CHAPTER XXIV. THE DOCTRINE OF INTERNATIONAL EXCHANGES; THE POLICY OF ENCOURAGING DOMESTIC MANUFACTURES BY LAYING DUTIES ON IMPORTED GOODS. THE explanation which has been given in former chapters of the circumstances which determine prices, and of the course of exchange with foreign countries, has prepared the way for a fuller consideration of the general question between free trade and the protective system. I have already endeavored at some length to show,* that the general doctrine of free trade is perfectly reconcilable with the policy of granting protection under special circumstances; that it does not conflict, for example, with the system of imposing for a time duties on imported goods in order to foster the manufacturing interest here in America, which cannot flourish, or even subsist to any great extent, without such favor. I now resume the subject, in order to consider more particularly the effects of such a system upon our intercourse with other nations. This brings us at once to an explanation of the theory of international values and exchanges, a recent and valuable addition to the science of Political Economy, and one which has lately compelled the old-fashioned advocates of free trade to make numerous and very significant concessions to their opponents. It has struck away the great prop of the universality of their system, and has compelled them to acknowledge that the importation of foreign manufactures may be excessive, even for a long period of years; and that the inevitable consequence of such excess is to depress the prices of our exports in all foreign markets, and thus to neutralize all our natural advantages for producing these articles of export, by compelling us to exchange them for foreign goods upon the most disadvantageous terms. Hitherto, the evil of excessive importation has been held to be, that it caused a drain of specie from the country, or what * See ante, pp. 25-27, and Chapters VIII. and XIV. was technically called "an unfavorable balance of trade." To this unwise argument the reasonable answer was, that a drain of specie to any injurious extent is impossible; for an unnatural efflux of money must raise the value of what is left, and thereby lower the money price of all goods which are exchanged for it. The fall of prices thus occasioned would inevitably tempt foreigners hither to make their purchases, and the goods thus bought must be paid for by remittances of coin or bullion, so that the current of specie would be turned the other way. Money is a self-distributing commodity, which always apportions itself among commercial nations in exact proportion to the wants of each. In theory, this reasoning is perfectly sound; and though many attempts have been made to refute it, we know of none which have had even the appearance of success. Practically, however, as all intelligent merchants will admit, very large importations are found to be attended with very great evils. Experience has proved that they tend to depress the prices of domestic products, to paralyze domestic industry, and even to bring on commercial crises, which are equally disastrous to our agricultural, commercial, and manufacturing interests. To account for these facts, which are inexplicable upon the narrow principles of Adam Smith and McCulloch, we must go back to first principles, and, after gaining clear ideas of the nature of commercial exchanges in general, must see how the aggregate of our own exchanges with other nations is effected. In the preceding chapter, it has been shown that prices are determined by the relation of the demand to the supply, and that an extension of the market, or an increase of the demand, can be obtained only by submitting to a fall of prices, so as to bring the article within the reach of a greater number of consumers. In any market, only a certain quantity of goods at a given price can be consumed; if more goods are forced upon the market than it naturally requires, the price must fall, and then the consumption may be very much increased. It has also been proved, in treating of bills of exchange, (pp. 319-329,) that we really purchase commodities with commodities, that we pay for our whole imports with our whole exports, that if, in our traffic with any one country, (China, for instance,) our imports much exceed our exports, then we pay the balance, not in money, but by transferring to that country the debt due to us from another country, (England, for instance,) with which our trade is such that our exports exceed our imports. It is only the balance of the immensely long "account current" of our trade with all foreign countries whatsoever, which is struck in money; and this cash balance cannot be more than an insignificant fraction of either side of the account. The advocates for free trade have always insisted, that we must buy merchandise of England, not only to induce, but even to enable, England to buy merchandise of us, that we must buy of any country in order to sell to her, and must buy as much as we sell. But it is not so. It is not necessary that we should take of English manufactured goods enough to pay us for all the cotton, tobacco, and wheat which we sell to England; — England is able, though of course she is not very willing, to pay us the balance in tea from China, coffee from Brazil, hemp from Russia, or whatever other article, from whatever other country, we see fit to require. We can compel her to pay us in whatever commodities we may select; for the articles which we sell to England cotton, tobacco, and wheat are of prime necessity to her, and most of which she cannot obtain elsewhere. As our exports must pay for our imports, the only point to be considered is, how we can dispose of the exports to most advantage, or obtain for them the largest return of the imports. The cost to us of our domestic products is, the labor that is expended upon their production. But the cost to us of foreign products is, not the labor which has been expended upon their production, but the labor which we must expend upon the articles that are given in exchange for those products. "The advantage of an interchange of commodities between nations," says Mr. Mill, "consists simply and solely in this, that it enables each to obtain, with a given amount of labor and capital, a greater quantity of all commodities taken together. This it accomplishes by enabling each, with a quantity of one commodity which has cost it so much labor and capital, to purchase a quantity of another commodity, which, if produced at home, would have required labor and capital to a greater amount. To render the importation of an article more advantageous than its production, it is not necessary that the foreign country should be able to produce it with less labor and capital than ourselves. We may even have a positive advantage in its production; but if we are so far favored by circumstances as to have a still greater positive advantage in the production of some other article which is in demand in the foreign country, we may be able to obtain a greater return to our labor and capital by employing none of it in producing the article. in which our advantage is least, but devoting it all to the production of that in which our advantage is greatest, and giving this to the foreign country in exchange for the other. It is not a difference in the absolute cost of production, which determines the interchange, but a difference in the comparative cost." The inhabitants of Barbadoes, for instance, favored by their tropical climate and fertile soil, can raise provisions cheaper than we can in the United States. And yet Barbadoes buys nearly all her provisions from this country. Why is this so? Because, though Barbadoes has the advantage over us in the ability to raise provisions cheaply, she has a still greater advantage over us in her power to produce sugar and molasses. If she has an advantage of one quarter in raising provisions, she has an advantage of one half in regard to products exclusively tropical; and it is better for her to employ all her labor and capital in that branch of production in which her advantage is greatest. She can thus, by trading with us, obtain our breadstuffs and meat at a smaller expense of labor and capital than they cost ourselves. If, for instance, a barrel of flour cost ten days' labor in the United States, and only eight days' labor in Barbadoes, the people of Barbadoes can still profitably buy the flour from this country, if they can pay for it with sugar which cost them only six days' labor; and the people of this country can profitably sell them the flour, or buy from them the sugar, provided that the sugar, if raised in the United States, would cost eleven days' labor. This is a striking example to show the benefit of foreign trade to both the countries which are parties to it. Tte United States receive sugar, which would have cost them eleven days' labor, by paying for it with flour which costs them but ten days. Barbadoes receives flour, which would have cost her eight days' labor, by paying for it with sugar which costs her but six days. If Barbadoes produced both commodities with greater facility, but greater in precisely the same degree, there would be no motive for interchange. Now let us apply these principles to the trade between England and the United States. We will suppose, what is the fact, that this country has a very considerable advantage over England in the production of cotton, flour, and tobacco; while England has some advantage (a comparatively trifling one) over us in manufactured goods; we say, a comparatively trifling advantage, because cotton and tobacco cannot be cultivated in England at all, and one of these articles (cotton) cannot be purchased by her in sufficient quantities from any other country than the United States; while we can manufacture all the goods that are now manufactured in England. Some of them (the coarser cottons, for instance) we can even manufacture more cheaply than the English; but most of the finer fabrics, unquestionably, owing to the lower profits of capital and the lower wages of labor, can be more cheaply manufactured in England. To simplify the matter as much as possible, we will take but one article, flour, as the representative of all the commodities that America sells to England; and but one article, cloth, as the representative of all the goods which England sells to America;- that is, we will suppose the trade between the two countries to consist exclusively of these two articles. As it has been proved, that, in foreign trade, we barter directly commodities for commodities, we can fortunately leave money out of the case altogether, and estimate the value or cost of the two only by comparing them with each other. We will suppose, on account of the respective advantages possessed by the two countries, that the production of one barrel of flour in England costs as much labor and capital as would suffice for the manufacture of ten yards of cloth; while in America, one barrel of flour can be produced for three fifths of its cost in England, or, in other words, for as much labor and capital as would, in England, manufacture only six yards of cloth. Whether this state of things proves that, in America, the cost of flour is less, or the cost of cloth greater, than in England, is a point of no importance. We can simplify the matter still further, then, by supposing that cloth can be manufactured to equal advantage, or |
