Chapter CXXXIII: 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 quantity 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 preëminent 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
principal 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_, Grundsätze 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
flourishing trade must necessarily draw much gold and silver
to themselves. Recently, _Cairnes_ has shown by practical
examples that Australia imports Irish butter 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 résulte des marchandises mêmes que l'on a vendues et de
celles que l'on a achetées. Souvent la perte est pour la
nation qui reçoit un surplus en argent, et cette perte se
trouve au préjudice de la distribution et de réproduction
des revenus_. (Max. génér., 24.)]

[Footnote A2-5-6: _Rau_ distinguishes principally whether
importation brings articles of luxury or means of
acquisition (_Erwerbstamm_) into the country. (Ansichten der
V. W., 163.) Similarly, _de Cazcaux_, Eléments d'Economie
privée et publique (1825), p. 188 ff. _Schmitthenner_, Zwölf
Bücher 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 illustrates 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 classes 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 competition 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 assumptions, 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 assertion, that gold and
silver always flow towards those markets where they are
cheapest (Principles of S. Science, I, 150, and passim),
confounds cause and effect.]

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

[Footnote A2-5-10: Let us suppose that, hitherto, the
English had supplied their demand for wine from France, and
paid therefor in commodities made of steel; and that now
France prohibits the importation of the latter and requires
gold instead. If the English take this gold out of their own
circulation, the value in exchange of the gold which remains
to them rises; the prices of all commodities fall, state
debts and private debts become more oppressive, etc. If, to
avoid this, they send their steel wares, which France has
rejected, to California, to obtain gold there in exchange,
they find that California has as much of steel wares as it
requires, and that it can be induced to extend its
consumption of them only by a corresponding lowering of
their price. But if, on the other hand, the gold which has
flowed towards France has produced a rise in the price of
commodities, and a decrease in the exportation of
commodities; and has then flowed out of the country, to
Germany for instance; England may in consequence be placed
in a position to effect its payments for French wine with
the gold which its manufactured articles have been exchanged
against in Germany. But all this always supposes that the
prices of commodities have fallen in England and risen in
other countries; that is, a changed and, so far as England
is concerned, an unfavorable distribution of the precious
metals--which is found in connection with a relatively
decreased productiveness of English labor. The English cost
of production may yet continue to be covered,
notwithstanding; but, when it has been diminished by a
lowering of wages, interest, etc., the national wealth
suffers in consequence. Compare _Torrens_, Budget, p. 50
ff., who precisely on this bases the greater security of
trade between the mother country and its colonies; and which
also found expression in the Peel reform plan of 1842 ff.
_Adam Smith_ approximated to this view when he ascribed a
more favorable balance to the country which paid for its
imports with its own instead of with foreign products. (W.
of N., IV, ch. 3-2, p. 329, Bas.)]

[Footnote A2-5-11: Compare § 141. Strongly emphasized by
_List_, Werke II, 31, 36 seq. 48, 137.]

[Footnote A2-5-12: _Torrens_ imagines an English
manufacturer who employs raw material = 100 quarters of corn
and manufactured wares = 100 bales of cloth (the quarter of
corn and the bale of cloth supposed to be of equal value)
and whose product = 240 bales in value; and compares him
with an American agriculturist who, by means of the same
outlay of capital, harvests 240 quarters of corn. The trade
between them restores to each not only his outlay, with
twenty per cent. profit, but puts them in a position to
repeat their production on a larger scale. Only the quantity
of fertile land can put a limit to this growth; for corn and
cloth help produce each other, and the cheapness of the one
promotes the cheapness of the other, which can not, by any
means, be said, for instance, of the exchange between
vanilla and satin. (Budget, p. 268 ff.) Compare _Roscher_,
Colonien, p. 277 ff.]

[Footnote A2-5-13: The important controversy concerning
absenteeism may be answered in accordance with the
principles laid down in this chapter. The mercantile system
considered the rent sent to absentee landlords or
capitalists as a tribute paid to foreign countries; but
certainly improperly, as such rent is only the fruit of
their property which the owners might have consumed in their
own country, without giving any one a particle of it.
Besides, these rents are not sent in cash to foreign
countries, but in the form of those commodities to the
exportation of which the country is peculiarly well adapted.
Let us suppose, for instance, that the Irish absentees had
all left the country at once. The tradesmen, personal
servants, etc., to whom they had hitherto furnished
employment would be greatly embarrassed to find a market for
their services, etc., but the producers of linen and meat
would have largely increased their exports, because an
entirely new demand for their products would have arisen
through the farmers of the absentees. The reverse would
necessarily happen if all absentees were suddenly called
home. Absenteeism which has lasted a long time injures no
one economically. Many, recently, laud it even, because it
permits every nation to devote their energies to the
branches of production for which they are best qualified:
Paris, for instance, to theatrical and luxury wares. The
savings made by the English absentees on the continent,
where things are cheaper, turn eventually to the advantage
of England. (Thus, even _Petty_: Political Anatomy of
Ireland, p. 81 ff. _Foster_, On the Principle of Commercial
Exchanges between Great Britain and Ireland, 1804, p. 76 ff.
Edinb. Rev., 1827. _F. B. Hermann_, Staatswirthschaftl.
Untersuchungen, 355, 363 ff. _Per contra_, especially,
Discourse of Trade and Coyn, 1697, p. 99. _M. Prior_, List
of the Absenters of Ireland, 1730. _A. Young_; Tour in
Ireland, 1780. _Sir J. Sinclair_, Hist. of the Public
Revenue, 1804, III, 192 seq. _Lady Morgan_, On Absenteeism,
1825.) An aversion for absenteeism plays a chief part in all
Carey's writings. Thus, even in his Rate of Wages, 45 ff.

On medieval complaints concerning the absenteeism of
monasteries: _Bodmann_, Rheingauische Alterthümer, 751. From
a higher point of view, it cannot, indeed, be ignored that
absenteeism, largely developed, cripples the organic whole
of national life. The most highly cultured and influential
classes become estranged from their country, the great mass
remaining behind coarser, economic production more
one-sided, and all social contrasts more sharply defined.
Disturbances in Rome, when Diocletian removed his residence
from there; the decline of the Netherlands, very much
promoted by the discontent which Philip II.'s departure for
Spain produced. It was estimated, however, in 1697, that the
English absentees caused a gain to France of £200,000 per
annum. (Discourse of Trade, p. 93.) It is said that about
1833, 80,000 Englishmen traveled on the continent, and
consumed £12,000,000 there. (_Rau._) According to
_Brückner_, the Russians who travel in foreign countries
take 20,000,000 rubles a year out of the country with them.
(_Hildebrand's_ Jahrb., 1863, 59.) That the countries which
receive these travelers receive no very great benefit from
them, see in _J. B. Say_, Cours pratique. In Paris, there
were, even in 1797, so many strangers who so enhanced the
rents paid for _maisons garnies_ that their expulsion was
proposed. (_A. Schmidt_, Pariser Zustände, III, 78.)]