety.
  • Presently, drunkenness is not the vice of the upper class.
    • A gentleman drunk with ale has never been seen among us.
  • The restraints on Great Britain’s wine trade are not created to hinder people from going to the alehouse or where there is the best and cheapest liquor.
    • Those restraints favour Portuguese wine and discourage French wine.
      • It is said that the Portuguese are better customers for our manufactures than the French.
        • Our manufactures should therefore prefer the Portuguese.
        • As they give us their custom, we should give them ours.
  • The sneaking arts of underling tradesmen are thus erected into political maxims.
    • Only the most underling tradesmen make it a rule to chiefly employ their own customers.
    • A great trader buys his goods always where they are cheapest and best, without regard to any little interest of this kind.

38 By those maxims, nations have been taught that their interest consisted in beggaring all their neighbours.

  • Each nation has been made to:
    • look invidiously on the prosperity of all the nations it trades with
    • consider the gain of other nations as its own loss
  • Commerce, which should naturally be a bond of union and friendship among nations, as among individuals, has become the most fertile source of discord and animosity.
    • During the past and present centuries, the capricious ambition of kings and ministers was not more fatal to European peace than the impertinent jealousy of merchants and manufacturers.
  • “The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy.”
    • Merchants and manufacturers are not, and should not be, the rulers of mankind.
      • Their mean rapacity and monopolizing spirit perhaps cannot be corrected.
      • But they can be very easily prevented from disturbing the peace of others.

39 Without a doubt, it was the spirit of monopoly which originally invented and propagated this doctrine.

  • Those who first taught it were by no means such fools as those who believed it.
  • In every country, it is always the people’s interest to buy whatever they want the cheapest.
    • This proposition is so very manifest that it is ridiculous to take any pains to prove it.
    • It could never have been questioned had not the sophistry of merchants and manufacturers confounded the common sense of mankind.
      • Their interest is directly opposite of the people’s interest.
  • It is the interest of the freemen of a corporation to hinder the rest of the people from employing any workers but themselves.
    • So it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market.
    • Hence:
      • there are extraordinary duties on almost all goods imported by foreign merchants in Great Britain and most European countries
      • the high duties and prohibitions on all those foreign manufactures which can compete with our own
      • the extraordinary restraints on imports from countries with which the balance of trade is supposed to be disadvantageous

40 The wealth of a neighbouring nation is dangerous in war and politics.

  • It is certainly advantageous in trade.
  • In war, it may enable our enemies to maintain superior fleets and armies.
    • But in peace, it may enable them to exchange to a greater value with us.
    • It may afford a better market for:
      • our produce, or
      • whatever is bought with our produce
  • A rich man is likely to be a better customer to industrious people than a poor man.
    • It is likewise with a rich nation.
  • A rich manufacturer is a very dangerous neighbour to all the other manufacturers in the neighbourhood.
    • However, the rest of the neighbourhood profits from the good market the rich manufacturer affords them.
    • They even profit by his underselling the poorer manufacturers.
  • In the same way, the manufacturers of a rich nation may be very dangerous rivals to their neighbour’s manufacturers.
    • This competition, however, is advantageous to the people.
      • They profit greatly by the good market which that nation affords them.
  • Private people who want to make a fortune never think of retiring to remote and poor provinces.
    • They retire to the capital or to some great commercial town.
    • They know that where little wealth circulates, there is little to be got.
      • But where much wealth is in motion, some share of may fall to them.
  • In this way, the same maxims which would direct the common sense of 1 to 20 individuals, should regulate the judgement of 1 to 20 million people.
    • It should make a nation see the riches of its neighbours as a probable cause for itself to acquire riches.
  • A nation will likely enrich itself through foreign trade when its neighbours are all rich, industrious, and commercial nations.
    • A nation surrounded by wandering, poor savages might acquire riches by cultivating its own lands and by its interior commerce, but not by foreign trade.
    • This is how ancient Egypt and modern China acquired their great wealth.
      • The ancient Egyptians neglected foreign commerce.
      • The modern Chinese hold foreign commerce in the utmost contempt.
        • They rarely give it protection through its laws.
  • The modern maxims of foreign commerce aim at the impoverishment of all our neighbours.
    • Those maxims render that commerce insignificant and contemptible, instead of producing their intended effect.

France and England

41 Because of these maxims, the commerce between France and England has been subjected to so many discouragements and restraints.

  • If those two countries considered their real interest, without mercantile jealousy or national animosity, French commerce might be more advantageous to Great Britain than any other country.
    • Great Britain’s commerce will also be more advantageous to France.
  • France is the nearest neighbour to Great Britain.
    • The returns of the trade between the southern coast of England and the northern coasts of France might be expected at 4-6 times a year.
    • The frequency is the same as in the inland trade.
  • In those two countries, the capital employed in this trade could keep in motion 4-6 times the amount of industry.
    • It could afford employment and subsistence to 4-6 times more people than if it were employed in foreign trade.
    • Between the most remote parts of France and Great Britain, the returns might be expected at least once a year.
      • Even this trade would be at least equally advantageous as most of our foreign European trade.
      • This trade would be at least three times more advantageous than the boasted trade with our North American colonies, in which the returns frequently take 4-5 years.
  • France is supposed to have 24 million people.
    • Our North American colonies were never supposed to have more than 3 million.
    • France is a much richer country than North America.
    • There is much more poverty in France than North America because of the more unequal distribution of riches.
    • France’s market is at least eight times more extensive than North America.
    • France is 24 times more advantageous to our trade than our North American colonies due to the superior frequency of the returns,
  • The trade of Great Britain would be just as advantageous to France.
    • It would have the same superiority to France than the trade to her own colonies.
  • Such is the very great difference between the trade which both nations:
    • discouraged, and
    • have favoured the most

42 The very same circumstances which would have rendered free commerce so advantageous to both, have created the principal obstructions to that commerce.

  • Being neighbours, they are necessarily enemies.
    • The wealth and power of each becomes more formidable to the other.
      • What increases the national friendship only inflames national animosity.
    • They are both rich and industrious nations.
      • The merchants and manufacturers of each dread the competition of the other.
  • The violence of national animosity excites, inflames, and is inflamed by mercantile jealousy.
    • The traders of both countries announced falsely the certain ruin of each, from that unfavourable balance of trade which they pretend would be caused by free trade.

43 All European commercial countries were told by the pretended doctors of this system of the approaching ruin from an unfavourable balance of trade.

  • No European nation has been impoverished by this cause, despite:
    • all the anxiety they have excited
    • the vain attempts of trading nations to turn that balance to their favour
  • On the contrary, every town and countryside has been enriched by it in proportion to how they have opened their ports.
    • They were not ruined by this free trade, as the principles of the commercial system would lead us to expect.
  • There is no country which has free ports.
    • Although there are a few European towns which deserve such a name.
  • Perhaps Holland is the nearest to being a free port.
    • Though it is still very far from it.
    • It derives its whole wealth and most of its subsistence from foreign trade.

44 There is another balance which is very different from the balance of trade.

  • It creates the prosperity or decay of every nation as it is either favourable or unfavourable.
  • This is the balance of the annual produce and consumption.
    • If the exchangeable value of the annual produce exceeds the value of the annual consumption, the society’s capital must annually increase in proportion to this excess.
    • In this case, the society lives within its revenue.
      • What is annually saved out of its revenue is naturally added to its capital.
      • Its savings are employed to further increase the annual produce.
    • On the contrary, if the exchangeable value of the annual produce falls short of the annual consumption, the society’s capital must annually decay in proportion to this deficiency.
    • In this case, the society’s expence exceeds its revenue and encroaches on its capital.
      • Its capital must decay and together with it the exchangeable value of the annual produce of its industry.

45 This balance of produce and consumption is entirely different from the balance of trade.

  • It might take place in a nation which:
    • has no foreign trade
    • was entirely separated from all the world
  • It may take place in the whole planet with its wealth, population, and improvement gradually increasing or decaying.

46 The balance of produce and consumption may be constantly in favour of a nation, even though the balance of trade is generally against it.

  • A nation may import a greater value than it exports for half a century.
    • The gold and silver which comes into it during an this time may be all immediately sent out of it.
    • Its circulating coin may gradually decay.
      • Paper money may substitute in its place.
    • It may even have rising foreign debts.
    • Yet its real wealth, the exchangeable value of the annual produce of its lands and labour, may increase in a much greater proportion.
  • The state of our North American colonies and the trade they carried on with Great Britain serves as a proof of this.
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