SECTION IV.

On Foreign Commerce, Credit, and Taxation.

THIS Section comprises chapters on Foreign Commerce; Credit and its influence on prices; and Taxation. It will perhaps appear that foreign commerce and credit should have been explained in the section headed "The Exchange of Wealth." It however seems that in a short and elementary treatise there are many advantages in separating the subjects usually comprised under the head "Exchange of Wealth." A knowledge of the meaning of value and price, of the causes which regulate the prices of commodities, and of the true nature of money, is essential to a right understanding of the causes which determine the respective amounts of rent, wages and profits. At the same time the subjects of foreign commerce and credit, if introduced prior to the consideration of the distribution of wealth, might have wearied and perplexed the beginner. These subjects have therefore been reserved for the 4th and last section.

CHAPTER I. On Foreign Commerce.

A development of Foreign Commerce ensures division of labour. The great advantage derived from foreign commerce is that which is obtained by division of labour. If countries trade freely with each other, the natural consequence is that each nation gradually increases the pro

duction of those commodities for the manufacture of which circumstances have specially adapted it; at the same time it decreases the manufacture of those commodities which it has no particular facilities for producing. In this way the cost of production is diminished, and capital and labour work with their maximum efficiency. Take an example: France has great natural advantages for the manufacture of wine; her climate and the habits of her people cause the cultivation of the vine to be carried on with great success. Such countries as France, therefore, produce not only sufficient wine to supply their own wants, but also enough to satisfy the demand of countries like England, the climate of which is unsuited to the cultivation of the vine. The advantage of foreign trade is that we get from foreign countries either what we could not produce at all for ourselves; or else we get commodities in exchange for a smaller expenditure of labour and capital than it would cost us to produce them ourselves.

Protection is disastrous to the general interests of the Community. The West Indies, and some of the Southern States of the American Union, have special advantages for the cultivation of sugar. Were foreign commerce unrestricted these countries would probably grow sugar for the whole of Europe. In France, however, the duty on imported sugar is so heavy as to prevent its consumption. This duty is levied with the view of "protecting" the home industry. The French protectionist would say, "There is a large class of industrious people in France employed in making beet-root sugar. The cost of producing this sugar is greater than the cost of producing sugar in the West Indies from the sugar-cane. If the West Indian sugar were freely imported into this country, it would be sold for a smaller price than would recompense the producers of the beet-root sugar. It is therefore expe

dient to levy so large a duty upon the West Indian sugar, as would raise its price above that of the homegrown sugar, and thus effectually prevent its importation. By this means, the industry of France will be encouraged and the interest of the beet-root sugar-growers will be protected." Such an argument may at first sight appear plausible, but it quite overlooks the fact previously demonstrated, that a demand for commodities is not a demand for labour. If the sugar-growers of France were undersold by the sugar-growers of the West Indies, the former might for a time suffer pecuniary loss; but the ultimate result would be that they would gradually withdraw their labour and capital from a comparatively unremunerative trade, and employ them in some other industry, such as the cultivation of the vine, for which France possesses exceptional advantages. Thus there is no loss, but a transfer of capital and labour from a comparatively unremunerative employment to one in which they would work with greatly increased efficiency. In such a case, the total production of wealth is increased, and the national capital consequently augmented.

The effect of Protection on Wages. But there is still another view of the matter. In the argument which we imagined a French protectionist would use to justify the prohibitive duty on imported sugar, the interest of one class was entirely overlooked; this class is one for which protectionists have usually no consideration whatever. They busy themselves much in protecting the producers of commodities, but they never consider the consumers of commodities. To return to the illustration of the sugargrowers. Sugar is so universally used as to be almost a necessary of life. Any circumstance which reduces the price of sugar tends to increase the real reward of the labourer, and confers a direct benefit upon thousands of people. If any necessary of life is cheapened one of two

things must occur, either the cost of production is decreased, or the real reward of the labour is increased. If wages remain the same, after the price of a necessary is decreased, the real reward of the labourer is augmented, because his money-wages will exchange for a larger quantity of commodities. If, on the other hand, wages are decreased in proportion to the increased cheapness of a necessary, the real reward of the labourer remains the same, whilst the cost of production is decreased. It is therefore evident that the benefits attending a decrease in the price of any of the necessaries of life are much more general in their operation than the supposed benefit which is conferred upon producers by protecting them against foreign competition. A decrease in the price of a commodity also leads to an increased accumulation of capital; for the expenditure of consumers being reduced they have greater opportunity of saving, and a larger amount of wealth is consequently employed as capital. In striving to protect the producers of a commodity, protectionists thus inflict a much deeper injury upon the whole community than at first sight appears.

An illustration of the effect of a bounty for the encouragement of Native Industry. At the present time hardly any fine white sugar is made in England; the English consumers are supplied almost entirely from France. The reason of this is not that French sugar is better, or, naturally, cheaper than what was formerly manufactured in England. It can, however, be sold at a cheaper rate because the French government give what virtually amounts to a bounty on all the sugar exported from France. This bounty enables the French sugar refiners to undersell their English competitors, and consequently nearly all the large sugar refineries which used to exist on the Clyde and at Bristol have been shut up, and the labour and capital which they employed are being trans

ferred to other industries. It is thus seen that no permanent injury is inflicted on English industry by the policy of the French government; but that the simple result of the protection they afford to their home industry is that the whole French nation is taxed in order to enable the whole English nation to obtain sugar at less than cost price.

The arguments of Protectionists applied to the introduction of Steam-carriage. The plea of protection might have been urged with great force by the owners and drivers of stage-coaches at the time of the introduction of railway travelling: they might have said that these newfangled railroads would cause many hundreds of people to be thrown out of employment; that coach-proprietors and the owners of roadside inns would be ruined, that the national character would deteriorate, and that the race of horses would in a few years become extinct. All this very possibly was said, but with no avail. The coachdrivers and proprietors and the innkeepers were a very small body compared with the rest of the community; the good of the many was preferred to the profit of the few; and a wonderful development of commerce and other innumerable advantages derived from railway travelling have resulted.

The Candlemakers' Petition. M. Bastiat, in the following witty sketch, has placed in strong relief the absurdity of protection.

"THE CANDLEMAKERS' PETITION1.

"Petition of the Manufacturers of Candles, Waxlights, Lamps, Candlesticks, Street-lamps, Snuffers, Extin

1 Many paragraphs of this petition have been omitted; but it is hoped that nothing has been left out which is essential to the line of argument adopted.