SECTION IV.

On Foreign Commerce, Credit, and Taxation.

THIS section comprises chapters on Foreign Commerce, Credit and its influence on prices, and Taxation. It will perhaps appear that foreign commerce and credit should have been explained in the section headed "The Exchange of Wealth." It however seems that in a short and elementary treatise there are many advantages in separating the subjects usually comprised under the head "Exchange of Wealth." A knowledge of the meaning of value and price, of the causes which regulate the prices of commodities, and of the true nature of money, is essential to a right understanding of the causes which determine the respective amounts of rent, wages and profits. At the same time the subjects of foreign commerce and credit, if introduced prior to the consideration of the distribution of wealth, might have wearied and perplexed the beginner. These subjects have therefore been reserved for the fourth and last section.

CHAPTER I. On Foreign Commerce.

A development of Foreign Commerce ensures division of labour. The great advantage derived from foreign commerce is that which is obtained by division of labour. If countries trade freely with each other, the natural consequence is that each nation gradually increases the production of those commodities for the manufacture of which circumstances have specially adapted it; at the same time it decreases the

manufacture of those commodities which it has no particular facilities for producing. In this way the cost of production is diminished, and capital and labour work with their maximum efficiency. Take an example: France has great natural advantages for the manufacture of wine; her climate and the habits of her people cause the cultivation of the vine to be carried on with great success. Such countries as France, therefore, produce not only sufficient wine to supply their own wants, but also enough to satisfy the demand of countries like England, the climate of which is unsuited to the cultivation of the vine. The advantage of foreign trade is that we can get from foreign countries either what we could not produce at all for ourselves; or else we get commodities in exchange for a smaller expenditure of labour and capital than it would cost us to produce them ourselves.

Protection is disastrous to the general interests of the community. The salt mines of Cheshire and those existing in Salzburg and other parts of Germany, give to that country and to England special advantages for the production of salt. In the absence of protective duties probably all the salt required in France would be provided by England and Germany; the salt procured in Northwich and Droitwich is of excellent quality and requires comparatively so little labour to render it fit for use that it may be almost regarded as a free gift of nature. This salt can therefore be sold at a very low price, while at the same time it is superior in quality to that produced by the more elaborate processes employed to manufacture salt in France. In a word English salt is both better and cheaper than French salt, and would command the market if the trade were free. But the French protectionist says: "This must not be, there is a large class of industrious people in France engaged in the industry of making salt, and a branch of our home trade would be destroyed if English salt were admitted into France duty free. We must levy so large an import duty on English salt as to bring up its price to something in excess of the price of the salt produced in France, this will keep English salt out of France and encourage a branch of native industry."

This is accordingly done: a heavy import duty is levied on foreign salt, which is thus kept out of the market. It is quite true that this policy "protects" the salt trade in France; that is, it induces a certain amount of the disposable capital and labour of France to engage in a trade which is comparatively unproductive of wealth. What the protectionist forgets, however, is that if the protection were withdrawn and the unproductive trade in consequence ceased to exist, the capital and labour engaged in it would not remain idle; they would seek some other employment in which the wealth produced would be a sufficient recompense without the adventitious aid of protection. If the salt manufacturers of France were undersold by the salt manufacturers of England, the former might for a time suffer pecuniary loss; but the ultimate result would be that they would gradually withdraw their labour and capital from a comparatively unremunerative trade, and employ them in some other industry, for which France possesses exceptional advantages. Thus there is no loss, but a transfer of capital and labour from a comparatively unremunerative employment to one in which they would work with greatly increased efficiency. In such a case, the total production of wealth is increased, and the national capital consequently augmented.

An illustration of this transfer of capital and labour from one kind of industry to another may be seen in what is happening now in English agriculture, in the face of the recent large imports of food from America. The English farmer is being undersold by the American farmer in regard to a large number of commodities, such as wheat and cheese. The English farmer does not cry out for protection; but he casts about to discover what kinds of crops he can still produce where he can hold his own against the Americans. The next few years will probably see a great many farms turned into huge market-gardens, because fresh flowers, fruit and vegetables cannot be so largely imported as the less perishable commodities just referred to. A movement has already begun in this direction; and it should be remembered that the general body of consumers, having to spend less for their necessaries, such as bread and cheese,

[SECT. IV. will have more to spend upon such luxuries as flowers and fruit.

The cost of Protection to the consumer. This leads to a consideration of the effect of protection upon the consumers of the commodities produced in the protected trades. Protectionists have usually no consideration whatever for the consumers. They busy themselves much in protecting the producers, but they never consider the consumers: and it must be remembered that if the article protected is a necessary of life, to overlook the interests of the consumer for the supposed benefit of the producer, is to prefer the well-being of a part to the well-being of the whole. Let us consider what is the effect of the protective duty on salt in France upon the entire body of the French people. In the first place they have to put up with an inferior article. This is a disadvantage which it is hardly possible to measure in money, but it is nevertheless a very real and distinct disadvantage, for besides the annoyance of having coarse and gritty salt at table there is also to be considered the effect of using an inferior kind of salt for agricultural and manufacturing processes. But if the pecuniary loss involved through using an inferior article cannot be accurately measured, that arising from an increase in price can be reckoned up with a very considerable degree of exactitude. Those acquainted with the trade assert that the protective duty raises the price of salt in France one halfpenny a pound. Now the annual consumption of salt in France for domestic purposes is 350,000,000 lbs., therefore the French people are fined £750,000 every year in the extra price they pay for their salt; and no one is one half-penny the better; for this £750,000 is a measure of the natural disadvantages the French producers of salt labour under compared to the English producers of salt. It is as if a man had a beautiful spring of water close to his door but situated in his neighbour's garden: the neighbour says he may take all he likes for a rent of £4 a year, he will not however accept his offer because he has a spring of his own. But his own spring is a mile away and the water is not so good; moreover instead of getting all he wants for £4 a year he has to pay a boy 35. a week or £7. 165. a year in order to bring

him one pail of water every day. He therefore fines himself in three ways. He has an inferior kind of water; he has less of it; and he pays £3. 16s. more for it. And no one is benefited by this expenditure, not even the boy who gets the 35. a week; he could earn 6d. a day in a hundred different ways quite as easily as he earns it by carrying the water, the 6d. a day is no more than a bare compensation to him for the labour he endures; no favour is conferred on him; he gives full value for what he receives.

The effect of Protection on Wages. We have now traced the effect of protection on the prices of protected commodities : it is almost invariably the case in protectionist countries that among the protected articles there are many of the daily necessaries of life. Where this is so, protection decreases the wages of labour; the real reward of the labourer is diminished because his money-wages will exchange for a smaller quantity of commodities. And on the other hand free trade by decreasing prices tends to increase the real reward of the labourer, and confers a direct benefit upon thousands of people. If any necessary of life is cheapened one of two things must occur, either the cost of production is decreased, or the real reward of the labourer is increased. If wages remain the same, after the price of a necessary is decreased, the real reward of the labourer is augmented, because his money-wages will exchange for a larger quantity of commodities. If, on the other hand, wages are decreased in proportion to the increased cheapness of a necessary, the real reward of the labourer remains the same, whilst the cost of production is decreased. It is therefore evident that the

benefits attending a decrease in the price of any of the neces. saries of life are much more general in their operation than the supposed benefit which is conferred upon producers by protecting them against foreign competition. A decrease in the price of a commodity also leads to an increased accumulation of capital; for the expenditure of consumers being reduced they have greater opportunity of saving, and a larger amount of wealth is consequently employed as capital. In striving to protect the producers of a commodity, protectionists thus inflict a much deeper injury upon the whole community than at first sight appears.