[775] “The value of a thing in any place depends on the cost of its acquisition in that place; which in the case of an imported article means the cost of production of the thing which is exported to pay for it.” (Principles, Book III, chap. 18, § 1.)
[776] Mill first treated of the theory in his Unsettled Questions of Political Economy. A more complicated but more precise exposition is given in the Principles Book III, chap. 18, § 7. The whole process of reasoning, based as it is upon the hypothetical conduct of two persons, is purely abstract, and is of very little practical use. What is really important is to know the relation between the advantages gained by either side. It is true that on the whole imports and exports balance one another, thanks to the operation of money, but that is another question.
[777] “It still appears, that the countries which carry on their foreign trade on the most advantageous terms are those whose commodities are most in demand by foreign countries, and which have themselves the least demand for foreign commodities, from which, among other consequences, it follows that the richest countries, ceteris paribus, gain the least by a given amount of foreign commerce, since, having a greater demand for commodities generally they are likely to have a greater demand for foreign commodities and thus modify the terms of interchange to their own disadvantage.” (Principles, Book III, chap. 18, § 8.) Note the phrase “a given amount of foreign commerce.” That is, although the rate of interchange is less advantageous for the rich country than it is for the poor, still, since the former exchanges much more than the latter it gains more on the whole transaction. Mill states this expressly elsewhere. The rich and the poor country are like the wholesale house and the little shop. The former gains very little on each article sold, but gains much on the whole turnover.
[778] Ibid., Book V, chap. 10, § 1.
[779] An even more important concession to the Protectionist view is his admission that the duties are not always borne by the home consumer in the form of higher prices, but that they are sometimes paid by the foreigner.
[780] Principles, Book V, chap. 10, § 1. The duty would check the demand of the importing country, and according to Mill’s own formula it ought to modify the exchange equation in its favour.
[781] Histoire des Doctrines économiques, p. 338.
[782] Mill was for many years resident in France, and died at Avignon. An article written by him in defence of the Revolution of 1848 has been translated into French and published in book form by M. Sadi Carnot.
[783] Principles, p. 210.
[784] Representative Government, chap. 3.