Digression on the Balance of Trade

It is striking that every nation is anxious to obtain prohibitory regulations even if it does not profit by them.

The macro and micro cases are not parallel because we do not find individual householders wanting to obtain the same privileges of trade.

The sole difference is that individuals are independent and consistent beings, actuated by no contrariety of will, and more interested in their character of consumers of coats and shoes to buy them cheap, than as manufacturers to sell unnaturally dear.

The very advantages aimed at by the means of a favourable balance of trade, are altogether illusory; and that, supposing them real, it is impossible for a nation permanently to enjoy them.

It remains to be shown, what is the actual operation of regulations framed with this object in view.

Who, then, are the classes of the community so importunate for prohibitions or heavy import duties? The producers of the particular commodity, that applies for protection from competition, not the consumers of that commodity. The public interest is their plea, but self-interest is evidently their object. Well, but, say these gentry, are they not the same thing?

Are not our gains national gains? By no means= whatever profit is acquired in this manner is so much taken out of the pockets of a neighbour and fellow-citizen and, if the excess of charge thrown upon consumers by the monopoly could be correctly computed, it would be found, that the loss of the consumer exceeds the gain of the monopolist. Here, then, individual and public interest are in direct opposition to each other; and, since public interest is understood by the enlightened few alone, is it at all surprising, that the prohibitive system should find so many partisans and so few opponents?

In defence of import duties it is often urged, “that when the interest of money is lower abroad than at home, the foreign has an advantage over the home producer, which must be met by a countervailing duty.” The low rate of interest is, to the foreign producer, an advantage, analogous to that of the superior quality of his land. It tends to cheapen the products he raises; and it is reasonable enough that our domestic consumers should take the benefit of that cheapness.

The same motive will operate here, that leads us rather to import sugar and indigo from tropical climates, than to raise them in our own.

There is in general far too little attention paid to the serious mischief of raising prices upon the consumers.

The evil is not apparent to cursory observation, because it operates piecemeal, and is felt in a very slight degree on every purchase or act of consumption= but it is really most serious, on account of its constant recurrence and universal pressure.

The whole fortune of every consumer is affected by every fluctuation of price in the articles of his consumption; the cheaper they are, the richer he is, and tice versa. If a single article rise in price, he is so much the more poor in respect of that article; if all rise together, he is poorer in respect to the whole.

Since the whole nation is comprehended in the class of the consumers, the whole nation must in that case be the poorer. Besides which, it is crippled in the extension of the variety of its enjoyments, and prevented from obtaining products whereof it stands in need, in exchange for those wherewith it might procure them.

It is of no use to assert, that, when prices are raised, what one gains another loses. For the position is not true, except in the case of monopolies; nor even to the full extent with regard to them; for the monopolist never profits to the full amount of the loss to the consumers. If the rise be occasioned by taxation or import-duty under any shape whatever, the producer gains nothing by the in crease of price, but just the reverse, as we shall see by and by (Book 3 Chapter 7) so that, in fact, he is no richer in his capacity of producer, though poorer in his quality of consumer.

This is one of the most effective causes of national impoverishment, or at least one of the most powerful checks to the progress of national wealth.

“But capital is necessary in every branch of production= so that the foreigner, who can procure it at a lower rate of interest, has the same advantage in respect to every product; and, if the free importation be permitted, he will have an advantage over all classes of home producers.” Tell me, then, how his products are to be paid for. “Why, in specie, and there lies the mischief.”

How is the specie to be got to pay for them?

“All the nation has, will go in that way; and when it is exhausted national misery will be complete.” So then it is admitted, that before arriving at this extremity, the constant efflux of specie will gradually render it more scarce at home, and more abundant abroad; wherefore, it will gradually rise 1-3% higher in value at home than abroad; which is fully sufficient to turn the tide, and make specie flow inwards faster than it flowed outwards. But it will not do so without some returns; and of what can the returns be made, but of products of the land, or the commerce of the nation?

There is no possible means of purchasing from foreign nations, otherwise than with the products of the national land and commerce. It is better to buy of them what they can produce cheaper than ourselves, because we may rest assured, that they must take in payment what we can produce cheaper than they. This they must do, else there must be an end of all inter-change.

This is why it is an absurd distinction to view with more jealousy the import of foreign objects of barren consumption, than that of raw materials for home manufacture. Whether the products consumed be of domestic or of foreign growth, a portion of wealth is destroyed in the act of consumption, and a proportionate inroad made into the wealth of the community. But that inroad is the result of the act of consumption, not of the act of dealing with the foreigner; and the resulting stimulus to national production, is the same in either case. For, wherewith was the purchase of the foreign product made? either with a domestic product or with money, which must itself have been procured with a domestic product. In buying of a foreigner, the nation really does no more than send abroad a domestic product in lieu of consuming it at home, and consume in its place the foreign product received in exchange. The individual consumer himself, probably, does not conduct this operation; commerce conducts it for him. No one country can buy of another, except with its own domestic products.

Sadly, we have had the hat-makers of Marseilles petitioning for the prohibition of the import of foreign straw or chip hats, on the plea that they injured the sale of their own felt hats; a measure that would have deprived the country people and labourers in husbandry, who are so much exposed to the sun, of a light, a cool, and cheap covering, admirably adapted to their wants, the use of which it was highly desirable to extend and encourage.

Again, it is affirmed, and what absurd positions have not been advanced to involve these questions in obscurity? that, since almost all the nation are at the same time consumers and producers, they gain by prohibition and monopoly as much in the one capacity as they lose in the other; that the producer, who gets a monopoly-profit upon the object of his own production, is, on the other hand, the sufferer by a similar profit upon the objects of his consumption; and thus that the nation is made up of rogues and fools, who are a match or each other.

Everybody thinks him. self more rogue than fool; for, although all are consumers as well as producers, the enormous profits made upon a single article are much more striking, than reiterated minute losses upon the numberless items of consumption. If an import duty be laid upon calicoes, the additional annual charge to each person of moderate fortune, may, perhaps, not exceed 2½ dollars or 3 dollars at most; and probably he does not very well comprehend the nature of the loss, or feel it much, though repeated in some degree or other upon every thing he consumes; whereas, possibly, this consumer is himself a manufacturer, say a hat-maker; and should a duty be laid upon the import of foreign hats, he will immediately see that it will raise the price of his own hats, and probably increase his annual profits by several thousand dollars. It is this delusion that makes private interest so warm an advocate for prohibitory measures, even where the whole community loses more by them as consumers, than it gains as producers. In pursuit of what it mistakes for profound policy, or to gratify feelings it supposes to be laudable, a government will sometimes prohibit or divert the course of a particular trade, and thereby do irreparable mischief to the productive powers of the nation.