Principles of Political Economy Part 47

[Footnote A2-5-10: Let us suppose that, hitherto, the English had supplied their demand for wine from France, and paid therefor in commodities made of steel; and that now France prohibits the importation of the latter and requires gold instead. If the English take this gold out of their own circulation, the value in exchange of the gold which remains to them rises; the prices of all commodities fall, state debts and private debts become more oppressive, etc. If, to avoid this, they send their steel wares, which France has rejected, to California, to obtain gold there in exchange, they find that California has as much of steel wares as it requires, and that it can be induced to extend its consumption of them only by a corresponding lowering of their price. But if, on the other hand, the gold which has flowed towards France has produced a rise in the price of commodities, and a decrease in the exportation of commodities; and has then flowed out of the country, to Germany for instance; England may in consequence be placed in a position to effect its payments for French wine with the gold which its manufactured articles have been exchanged against in Germany. But all this always supposes that the prices of commodities have fallen in England and risen in other countries; that is, a changed and, so far as England is concerned, an unfavorable distribution of the precious metals--which is found in connection with a relatively decreased productiveness of English labor. The English cost of production may yet continue to be covered, notwithstanding; but, when it has been diminished by a lowering of wages, interest, etc., the national wealth suffers in consequence. Compare _Torrens_, Budget, p. 50 ff., who precisely on this bases the greater security of trade between the mother country and its colonies; and which also found expression in the Peel reform plan of 1842 ff.

_Adam Smith_ approximated to this view when he ascribed a more favorable balance to the country which paid for its imports with its own instead of with foreign products. (W.

of N., IV, ch. 3-2, p. 329, Bas.)]

[Footnote A2-5-11: Compare -- 141. Strongly emphasized by _List_, Werke II, 31, 36 seq. 48, 137.]

[Footnote A2-5-12: _Torrens_ imagines an English manufacturer who employs raw material = 100 quarters of corn and manufactured wares = 100 bales of cloth (the quarter of corn and the bale of cloth supposed to be of equal value) and whose product = 240 bales in value; and compares him with an American agriculturist who, by means of the same outlay of capital, harvests 240 quarters of corn. The trade between them restores to each not only his outlay, with twenty per cent. profit, but puts them in a position to repeat their production on a larger scale. Only the quant.i.ty of fertile land can put a limit to this growth; for corn and cloth help produce each other, and the cheapness of the one promotes the cheapness of the other, which can not, by any means, be said, for instance, of the exchange between vanilla and satin. (Budget, p. 268 ff.) Compare _Roscher_, Colonien, p. 277 ff.]

[Footnote A2-5-13: The important controversy concerning absenteeism may be answered in accordance with the principles laid down in this chapter. The mercantile system considered the rent sent to absentee landlords or capitalists as a tribute paid to foreign countries; but certainly improperly, as such rent is only the fruit of their property which the owners might have consumed in their own country, without giving any one a particle of it.

Besides, these rents are not sent in cash to foreign countries, but in the form of those commodities to the exportation of which the country is peculiarly well adapted.

Let us suppose, for instance, that the Irish absentees had all left the country at once. The tradesmen, personal servants, etc., to whom they had hitherto furnished employment would be greatly embarra.s.sed to find a market for their services, etc., but the producers of linen and meat would have largely increased their exports, because an entirely new demand for their products would have arisen through the farmers of the absentees. The reverse would necessarily happen if all absentees were suddenly called home. Absenteeism which has lasted a long time injures no one economically. Many, recently, laud it even, because it permits every nation to devote their energies to the branches of production for which they are best qualified: Paris, for instance, to theatrical and luxury wares. The savings made by the English absentees on the continent, where things are cheaper, turn eventually to the advantage of England. (Thus, even _Petty_: Political Anatomy of Ireland, p. 81 ff. _Foster_, On the Principle of Commercial Exchanges between Great Britain and Ireland, 1804, p. 76 ff.

Edinb. Rev., 1827. _F. B. Hermann_, Staatswirthschaftl.

Untersuchungen, 355, 363 ff. _Per contra_, especially, Discourse of Trade and Coyn, 1697, p. 99. _M. Prior_, List of the Absenters of Ireland, 1730. _A. Young_; Tour in Ireland, 1780. _Sir J. Sinclair_, Hist. of the Public Revenue, 1804, III, 192 seq. _Lady Morgan_, On Absenteeism, 1825.) An aversion for absenteeism plays a chief part in all Carey's writings. Thus, even in his Rate of Wages, 45 ff.

On medieval complaints concerning the absenteeism of monasteries: _Bodmann_, Rheingauische Alterthumer, 751. From a higher point of view, it cannot, indeed, be ignored that absenteeism, largely developed, cripples the organic whole of national life. The most highly cultured and influential cla.s.ses become estranged from their country, the great ma.s.s remaining behind coa.r.s.er, economic production more one-sided, and all social contrasts more sharply defined.

Disturbances in Rome, when Diocletian removed his residence from there; the decline of the Netherlands, very much promoted by the discontent which Philip II.'s departure for Spain produced. It was estimated, however, in 1697, that the English absentees caused a gain to France of 200,000 per annum. (Discourse of Trade, p. 93.) It is said that about 1833, 80,000 Englishmen traveled on the continent, and consumed 12,000,000 there. (_Rau._) According to _Bruckner_, the Russians who travel in foreign countries take 20,000,000 rubles a year out of the country with them.

(_Hildebrand's_ Jahrb., 1863, 59.) That the countries which receive these travelers receive no very great benefit from them, see in _J. B. Say_, Cours pratique. In Paris, there were, even in 1797, so many strangers who so enhanced the rents paid for _maisons garnies_ that their expulsion was proposed. (_A. Schmidt_, Pariser Zustande, III, 78.)]

SECTION VI.

INTERNATIONAL COMMERCIAL TREATIES.

All international commercial treaties have this object in common: to moderate the impediments to trade which arise from the differences and even from the enmities of states. According to time and character, they fall into three groups:

A. _Medieval_, where a barbarous state for the first time promises foreign merchants in general legal security, without which regular trade is unthinkable. Such treaties, where their provisions are not a matter of course, must be certainly considered as a salutary advance; and they may, under certain circ.u.mstances, be necessary even to-day.[A2-6-1]

B. _Mercantilistic_ treaties, which close, perhaps, even a b.l.o.o.d.y commercial war carried on against a rival,[A2-6-2] or which by a closer connection with a state, whose rivalry is not so much feared, are intended to moderate the worst consequences of a general seclusion.[A2-6-3] Consistently carried out, and without any regard for consequences, the mercantile system really means a war of each state against all others, and it is no mere accident that after the cessation of the wars of religion (1648) and before the beginning of the war of the French revolution (1792), commercial wars occupy the foreground.

Such economic alliances as are entered into in these treaties generally unite states which, by reason of the very different nature of their land and their different national culture, are adapted to production of very different kinds, and which, at the same time, have a common political interest.[A2-6-4] Each party here agrees with the other to give a preference to its subjects in trade, to not exceed certain maxima of duties, etc.[A2-6-5]

The art of the negotiator was employed to overreach the other contractant in relation to the balance of trade.[A2-6-6] It was considered a special matter of congratulation to induce a less highly developed nation to abandon the traditional means employed to artificially elevate its industries. Hence it is, that such friendly treaties frequently contained the germs of the bitterest enmity.[A2-6-7]

A popular remnant of this second group has been noticeable even in recent times, when in diplomatic negotiations concerning the reciprocal modification of duties, it was considered an overreaching and even as an outrage, in case one state made more "concessions" than it received:[A2-6-8] evidently, a confusion of the producers of the industry in question with the whole nation.

C. _Free-trade_ treaties, intended to pave the way to the general freedom of trade.[A2-6-9] Two provisions especially are characteristic here: putting the subjects of the other party on an equal footing with those of the home country in what relates to the ship-duties, etc.;[A2-6-10] and the promise that the products of the other party, as regards import duties, shall be treated like those of the most favored nation.[A2-6-11] [A2-6-12] Whether this preparation for the universal freedom of trade is better made through the medium of an international treaty or of national legislation cannot be answered generally.[A2-6-13]

Besides, in our day, the preference of one foreign nation would be easily evaded through the perfection of the modern means of communication.

[Footnote A2-6-1: The treaty of commerce between England and Morocco, of the 9th of December, 1856, specially covenants that the countrymen of a debtor shall not be held responsible for debts in the creation of which they had no part; that between England and Mexico, in 1826, guaranties, among other things, that prices shall be freely determined between buyers and sellers (art. 8), freedom from compulsory loans, and from forced conscription for military duty (10), the exercise of one's religion, and the inviolability of graves (13); things which were not yet matters of course in Mexico! Similar agreements between Spain and England in 1667; between Spain and Holland in 1648 and 1713; and even in 1786, between England and France. Commercial treaties of this kind are found very early and very frequently among the ancients. Compare the Arcadian-aegean in _Pausan_, VIII, 5, 5, which strongly recalls the Russo-English trade over Archangel; further, Corp. Inscr. Gr., II, No. 1793, 2053 b and c, 2056, 2447 b, 2675-78, 3523. That in the suburbs of Jerusalem, from Solomon to Josias, places where Astarte etc.

was worshipped, were maintained unhindered, depends, it is said, on commercial treaties with the Phnicians, Moabites, Ammonites. (_Movers_, Phonikier, III, 1, 121 ff., 206 seq.)]

[Footnote A2-6-2: The two commercial treaties between Rome and Carthage, 348 and 306 before Christ (_Polyb._, III, 22 ff.), are a clear proof that, in the interval, the mercantile superiority of Carthage had increased. While the Romans in 348 had still the right, under certain limitations, to carry on trade in Sardinia and Africa, it was in 306 entirely denied them.]

[Footnote A2-6-3: As guild-privileges make annual fairs (_Jahrmarkte_) and governmental fixed prices necessary.]

[Footnote A2-6-4: Commercial treaty of the Venetians with the Latin empire in Constantinople, of the Genoese with the Greek after its restoration; in which, for instance, it was promised to the former, that no citizen of a state at war with Venice, should be permitted to sojourn in the Byzantine empire; to the latter, that they alone of all foreigners should enjoy freedom from taxation, and, with the Pisans, navigate the Black Sea. As long as the Dutch were the hereditary foes of Spain, they were much favored in France.

Commercial treaty of 1596, putting them on an equal footing with the French; and which, considering their superiority at the time, was necessarily of greater advantage to them than to the French. _Colbert's_ step to destroy this preponderance is coincident with the changed foreign policy.

(Richesse de Hollande, I, 127.) In the peace of Nijmegen, again (art. 6 seq.), France tried to separate the Dutch from their allies by the restoration of their former rights. In the Spanish war of succession, France entered into a treaty with the arch-duke, Charles, that a common commission should fix the duties on English commodities, transfer the trade with America to an English-Spanish company, but that the French should be excluded therefrom. (_Ranke_, Franz.

Gesch., IV, 257.)]

[Footnote A2-6-5: The king of Bosporos had the rights of citizenship in Athens, and enjoyed that of freedom from taxation of his property there. In consideration of this, the Athenians were released from his corn export duties of 1/30. (_Isocr._, Trapez., -- 71. _Demosth._, Lept., p. 476 ff.) Commercial treaty of Justinian with Ethiopia: the latter was to afford aid against the Persians, in return for which Byzantium promised to supply its requirement of silk no longer from Persia, but from Ethiopia. Commercial treaty between Florence and England, 1490: England promised to permit all the wool destined for Italy, except a small quant.i.ty intended for Venice only, to go over Pisa, and as a rule, not through foreigners. Florence, on the other hand, was to receive English wool only through English ships.

(_Rymer_, Foedera, XII, 390 seq. Decima dei Fiorentini, II, 288 ff.)]

[Footnote A2-6-6: The difficulties of such negotiations described by an experienced politician (probably _Eden_): Historical and Political Remarks on the Tariff of the French Treaty, 1787.]

[Footnote A2-6-7: The Methuen treaty (1703) was considered an English master-piece, because Portugal had actually exported a great deal of Brazilian gold to England. _Pombal_ said, in 1759: "Through unexampled stupidity, we permit ourselves to be clothed, etc. England robs us every year, by its industry, of the products of our mines.... A severe prohibition of the exportation of gold from Portugal might overthrow England." (_Schafer_, Portug. Gesch., V, 494 ff.) And yet the treaty only says that Portugal withdraws its prohibition of English woolen wares, and restores the former duties (15 per cent.), while England continues to permit Portuguese wine to pay a duty 1/3 less than French wines!

Singular doctrine of _Adam Smith_ (W. of N., IV, ch. 6), and still more of _McCulloch_ (Comm. Dict., v. Commercial Treaties), that this commercial treaty was unfavorable to England and very favorable to Portugal, although, in fact, later a duty of only about 3 per cent. was imposed here on English commodities. (_Busch_, Werke, II, 62.) The English-French commercial treaty of 1786 introduces in the place of the former prohibition, duties of 10, 12 and 15 per cent. for a number of industrial products. The French soon came to believe that they had been taken advantage of here.

_A. Young_ found the desire very general in the north of France, to get rid of the Eden treaty even through a war.

(Travels in France, I, 73.) Many of the _cahiers_ of the third estate demand that no treaty of commerce should be entered into without previous consultation with the industries interested. (Acad. des Sc. morales et polit., 1865, III, 214.) But in England, also, bitter complaints of the opposition, to which Pitt replied, that commercial treaties between agricultural and industrial countries result to the advantage of the latter, independent of the fact that England obtained a new market of 24,000,000, and France of only 8,000,000 persons. Compare the extracts in _Lauderdale_, Inquiry, App., 14. Forcade: Revue des deux Mondes, 1843.]

[Footnote A2-6-8: Urged very largely in southern Germany against the Prussian-French commercial treaty of 1862. But is it really an "advantage" for France to have in the interior more toiling (_Plackereien_) for inlanders as well as for foreigners? Or that its consumers must pay high taxes to the producers of certain wares?]

[Footnote A2-6-9: Seldom in antiquity. Compare, however, Inscr. Gr., II, No. 256, and the reciprocal granting of the rights of citizenship of Athens and Rhodes. (_Livy_, x.x.xI, 15.) Among the moderns, Flanders followed free-trade principles similar to those followed later by Holland, at the beginning of the fourteenth century; for instance, it refused to gratify France by breaking off its trade with Scotland. (_Rymer_, Foedera, II, 388.) Florence, in 1490, promised the English, that in all treaties to be entered into with others, it would permit it to enter. In the French-Florentine commercial treaty of 1494, it is stipulated with the Florentines that their ships _Gallica esse intelligantur_ and their merchants _tanquam veri et naturales Galli_ etc. (Decima, II, 308.) Swedish treaty with Stralsund, 1574, that every privilege granted to a Baltic city should also be, of itself, to the advantage of Stralsund. Mutual equal treatment of subjects promised between Portugal and England, 1642; Portugal and Holland, 1661; mutual treatment on the basis of the most favored nation: between England and Portugal, 1642; Holland and Spain, in the peace of Utrecht; Spain and Portugal, 1713; Spain and Tuscany, 1731; England and Russia, 1734. But how far such principles were removed from the beginning of the eighteenth century is shown by the speech from the throne of the 28th of January, 1727, of George I., in which the Austro-Spanish treaty of 1725, that placed the subjects of Austria in the colonial empire of Spain on an equal footing with the English and Dutch, is described as a violation of the dearest interests of England, and in which it is said that England must defend its own unquestionable right against the covenant entered into to violate public faith and the most solemn treaties; that it might be that Spain thought of subjecting England once more to the popish pretender. Even in 1713, it was one of the princ.i.p.al points in controversy between the Tories and Whigs, whether, in a commercial treaty with France, the latter should be accorded the rights of the most favored nations. Compare _Daniel Defoe_, A Plan of the English Commerce, and _per contra_, The British Merchant.]

[Footnote A2-6-10: English treaties with Prussia, 1824; the Hanse cities, 1825; with Sweden, 1826; France, 1826 (England removed the limitations still retained without compensation, in 1839); Naples, 1845; Sardinia, Holland and Belgium, 1851.

Prussian treaties with Russia, 1825; Naples, 1847; Holland, 1851. French with Bolivia, 1834; Holland, 1846 (in which reciprocity is extended even to the navigation of rivers); Denmark, 1842; Venezuela, Equador and Sardinia, 1843; Russia and Chili, 1846; Belgium, 1849; and Portugal, 1853.]

[Footnote A2-6-11: Marking an epoch in this respect are the treaties of the United States with Holland (Oct. 8, 1782), Sweden (April 3, 1783), Frederick the Great (Sept. 10, 1785), and England (Oct. 28, 1795); recently that entered into by Napoleon III. with England in 1860, and with the Zollverein in 1862.]

[Footnote A2-6-12: The expression "most favored" is not always strictly construed. Thus, for instance, France granted the right of coast-sailing proper (_cabotage_) only to Spain. States frequently promise only: _s'appliquer reciproquement toute faveur en matiere de commerce et de navigation qu'ils accorderaient a un autre etat gratuitement ou avec compensation_.]

[Footnote A2-6-13: Napoleon III. had a preference for commercial treaties, because these, as acts of foreign politics, lay in the plenitude of his imperial power (art. 6 of the const.i.tution of 1852; senatus consultum of Dec. 23, 1852), while in legislation, his free trade tendencies were limited by popular representation. And so also Prussia, by its commercial treaty with him (1862), was actually freed from the hindrances which the free veto of the Zollverein-conferences would have opposed to its reform.

Opposition to the treaty-form because too binding.

(_Chaptal_, De l'Industrie Francaise, II, 242 ff.) The free-trade party lauds it precisely on this account. See the report of the Leipzig Chamber of Commerce for 1874-75, p.

41.]

APPENDIX III.

THE INDUSTRIAL PROTECTIVE SYSTEM AND INTERNATIONAL FREE TRADE.

THE INDUSTRIAL PROTECTIVE SYSTEM AND INTERNATIONAL FREE TRADE.

SECTION I.

PROXIMATE ECONOMIC EFFECTS OF THE INDUSTRIAL PROTECTIVE SYSTEM.

That the princ.i.p.al measures which the mercantile system recommended, artificially to increase a nation's wealth, could not produce the immediate effects expected of them, has been shown, especially from the natural history of money. Their proximate economic consequences necessarily consisted in this, that they diverted the existing productive forces of the nation from their places of application (_Verwendungsplatzen_) hitherto, to others which the government thought more advantageous.

A. If home producers are in a condition to offer their commodities as good and as cheap as foreigners, all protection of the former by import duties, or even by prohibitions, is superfluous. The home producer has, as a rule, not only the advantage of the smaller cost of freight to the place of consumption,[A3-1-1] but that of being earlier informed, because of his proximity to consumers, of a change in their tastes.[A3-1-2] If, indeed, foreigners could supply us better and cheaper, and if they are kept from supplying our market only by artificial means, the state compels our consumers to a sacrifice of enjoyment;[A3-1-3] and such a sacrifice as is not fully compensated for by the profit made by the favored producers in any manner. The latter are generally soon compelled by home compet.i.tion to arrange their prices in accordance with the rate of profit usual in the country. If they had no "protection" they would simply employ their productive forces in other branches of production; and in those in which they were equal or even superior to foreign compet.i.tors. By means of the products thus obtained, the people might then get in exchange all those commodities from foreign countries, the production of which it is, according to the laws of the division of labor, better to leave to foreign countries.[A3-1-4] Since one nation can lastingly pay another nation only with its own products, any limitation of imports must, under otherwise equal circ.u.mstances, be attended by a corresponding limitation of exports.[A3-1-5] Directly, therefore, these hindrances to importation produce no increase, but only a change in the direction (_Umlenkung_) of the national forces of capital and labor; an increase, only in case that foreign producers are thereby caused to transfer their productive forces within our limits;[A3-1-6] which may certainly be considered the greatest triumph of the protective system. Hence it is absurd when an equal extension of "protection" to all the branches of a nation's economy is demanded, as it is so frequently, in the name of justice.

There is here no real protection whatever, a.n.a.logous, for instance, to the protection afforded by the judge, but a favor which can be accorded to no one without injuring some one else.[A3-1-7]

[Footnote A3-1-1: It is of course different in the working (_Verarbeitung_) of foreign raw material. Much also depends on the situation of the industrial provinces. For instance, manufactured articles can reach the interior of Spain and the Western states of the American Union only after they have pa.s.sed the industrial coast-regions of both countries.

In Russia, on the other hand, the center is the princ.i.p.al industrial region; and hence the coast may be actually nearer to foreign than to home manufacturers. Similarly, in France, at least for iron and coal. Compare _Adam Smith_, W.

of N., II, p. 279 Bas.]