Chapter LVIII: Section CC

INFLUENCE OF THE BRANCHES OF INCOME ON THE PRICE OF COMMODITIES.

In relation to foreign trade, in the narrowest sense of the term, fears were formerly very frequently expressed and are sometimes even now, which in the last analysis are based on the assumption that one country might be underbid by another in all branches of commodities.[200-1] This is evidently absurd. Whoever wants to pay for foreign commodities can do it only in goods of his own. When he pays for them with money, the money is either the immediate product of his own husbandry (mining countries!), or the mediate product obtained by the previous surrender of products of his own. To receive from foreign countries all the objects which one has need of, would be to receive them as a gift.

It is just as absurd to fear that the three branches of income in the same country's economy should be all relatively high at the same time, and competition with foreign countries be thus made more difficult. Rent and interest especially in this respect have to demean themselves in ways diametrically opposed to each other.[200-2] When trade is entirely free, every nation will engage at last in those branches of production which require chiefly the productive forces which are cheapest in that country; that is which the relatively low level of the corresponding branch of income recommends to individual economy and enterprise. The merely absolute and personal height of the three branches of income has, as we have said, no direct influence on the price of commodities. In this respect, all these may be higher in one country than in another. Thus, for instance, English landowners, capitalists and workmen may be all at the same time in a better economic condition respectively than Polish landowners, capitalists and workmen, when the national income of England stands to its area and population in general, in a much more favorable ratio than the Polish.[200-3]

[Footnote 200-1: Thus, _Forbonnais_, Eléments du Commerce I,
73. _J. Moser_, Patr. Ph., I, No. 2.]

[Footnote 200-2: For a thorough refutation of the error that
everything is dearer in England than in France, see Journ.
des Econ., Mai, 1854, 295 seq. A distinguished architect
assured me in 1858, that a person in London could build
about as much for £1 as for from 6 to 7 thalers in Berlin;
only the aggregate expense in both countries is made up of
elements very different in their relative proportions.]

[Footnote 200-3: We very frequently hear that countries with
high wages must be outflanked in a neutral market by
countries with a low rate of wages. _Ricardo's_ disciples
reject this, because a decrease in the profit would put the
undertaker in a condition to bear the loss caused by the
high wages paid. See Report of the Select Committee on
Artisans and Machinery. _Senior_ ridicules such reasoning
very appropriately by inquiring: "Might not the loss enable
him to bear the loss?" Outlines, 146. And so _J. B. Say_
thinks that wages are always lowest when undertakers are
earning nothing. The truth is rather this: a country with a
relatively high rate of wages cannot, in a neutral market,
offer those commodities the chief factors required for the
production of which is labor; but the comparatively low rate
of interest or low rents, or the lowness of both found in
connection therewith, must fit it to produce other
commodities very advantageously. If, therefore, the rate of
wages rises, the result will be to divert production and
exports into other channels than those in which they have
hitherto flowed. The old complaint of Saxon agriculturists,
that there is a lack of labor in the country, is certainly
very surprising in a nation as thickly populated as Saxony.
But the remedy proposed by the most experienced
practitioners consists chiefly in a higher rate of wages to
enable workmen to care for themselves in old age, the
introduction of the piece-work system and an increase of
agricultural machines. But it seems to me, that the whole
situation there points to the advantage of in part limiting
the large farming hitherto practiced to live-stock raising
and other branches in which labor may be spared, and in part
of replacing it, by small farming of plants which are
objects of trade.

Many points belonging to this subject have been very well
discussed by _J. Tucker_, in his refutation of _Hume's_
theory on the final and inevitable superiority of poor
countries over rich ones in industrial matters. (Four Tracts
on political and commercial Subjects, 1774, No. 1; _L.
Lauderdale_, Inquiry, 206.)]