Externality

“ We have seen that the value at which a country purchases a foreign commodity, does not conform to the cost of production in the country from which the commodity comes. Suppose now a change in that cost of production; an improvement, for example, in the process of manufacture. Will the benefit of the improvement be fully participated in by other countries? Will the commodity be sold as much cheaper to foreigners, as it is produced cheaper at home? ”

“ Here then we have, in a brief and inadequate statement, circumstances in all these great industrial nations peculiar to each, yet certainly sufficient to account for a period of reaction and distress. We have also before us great features of change in the world's industry and commerce which must ultimately produce immeasurable advantages, but which may well, operating with local causes, produce temporary difficulty; and we have to notice also that the local causes react through the commercial and credit relations of nations to distribute the evil. ”

“ That the fact of a nation's imports exceeding in value the exports, indicates, other things being equal, that this nation is a creditor of some other country.
2. And, conversely, that an excess of exports, other things being equal, indicates that the nation is an indebted nation.
3. That, among the older States, those who are advancing in wealth are gradually increasing their excess of imports, while in those which are economically decaying, there exists either an excess of exports, or a gradual decrease in excess of imports ”

“ An exclusion by us of foreign articles of commerce, will beget an exclusion by foreigners of our articles of commerce, or at least corresponding duties; and the wealth of the majority will be as certainly diminished to enrich capital, as if it should be obliged to export a million of guineas to bring back a million of dollars, or to bestow a portion of its guineas upon this separate interest. ”

“ This it accomplishes by enabling each, with a quantity of one commodity which has cost it so much labour and capital, to purchase a quantity of another commodity which, if produced at home, would have required labour and capital to a greater amount. To render the importation of an article more advantageous than its production, it is not necessary that the foreign country should be able to produce it with less labour and capital than ourselves. ”

“ By protective duties and bounties on exportation, by subsidies of all sorts to manufactures and national navigation, by the acquiring of transmarine colonies, by the creation of privileged commercial companies, by the inspection of manufacturing processes, by the perfecting of means of transportation and the suppression of interior custom-houses, every state strives to increase its means of production, to close its market to its competitors, and to make the balance of trade incline in its favor. ”

“ We have the power, gentlemen, of going back to the time when protection was in full and unchecked force, and of examining the effect which it produced313 upon the wealth of the country. How, will you say, do I mean to test that wealth? I mean to test that wealth by the exports of the country, and I will tell you why, because your prosperity depends upon the wealth of your customers—that is to say, upon their capacity to buy what you produce. And who are your customers? Your customers are the industrial population of the country, who produce what we export and send all over the world. ”

“ The third is to employ hands for the exportation of the redundance of our own commodities, and to exchange them with the redundances of foreign nations, that thus every soil and every climate may enjoy the fruits of the whole earth. ”

“ From the causes now enumerated, unless counteracted by others, the progress of things enables a country to obtain at less and less of real cost, not only its own productions but those of foreign countries. ”

“ It would export articles of some sort, even to places which could make them with less labour than itself; because those countries, supposing them to have an advantage over it in all productions, would have a greater advantage in some things than in others, and would find it their interest to import the articles in which their advantage was smallest, that they might employ more of their labour and capital on those in which it was greatest. ”

“ So that the division of the advantage becomes more and more favourable to a country, in proportion as the demand for its commodities increases in foreign countries.
It is not even necessary that the country which takes its goods, should supply it with any commodity whatever. ”

“ May not the values destroyed, and to be recreated, in the form of trade connections, social organization, accomplished adjustments, and the like, be greater than the new values to be gained by better adaptation of industry to the physical resources or the capacities of the labor supply, of the country? ”

“ But these two influencing circumstances are in reality reducible to one: for the capital which a country has to spare from the production of domestic commodities for its own use, is in proportion to its own demand for foreign commodities: whatever proportion of its collective income it expends in purchases from abroad, that same proportion of its capital is left without a home market for its productions. ”

“ For at home by their sole exportation they set what price they please on the husbandry and handiworks of the people, and by the sole importation, what price they please on all foreign commodities the people have need of, both which are ill for the people. ”

“ The revenue or stock of a Kingdom by which it is provided of forraign wares is either Natural or Artificial. The Natural wealth is so much only as can be spared from our own use and necessities to be exported unto strangers. The Artificial consists in our manufactures and industrious trading with forraign commodities, concerning which I will set down such particulars as may serve for the cause we have in hand. ”

“ With many disorders and with few political checks upon power, nature had still fair play, the sources of acquisition were not dried up, and therefore the trade, the manufactures, and the commerce of the country flourished. ”

“ It is not on the person from whom we buy, but on all those who buy from us, that a portion of our custom-duties spontaneously falls. It is the foreign consumer of our exported commodities, who is obliged to pay a higher price for them because we maintain revenue duties on foreign goods. ”

“ These commodities {343} are severally and collectively liable to fall short; either from deficient harvests, from waste in war, from losses abroad, or from too great a diversion of labour or capital in some special direction. When a scarcity of some chief commodity or necessary occurs, what is the remedy? The commodity of which there is an excess (or if none is in excess, then that which can best be spared) is exported in exchange for an additional supply of the deficient commodity. ”

“ From the natural desire of individual man for production from and upon Natural Resources, social Trade develops, not arbitrarily but as a natural consequence of a related natural cause. Let thoughtless students and professors of Economics who deny natural Economic law—the normal conditions of cause and effect that govern cooperative mankind in making a living—explain Economic phenomena, if they can, without reference to Economic cause and effect, or Economic cause and effect with natural Economic law left out. ”

“ I shall now point out the natural consequences of this augmentation of wealth drawn from foreign nations, when the statesman remains inattentive to increase the supply both of food and manufactures, in proportion to the augmentation of mouths, and of the demand for the produce of industry. ”

“ The proximate cause, doubtless, is the increased capacity of the people of this country to consume the produce of other countries, aided and invigorated by the reciprocal facility which our consumption of foreign articles gives to other nations in the extended use of the products of our own industry. ”

“ On the supposition which you have made of a great foreign demand for our raw produce, there can be no question that more capital would be employed on the land, and I think profits would fall. Such a demand cannot exist in the present situation of the world. ”

“ To express the same thing in other words; a country which destroys or prevents altogether certain branches of foreign trade, thereby annihilating a general gain to the world, which would be shared in some proportion between itself and other countries—does, in some circumstances, draw to itself, at the expense of foreigners, a larger share than would else belong to it of the gain arising from that portion of its foreign trade which it suffers to subsist. ”

“ Outside capital will take the risk for the prize, will employ the labor, will create the transportation, the markets, and the interchange of commodities that make foundations for modern civilization. Natural wealth outside the path of development has no value. ”

“ Cost of Production not a regulator of international values. Extension of the word “international.” Some things it is physically impossible to produce, except in particular circumstances of heat, soil, water, or atmosphere. But there are many things which, though they could be produced at home without difficulty, and in any quantity, are yet imported from a distance. ”

“ It may be that as other countries, with the help of our capital and example, develop industries in which we have been pre-eminent, they may force us to supply them with services of which we are less proud to be the producers. ”

“ By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain ”

“ As they are the means by which alone commerce can exercise its comfort-distributing office, to deprive it of these means, is evidently to stab commerce precisely in its vital part. Both are produced by people, both are manufactures, and exchanges of one for a surplus of the other, will equally reflect an additional value on both, as on any other exchanges of useless surpluses. ”

“ But when this separation is thoroughly established; when it has become the general practice for each producer to supply many others with one commodity, and to be supplied by others with most of the things which he consumes; reasons not less real, though less imperative, invite to a further extension of the same principle. ”

“ It is then that the weight of taxes, the high price of commodities, and the various causes which encumber those who live in wealthy nations, begin to produce a pernicious effect. The tendency of industry is to remove its abode, and the capital of the merchants, who know no country, but understand arithmetic, and the profits of trade, gives the industry the means of doing it with more ease and promptitude. ”

“ Our courts of justice, our financial institutions, our methods of trade, and our schools of all grades are examples of social harmonies which found their form by long conflict, and settled down to smooth action by custom. The financial institutions and the methods of trade belong to the economic system. The system of production is modern and new. ”

“ But the point they have now to consider, Can they secure this profitable trade to themselves, if the industrial resources of this country—in other words, their customers' means of paying for their goods—are daily declining? ”

“ The leading principles; that land only can yield permanent and sometimes great profits, in the United States especially; that manufacturing in the present state of the world must yield lower profits; that arbitrary depressions of wages are necessary to obtain these low profits; that the products of good land, well cultivated, will bestow spirit and energy both on domestick and foreign commerce; that an increase of foreign commodities will both augment and enhance the price of domestick productions; that the freer are exchanges the more industry is encouraged ”

“ The stability of trade, the money value of every description of vested interests, in fact, the industrial, commercial, and financial welfare of the country, all are directly involved in the rapid manipulation of such vast sums. ”

“ IV. If I have dwelt upon this distinction between the conditions of production and the conditions of sale, a distinction which the protectionists will no doubt pronounce paradoxical, it is because it leads me to inflict on them another, and a much stranger, paradox, which is this: Would you equalize effectually the conditions of production, leave exchange free. ”

“ The complete breakdown of all barriers which impede the free flow of commerce and the migration of capital and labor, the fullest and widest dissemination of industrial information, are necessary to the attainment of the individualistic ideal of free trade. ”

“ Banish all restrictions, therefore, from commerce; let every nation apply itself to that particular branch of industry for which it is adapted by nature, and receive in exchange the produce of other countries, raised, in like manner, in conformity with their natural capabilities. ”

“ And finally, that all the benefits which would thereby accrue to the mother country, from the territorial revenue, the duties on trade, the industry and wealth for which that trade would furnish employment, and the treasures which the distribution of produce throughout Europe must bring into the mother country, would greatly exceed the highest advantages that could be calculated upon, even under the most favourable prospects, by the means of the fallen Company or a continuation of its former system. ”

“ Another obvious application of the same principle will enable us to explain, and to bring within the dominion of strict science, the rivality of one exporting nation and another, or what is called, in the language of the mercantile system, underselling: a subject which political economists have taken little trouble to elucidate, from the habit before alluded to of disregarding almost entirely, in their purely scientific inquiries, those circumstances which affect the trade of a country by operating immediately upon the exports. ”