These points have been adequately, though incidentally, illustrated in some of the preceding chapters. But the great space which the topic has filled, and continues to fill, in economical speculations, and in the practical anxieties both of politicians and of dealers and manufacturers, makes it desirable, before quitting the subject of international exchange, to subjoin a few observations on the things which do, and on those which do not, enable countries to undersell one another.

One country can only undersell another in a given market, to the extent of entirely expelling her from it, on two conditions. In the first place, she must have a greater advantage than the second country in the production of the article exported by both; meaning by a greater advantage (as has been already so fully explained) not absolutely, but in comparison with other commodities; and in the second place, such must be her relation with the customer country in respect to the demand for each other's products, and such the consequent state of international values, as to give away to the customer country more than the whole advantage possessed by the rival country; otherwise the rival will still be able to hold her ground in the market.

Let us revert to the imaginary hypothesis of a trade between England and Germany in cloth and linen: England being capable of producing 10 yards of cloth at the same cost with 15 yards of linen, Germany at the same cost with 20, and the two commodities being exchanged between the two countries (cost of carriage apart) at some intermediate rate, say 10 for 17. Germany could not be permanently undersold in the English market, and expelled from it, unless by a country which offered not merely more than 17, but more than 20 yards of linen for 10 of cloth. Short of that, the competition would only oblige Germany to pay dearer for cloth, but would not disable her from exporting linen. The country, therefore, which could undersell Germany, must, in the first place, be able to produce linen at less cost, compared with cloth, than Germany herself; and in the next place, must have such a demand for cloth, or other English commodities, as would compel her, even when she became sole occupant of the market, to give a greater advantage to England than Germany could give by resigning the whole of hers; to give, for example, 21 yards for 10. For if not-if, for example, the equation of international demand, after Germany was excluded, gave a ratio of 18 for 10, Germany could again enter into the competition; Germany would be now the underselling nation; and

there would be a point, perhaps 19 for 10, at which both countries would be able to maintain their ground, and to sell in England enough linen to pay for the cloth, or other English commodities, for which, on these newly-adjusted terms of interchange, they had a demand. In like manner, England, as an exporter of cloth, could only be driven from the German market by some rival whose superior advantages in the production of cloth enabled her, and the intensity of whose demand for German produce compelled her, to offer 10 yards of cloth, not merely for less than 17 yards of linen, but for less than 15. In that case, England could no longer carry on the trade without loss; but in any case short of this, she would merely be obliged to give to Germany more cloth for less linen than she had previously given.

It thus appears that the alarm of being permanently undersold may be taken much too easily; may be taken when the thing really to be anticipated is not the loss of the trade, but the minor inconvenience of carrying it on at a diminished advantage; an inconvenience chiefly falling on the consumers of foreign commodities, and not on the producers or sellers of the exported article. It is no sufficient ground of apprehension to the English producers to find that some other country can sell cloth in foreign markets, at some particular time, a trifle cheaper than they can themselves afford to do in the existing state of prices in England. Suppose them to be temporarily undersold, and their exports diminished; the imports will exceed the exports, there will be a new distribution of the precious metals, prices will fall, and as all the money expenses of the English producers will be diminished, they will be able (if the case falls short of that stated in the preceding paragraph) again to compete with their rivals. The loss which England will incur, will not fall upon the exporters, but upon those who consume imported commodities; who, with money incomes reduced in amount, will have to pay the same or even an increased price for all things produced in foreign countries.

§ 2. Such, I conceive, is the true theory, or rationale, of underselling. It will be observed that it takes no account of some things which we hear spoken of, oftener perhaps than any others, in the character of causes exposing a country to be undersold.

According to the preceding doctrine, a country cannot be undersold in any commodity, unless the rival country has a stronger inducement than itself for devoting its labour and capital to the

production of the commodity; arising from the fact that by doing so it occasions a greater saving of labour and capital, to be shared between itself and its customers—a greater increase of the aggregate produce. of the world. The underselling, therefore, though a loss to the undersold country, is an advantage to the world at large; the substituted commerce being one which economizes more of the labour and capital of mankind, and adds more to their collective wealth, than the commerce superseded by it. The advantage, of course, consists in being able to produce the commodity of better quality, or with less labour (compared with other things); or perhaps not with less labour, but in less time; with a less prolonged detention of the capital employed. This may arise from greater natural advantages (such as soil, climate, richness of mines); superior capability, either natural or acquired, in the labourers; better division of labour, and better tools, or machinery. But there is no place left in this theory for the case of lower wages. This, however, in the theories commonly current, is a favourite cause of underselling. We continually hear of the disadvantage under which the British producer labours, both in foreign markets and even in his own, through the lower wages paid by his foreign rivals. These lower wages, we are told, enable, or are always on the point of enabling them to sell at lower prices, and to dislodge the English manufacturer from all markets in which he is not artificially protected.

Before examining this opinion on grounds of principle, it is worth while to bestow a moment's consideration upon it as a question of fact. Is it true, that the wages of manufacturing labour are lower in foreign countries than in England, in any sense in which low wages are an advantage to the capitalist? The artisan of Ghent or Lyons may earn less wages in a day, but does he not do less work? Degrees of efficiency considered, does his labour cost less to his employer? Though wages may be lower on the Continent, is not the Cost of Labour, which is the real element in the competition, very nearly the same? That it is so seems the opinion of competent judges, and is confirmed by the very little difference in the rate of profit between England and the Continental countries. But if so, the opinion is absurd that English producers can be undersold by their Continental rivals from this cause. It is only in America that the supposition is prima facie admissible. In America, wages are much higher than in England, if we mean by wages the daily earnings of a labourer: but the productive power of American labour is so great-its efficiency, combined with the favourable circumstances

in which it is exerted, makes it worth so much to the purchaser, that the Cost of Labour is lower in America than in England; as is indicated by the fact that the general rate of profits and of interest is higher.1

§ 3. But is it true that low wages, even in the sense of low Cost of Labour, enable a country to sell cheaper in the foreign market? I mean, of course, low wages which are common to the whole productive industry of the country.

If wages, in any of the departments of industry which supply exports, are kept, artificially, or by some accidental cause, below the general rate of wages in the country, this is a real advantage in the foreign market. It lessens the comparative cost of production of those articles, in relation to others; and has the same effect as if their production required so much less labour. Take, for instance, the case of the United States in respect to certain commodities, prior to the civil war.2 Tobacco and cotton, two great articles of export, were produced by slave labour, while food and manufactures generally were produced by free labourers, either working on their own account or paid by wages. In spite of the inferior efficiency of slave labour, there can be no reasonable doubt that in a country where the wages of free labour were so high, the work executed by slaves was a better bargain to the capitalist. To whatever extent it was so, this smaller cost of labour, being not general, but limited to those employments, was just as much a cause of cheapness in the products, both in the home and in the foreign market, as if they had been made by a less quantity of labour. If, when the slaves in the Southern States were emancipated, their wages rose to the general level of the earnings of free labour in America, that country might have been obliged to erase some of the slave-grown articles from the catalogue of its exports, and would certainly be unable to sell any of them in the foreign market at the accustomed price. Accordingly, American cotton is now habitually at a much higher price than before the war. Its previous cheapness was partly an artificial cheapness, which may be compared to that produced by a bounty on production or on exportation: or, considering the

1 [Until the 6th ed. (1865) the concluding clause ran : as is proved by the fact that the general rate of profits and of interest is very much higher."]

2 [The concluding clause of this sentence was added in the 7th ed. (1871); the following sentences changed from the present to the past tense; and the sentence about the price of American cotton was inserted.]

means by which it was obtained, an apter comparison would be with the cheapness of stolen goods.

An advantage of a similar economical, though of a very different moral character, is that possessed by domestic manufactures; fabrics produced in the leisure hours of families partially occupied in other pursuits, who, not depending for subsistence on the produce of the manufacture, can afford to sell it at any price, however low, for which they think it worth while to take the trouble of producing. In an account of the Canton of Zurich, to which I have had occasion to refer on another subject, it is observed,* "The workman of Zurich is to-day a manufacturer, to-morrow again an agriculturist, and changes his occupations with the seasons, in a continual round. Manufacturing industry and tillage advance hand in hand, in inseparable alliance, and in this union of the two occupations the secret may be found, why the simple and unlearned Swiss manufacturer can always go on competing, and increasing in prosperity, in the face of those extensive establishments fitted out with great economic, and (what is still more important) intellectual, resources. Even in those parts of the Canton where manufactures have extended themselves the most widely, only one-seventh of all the families belong to manufactures alone; four-sevenths combine that employment with agriculture. The advantage of this domestic or family manufacture consists chiefly in the fact, that it is compatible with all other avocations, or rather that it may in part be regarded as only a supplementary employment. In winter, in the dwellings of the operatives, the whole family employ themselves in it: but as soon as spring appears, those on whom the early field labours devolve abandon the in-door work; many a shuttle stands still; by degrees as the field-work increases, one member of the family follows another, till at last, at the harvest, and during the so-called 'great works,' all hands seize the implements of husbandry; but in unfavourable weather, and in all otherwise vacant hours, the work in the cottage is resumed, and when the ungenial season again recurs, the people return in the same gradual order to their home occupation, until they have all resumed it.”

In the case of these domestic manufactures, the comparative cost of production, on which the interchange between countries depends, is much lower than in proportion to the quantity of labour employed. The workpeople, looking to the earnings of their loom

* Historisch-geographisch-statistisches Gemälde der Schweiz. Erstes Heft, 1834, p. 105.