Principles of Political Economy Part 46

[Footnote A2-2-13: Recognized even by _Ch. Davenant_, On the probable methods of making a People Gainers in the Balance of Trade (Works, II, p. 11).]

SECTION III.

FURTHER REACTION AGAINST THE MERCANTILE SYSTEM.

Simultaneously with this opposition, the theory of the international balance of trade underwent important refinements, a new and improved edition, so to speak, of old Colbertism.[A2-3-1] Each school is wont to estimate the favorableness of the balance according to the preponderance of that which they consider the most important element in a nation's economy. Thus the population-enthusiasts, after the middle of the 18th century, distinguished the "balance of advantage" from the "merely numerical:" the former is favorable to the country which, by means of its exports, employs and feeds the greatest number of men; the latter to the country with a preponderating importation of money. And they call the former much more important than the latter.[A2-3-2] The great advance which this view const.i.tutes over the old system lies chiefly in two points: that the number and employment of men are evidently, so far as the whole national economy and national life are concerned, a much more important element than the quant.i.ty of money in a country; and further, that now, at least, the possibility of a simultaneous profit on both sides is admitted.[A2-3-3] The best writer in this direction, Jos.

Tucker, is among the great-grand-parents of the Manchester theory of to-day!

A further advance was made by men who introduced the higher notions of nationality and of the stages of civilization into the theory of international trade. Thus, at about the same time, the socialistic J. G.

Fichte, with his shut-in commercial state, and the romantic reactionary, Ad. Muller, with his organic whole of national economy.[A2-3-4] Finally, Fr. List,[A2-3-5] with his "National system of Political Economy," and his severe subordination of the mere "agricultural state" to the "agricultural, manufacturing and commercial state," acknowledges the favorableness of the balance in the nation which by means of the exportation of manufactured articles, the importation of the means of subsistence and of articles to be manufactured, demonstrates and promotes its higher stage of civilization.[A2-3-6]

[Footnote A2-3-1: Compare _Mengotti_: Il Colbertismo (prize essay of the Georgofili at Florence), 1791. If, with _H.

Leo_, we were to designate the whole period from the issue of the struggles of the Reformation to the preparations of the French Revolution as the "age of the mercantile system,"

_Colbert_ would be a very appropriate type of it.]

[Footnote A2-3-2: Compare -- 254. Here belong _Forbonnais, Necker, Tucker_ (Important Questions, IV, 11; V, 5; VII, 4; VIII, 5. Four Tracts, 1774, I, p. 36); _Justi_ in his middle period (_Roscher_, Gesch. der N. O. in Deutschland, I, 451 ff.); but especially _Sonnenfels_ (politische Abhandlungen, 1777, Nr. 1), who sees the best sign of a favorable balance in the increase of population. (Grundsatze, II, 333.) When Austria, for 2,500,000, purchases diamonds _of_ Portugal, and sells Portugal linen to the amount of 2,000,000, it has the numerical balance against it, but obtains the "balance of advantage." (II, 329 seq.) With an admixture of physiocratism, this doctrine appears in _Cantillon_, Nature du Commerce, 1755, p. 298 ff.; with an admixture of free trade, in _Busch_, Geldumlanf, V, 12.]

[Footnote A2-3-3: _Justi_, Chimare des Gleichgewichts der Handlung und Schiffahrt (1759), supposes a gain on both sides in all commerce between nations. Hence, no nation can attain to a flouris.h.i.+ng trade in any way except it be to the advantage of those with which it has to do. (p. 14 ff., 43.) Here, it may be presumed, _Hume's_ Essay, On the Jealousy of Trade, exercised an influence. _Sonnenfels_ distinguishes, in foreign trade, five grades of advantage: 1, most advantageous, when finished commodities are exported and cash money is imported; 2, when finished commodities are exchanged for raw materials; 3, finished commodities against finished commodities; 4, raw material against raw material; 5, raw material against finished commodities. (Grundsatze, II, 202.)]

[Footnote A2-3-4: It is as necessary that every nation should const.i.tute a separate commercial body as that it should be a separate political and juridical body. The person who asks: why should I not have commodities in all the perfection in which they are made in foreign countries?

might as well ask: why am I not completely a foreigner?

(_Fichte_, Geschloss. Handelstaat, 1800: Werke, III, 476, 411.) _Ad. Muller_ compares universal freedom of trade to a universal empire, which will ever remain a chimera.

(Elemente der Staatskunst, 1809, I, 283.)]

[Footnote A2-3-5: _List_ (Werke, II, 31 ff.) had, after 1818, recognized that a _pa.s.sive_ balance for whole nations was possible, if they were not able to cover their wants, supplied from abroad and then consumed, by their income, but were obliged to make inroads on their national capital.]

[Footnote A2-3-6: _Ch. Ganilh_, who expects a real enrichment of a nation only from foreign trade (Dictionnaire de l'E. P., 1826, p. 131), ascribes the most favorable balance to the nation that exchanges dear labor against cheap; that is, princ.i.p.ally to a nation of tradesmen as contradistinguished from a nation of agriculturists.

(Theorie de l'E. P., 1822, II, 239 ff.)]

SECTION IV.

PARTIAL TRUTH OF THE MERCANTILE SYSTEM.

But even among the successors of Hume and Smith, a deeper insight into, so to speak, the physics of money and of international trade must have led to the recognition of many a truth which the mercantile system had, indeed, badly formulated, insufficiently proved, but which it had, nevertheless, an inkling of. And, indeed, how frequently it happens that the progress of science proceeds from one one-sidedness, through another opposed but higher one-sidedness, to the all-sidedness which knows no prejudice!

A. Precious-metal-money is, indeed, a commodity, but of all commodities, the most current, the most many-sided in its utility, the most economically energetic, and at the same time of peculiarly great durability.[A2-4-1] Money-capital, far from being the least useful portion of a nation's capital, is rather one of its most important parts; and especially in the higher stages of civilization, where the division of labor has been most largely developed, is it peculiarly productive and indispensable.[A2-4-2] Here it is really more likely that the possessor of commodities may be wanting the wished for money, than that the possessor of money should be wanting in the wished for commodities. And, hence, the numerous half mystic expressions of the magical power of money, which have pa.s.sed into literature from the common usage of the people, can be, by no means, considered mere errors.

B. Just as little, can the impossibility of the preponderant importation of money for a long time, be a.s.serted. Hume's rigid theory of a level, by no means, exactly corresponds with the reality. The precious metal which is, indeed, imported, but which does not subsequently enter into the circulation, need exert no influence whatever on the prices of commodities in general; and may, therefore, remain permanently in the country. Think only of the articles made of the precious metals, which minister to luxury,[A2-4-3] of buried private treasure, of the treasures of the state, which are idly stored up; as well as of a portion at least of most cash on hand.[A2-4-4] From the other side, also, the over-balance or under-balance (_Ueber-oder Unterbilanz_) of a country may continue, a very long time, when its internal trade with its money-need is, in the first case, an increasing, and in the last, a decreasing one.

So far, the preponderance of the importation of money may be called a favorable sign and the preponderance of the exportation of money an unfavorable one. And the person who thinks that a permanent preponderance of exports or imports is not at all possible in the way of commerce, overlooks the possibility of a very extensive national indebtedness.[A2-4-5]

C. But a distinction should be made between the _balance of payments_ and the _balance of trade_ in the narrower sense of the expression.[A2-4-6] In the case of the latter, to be complete, it is necessary to carry to the credit side of the account: 1, The exports of commodities; 2, the profit made by parties at home by realizing on (_Realisierung_) the exports in foreign countries; 3, the freight-profit made by parties at home on exports and imports, as well as in foreign carrying trade (_Zwischenverkehr_); 4, the sale of inland s.h.i.+ps in foreign countries; 5, premiums and compensation for damage on account of maritime insurance from foreign countries. On the debit side, on the other hand, the corresponding items when foreigners have received from the home country, as in the case of imports, etc. To obtain the general payment-balance, we have still, in addition, on the credit side: 1, The profit from home partic.i.p.ation in enterprises in foreign countries and the transfers of capital originating therefrom; 2, the interest and repayments of money-capital loaned in foreign countries; 3, the sale of stocks (_Effecten_) to foreign countries as well as new loans to which the home country makes in foreign parts; 4, remittances from foreign countries to foreigners sojourning in the home country, and money brought with them by travelers and emigrants; 5, inheritances, pensions and extraordinary payments from foreign countries. Then, too, on the debit-side, belong the corresponding counter-items.[A2-4-7] If we, in this way, take a survey of the whole world, we shall perceive a treble current of the precious metals. The first and most regular goes, in long lines, from mining countries, over to the commercial countries of the world, and distributes the newly acquired gold and silver as commodities according to the wants of the coinage, of manufactures, etc. The second oscillates, as it were, in short waves from country to country, in order to adjust the _plus_ or _minus_ for the time being of payment-balances.

Lastly, regular sudden currents, with slow subsequent counter-currents, when single economic districts require to make extraordinary drafts or s.h.i.+pments of the precious metals, by reason of bad harvests, war, a disturbed double standard, etc.

D. Since international indebtedness has so much increased, precisely the richest nations may have the greatest regular excess of exports over imports; partly because of the great amount of capital, etc., which they possess in foreign countries; partly because of the great development of their system of credit in the interior, by means of which they find subst.i.tutes for so great a part of the metallic currency.[A2-4-8]

[Footnote A2-4-1: _Locke_, Civil Government (1691), -- 49, seq., emphasizes this durability of the value-preserving metallic money, in opposition to the perishable articles of consumption, as a princ.i.p.al element in the development of private property and of economic civilization. But even _Petty_ ascribes to the precious metals a higher quality as wealth than to any other commodity, for the reason that they are less perishable, and possess value always and everywhere. Hence, he esteems foreign trade more highly than inland trade, and would have those businesses which import the precious metals protected more than others against taxation. (Several Essays, 1682, p. 113, 126, 159.) _Adam Smith_ also recognizes this, at least so far as intermediate trade is concerned. (W. of N., IV, ch. 6.)]

[Footnote A2-4-2: Even _Rau_, in his additions to _Storch_ (1820), p. 397, concedes the peculiarly charming, vivifying power, which money possesses to an extent greater than any other commodity. Well distinguished whether the money-want of a country is already fully satisfied or not. (Ansichten der Volkswirthschaft, 1821, p. 157.) _Carey_ exaggerates when he calls money the cause of the movement in society, out of which force is produced, what coal is to the locomotive, or food to the animal body (Principles of Social Science, ch. x.x.xII, 5), or the only want of life for which there is a universal demand. (Ch. x.x.xIII, 1.) But he rightly calls it the "instrument of a.s.sociation." Excellent demonstration, as to how, at the sudden outbreak of a war, of a revolution, etc., all those who have money on hand, even when they had previously obtained it while peace still prevailed, in the form of a loan, are in an infinitely better position than the owners of the otherwise most useful commodities. (Ch. x.x.xVII, 12.) Earlier yet, _P. Kaufmann_ placed the "princ.i.p.al character of money" in this, that it was "most perfect property (_Vermogen_);" and he calls its quality as a commodity, philosophically considered, in question; and judges the balance of trade according to this, that in commodities, interest-yielding as well as dead capital is exported, but in money-capital, which is always gain-engendering. (Untersuchungen im Gebiete der politischen Oekonomie, 1829, I, 4, 74, 80.)]

[Footnote A2-4-3: In England, _Patterson_ estimates the regular additional importation (_Mehreinfuhr_) of money at from four to five millions sterling, of which the greater part is devoted to purposes of luxury. (Statist. Jrl., 1870, 217.)]

[Footnote A2-4-4: _Fullarton's_ view (Regulation of Currencies, 1844) suffers from exaggeration. _Knies_, Geld and Credit, II, 285, very well shows that the "h.o.a.rds" are by no means mere idle stores, and that, therefore, their void produced by the exportation of money must be soon filled up again. _Adam Smith_, even, may be considered a predecessor of _Fullarton_. (W. of N., ch. 2, p. 250, Bas.)]

[Footnote A2-4-5: Even _Busch_ (Werke, XIII, 26) says that the under-balance (_Unterbilanz_) of the Scotch vis-a-vis of England was for a long time made up in two ways, by the marriage of wealthy English heiresses and by Scotch bankrupts. Thus the troops, who, in the 17th century, were traded over to France, and in the 18th, to England by German princes, brought the money, in part, back again, which was exported by the unfavorable balance. According to _List_, the exported metals, after they have risen in price with us, flow back to us again; not, however, as exchangeable articles, but in the form of a loan, by which it is made possible for us to dispose of them again, and again to receive them in this shape. (Werke, II, 37.)]

[Footnote A2-4-6: Thus even _J. Steuart_, Principles, IV, 2, ch. 8.]

[Footnote A2-4-7: Compare _Soetbeer_ in _Hirth's_ Annalen des deutschen Reiches, 1875, p. 731 ff.]

[Footnote A2-4-8: British Europe had from 1854 to 1863, a yearly surplus amount (_Mehrbetrag_) of imports of at least 266, and at most 1190 millions of marks, in the average, 764 millions; from 1864 to 1873, of at least 802 millions, and at most 1388 millions, an average of 1104 millions; whereas, on the other hand, Australia, besides its great exportation of gold, exhibits a great excess of exports of commodities over imports. France, too, from 1867 to 1869, had attained to an average surplus importation (_Mehreinfuhr_) of 211 million marks; which is related to the fact that, according to _L. Say_, it received about from 600 to 700 million francs a year in interest from foreign countries; and that from 200 to 300 million francs were expended by foreigners, etc., traveling in France. Similarly, in the case of governing countries vis-a-vis of their dependencies; whence even the old mercantilists entertained no doubt of the enrichment of the former. Thus France, in 1787 ff., had a yearly importation of 613 million livres, and an exportation of 448 millions, because the colonies sent to France 150 millions more than they drew therefrom. (_Chaptal_, De l'Industrie, Fr., I, 134.) Hungary, from 1831 to 1840, had a yearly exportation of 46 million florins to Austria, and an importation of only 30 millions. (_List_, Zollvereinsblatt.

1843, No. 49) Algiers drew from France in 1844 to the amount of 83 million francs, and found a market there for only 8 millions (Moniteur), which no one will consider an enrichment of France. The great preponderance of French exports in 1831, 1848 and 1849, of Austrian, between 1874 and 1876, a sign of diminished purchasing capacity! When England, in March, 1877, imported to the amount of 35,230,000, and exported to the amount of 16,921,000 (against 27,451,000 and 17,739,000 in March, 1876), the Economist sees therein a sign that many outstanding debts were called in.]

SECTION V.

THE ADVANTAGES OF INTERNATIONAL TRADE.

The truth that no exportation is permanently possible without importation, and that, in international trade, also, both sides better their condition, was clear to the Italians in the fifteenth century, and in the sixteenth and seventeenth centuries to the Netherlanders.[A2-5-1]

Every nation can, through its instrumentality, for the first time, acquire not only those commodities which nature entirely refuses to it, but such also which it can itself produce only at a great cost.[A2-5-2]

And here it is not so much the absolute costs of production as the comparative which are decisive.[A2-5-3] The country A may be superior to the country B in all kinds of productiveness; but when this superiority for the group of commodities _x_ amounts to only 50 per cent., and for the group _y_, on the other hand, to 100 per cent., it is to the interest of A, which possesses only a limited quant.i.ty of the factors of production, to produce a surplus of the commodities _y_, and to exchange that surplus against what it wants of _x_.[A2-5-4] B, also, would willingly agree to this, even if it were not to get the commodities _y_ entirely as cheap as A might supply them, but still decidedly cheaper than their production would cost in B itself. But, if both parties derive advantage from international trade, there is no necessity whatever that this advantage should be equally great on both sides. As in every struggle over prices, the gain here also is greatest on the side of the nation whose desire to hold fast to their own commodities is farthest from being outweighed by the want of the foreign commodity, and which, at the same time, employs most productively the equivalent received in imports in exchange for its exports.[A2-5-5] Yet, in estimating this productiveness, it is necessary to take the whole national life into consideration.[A2-5-6]

The international distribution of the precious metals is subject to the same law. These, also, are procured most cheaply by the nation which, directly or indirectly (by the production of counter values wished for by the whole world), employs the most productive economic activity upon them, and at the same time (it may be by especially well developed credit), is in the least urgent need of them.[A2-5-7] Therefore, on the whole, their value in exchange is wont to be lowest among the richest and most highly cultivated nations.[A2-5-8] Such a relative cheapness of gold and silver is not only a symptom of economic power, but considering the preeminent energy of these very commodities, at the same time, a means to procure most foreign commodities with a smaller expenditure of one's own forces.[A2-5-9] Hence, a great change in the distribution, hitherto usual, of the precious metals, produced, possibly, by great advances made in production here, or by an increase in consumption there, or by means of commercial prohibitions, etc., may be just as advantageous to the country which receives more as hurtful for the country which pays more;[A2-5-10] and both, all the more as the revolution in prices enhances the most productive elements of the nation there, and here the most unproductive.[A2-5-11] Hence, even when it cannot, in general, be said that one branch of commerce, carried on in a normal manner, should necessarily remain behind another in economic productiveness, those which have nothing to fear from a disturbance of their balance by the measures of foreign states are distinguished by the greatest security, and those are capable of the greatest growth which exchange articles to be manufactured (_Fabrikanden_), and the means of subsistence against ordinary manufactured articles.[A2-5-12] [A2-5-13]

[Footnote A2-5-1: _M. Sanudo_, in Muratori Scriptores, XXII, 950 ff., and the Netherland decree of February 3, 1501, in the Journal des Economistes, XIII, 304. Then, _Salmasins_, de Usuris (1638), p. 197. _Child_, _Becher_ and _Temple_ had all made their studies in Holland. Compare, besides, even _Plato_, De Rep., II, 371.]

[Footnote A2-5-2: _J. S. Mill_ rightly calls it a remnant of the mercantile system that _Adam Smith_ still saw the princ.i.p.al utility of foreign trade in the market for the home production which is thereby increased. But this utility is to be looked for not so much in what is exported as in what is imported. (Principles, II, ch. 17, 4.)]

[Footnote A2-5-3: Compare _v. Mangoldt_, Grundriss der V. W.

L., 185 ff. By the English, the discovery of this truth is attributed to _Ricardo_, Principles, ch. 7. Compare the further development in _J. Mill_, Elements (1821), III, 4, 13 seq.; _Torrens_, The Budget (1844) and _J. S. Mill_, Essays on some unsettled Principles of Political Economy (1844), No. 1, and Principles, III, ch. 18 ff. But even _Jacob_, Grundsatze der Polizeigesetzgebung (1809, p. 546 ff.), was acquainted with the truth that generally both sides gained, but the one party, possibly more than the other. According to _Lotz_, Revision (1811), I, 161, the gain and loss of each party rises and falls in proportion to the difference between the degrees of value which each party, so far as he is himself concerned, attaches to the goods given and the goods received. And even _Cantillon_, Nature du Commerce (1155), p. 226, 369 ff., had a presentiment of the reason why countries having a low value in exchange of money can continue notwithstanding to sell in foreign countries. And so, too, _Hume_, Essays (1752), On Interest, who, without looking through the spectacles of the mercantile system, perceived that countries with a flouris.h.i.+ng trade must necessarily draw much gold and silver to themselves. Recently, _Cairnes_ has shown by practical examples that Australia imports Irish b.u.t.ter and Norwegian wood, and the Barbadians meat and flour from New York, although both might themselves produce such articles cheaper. (Essays, etc., 1873. Leading Principles, 1874, p.

379.)]

[Footnote A2-5-4: Thus a Kaulbach might more expertly ornament his own door and window frames than an ordinary room-painter, but does not do so, because he can employ his time to better advantage.]

[Footnote A2-5-5: Even _Law_, Money and Trade, p. 31, was of opinion, that when a nation consumes its imports which are greater than its exports, it grows poorer, not in consequence of the importation, but of the consumption.

_Quesnay_ calls attention to the _plus on moins de profit qui resulte des marchandises memes que l'on a vendues et de celles que l'on a achetees. Souvent la perte est pour la nation qui recoit un surplus en argent, et cette perte se trouve au prejudice de la distribution et de reproduction des revenus_. (Max. gener., 24.)]

[Footnote A2-5-6: _Rau_ distinguishes princ.i.p.ally whether importation brings articles of luxury or means of acquisition (_Erwerbstamm_) into the country. (Ansichten der V. W., 163.) Similarly, _de Cazcaux_, Elements d'Economie privee et publique (1825), p. 188 ff. _Schmitthenner_, Zwolf Bucher vom Staate (1839), I, 497. "A favorable balance of trade does not make a people richer because they receive the metals for other values, but because they produce and sell more than they purchase and consume; the result of which naturally is that the difference must consist in values capable of being capitalized." Kaufmann draws a distinction according as the imported goods come into the country in the form of dead or interest-bearing capital. He ill.u.s.trates his view by the case of a peasant who sells his seed-corn in order to purchase a finer hat with the proceeds.

(Untersuchungen, I, 96, 81 seq.)]

[Footnote A2-5-7: International trade makes imported commodities cheaper and exported commodities dearer, but the aggregate of consumers gain more in the former case than they lose in the latter, because they now enjoy the blessings of the international division of labor. But, even with this general enrichment, single cla.s.ses of the people, and even the majority, may have to suffer; as, for instance, when in the exchange of corn against iron, the cheapening of the iron profits the people less than the consequent dearness of corn injures them. (_Fawcett_, Manual, 391.)]

[Footnote A2-5-8: "Gold and silver are by the compet.i.tion of commerce distributed in such proportions amongst the different countries of the world as to accommodate themselves to the natural traffic which would take place if no such metals existed and the trade between countries were purely a trade of barter." (_Ricardo_, Principles, ch. 7.) In most direct opposition to the mercantile system, he represents the distribution of the precious metals to be not the cause but the effect of national wealth. A nation rapidly growing in wealth will obtain and keep a larger quota of the general supply of gold and silver. (The high Price of Bullion, 1810.) On the other hand, it depends on the one-sided abstraction with which _Ricardo_ loves to pursue certain a.s.sumptions, that every exportation of money is made to signify a peculiar cheapness of money, and _vice versa_. (Opposed by _Malthus_, Edinb. Rev., Febr., 1811.) _Carey's_ frequently repeated a.s.sertion, that gold and silver always flow towards those markets where they are cheapest (Principles of S. Science, I, 150, and pa.s.sim), confounds cause and effect.]

[Footnote A2-5-9: Compare -- 126, and even _Kaufmann_, Untersuchungen, I, 75 seq.]