Chapter 7
On Foreign Trade |
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No extension of foreign trade will
immediately increase the amount of value in a country, although
it will very powerfully contribute to increase the mass of
commodities, and therefore the sum of enjoyments. As the value
of all foreign goods is measured by the quantity of the produce
of our land and labour, which is given in exchange for them, we
should have no greater value, if by the discovery of new
markets, we obtained double the quantity of foreign goods in
exchange for a given quantity of ours. If by the purchase of
English goods to the amount of £1,000, a merchant can obtain a
quantity of foreign goods, which he can sell in the English
market for £1,200, he will obtain 20 per cent profit by such an
employment of his capital; but neither his gains, nor the value
of the commodities imported, will be increased or diminished by
the greater or smaller quantity of foreign goods obtained.
Whether, for example, he imports twenty-five or fifty pipes of
wine, his interest can be no way affected, if at one time the
twenty-five pipes, and at another the fifty pipes, equally sell
for £1,200. In either case his profit will be limited to £200,
or 20 per cent on his capital; and in either case the same value
will be imported into England. If the fifty pipes sold for more
than £1,200, the profits of this individual merchant would
exceed the general rate of profits, and capital would naturally
flow into this advantageous trade, till the fall of the price of
wine had brought every thing to the former level. |
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7.1 |
It has indeed been contended, that
the great profits which are sometimes made by particular
merchants in foreign trade, will elevate the general rate of
profits in the country, and that the abstraction of capital from
other employments, to partake of the new and beneficial foreign
commerce, will raise prices generally, and thereby increase
profits. It has been said, by high authority, that less capital
being necessarily devoted to the growth of corn, to the
manufacture of cloth, hats, shoes, &c. while the demand
continues the same, the price of these commodities will be so
increased, that the farmer, hatter, clothier, and shoemaker,
will have an increase of profits, as well as the foreign
merchant.19*
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7.2 |
They who hold this argument agree
with me, that the profits of different employments have a
tendency to conform to one another; to advance and recede
together. Our variance consists in this: They contend, that the
equality of profits will be brought about by the general rise of
profits; and I am of opinion, that the profits of the favoured
trade will speedily subside to the general level. |
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7.3 |
For, first, I deny that less capital
will necessarily be devoted to the growth of corn, to the
manufacture of cloth, hats, shoes, &c. unless the demand for
these commodities be diminished; and if so, their price will not
rise. In the purchase of foreign commodities, either the same, a
larger, or a less portion of the produce of the land and labour
of England will be employed. If the same portion be so employed,
then will the same demand exist for cloth, shoes, corn, and
hats, as before, and the same portion of capital will be devoted
to their production. If, in consequence of the price of foreign
commodities being cheaper, a less portion of the annual produce
of the land and labour of England is employed in the purchase of
foreign commodities, more will remain for the purchase of other
things. If there be a greater demand for hats, shoes, corn, &c.
than before, which there may be, the consumers of foreign
commodities having an additional portion of their revenue
disposable, the capital is also disposable with which the
greater value of foreign commodities was before purchased; so
that with the increased demand for corn, shoes, &c. there exists
also the means of procuring an increased supply, and therefore
neither prices nor profits can permanently rise. If more of the
produce of the land and labour of England be employed in the
purchase of foreign commodities, less can be employed in the
purchase of other things, and therefore fewer hats, shoes, &c.
will be required. At the same time that capital is liberated
from the production of shoes, hats, &c. more must be employed in
manufacturing those commodities with which foreign commodities
are purchased; and consequently in all cases the demand for
foreign and home commodities together, as far as regards value,
is limited by the revenue and capital of the country. If one
increases, the other must diminish. If the quantity of wine,
imported in exchange for the same quantity of English
commodities, be doubled, the people of England can either
consume double the quantity of wine that they did before, or the
same quantity of wine and a greater quantity of English
commodities. If my revenue had been £1,000, with which I
purchased annually one pipe of wine for £100 and a certain
quantity of English commodities for £900; when wine fell to £50
per pipe, I might lay out the £50 saved, either in the purchase
of an additional pipe of wine, or in the purchase of more
English commodities. If I bought more wine, and every
wine-drinker did the same, the foreign trade would not be in the
least disturbed; the same quantity of English commodities would
be exported in exchange for wine, and we should receive double
the quantity, though not double the value of wine. But if I, and
others, contented ourselves with the same quantity of wine as
before, fewer English commodities would be exported, and the
wine-drinkers might either consume the commodities which were
before exported, or any others for which they had an
inclination. The capital required for their production would be
supplied by the capital liberated from the foreign trade.
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7.4 |
There are two ways in which capital
may be accumulated: it may be saved either in consequence of
increased revenue, or of diminished consumption. If my profits
are raised from £1,000 to £1,200 while my expenditure continues
the same, I accumulate annually £200 more than I did before. If
I save £200 out of my expenditure, while my profits continue the
same, the same effect will be produced; £200 per annum will be
added to my capital. The merchant who imported wine after
profits had been raised from 20 per cent to 40 per cent, instead
of purchasing his English goods for £1,000 must purchase them
for £857 2s. 10d. , still selling the wine which
he imports in return for those goods for £1,200; or, if he
continued to purchase his English goods for £1,000 must raise
the price of his wine to £1,400; he would thus obtain 40 instead
of 20 per cent profit on his capital; but if, in consequence of
the cheapness of all the commodities on which his revenue was
expended, he and all other consumers could save the value of
£200 out of every £1,000 they before expended, they would more
effectually add to the real wealth of the country; in one case,
the savings would be made in consequence of an increase of
revenue, in the other, in consequence of diminished expenditure.
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7.5 |
If, by the introduction of machinery,
the generality of the commodities on which revenue was expended
fell 20 per cent in value, I should be enabled to save as
effectually as if my revenue had been raised 20 per cent; but in
one case the rate of profits is stationary, in the other it is
raised 20 per cent.—If, by the introduction of cheap foreign
goods, I can save 20 per cent from my expenditure, the effect
will be precisely the same as if machinery had lowered the
expense of their production, but profits would not be raised.
It is not, therefore, in consequence
of the extension of the market that the rate of profit is
raised, although such extension may be equally efficacious in
increasing the mass of commodities, and may thereby enable us to
augment the funds destined for the maintenance of labour, and
the materials on which labour may be employed. It is quite as
important to the happiness of mankind, that our enjoyments
should be increased by the better distribution of labour, by
each country producing those commodities for which by its
situation, its climate, and its other natural or artificial
advantages, it is adapted, and by their exchanging them for the
commodities of other countries, as that they should be augmented
by a rise in the rate of profits. |
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7.6 |
It has been my endeavour to shew
throughout this work, that the rate of profits can never be
increased but by a fall in wages, and that there can be no
permanent fall of wages but in consequence of a fall of the
necessaries on which wages are expended. If, therefore, by the
extension of foreign trade, or by improvements in machinery, the
food and necessaries of the labourer can be brought to market at
a reduced price, profits will rise. If, instead of growing our
own corn, or manufacturing the clothing and other necessaries of
the labourer, we discover a new market from which we can supply
ourselves with these commodities at a cheaper price, wages will
fall and profits rise; but if the commodities obtained at a
cheaper rate, by the extension of foreign commerce, or by the
improvement of machinery, be exclusively the commodities
consumed by the rich, no alteration will take place in the rate
of profits. The rate of wages would not be affected, although
wine, velvets, silks, and other expensive commodities should
fall 50 per cent, and consequently profits would continue
unaltered. |
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7.7 |
Foreign trade, then, though highly
beneficial to a country, as it increases the amount and variety
of the objects on which revenue may be expended, and affords, by
the abundance and cheapness of commodities, incentives to
saving, and to the accumulation of capital, has no tendency to
raise the profits of stock, unless the commodities imported be
of that description on which the wages of labour are expended.
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7.8 |
The remarks which have been made
respecting foreign trade, apply equally to home trade. The rate
of profits is never increased by a better distribution of
labour, by the invention of machinery, by the establishment of
roads and canals, or by any means of abridging labour either in
the manufacture or in the conveyance of goods. These are causes
which operate on price, and never fail to be highly beneficial
to consumers; since they enable them with the same labour, or
with the value of the produce of the same labour, to obtain in
exchange a greater quantity of the commodity to which the
improvement is applied; but they have no effect whatever on
profit. On the other hand, every diminution in the wages of
labour raises profits, but produces no effect on the price of
commodities. One is advantageous to all classes, for all classes
are consumers; the other is beneficial only to producers; they
gain more, but every thing remains at its former price. In the
first case they get the same as before; but every thing on which
their gains are expended, is diminished in exchangeable value.
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7.9 |
The same rule which regulates the
relative value of commodities in one country, does not regulate
the relative value of the commodities exchanged between two or
more countries. |
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7.10 |
Under a system of perfectly free
commerce, each country naturally devotes its capital and labour
to such employments as are most beneficial to each. This pursuit
of individual advantage is admirably connected with the
universal good of the whole. By stimulating industry, by
regarding ingenuity, and by using most efficaciously the
peculiar powers bestowed by nature, it distributes labour most
effectively and most economically: while, by increasing the
general mass of productions, it diffuses general benefit, and
binds together by one common tie of interest and intercourse,
the universal society of nations throughout the civilized world.
It is this principle which determines that wine shall be made in
France and Portugal, that corn shall be grown in America and
Poland, and that hardware and other goods shall be manufactured
in England. |
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7.11 |
In one and the same country, profits
are, generally speaking, always on the same level; or differ
only as the employment of capital may be more or less secure and
agreeable. It is not so between different countries. If the
profits of capital employed in Yorkshire, should exceed those of
capital employed in London, capital would speedily move from
London to Yorkshire, and an equality of profits would be
effected; but if in consequence of the diminished rate of
production in the lands of England, from the increase of capital
and population, wages should rise, and profits fall, it would
not follow that capital and population would necessarily move
from England to Holland, or Spain, or Russia, where profits
might be higher. |
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7.12 |
If Portugal had no commercial
connexion with other countries, instead of employing a great
part of her capital and industry in the production of wines,
with which she purchases for her own use the cloth and hardware
of other countries, she would be obliged to devote a part of
that capital to the manufacture of those commodities, which she
would thus obtain probably inferior in quality as well as
quantity. |
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7.13 |
The quantity of wine which she shall
give in exchange for the cloth of England, is not determined by
the respective quantities of labour devoted to the production of
each, as it would be, if both commodities were manufactured in
England, or both in Portugal. |
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7.14 |
England may be so circumstanced, that
to produce the cloth may require the labour of 100 men for one
year; and if she attempted to make the wine, it might require
the labour of 120 men for the same time. England would therefore
find it her interest to import wine, and to purchase it by the
exportation of cloth. |
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7.15 |
To produce the wine in Portugal,
might require only the labour of 80 men for one year, and to
produce the cloth in the same country, might require the labour
of 90 men for the same time. It would therefore be advantageous
for her to export wine in exchange for cloth. This exchange
might even take place, notwithstanding that the commodity
imported by Portugal could be produced there with less labour
than in England. Though she could make the cloth with the labour
of 90 men, she would import it from a country where it required
the labour of 100 men to produce it, because it would be
advantageous to her rather to employ her capital in the
production of wine, for which she would obtain more cloth from
England, than she could produce by diverting a portion of her
capital from the cultivation of vines to the manufacture of
cloth. |
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7.16 |
Thus England would give the produce
of the labour of 100 men, for the produce of the labour of 80.
Such an exchange could not take place between the individuals of
the same country. The labour of 100 Englishmen cannot be given
for that of 80 Englishmen, but the produce of the labour of 100
Englishmen may be given for the produce of the labour of 80
Portuguese, 60 Russians, or 120 East Indians. The difference in
this respect, between a single country and many, is easily
accounted for, by considering the difficulty with which capital
moves from one country to another, to seek a more profitable
employment, and the activity with which it invariably passes
from one province to another in the same country.20*
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7.17 |
It would undoubtedly be advantageous
to the capitalists of England, and to the consumers in both
countries, that under such circumstances, the wine and the cloth
should both be made in Portugal, and therefore that the capital
and labour of England employed in making cloth, should be
removed to Portugal for that purpose. In that case, the relative
value of these commodities would be regulated by the same
principle, as if one were the produce of Yorkshire, and the
other of London: and in every other case, if capital freely
flowed towards those countries where it could be most profitably
employed, there could be no difference in the rate of profit,
and no other difference in the real or labour price of
commodities, than the additional quantity of labour required to
convey them to the various markets where they were to be sold.
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7.18 |
Experience, however, shews, that the
fancied or real insecurity of capital, when not under the
immediate control of its owner, together with the natural
disinclination which every man has to quit the country of his
birth and connexions, and intrust himself with all his habits
fixed, to a strange government and new laws, check the
emigration of capital. These feelings, which I should be sorry
to see weakened, induce most men of property to be satisfied
with a low rate of profits in their own country, rather than
seek a more advantageous employment for their wealth in foreign
nations. |
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7.19 |