INTERNATIONAL TRADE.
SECTION I.
THE MERCANTILE SYSTEM.
The principal peculiarities of the so-called mercantile system depend on a five-fold over-estimation: of the density of population, of the quantity of money, of foreign commerce, of the industries concerned with the transformation of materials (Verarbeitungsgewerbe), and of the guardianship of the state over private industry.[A2-1-1] All these tendencies are very intelligible, and almost self-evident, in a sovereign city-economy (Stadtwirthschaft) as opposed to the governed and worked-out (ausgebeuteten)[TN 122] country districts; as they are found even in the city-republics of later medieval times. But they are also natural in whole national economies, during that period of youthful and rapid growth in which the increasing density of population continues still, for a long time, to be really only a spur and an assistance, and in which, therefore, there can be no expression of anxiety concerning over-population; in which the new and rapidly growing division of labor draws attention particularly to the market-side of all businesses and to the circulation of goods; in which the progress from trade by barter to trade by money necessarily makes the volume of money needed even relatively greater; but especially are they natural in that world-period in which foreign trade suddenly increased enormously in consequence of the discovery of the whole earth; when the citizen classes of the people assumed immense importance as compared with the landed and clerical aristocracy, and when, in the internal affairs of state absolute monarchy, and in foreign politics, the system of equilibrium, through the instrumentality of the great compact-formation of states prevailed.
All these tendencies are most intimately connected with one another. If precious metal-money be really the essence of national wealth,[A2-1-2] a people who possess no gold and silver mines themselves;[A2-1-3] for instance, Italy, France and England, can become richer only through foreign trade,[A2-1-4] by means of a favorable balance produced by a preponderance of their exports over their imports; and only inasmuch as this excess is balanced by a payment in money from foreign parts. And so, too, in foreign trade, one nation can gain only what another nation has lost.[A2-1-5] Gain is promoted not only by direct obstacles placed in the way of the exportation of the precious metals, but still more by the value-enhancement of the exported commodities, and by the value-diminution of the imported commodities.[A2-1-6] And as commodities which have undergone the process of transformation are, on an average, more valuable than raw materials, the state can best carry out this policy by import duties, import prohibitions, and export premiums on manufactured articles, as well as by export duties, export prohibitions and import premiums on raw materials.[A2-1-7] This is extremely necessary against those nations who are superior to others in culture, wealth, the cheapness of labor and capital; and hence the envy of the mercantilists was directed chiefly against Holland, and after Colbert's time also against France.[A2-1-8] Such commodities as are not at all adapted to the nature of a country, because of its climate, for instance, the nation should produce at least in colonies of its own, that it might, in this way, emancipate itself from foreign countries.[A2-1-9] As the clear distinction drawn to-day between money and capital has asserted itself only since Hume's time, the notion that prevailed for centuries, that much money, much trade and a large population mutually conditioned one another, was a very natural one.[A2-1-10]
The younger and more refined conception of the mercantile system is distinguished from the coarse Midas-believing one, by two tendencies especially:
A. By the more thorough consideration of the balance of trade and the consequent limitation of the traditional supposition, that the excess of exports over imports would be always made up in cash money.[A2-1-11]
B. By the extension of the field of view, so that not only the direct but also the indirect and more remote effects of international trade were taken into consideration.[A2-1-12]
A certain over-estimation of the circulation of goods continued to characterize even the latest adherents of the mercantile system.[A2-1-13] Yet the caricature drawn by the tradition of more recent text-books, of the mercantilists, is true only of the inferior ones among them.[A2-1-14] The most distinguished of them, Botero,[A2-1-15] for instance, approximate more closely to the science of the present day than is usually supposed.
[A2-1-1] Compare Roscher, Geschichte der Nationalökonomik in Deutschland, I, 228 ff.
[A2-1-2] Even the remarkable Florentine pamphlet of 1454 (Jablonowski's prize essay of 1878, app. Beilage, 4) complains of the decrease of industry principally on account of the diminution of money caused thereby. "Wealth is money," says Ernestine, essay of 1530, on the coin, and explains the smaller wealth of the silver-country, Saxony, as compared with England, France, Burgundy and Lombardy, by the greater exportation of commodities of these countries, by means of which they draw the silver of Saxony to themselves. (Roscher, Geschichte, I, 103.) Bornitz, Theorie wie sich der Staat diesen nervus rerum in grösster Menge verschafft: De Nummis (1608), II, 4, 6, 8. A. Serra, Sulle Cause, che possono far abbondare un Regno di Monete (1613), places excess of gold and silver and poverty as diametrical opposites, at the head of his work. Hörnigk, Oesterreich über Alles, wann es nur will (1684), says that it is "better to give two dollars which remain in the country for a commodity, than only one dollar which goes out of the country" (ch. 9). According to Schröder, Fürstliche Schatz- und Rentkammer (1686), the export of commodities is a blessing only "when we can turn them into silver through our neighbors." (LXX, 12.) Even Locke held similar views (Considerations of the Consequences of the Lowering of Interest, 1691. Further Considerations concerning Raising the Value of Money, 1698). On Davenant's inconsistency in this respect, compare Roscher, Geschichte der Englischen Volkswirthschaftslehre, 110 ff. The quantity of money remaining the same, a country grows neither richer nor poorer (Christ. Wolff, Vernünftige Gedanken vom gesellschaftlichen Leben, 1721, § 476). J. Gee, Trade and Navigation of Great Britain considered (1730), bewails the folly of those to whom "money is a commodity like other things, and also think themselves never the poorer for what the nation daily exports," (p. 11). Justi, von Manufacturen und Fabriken (1759 seq.), considers it the principal object of industry simply to prevent the outflow of money. Similarly, Pfeifer, Polizeiwissenschaft (1779), II, 286. Even Frederick the Great considered it "true and obvious" that "a purse out of which money is taken every day, and into which nothing is put in turn, must soon become empty." (Œuvres, VI, 77).
[A2-1-3] The thirst for gold which, in the sixteenth and seventeenth centuries, drove so many emigrants to the western Eldorado, reminds one, by reason of its enthusiasm, of the crusades to the Holy Land. The striving after the making of gold which the emperors Rudolph II., Ferdinand III., Leopold I., Frederick I. of Prussia, Christian IV. of Denmark, Christian II. and Augustus the Strong of Saxony, Heinrich Julius of Braunschweig, Frederick of Würtemberg, harbored, and also the Silesian and Brandenburg princes even during the Hussite war (Riedel, Cod. Dipl. Brandenb., II, 4, 151), was, to a great extent, misplaced philosophy; men went in search of the materia universalissima,[TN 123] the spiritus universalis, from which all that is receives its esse et fieri, the universal elixir, at once the life-power of man, the universal medicine and maturing principle of natural bodies. (Roscher's Gesch., I, 230.)
[A2-1-4] Schröder justifies the little estimation in which he holds internal commerce by saying that "a country may indeed grow and become powerful by its means, but cannot gain in wealth;" just as a dress embroidered with pearls is not made more costly by taking the pearls from the cuffs and putting them upon the cape. (F. Schatz- und Rentkammer, XXIX, 3.) According to the Fredrickian theorizer, Philippi, "internal trade scarcely deserves the name of commerce." (Vergröss. Staat, 1759, ch. 6.) Sir J. Steuart still teaches that an isolated state may, indeed, be happy, but that it can grow rich only through foreign trade and mining. (Principles, II, ch, 13.) The same fundamental thought finds expression in the title of Th. Mun's celebrated book: England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is the Rule of our Treasure (1664).
[A2-1-5] Il est claire qu'un pays ne peut gagner, sans qu'un autre perde, et qu'il ne peut vaincre sans faire des malheureux (Voltaire, Dict. phil., art. Patrie). Even Verri was, in his earlier period, of the opinion: ogni vantaggio di una nazione net commercio[TN 124] porta un danno ad un altra nazione; lo studio del commercio è una vera guerra (Opuscoli, 335).
[A2-1-6] Even in 1761, the learned Mably could say: la défense de transporter les espèces d'or et d'argent est générale dans tous les états de l'Europe ... il n'y a point de voie moins sensée (Droit public, II, 365).
[A2-1-7] The obstacles placed in the way of importation by governments originated, in great part, from views entertained on sumptuary legislation; in that of exportation, from a desire to prevent a scarcity of certain articles, as may be clearly seen in Patricius (De Inst. Reipublic., V, 10, I, 8), and even in Sully (Mémoires, XI, XII, XIII, but especially XII), Bornitz, Besold, Klock and v. Seckendorf. (Compare Roscher, Gesch., I, 191, 202, 215, 247.) But the mercantilistic germs show themselves even in Hutten and Luther. (Roscher, I, 44, 63.) The advance made between the police ordinance of the empire of 1530 and that of 1548, is very remarkable in this respect. The mercantile theory of duties appears very systematically elaborated even in J. Bodinus, De Republica, 1577, VI, 2; in Germany in Hörnigk, Oesterreich über Alles, ch. 9.
[A2-1-8] The English jealousy of Holland is represented especially by Sir W. Raleigh (?), Observations touching Trade and Commerce with the Hollander and other nations, 1603, Works, III, 31 ff.; Sir J. Child, A new Discourse of Trade (1690), and Sir W. Temple, Observations upon the U. Provinces (1672). Compare Roscher, Z. Gesch. der englischen V. W. Lehre, p. 31 ff., 125 ff. The English jealousy of France: Sam. Fortrey, England's Interest and Improvement (1663). R. Coke, A Treatise, wherein is demonstrated that the Church and State of England are in equal Danger with its Trade (1671), and the anonymous, Britannia languens (1680). Per contra, especially the work: England's Greatest Happiness, wherein it is demonstrated that a great Part of our Complaints is causeless (1677). Here we find chapters with the title: To export Money our great Advantage; the French Trade a profitable Trade; Multitudes of Traders a great Advantage. Petty gave the best solution to the question in dispute, in his posthumous Political Arithmetic concerning the Value of Lands, etc. Hörnigk would enlist his service in the cause of the jealousy against France, immediately after the disgraceful defeats which Germany in 1680 ff. suffered in the midst of peace, by Louis XIV. Concerning smaller works of the same period and in the same direction, see Roscher's Gesch., I, 299 seq.
[A2-1-9] Even Peter Martyr considered the colonization of countries which yielded the same products as the mother country of no advantage (Ocean, Dec., VIII, 10). On Spanish maps the most flourishing portions of America at present are designated as tierras de ningun provecho. And the English for a long time, ascribed value to their New England possessions, so far as the mother country was concerned, only to the extent it was possible to provide the West Indies from that quarter with corn, meat and wood. (Roscher, Kolonien, p. 262.)
[A2-1-10] Compare Botero, Ragion di Stato (1591); Law, Money and Trade (1705), p. 19 ff.; and Verri, Opuscoli, pp. 325, 333. Meditazioni (1771), cap. 19.
[A2-1-11] Thus Child, spite of all his esteem for the discoverers of the balance-problem, calls attention to cases in which exports suffer so much waste (Abgang), or imports are sold so advantageously, that an apparently favorable balance made a people poorer, and an apparently unfavorable one, richer. From the value of the imported commodities the self-earned freight has to be deducted. Countries like Ireland, many colonies, etc., have a preponderance of exportations, because they, by means of the same, pay a rent to absent capitalists or to landowners. (p. 312 ff.)
[A2-1-12] Mun admits that, for instance, the East Indian trade makes England richer, although it causes the exportation of much English money. But the exporter of money who, in exchange for it, brings back reëxportable commodities, should be compared to the sower. (Ch. 4.) Similarly, C. Roberts, The Treasure of Trafficke (1641), and even A. Serra, III, 2. According to Child, the loss in the East Indian trade is compensated for chiefly by this, that England obtains there the saltpeter it needs to satisfy its demand, and that the ships engaged in that trade are peculiarly well fitted for war. (l. c.) Saavedra Faxardo, for similar reasons, declared the discovery of America to be a misfortune. (Idea Principis Christiani politici, 1649, Symb., 68 seq.)
[A2-1-13] Thus Law, Dutot, Darjes and Büsch. Even the violent opponent of the mercantile system, Boisguillebert, could not entirely escape this view. Compare vol. I, § 96.
[A2-1-14] This is true, especially of the protectionist weekly paper: British Merchant or Commerce preserved (1713 ff.), in the contest with the weekly Tory paper edited by Defoe: Mercator or Commerce retrieved, which Charles King systematized and published anew in 1721. Later Ulloa: Noticias Americanas (1772), cap. 12. Adam Smith also concedes that many of the best writers on commerce, at the beginning of their books, allow that the wealth of a country consists not only in gold and silver, but also in goods of every description; but that further on they tend more and more to forget this qualification of the meaning of wealth. (W. of N., IV, ch. 1.) Hence it is that, in recent text-books, so many are now called adherents and now opponents of the mercantile system.
[A2-1-15] Even Colbert says: nothing is more precious in a state than the labor of men (Lettres, Instructions et Mémoires de C. publiés par P. Clement, 1861 ff., II, 105). The great trade with foreign countries and the small trade in the interior contribute equally to the welfare of nations. (II, 548.) I would not hesitate to do away with all privileges, the moment I found that greater or as great advantages attended their abolition. (II, 694.) His duty-system of 1664 was a simplification, but also an important diminution of his earlier chaotic tariff. (II, 787 ff.)
SECTION II.
REACTION AGAINST THE MERCANTILE SYSTEM.
The reaction against the mercantile theory of the balance of trade, which reached its height in Adam Smith, was based principally upon the following considerations:
A. Precious-metal-money is a commodity like all other commodities, and therefore useful only for certain purposes. It is as little to the wealth-interest of a people, by means of a continually favorable balance, to import infinite quantities of the precious metals, as it is to its power-interest, by means of its commercial policy, to accumulate infinite stores of powder. The person who possesses other exchangeable goods will be as well able, in case of need, to obtain gold and silver therewith as to obtain powder.[A2-2-1] We part with no capital when we export the precious metals and import other commodities instead; we simply exchange thereby one form of capital for another.[A2-2-2] The notion that the gain in trade is coincident with the balance of account paid in cash, is just as palpably false in the trade among nations as in trade among private persons.[A2-2-3] It would be a decided hardship to most men, if they were to receive payment at once in money for all that they possessed: and the nation is made up of individuals.[A2-2-4] And even the reasons which make payments in cash more uniformly desirable, in the case of private persons not engaged in mercantile pursuits, cease in the case of whole nations.[A2-2-5]
B. But a continual over-balance (Ueberbilanz) is not at all possible. Every relative increase of the amount of money must enhance the price of commodities, lower the value of money, and thus produce an exportation of money until a restoration of the level with other countries.[A2-2-6] The prohibitions of the exportation of money, so often resorted to, can avail nothing, because the precious metals are among the specifically most valuable goods; and because it is easier yet to smuggle them out of a country than to smuggle them into it.[A2-2-7]
C. The signs by which the mercantile system supposed it could estimate the favorableness of the balance of trade are essentially deceptive.[A2-2-8] We cannot, for instance, from the course of exchange, determine whether the payments made by us to foreign countries have been made for purchases, to absentees, etc., or as loans; and yet, according to the mercantilists, the latter are as useful to us as the former are injurious.[A2-2-9] And even the most accurate tariff-record (Zollregister) of the exportation and importation of commodities affords no guaranty[A2-2-10] that, in many instances, the rendering of the counter-value may not remain absent, by reason of bankruptcy, shipwreck, or the emigration of property.[A2-2-11]
D. Every act of exchange is advantageous only because through it a greater value is received than the one parted with was. (?) Fortunately, in normal trade, where both parties satisfy a real want, and neither party is deceived, this is actually the case on both sides.[A2-2-12] In accordance with all this,[A2-2-13] Baudrillart is of opinion that the whole theory of the balance of trade no longer exists.
[A2-2-1] Even Petty and North, with their deep insight into the nature and functions of money, could not possibly entertain the mercantile theory of the balance of trade. Petty considers the exportation of money useful, even when commodities are brought back in exchange for it, and which are of greater value in the interior than the exported money. (Quantulumcunque concerning Money, 1682.) According to North, no one is richer simply because he has his property in the form of gold and silver plate, etc.; he is even poorer, because he allows his goods to lie in that shape unproductive. Hence the importation of money is, in itself, not more advantageous than the importation of logs of wood; at most, the difference that, in case of excess, it would be easier to get rid of the money than of the wood, is of importance. Therefore, a state need never care very anxiously for its supplies of money. A rich nation will never suffer from a want of money. (Discourses upon Trade, 1691, pp. 11, 17.) According to Berkeley (Querist, 1735, pp. 566 ff.), there is no greater error than to measure the wealth of a nation by its gold and silver. It is to the interest of a people to keep their money or to send it off according as its industry is thereby promoted. Quesnay declares it to be impossible that the exports of a country should be permanently greater than its imports: tout achat est vente et toute vente est achat.
Adam Smith (W. of N., IV, 1) compares the Spanish discoverers who inquired on every island, first of all, for gold, to the Mongolians, whom Rubruquis (c. 32) was obliged to give information to concerning the cattle of France: "of the two, perhaps the Tartar nation was the nearest to the truth." Precious-metal-money may be even more easily dispensed with than most other commodities, since, in case of necessity, it can, by reason of its greater transportability be readily obtained from without, and can also be supplied by exchange and by credit. "Money makes but a small part of the national capital and always the most unprofitable part of it.... Money necessarily runs after goods, but goods do not always or necessarily run after money." J. B. Say calls the exportation of money more advantageous than that of other commodities, because the former is of use, not through its physical qualities, but only through its value, and the value of the money which remains behind correspondingly rises by reason of the exportation. (Traité, I, ch. 17.) Compare especially Bastiat, Maudit Argent, 1849.
[A2-2-2] Against Ganilh, Théorie de l'Economie politique, II, 200.
[A2-2-3] Even Mun had, in every balance of trade, distinguished three persons who participated in it; the merchant might lose when the nation in general gained, and vice versa; the king, with his duties, always gained. (Ch. 7.) The British Merchant (p. 23) maintained even, that when the merchant himself gains nothing and takes his back-freight (Rückfracht) in money, his country gains the whole amount thereof.
[A2-2-4] "Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage, naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society." (Ad. Smith, W. of N., IV, ch. 2.)
[A2-2-5] For the reason that money, in international trade, for the most part, loses its character as money, and appears more as a commodity. Exhaustively in Adam Smith and J. B. Say, l. c. The English state paid, during the French war of the Revolution, in subsidies to foreign countries, £44,800,000; and yet, up to the end of 1797, imperial loans and the payments of private individuals included, not as much as one million in cash went out of the country. (Rose, Brief Examination into the Increase of the Revenue of Great Britain, 1799.) When France paid the five milliards to Germany, the plus value of English exportation to Germany above the English importation thence rose from 274,000,000 (1869) to 478,000,000 (1872), and the increase in the amount of French from 39,400,000 (1869) to 131,700,000 (1873). The entire German under-balance (Unterbilanz), Soetbeer (loc. cit.) estimates at 878,000,000 of marks.
[A2-2-6] Emphasized especially by David Hume who calls attention to the seeking of its level by water. (Discourses: On the Balance of Trade.) J. B. Say speaks of carriages, the increase of which over and above the need of them must infallibly produce a reëxportation of them. (Traité, I, ch. 17.)
[A2-2-7] With all the severity of its export prohibitions, Spain, for centuries, served as a medium to conduct the streams of American silver to the other parts of Europe. As to how Spain, during the last third of the 18th century, was overflowed by copper money, see Campomanes, Educación popular, IV, 272.
[A2-2-8] von. Schröder, F. Schatz- und Rentkammer, XXVII, has a very ingenuous faith in the rate of exchange and a tariff-record (Zollregister); while Child had a much better insight into the defects of these two criteria. (Disc. of Trade, p. 312 ff.) Compare Steuart, Principles, III, 2, ch. 2.
[A2-2-9] Compare § 199. It was a discovery of Locke's, that borrowing from foreign countries was advantageous in all those instances in which the inland borrower earned more than the amount of his interest by means of the loan. (Considerations, p. 9.)
[A2-2-10] Ségur, Mémoires, II, 298, tells how the Russian officers of custom were bribed by English merchants to represent the Russian imports from England under, and the exports to England above the true value. In addition to this, smuggling was carried on!
[A2-2-11] J. B. Say calculates from the English tariff-record (Zollregister), from the beginning of the 18th century to 1798, an excess of exports over imports of £347,000,000; and yet the highest estimates of the amount of money actually in England, according to Pitt and Price, gave only £47,000,000. (Traité, I, IV, 17.) The Russian lists of exports and imports from 1742 to 1797, show a favorable balance of 250,000,000 rubles; to which must be added 88,000,000 rubles taken from the mines during the same time. But it is notorious that the stores of money diminished. Storch, Gemälde des russischen Reiches, XI, 12.
[A2-2-12] Manuel, 310. F. B. W. Herrmann (Münch. gelehrte Anz. XXV, 540) also declares the whole theory of the balance of trade wrong. According to Brauner, Was sind Maut[TN 125] und Zollanstalten (1816), 51, it is "a mere fancy."
[A2-2-13] Recognized even by Ch. Davenant, On the probable methods of making a People Gainers in the Balance of Trade (Works, II, p. 11).
SECTION III.
FURTHER REACTION AGAINST THE MERCANTILE SYSTEM.
Simultaneously with this opposition, the theory of the international balance of trade underwent important refinements, a new and improved edition, so to speak, of old Colbertism.[A2-3-1] Each school is wont to estimate the favorableness of the balance according to the preponderance of that which they consider the most important element in a nation's economy. Thus the population-enthusiasts, after the middle of the 18th century, distinguished the "balance of advantage" from the "merely numerical:" the former is favorable to the country which, by means of its exports, employs and feeds the greatest number of men; the latter to the country with a preponderating importation of money. And they call the former much more important than the latter.[A2-3-2] The great advance which this view constitutes over the old system lies chiefly in two points: that the number and employment of men are evidently, so far as the whole national economy and national life are concerned, a much more important element than the quantity of money in a country; and further, that now, at least, the possibility of a simultaneous profit on both sides is admitted.[A2-3-3] The best writer in this direction, Jos. Tucker, is among the great-grand-parents of the Manchester theory of to-day!
A further advance was made by men who introduced the higher notions of nationality and of the stages of civilization into the theory of international trade. Thus, at about the same time, the socialistic J. G. Fichte, with his shut-in commercial state, and the romantic reactionary, Ad. Müller, with his organic whole of national economy.[A2-3-4] Finally, Fr. List,[A2-3-5] with his "National system of Political Economy," and his severe subordination of the mere "agricultural state" to the "agricultural, manufacturing and commercial state," acknowledges the favorableness of the balance in the nation which by means of the exportation of manufactured articles, the importation of the means of subsistence and of articles to be manufactured, demonstrates and promotes its higher stage of civilization.[A2-3-6]
[A2-3-1] Compare Mengotti: Il Colbertismo (prize essay of the Georgofili at Florence), 1791. If, with H. Leo, we were to designate the whole period from the issue of the struggles of the Reformation to the preparations of the French Revolution as the "age of the mercantile system," Colbert would be a very appropriate type of it.
[A2-3-2] Compare § 254. Here belong Forbonnais, Necker, Tucker (Important Questions, IV, 11; V, 5; VII, 4; VIII, 5. Four Tracts, 1774, I, p. 36); Justi in his middle period (Roscher, Gesch. der N. O. in Deutschland, I, 451 ff.); but especially Sonnenfels (politische Abhandlungen, 1777, Nr. 1), who sees the best sign of a favorable balance in the increase of population. (Grundsätze, II, 333.) When Austria, for 2,500,000, purchases diamonds of Portugal, and sells Portugal linen to the amount of 2,000,000, it has the numerical balance against it, but obtains the "balance of advantage." (II, 329 seq.) With an admixture of physiocratism, this doctrine appears in Cantillon, Nature du Commerce, 1755, p. 298 ff.; with an admixture of free trade, in Büsch, Geldumlanf, V, 12.
[A2-3-3] Justi, Chimäre des Gleichgewichts der Handlung und Schiffahrt (1759), supposes a gain on both sides in all commerce between nations. Hence, no nation can attain to a flourishing trade in any way except it be to the advantage of those with which it has to do. (p. 14 ff., 43.) Here, it may be presumed, Hume's Essay, On the Jealousy of Trade, exercised an influence. Sonnenfels distinguishes, in foreign trade, five grades of advantage: 1, most advantageous, when finished commodities are exported and cash money is imported; 2, when finished commodities are exchanged for raw materials; 3, finished commodities against finished commodities; 4, raw material against raw material; 5, raw material against finished commodities. (Grundsätze, II, 202.)
[A2-3-4] It is as necessary that every nation should constitute a separate commercial body as that it should be a separate political and juridical body. The person who asks: why should I not have commodities in all the perfection in which they are made in foreign countries? might as well ask: why am I not completely a foreigner? (Fichte, Geschloss. Handelstaat, 1800: Werke, III, 476, 411.) Ad. Müller compares universal freedom of trade to a universal empire, which will ever remain a chimera. (Elemente der Staatskunst, 1809, I, 283.)
[A2-3-5] List (Werke, II, 31 ff.) had, after 1818, recognized that a passive balance for whole nations was possible, if they were not able to cover their wants, supplied from abroad and then consumed, by their income, but were obliged to make inroads on their national capital.
[A2-3-6] Ch. Ganilh, who expects a real enrichment of a nation only from foreign trade (Dictionnaire de l'E. P., 1826, p. 131), ascribes the most favorable balance to the nation that exchanges dear labor against cheap; that is, principally to a nation of tradesmen as contradistinguished from a nation of agriculturists. (Theorie de l'E. P., 1822, II, 239 ff.)
SECTION IV.
PARTIAL TRUTH OF THE MERCANTILE SYSTEM.
But even among the successors of Hume and Smith, a deeper insight into, so to speak, the physics of money and of international trade must have led to the recognition of many a truth which the mercantile system had, indeed, badly formulated, insufficiently proved, but which it had, nevertheless, an inkling of. And, indeed, how frequently it happens that the progress of science proceeds from one one-sidedness, through another opposed but higher one-sidedness, to the all-sidedness which knows no prejudice!
A. Precious-metal-money is, indeed, a commodity, but of all commodities, the most current, the most many-sided in its utility, the most economically energetic, and at the same time of peculiarly great durability.[A2-4-1] Money-capital, far from being the least useful portion of a nation's capital, is rather one of its most important parts; and especially in the higher stages of civilization, where the division of labor has been most largely developed, is it peculiarly productive and indispensable.[A2-4-2] ] Here it is really more likely that the possessor of commodities may be wanting the wished for money, than that the possessor of money should be wanting in the wished for commodities. And, hence, the numerous half mystic expressions of the magical power of money, which have passed into literature from the common usage of the people, can be, by no means, considered mere errors.
B. Just as little, can the impossibility of the preponderant importation of money for a long time, be asserted. Hume's rigid theory of a level, by no means, exactly corresponds with the reality. The precious metal which is, indeed, imported, but which does not subsequently enter into the circulation, need exert no influence whatever on the prices of commodities in general; and may, therefore, remain permanently in the country. Think only of the articles made of the precious metals, which minister to luxury,[A2-4-3] of buried private treasure, of the treasures of the state, which are idly stored up; as well as of a portion at least of most cash on hand.[A2-4-4] From the other side, also, the over-balance or under-balance (Ueber-oder Unterbilanz) of a country may continue, a very long time, when its internal trade with its money-need is, in the first case, an increasing, and in the last, a decreasing one. So far, the preponderance of the importation of money may be called a favorable sign and the preponderance of the exportation of money an unfavorable one. And the person who thinks that a permanent preponderance of exports or imports is not at all possible in the way of commerce, overlooks the possibility of a very extensive national indebtedness.[A2-4-5]
C. But a distinction should be made between the balance of payments and the balance of trade in the narrower sense of the expression.[A2-4-6] In the case of the latter, to be complete, it is necessary to carry to the credit side of the account: 1, The exports of commodities; 2, the profit made by parties at home by realizing on (Realisierung[TN 126]) the exports in foreign countries; 3, the freight-profit made by parties at home on exports and imports, as well as in foreign carrying trade (Zwischenverkehr); 4, the sale of inland ships in foreign countries; 5, premiums and compensation for damage on account of maritime insurance from foreign countries. On the debit side, on the other hand, the corresponding items when foreigners have received from the home country, as in the case of imports, etc. To obtain the general payment-balance, we have still, in addition, on the credit side: 1, The profit from home participation in enterprises in foreign countries and the transfers of capital originating therefrom; 2, the interest and repayments of money-capital loaned in foreign countries; 3, the sale of stocks (Effecten) to foreign countries as well as new loans to which the home country makes in foreign parts; 4, remittances from foreign countries to foreigners sojourning in the home country, and money brought with them by travelers and emigrants; 5, inheritances, pensions and extraordinary payments from foreign countries. Then, too, on the debit-side, belong the corresponding counter-items.[A2-4-7] If we, in this way, take a survey of the whole world, we shall perceive a treble current of the precious metals. The first and most regular goes, in long lines, from mining countries, over to the commercial countries of the world, and distributes the newly acquired gold and silver as commodities according to the wants of the coinage, of manufactures, etc. The second oscillates, as it were, in short waves from country to country, in order to adjust the plus or minus for the time being of payment-balances. Lastly, regular sudden currents, with slow subsequent counter-currents, when single economic districts require to make extraordinary drafts or shipments of the precious metals, by reason of bad harvests, war, a disturbed double standard, etc.
D. Since international indebtedness has so much increased, precisely the richest nations may have the greatest regular excess of exports over imports; partly because of the great amount of capital, etc., which they possess in foreign countries; partly because of the great development of their system of credit in the interior, by means of which they find substitutes for so great a part of the metallic currency.[A2-4-8]
[A2-4-1] Locke, Civil Government (1691), § 49, seq., emphasizes this durability of the value-preserving metallic money, in opposition to the perishable articles of consumption, as a principal element in the development of private property and of economic civilization. But even Petty ascribes to the precious metals a higher quality as wealth than to any other commodity, for the reason that they are less perishable, and possess value always and everywhere. Hence, he esteems foreign trade more highly than inland trade, and would have those businesses which import the precious metals protected more than others against taxation. (Several Essays, 1682, p. 113, 126, 159.) Adam Smith also recognizes this, at least so far as intermediate trade is concerned. (W. of N., IV, ch. 6.)
[A2-4-2] Even Rau, in his additions to Storch (1820), p. 397, concedes the peculiarly charming, vivifying power, which money possesses to an extent greater than any other commodity. Well distinguished whether the money-want of a country is already fully satisfied or not. (Ansichten der Volkswirthschaft, 1821, p. 157.) Carey exaggerates when he calls money the cause of the movement in society, out of which force is produced, what coal is to the locomotive, or food to the animal body (Principles of Social Science, ch. XXXII, 5), or the only want of life for which there is a universal demand. (Ch. XXXIII, 1.) But he rightly calls it the "instrument of association." Excellent demonstration, as to how, at the sudden outbreak of a war, of a revolution, etc., all those who have money on hand, even when they had previously obtained it while peace still prevailed, in the form of a loan, are in an infinitely better position than the owners of the otherwise most useful commodities. (Ch. XXXVII, 12.) Earlier yet, P. Kaufmann placed the "principal character of money" in this, that it was "most perfect property (Vermögen);" and he calls its quality as a commodity, philosophically considered, in question; and judges the balance of trade according to this, that in commodities, interest-yielding as well as dead capital is exported, but in money-capital, which is always gain-engendering. (Untersuchungen im Gebiete der politischen Oekonomie, 1829, I, 4, 74, 80.)
[A2-4-3] In England, Patterson estimates the regular additional importation (Mehreinfuhr[TN 127]) of money at from four to five millions sterling, of which the greater part is devoted to purposes of luxury. (Statist. Jrl., 1870, 217.)
[A2-4-4] Fullarton's view (Regulation of Currencies, 1844) suffers from exaggeration. Knies, Geld and Credit, II, 285, very well shows that the "hoards" are by no means mere idle stores, and that, therefore, their void produced by the exportation of money must be soon filled up again. Adam Smith, even, may be considered a predecessor of Fullarton. (W. of N., ch. 2, p. 250, Bas.)
[A2-4-5] Even Büsch (Werke, XIII, 26) says that the under-balance (Unterbilanz) of the Scotch vis-a-vis of England was for a long time made up in two ways, by the marriage of wealthy English heiresses and by Scotch bankrupts. Thus the troops, who, in the 17th century, were traded over to France, and in the 18th, to England by German princes, brought the money, in part, back again, which was exported by the unfavorable balance. According to List, the exported metals, after they have risen in price with us, flow back to us again; not, however, as exchangeable articles, but in the form of a loan, by which it is made possible for us to dispose of them again, and again to receive them in this shape. (Werke, II, 37.)
[A2-4-6] Thus even J. Steuart, Principles, IV, 2, ch. 8.
[A2-4-7] Compare Soetbeer in Hirth's Annalen des deutschen Reiches, 1875, p. 731 ff.
[A2-4-8] British Europe had from 1854 to 1863, a yearly surplus amount (Mehrbetrag) of imports of at least 266, and at most 1190 millions of marks, in the average, 764 millions; from 1864 to 1873, of at least 802 millions, and at most 1388 millions, an average of 1104 millions; whereas, on the other hand, Australia, besides its great exportation of gold, exhibits a great excess of exports of commodities over imports. France, too, from 1867 to 1869, had attained to an average surplus importation (Mehreinfuhr) of 211 million marks; which is related to the fact that, according to L. Say, it received about from 600 to 700 million francs a year in interest from foreign countries; and that from 200 to 300 million francs were expended by foreigners, etc., traveling in France. Similarly, in the case of governing countries vis-a-vis of their dependencies; whence even the old mercantilists entertained no doubt of the enrichment of the former. Thus France, in 1787 ff., had a yearly importation of 613 million livres, and an exportation of 448 millions, because the colonies sent to France 150 millions more than they drew therefrom. (Chaptal, De l'Industrie, Fr., I, 134.) Hungary, from 1831 to 1840, had a yearly exportation of 46 million florins to Austria, and an importation of only 30 millions. (List, Zollvereinsblatt. 1843, No. 49) Algiers drew from France in 1844 to the amount of 83 million francs, and found a market there for only 8 millions (Moniteur), which no one will consider an enrichment of France. The great preponderance of French exports in 1831, 1848 and 1849, of Austrian, between 1874 and 1876, a sign of diminished purchasing capacity! When England, in March, 1877, imported to the amount of £35,230,000, and exported to the amount of £16,921,000 (against £27,451,000 and £17,739,000 in March, 1876), the Economist sees therein a sign that many outstanding debts were called in.
SECTION V.
THE ADVANTAGES OF INTERNATIONAL TRADE.
The truth that no exportation is permanently possible without importation, and that, in international trade, also, both sides better their condition, was clear to the Italians in the fifteenth century, and in the sixteenth and seventeenth centuries to the Netherlanders.[A2-5-1]
Every nation can, through its instrumentality, for the first time, acquire not only those commodities which nature entirely refuses to it, but such also which it can itself produce only at a great cost.[A2-5-2] And here it is not so much the absolute costs of production as the comparative which are decisive.[A2-5-3] The country A may be superior to the country B in all kinds of productiveness; but when this superiority for the group of commodities x amounts to only 50 per cent., and for the group y, on the other hand, to 100 per cent., it is to the interest of A, which possesses only a limited quantity of the factors of production, to produce a surplus of the commodities y, and to exchange that surplus against what it wants of x.[A2-5-4] B, also, would willingly agree to this, even if it were not to get the commodities y entirely as cheap as A might supply them, but still decidedly cheaper than their production would cost in B itself. But, if both parties derive advantage from international trade, there is no necessity whatever that this advantage should be equally great on both sides. As in every struggle over prices, the gain here also is greatest on the side of the nation whose desire to hold fast to their own commodities is farthest from being outweighed by the want of the foreign commodity, and which, at the same time, employs most productively the equivalent received in imports in exchange for its exports.[A2-5-5] Yet, in estimating this productiveness, it is necessary to take the whole national life into consideration.[A2-5-6]
The international distribution of the precious metals is subject to the same law. These, also, are procured most cheaply by the nation which, directly or indirectly (by the production of counter values wished for by the whole world), employs the most productive economic activity upon them, and at the same time (it may be by especially well developed credit), is in the least urgent need of them.[A2-5-7] Therefore, on the whole, their value in exchange is wont to be lowest among the richest and most highly cultivated nations.[A2-5-8] Such a relative cheapness of gold and silver is not only a symptom of economic power, but considering the preëminent energy of these very commodities, at the same time, a means to procure most foreign commodities with a smaller expenditure of one's own forces.[A2-5-9] Hence, a great change in the distribution, hitherto usual, of the precious metals, produced, possibly, by great advances made in production here, or by an increase in consumption there, or by means of commercial prohibitions, etc., may be just as advantageous to the country which receives more as hurtful for the country which pays more;[A2-5-10] and both, all the more as the revolution in prices enhances the most productive elements of the nation there, and here the most unproductive.[A2-5-11] Hence, even when it cannot, in general, be said that one branch of commerce, carried on in a normal manner, should necessarily remain behind another in economic productiveness, those which have nothing to fear from a disturbance of their balance by the measures of foreign states are distinguished by the greatest security, and those are capable of the greatest growth which exchange articles to be manufactured (Fabrikanden), and the means of subsistence against ordinary manufactured articles.[A2-5-12] [A2-5-13]
[A2-5-1] M. Sanudo, in Muratori Scriptores, XXII, 950 ff., and the Netherland decree of February 3, 1501, in the Journal des Economistes, XIII, 304. Then, Salmasins, de Usuris (1638), p. 197. Child, Becher and Temple had all made their studies in Holland. Compare, besides, even Plato, De Rep., II, 371.
[A2-5-2] J. S. Mill rightly calls it a remnant of the mercantile system that Adam Smith still saw the principal utility of foreign trade in the market for the home production which is thereby increased. But this utility is to be looked for not so much in what is exported as in what is imported. (Principles, II, ch. 17, 4.)
[A2-5-3] Compare v. Mangoldt, Grundriss der V. W. L., 185 ff. By the English, the discovery of this truth is attributed to Ricardo, Principles, ch. 7. Compare the further development in J. Mill, Elements (1821), III, 4, 13 seq.; Torrens, The Budget (1844) and J. S. Mill, Essays on some unsettled Principles of Political Economy (1844), No. 1, and Principles, III, ch. 18 ff. But even Jacob, Grundsätze der Polizeigesetzgebung (1809, p. 546 ff.), was acquainted with the truth that generally both sides gained, but the one party, possibly more than the other. According to Lotz, Revision (1811), I, 161, the gain and loss of each party rises and falls in proportion to the difference between the degrees of value which each party, so far as he is himself concerned, attaches to the goods given and the goods received. And even Cantillon, Nature du Commerce (1155), p. 226, 369 ff., had a presentiment of the reason why countries having a low value in exchange of money can continue notwithstanding to sell in foreign countries. And so, too, Hume, Essays (1752), On Interest, who, without looking through the spectacles of the mercantile system, perceived that countries with a flourishing trade must necessarily draw much gold and silver to themselves. Recently, Cairnes has shown by practical examples that Australia imports Irish butter and Norwegian wood, and the Barbadians meat and flour from New York, although both might themselves produce such articles cheaper. (Essays, etc., 1873. Leading Principles, 1874, p. 379.)
[A2-5-4] Thus a Kaulbach might more expertly ornament his own door and window frames than an ordinary room-painter, but does not do so, because he can employ his time to better advantage.
[A2-5-5] Even Law, Money and Trade, p. 31, was of opinion, that when a nation consumes its imports which are greater than its exports, it grows poorer, not in consequence of the importation, but of the consumption. Quesnay calls attention to the plus on moins de profit qui résulte des marchandises mêmes que l'on a vendues et de celles que l'on a achetées. Souvent la perte est pour la nation qui reçoit un surplus en argent, et cette perte se trouve au[TN 128] préjudice de la distribution et de réproduction des revenus. (Max. génér., 24.)
[A2-5-6] Rau distinguishes principally whether importation brings articles of luxury or means of acquisition (Erwerbstamm) into the country. (Ansichten der V. W., 163.) Similarly, de Cazcaux, Eléments d'Economie privée et publique (1825), p. 188 ff. Schmitthenner, Zwölf Bücher vom Staate (1839), I, 497. "A favorable balance of trade does not make a people richer because they receive the metals for other values, but because they produce and sell more than they purchase and consume; the result of which naturally is that the difference must consist in values capable of being capitalized." Kaufmann draws a distinction according as the imported goods come into the country in the form of dead or interest-bearing capital. He illustrates his view by the case of a peasant who sells his seed-corn in order to purchase a finer hat with the proceeds. (Untersuchungen, I, 96, 81 seq.)
[A2-5-7] International trade makes imported commodities cheaper and exported commodities dearer, but the aggregate of consumers gain more in the former case than they lose in the latter, because they now enjoy the blessings of the international division of labor. But, even with this general enrichment, single classes of the people, and even the majority, may have to suffer; as, for instance, when in the exchange of corn against iron, the cheapening of the iron profits the people less than the consequent dearness of corn injures them. (Fawcett, Manual, 391.)
[A2-5-8] "Gold and silver are by the competition of commerce distributed in such proportions amongst the different countries of the world as to accommodate themselves to the natural traffic which would take place if no such metals existed and the trade between countries were purely a trade of barter." (Ricardo, Principles, ch. 7.) In most direct opposition to the mercantile system, he represents the distribution of the precious metals to be not the cause but the effect of national wealth. A nation rapidly growing in wealth will obtain and keep a larger quota of the general supply of gold and silver. (The high Price of Bullion, 1810.) On the other hand, it depends on the one-sided abstraction with which Ricardo loves to pursue certain assumptions, that every exportation of money is made to signify a peculiar cheapness of money, and vice versa. (Opposed by Malthus, Edinb. Rev., Febr., 1811.) Carey's frequently repeated assertion, that gold and silver always flow towards those markets where they are cheapest (Principles of S. Science, I, 150, and passim), confounds cause and effect.
[A2-5-9] Compare § 126, and even Kaufmann, Untersuchungen, I, 75 seq.
[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.)
[A2-5-11] Compare § 141. Strongly emphasized by List, Werke II, 31, 36 seq. 48, 137.
[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 quantity 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.
[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 embarrassed 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 Alterthümer, 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 classes become estranged from their country, the great mass remaining behind coarser, 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 Brückner, 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 Zustände, 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 circumstances, be necessary even to-day.[A2-6-1]
B. Mercantilistic treaties, which close, perhaps, even a bloody 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.
[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-Ægean 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[TN 129] etc. was worshipped, were maintained unhindered, depends, it is said, on commercial treaties with the Phœnicians, Moabites, Ammonites. (Movers, Phönikier, III, 1, 121 ff., 206 seq.)
[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.
[A2-6-3] As guild-privileges make annual fairs (Jahrmärkte) and governmental fixed prices necessary.
[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,[TN 130] 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.)
[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 quantity 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.)
[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.
[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." (Schäfer, 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. (Büsch, 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.
[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?
[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, XXXI, 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 principal 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.
[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.
[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.
[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 réciproquement toute faveur en matière de commerce et de navigation qu'ils accorderaient à un autre état gratuitement ou avec compensation.
[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 constitution 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 Française, 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.]