Chapter 9: The Different Methods of Employing Commercial Industry, and the Mode in Which They Concur in Production.

September 30, 2015

In Book 2, we shall see how the actual demand for a product originating in its utility, is limited by the amount of the cost of production, and upon what principle its relative value is determined in each particular place. At present it is sufficient for the clear conception of commercial production, to con- sider the value of a product as a given quantity or datum. Thus, without examining the reason why oil of olives is worth at Marseilles thirty, and at Paris forty sous per lb., I shall content myself with simply stating, that whoever effects the transport of that article from Marseilles to Paris, thereby in- creases its value to the amount of ten sous per lb. Nor is it to be supposed, that its intrinsic value has received no acces- sion by the transit. The value has positively augmented. The intrinsic value of silver is greater at Paris than at Lima; and the cases are precisely similar. Commodities are not all to be had in all places indifferently. The immediate products of the earth depend upon the local varieties of soil and climate; and even the products of indus- try are met with only in such places as are most favourable to their production. Whence it follows that, where products, whether of industry or of the earth, do not grow naturally, they can not be intro- duced or produced in a perfect state, and fit for consumption, without undergoing a certain modification; that is to say, that of transport or conveyance. In fact, the transport of products can not be effected without the concurrence of a variety of means, which have each an intrinsic value of their own, and of which the actual transport itself, in the literal and confined sense of the term, is com- monly not the most chargeable. There must be one commer- cial establishment at the place where the products are col- lected; another at the place it is transported to; besides pack- age and warehousing. This transfer gives occupation to what has been called com- mercial industry.

External commerce consists of the supply of the home mar- ket with foreign, and of foreign markets with home products. 85 Wholesale commerce is the buying of large quantities and reselling to inferior dealers.

There must be an advance of capital equivalent to the value trans, ported. Moreover, there are agents, insurers, and brokers, to be paid. All these are really productive occupations, since, without their agency, the consumer can never enjoy the product; and supposing their remuneration to be reduced by competition to the lowest rate possible, he can be in no way cheaper supplied. ous or even sumptuous entertainments, how very small is the proportion of values of foreign growth, in comparison with those of home production; especially, if we take into the ac- count, as we ought to do, the value of buildings and habita- tions, which is necessarily of home production. 90 91 In commercial, as well as manufacturing industry, the dis- covery of a more economical or more expeditious process, the more skilful employment of natural agents, the substitu- tion, for instance, of a canal in place of a road, or the removal of a difficulty interposed by nature or by human institutions, reduces the cost of production, and procures a gain to the consumer, without any consequent loss to the producer, who can lower his price without prejudice to himself, because his own outlay and advance are likewise reduced. The internal commerce of a country, though, from its minute ramification, it is less obvious and striking, besides being the most considerable, is likewise the most advantageous. 92 For both the remittances and returns of this commerce are neces- sarily home products. It sets in motion a double production, and the profits of it are not participated with foreigners. For this reason, roads, canals, bridges, the abolition of internal duties,[Douanes] tolls, duties on transit,[Octrois] which are in effect tolls, every measure, in short, which promotes inter- nal circulation, is favourable to national wealth. The same principles govern both external and internal com- merce. The merchant that exports silks to Germany or to Russia, and sells at Petersburg for 40 cents per yard, stuffs that have cost but 30 cents at Lyons, creates a value of 10 cents per yard. If the same merchant brings a return cargo of peltry from Russia, and sells at Havre for 240 dollars what cost him at Riga but 200 dollars, or a value equivalent to 200 dollars, there will be a new value of 40 dollars, created and shared amongst the different agents engaged in this produc- tion of value, whatever nation they may belong to, and what- ever be the relative importance of their respective productive agency, from the first-rate merchant to the ticket-porter in- clusive. 88 And by this creation of value, the wealth of the French nation is enriched to the amount of all the gains of French industry and of French capital, in the course of this production; and the Russian nation to the amount of those of Russian industry and Russian capital. Nay, perhaps a third nation, independent both of France and of Russia, may get the whole profit accruing from the mutual commercial inter- course between these nations; and yet neither of them loses any thing, if their industry and capital have other equally lu- crative employments at home. The very circumstance of the existence of an active external commerce, no matter what agents it be conducted by, is a very powerful stimulus to in- ternal industry. The Chinese, who abandon the whole of their external commerce to other nations, must nevertheless raise an enormous gross product, otherwise they could never sup- port, as they do, a population twice as large as that of all Europe, upon a surface of nearly equal extent. A shop-keeper in good business is quite as well off as a pedlar that travels the country with his wares on his back. 89 Commercial jeal- ousy is, after all, nothing but prejudice= it is a wild fruit, that will drop of itself when it has arrived at maturity. There is a further branch of commerce, called the trade of speculation, which consists in the purchase of goods at one time, to be re-sold in the same place and condition at another time, when they are expected to be dearer. Even this trade is productive; its utility consists in the employment of capital, warehouses, care in the preservation, in short, human indus- try in the withdrawing from circulation a commodity depressed in value by temporary superabundance, and thereby reduced in price below the charges of production, so as to discourage its production, with the design and purpose of restoring it to circulation when it shall become more scarce, and when its price shall be raised above the natural price, the charges of production, so as to throw a loss upon the consumers. The evident operation of this kind of trade is, to transport com- modities in respect of time, instead of locality. If it prove an unprofitable or losing concern, it is a sign that it was useless in the particular instance, and that the commodity was not redundant at the time of purchase, and scarce at the time of re-sale. This operation has also been denominated, with much propriety, the trade of reserve. 93 Where it is directed to the buying up of the whole of an article, for the sake of exacting an exorbitant monopoly price, it is called forestalling, which is happily difficult, in proportion as the national commerce is extensive, and, consequently, the commodities in circulation both abundant and various.

The carrying trade, as Smith calls it, consists in the purchase of goods in one foreign market for re-sale in another foreign market. This branch of industry is beneficial not only to the merchant that practises it, but also to the two nations between whom it is practised; and that for reasons which have been explained while treating of external commerce. The carrying trade is but little suited to nations possessed of small capital, whereof the whole is wanted to give activity to internal in- dustry, which is always entitled to the preference. The Dutch carry it on in ordinary times with advantage, because their The external commerce of all countries is inconsiderable, compared with the internal. To convince ourselves of the truth of this position, it will be sufficient to take note at all numer- 43Jean-Baptise Say, A Treatise on Political Economy population and capital are both redundant. 94 The French, in peace time, have carried on a lucrative carrying trade between the different ports of the Levant; because adventurers could procure advances of capital on better terms in France than in the Levant, and were perhaps less exposed to the oppression of the detestable government of that country. They have since been supplanted by other nations, whose possession of the carrying trade is so far from being an injury to the subjects of the Porte, that it actually keeps alive the little remaining in- dustry of its territories. Some governments, less wise in this particular than the Turkish, have interdicted their carrying trade to foreign adventurers. If the native traders can carry on the transport to greater profit than foreigners, there is no oc- casion to exclude the latter; and, if it can be conducted cheaper by foreigners, their exclusion is a voluntary sacrifice of the profit of employing them. An example will serve to elucidate this position. The freight of hemp from Riga to Havre costs a Dutch skipper, say 7 dollars per ton. It must be taken for granted, that no other but the Dutchman can carry it so cheap. He makes a tender to the French government, which is a con- sumer of Russian hemp, to provide tonnage at 8 dollars per ton, thereby obviously securing to himself a profit of 1 dollar per ton. Suppose then, that the French government, with a view to favour the national shipping, prefers to employ French tonnage, which can not be navigated for less than 10 dollars per ton, or 11 dollars, allowing the same profit to the ship- owner. — What is the consequence? The government will be out of pocket 3 dollars per ton, for the mere purpose of giv- ing a profit of 1 dollar to the national ship-owners. And, as none but the individuals of the nation contribute towards the national expenditure, this operation will have cost to one class of Frenchmen 3 dollars for the purpose of giving to another class of Frenchmen a profit of 1 dollar only. However the numbers may vary, the result must be similar; for there is but one fair way of stating the account. immense carrying trade, and was the chief object of English jealousy.

It is hardly necessary to caution the reader, that I have through- out been considering maritime industry solely in its relation to national wealth. Its influence upon national security is an- other thing. The art of navigation is an expedient of war, as well as of commerce. The working of a vessel is a military manoeuvre; and the nation containing the larger proportion of seamen, is, therefore, ceteris paribus, the more powerful in a military point of view; consequently, political and mili- tary considerations have always interfered with national views of commerce, in matters of navigation; and England, in pass- ing her celebrated Navigation Act, interdicting her carrying trade to all vessels, the owners and at least three-fourths of the crews whereof were not British subjects, had in view, not so much the profits of the carrying trade, as the increase of her own military marine, and the diminution of that of the other powers, especially of Holland, which then enjoyed an When the land-owner is himself the cultivator, he must pos- sess a capital over and above the value of his land; that is to say, value to some amount or other consisting, in the first place, of clearance of the ground, together with works and erections thereon, which may at pleasure be looked upon as part of the value of the estate, but which are, nevertheless, the result of previous human exertion, and an accession to the original value of the land. 96

Nor can it be denied, that these views may actuate a wise national administration; assuming always, that it is an advan- tage to one nation to domineer over others. But these politi- cal dogmas are fast growing obsolete. Policy will some day or other be held to consist in coveting the pre-eminence of merit rather than of force. The love of domination never at- tains more than a factitious elevation, that is sure to make enemies of all its neighbours. It is this that engenders na- tional debt, internal abuse, tyranny and revolution; while the sense of mutual interest begets international kindness, extends the sphere of useful intercourse, and leads to a prosperity, permanent, because it is natural. 95

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