The Unreasonableness of those extraordinary Restraints on other Principles

³⁰ Part 1 showed how unnecessary it is to lay extraordinary restraints on foreign imports from countries with a disadvantageous balance of trade, even on the principles of the commercial system.

Equilibrium Fallacy

³¹ Nothing, however, can be more absurd than this whole doctrine of the balance of trade, on which these restraints and almost all the other regulations of commerce are founded.

This doctrine supposes that:

• when two places trade with one another, neither of them loses or gains if the balance be even
• But if it leans in any degree to one side, that one of them loses and the other gains, in proportion to its declension from the exact equilibrium

Both suppositions are false.

A trade forced by bounties and monopolies commonly is disadvantageous to the country which it is supposed to benefit.

• But a trade which is naturally and regularly done between any two places without force or constraint, is always advantageous to both, though not always equally so.

³² To me, advantage or gain means the increase of the exchangeable value of:

• the country’s annual produce, or
• the annual revenue of its inhabitants.

It does not mean the increase of the amount of gold and silver.

³³ If the balance is even, and if the two countries trade their native commodities, they will both gain equally or very near equally.

Each will afford a market for the other’s surplus produce.

Each will replace the capital employed in raising the other’s surplus.

• This capital will be distributed among its people.
  • It will give them revenue and maintenance.

Some of the people will indirectly derive their revenue and maintenance from the other country.

The commodities exchanged are supposed to be of equal value.

• The two capitals employed in raising those commodities will also be equal or very nearly equal, on most occasions.
• The distribution of those commodities will afford equal, or very nearly equal revenue and maintenance to the people of both countries.

This revenue and maintenance will vary relative to their dealings.

• For example, if these annually amount to £1 million on each side, each of them would afford an annual revenue of £1 million to the people of the other country.

³⁴ If one of them exported only native commodities while the other exported only foreign goods, the balance would still be even since commodities would be paid for with commodities.

They would both gain, but not equally.

The nation which exported only native commodities would get the greatest revenue from that trade.

For example, if England imports only French commodities from France in exchange for East India goods:

• It would give more revenue to the French than to the English.
• The whole French capital employed in the trade would be distributed among the French.

But only the English capital employed in producing English commodities which bought the East India goods would be distributed among the English.

• Most of it would replace the capitals employed producing East India goods in distant countries.

If the capitals were equal, the French capital would increase French revenue much more than English capital would increase the English revenue.

• France would carry on a direct foreign trade of consumption with England.
• England would carry on a round-about trade with France.

³⁵ There is probably no trade between any two countries which consists in:

• all native commodities on both sides, or
• all native commodities on one side and all foreign goods on the other.

Almost all countries trade partly native and partly foreign goods.

The principal gainer will always be the country which:

• exports the most native commodities
• the least foreign goods

³⁶ If England paid for imported French goods with gold and silver, the balance would be supposed uneven since commodities are not paid with commodities.

In this case, the trade would give more revenue to France than England.

The capital which produced the English goods that bought this gold and silver, would be distributed to the English and will give revenue to them.

The whole English capital would not be reduced by this exportation of gold and silver.

On the contrary, its capital would be increased in most cases.

Only exported goods have a higher demand overseas than at home.

• Consequently, the returns will be more valuable at home than the commodities exported.

If English tobacco worth £100,000 is sent to France to purchase wine worth £110,000 in England, this exchange will increase English capital by £10,000.

• If £100,000 of English gold bought French wine worth £110,000 in England, this exchange will increase English capital by £10,000.

A merchant who has £110,000 worth of wine is richer than one who only has £100,000 worth of gold.

The richer merchant can:

• mobilize more industry
• give revenue, maintenance, and employment to more people

But the capital of the country is equal to the capitals of all its inhabitants.

• The quantity of industry which can be annually maintained in it is equal to what all those capitals can maintain.

This exchange must increase:

• the country’s capital
• the amount of industry maintained in it

It would be more advantageous for England to buy French wines with its own hardware and cloth than with the tobacco of Virginia or the gold and silver of Brazil and Peru.

“A direct foreign trade of consumption is always more advantageous than a roundabout one.”

• A round-about foreign trade of consumption, done with gold and silver, is not less advantageous than any other round-about one.

A country which has no mines is not more likely to run out of gold and silver by the annual exportation of those metals than one which does not grow tobacco by the like annual exportation of tobacco*.

• A country which has means to buy tobacco or gold and silver will never be long in want of it.