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again, and produced a revenue approximating to the old maximum of nearly 500,000 taels. These wells are private property, and the proprietors simply pay one duty, entitling the salt to free circulation all over the province, except in the north-eastern wedge belonging to the Sz Ch'wan interest, and the small south-eastern wedge covered by Canton salt. There is no opening here for European capital, though possibly the French might make something out of the P'u-erh and Kingtung wells, which lie within their “sphere of hopes”: the other wells are altogether too far from the Burmese frontier to be of any use to us : in fact, during my residence at Bhamo, I noticed Cheshire salt going on mules from that point into Yün Nan, the freight from Liverpool to Rangoon and up the Irrawaddy being negligeable in proportion to the mule carriage for 100 miles.

Canton salt does not date back so far as the beginning of the Christian era, at least so far as official organisation goes. Sixteen hundred years ago China was divided into three independent empires, which may be roughly described as North Yangtsze, South Yangtsze, and the Far West; and it was the southern empire which first established in the extreme south a control over salt. The Canton salt is prepared from sea-water at about a dozen different centres dotted along the coast; but the only place where I have actually seen it produced myself was at Hoihow, in Hainan, where a village tribe speaking a Siamese brogue extracts the salt from the brine in peculiar covered kilns. I never saw or heard of official salt there. One of the Fuh Kien rivers runs straight down to Swatow, and consequently its valley falls within the Canton salt area. In the same way the southern wedge of Kiang Si, up to the 26th parallel, falls under the Canton administration; and also a small slice of Hu Nan contiguous to this area. There is a district of Kwei Chou called Ku Chou, which belongs to the Canton River system, and this is served by Canton salt. Thus, besides the Two Kwang entire (Kwang Tung and Kwang Si), Canton salt serves small portions of every single province around, and is an arch-trespasser upon the interests of Sz Ch'wan, Fuh Kien, the Hwai, and Yûn Nan; but the Hwai is the only one of the three which ever gets up an official grievance, and is, in fact, the only one which has natural topographical ground to do so. The Canton system is subdivided into the “Great River” and Little River,” according to whether the shipments go east or west from Tung-kwan, which is the most ancient centre of the salt trade; but the Salt Commissioner resides at Canton. When I was there, frequent salt difficulties arose with Hong Kong, and possibly they do still, as native Hong Kong traders naturally endeavour to run cargoes from the producing coasts into inland China free of duty. Kwang Tung raises about 600,000, and Kwang Si 200,000 taels of annual revenue out of salt : as a matter of fact, three times that sum is extracted in squeezes,” and there is no part of the empire where a firm British control would have better chances of success.

I need hardly do more than mention the Piebald Horse Ponds, (Hwa-ma Ch'i) of Kan Suh, almost on the Shan Si frontier, just under the Great Wall, half as far south-east from the Yellow River as Ghilen-tai is north-west. These two supply the wants of nearly all Kan Suh, where the salt trade is almost free: in any case the intendant at Ning. hia, who controls the salt-taxing business, never raises more than about 30,000 taels a year; and the only European influence that can ever touch that region is the Russian. The southern parts of Kan Suh are similarly served on easy terms, from the pits or wells (I am not sure which) found at two places in Kung-ch'ang Fu. A considerable part of south and west Shen Si is also served by the Piebald Horse interest, and in 1806 and 1856 attempts were made to reconcile this trespass with the aspirations of the Ho-tung traders : at present about 25,000 taels of dues are collected in Shan Si on this latter salt for the Shen Si treasury. There are also some small salt ponds in the extreme north of Shen Si. But the whole salt revenues of Kan Suh and Shen Si from whatever source cannot amount to over 100,000 taels a year.

In Manchuria the salt revenue has never amounted to much. In 1681 the population was found too scant and poor in the two northern provinces to tax for salt at all; whilst even in Liao Tung or Manchuria proper (that is, the third province, accessible to foreign trade by sea) it was found that the syndicate established could not make money, so in that year free trade in salt was promulgated. In 1887 this free trade was modified; and in 1897 the Tartar general Ikotanga succeeded in raising a salt revenue of nearly half a million taels. The salt all comes from the lowlands of the River Liao delta, and there is certainly a good opening here for a British syndicate to establish a financial hold upon a legitimate field now threatened with Russian absorption.

Having glanced at the whole of the salt-producing places in China, I will simply add that the total revenue receipts from that source, admittedly collected and credited to the public service, including Manchuria, amount to between 12,000,000 and 14,000,000 taels a year : these totals, which have been worked out, province by province, by Mr. Consul Jamieson of Shanghai, as well as myself, agree with the official estimates of the Board of Revenue, and may be accepted, within the margin of those two limits, as fairly unimpeachable. At normal silver rates, the sum of 13,000,000 taels meant, until within the last ten years, £4,000,000 sterling, and still means that in China, so far as the silver purchasing power (as to articles not coming from gold countries) goes. But for a British speculator it only means at the outside £2,000,000. If we estimate “squeezes" and the profits of middlemen at a sum equal to that credited to Government, we get £8,000,000 (nominal) or £4,000,000 (actual) annual receipts, which, under European control, aided by economical machinery, regular, free, and cheap distributing methods, and common honesty, might easily become £16,000,000 nominal, or £8,000,000 in gold. Whilst doubling the salt revenue of the Chinese Government, it is evident that the syndicate would find ample profit in exchange manipulation to repay itself a reasonable percentage on the comparatively small investment required in order to organise an efficient service, and of course if it only undertook one, or several of the businesses, instead of the whole of them, the investments and the gains would be proportionately smaller. there is no reason why the gains should depend entirely upon so precarious a support as mere profit on exchange : a stipulation for percentages on gross or net receipts, according to circumstances, and after exhaustive examination in each field, would be a very natural and legitimate mode of securing safe profits. These details, however, are for commercial men to work out for themselves : the example of Egypt shows, in a general way, what it is possible to do with the most unpromising financial materials, and my present task is confined to indicating the nature of the fields in which it is possible to work profitably.



A Point worthy of discussion is raised by Professor Nicholson when in his original chapter on the pure theory of international trade he disputes Mill's proposition that an improvement in the production of an exported article might lead to an alteration in the terms of international exchange detrimental to the exporting nation. The issue is of considerable theoretic interest, as involving first principles ; and even of some practical importance, in that Mill's paradox disturbs economic harmonies which are apt to have an undue influence.

Professor Nicholson, “considering the case taken by Mill of an improvement in an export (say) from B to A-other things remaining the same?," proceeds thus :

" Mill argues that the demand for the export in A may increase just in proportion to the cheapness or more or less. In the first case the balance is unaltered : in the second the balance turns against A, and she must offer her exports in cheaper terms to induce B to accept them in return; whilst in the third case B, though offering more than A is willing to take at the new price, is obliged to lower this price and thus obtains A's exports on less favourable terms. This last case is the most interesting and paradoxical, as it seems to show that a country may lose through improvements in machinery, and the like, that is to say, may obtain less foreign goods than before for the product of the same labour. (Compare Edgeworth, Economic JOURNAL, March 1894, p. 403).

If, however, we introduce money, this case is seen to work out differently. Mill's argument implies that the labour of B must be employed to the same extent as before in the improved export, although the money value of the pro. duct has fallen and with it the money wages of the producers. It is clear,

i Principles of Political Economy. By J. S. Nicholson, Book iii., ch. xxvii., 88. ? Principles of Political Economy. By J. S. Mill, Book iii., ch. xvii., $ 5. 3 The sentence here put in brackets forms a footnote in the original.

however, that with mobility of labour the surplus labour will be transferred to other industries which yield the average wage.

Suppose that before the improvement B exported to A 5000 yards of linen, costing £1,000, and imported in return 1000 yards of cloth. Let the price after the improvement fall from 4s. to 2s. per yard, and at this price let A take 6,000 yards or a total of £600. The £400 of labour set free in B can make other exports to pay for A's cloth and so far the produce of the same labour in B will obtain the same imports from A as before. But if B exports to A commodities formerly made by A, some of A’s labour will be displaced and make other things (Professor Edgeworth assumes not only that the same labour as before is devoted to linen, but that no linen is consumed in B1).

To fully discuss this passage, I shall first defend myself on my own ground, then join issue under the less abstract conditions proposed by Professor Nicholson.

I. First I demur to both the propositions asserted in the last sentence of the passage which has just been quoted. I neither assume (1) “ that the same labour as before is devoted to linen,” nor (2) " that no linen is consumed in B.”

(1.) The first proposition is contrary to the whole tenor of my reasoning explicitly stated with respect to the case of an impediment to the production of exports, and by an obvious and indicated reversion, so to speak, of signs applicable to the converse case of an improvement. Designating exports by x, imports by y, I have assumed 3 that in general to each assigned value of x put on the international market there corresponds a value of y, which will be taken in exchange for r. I take it for granted or demonstrated, that as the ratio y=x, the price of exports in terms of imports, so to speak, increases-ceteris paribus the advantage derived from the export of x increases, and conversely diminishes with the fall of what may be called the selling price. Of course I do not imply that to different values of x, corresponding to changes in the rate of exchange y = x, there goes a constant quantity of labour employed in the production of exports. becomes greater or smaller, a certain quantity of the productive forces in B are supposed to be drawn from or restored to the supply of the domestic market.

These assumptions are general. In the particular case which is favourable to Mill's paradox, I further suppose that while the increase of the ratio evokes a considerably greater supply of x on the part of B, the decrease of that ratio is not attended with a much greater demand for x on the part of A. This increase of demand may be supposed zero, to begin with—for a moment, as the mathematicians sometimes say. In the same spirit I make the further suppo

1 The sentence here put in brackets forms a footnote in the original.

? ECONOMIC JOURNAL, p. 429, forming part of an article continually referred to (by anticipation) in the article from which Professor Nicholson quotes (see in par. icular, p. 38, par. 3). 3 Ibid., p. 431, line 4.

4 Loc. cit., p. 428, note 1.

sition that "linen is not an article of German consumption."i Upon that assumption in the case supposed it is shown that the position of Germany after the “improvement” would be exactly the same as it would have been if without the improvement [c.g. through a falling off in the foreign demand for her produce), the amount of the exports—and their price in imports—had diminished. The conclusion that the new position is worse than the old does not imply " that the same labour as before is devoted to linen"; just the contrary.

(2.) No doubt I have assumed, as Professor Nicholson says, “ that no linen is consumed in B.” But the assumption is only temporary, not forming a necessary condition. For I add in the very next sentence “ It is clear that the data which have been supposed may be considerably modified without the conclusion being destroyed.” 3 I add in the next sentence but one “It is a commonplace that a bad harvest is good for farmers in the absence of foreign competition," and in the next page, referred by a footnote to the one from which I have been quoting, “The case of an improvement in the process of manufacture of an article which is both exported and consumed at home is . . a compound between the certain gain to the native consumer and the possible loss to the home country in the way of foreign trade. It is quite possible that the latter tendency may prevail over the former, just as in the case of farmers who may gain more as producers, than they lose as consumers, by a bad harvest." This is not to assume “ that no linen is consumed in B."

II. I cannot agree with Professor Nicholson that “if we introduce money, this case is seen to work out differently." In the case which he has put in the last of the paragraphs above quoted, he supposes that the “ £400 of labour" displaced or “set free" by the improvement from the manufacture of linen for export, can make other exports to pay for A's cloth," or for other things to be made by labour in B. I am unable to understand this statement except upon the assumption that productive forces displaced by a change in the terms of international trade can always find within the home country equally remunerative employment. This assumption does not appear to me to hold good universally; even upon the abstract hypothesis of perfect mobility of labour within the country, which I understand Professor Nicholson to entertain in the passage under consideration.” In a former number of the JOURNAL I have had occasion to consider an instance in point 6 put by Torrens, and independently and with greater generality by Professor Sidgwick. Accordingly I cannot accept

1 Loc. cit., p. 40.

2 The matter is particularly clear from the mathematical point of view. To argue that the change in question corresponds to a change from one point to another in a supply.curve, is not to assume that the quantity of labour devoted to the supply is unchanged. 3 Loc. cit., p. 40.

4 Loc. cit., p. 41. 5 Cf. Principles, ch. xxvii., $ 4, par. 2. 6 Vol. vii., p. 402.

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