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1880
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FREE TRADE
DUPL
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LIBRARY
AND
JUL10 10
ENGLISH COMMERCE
י.
BY
AUGUSTUS MONGREDIEN.
seventh editiON.

AMONG
FREE TRADE PEACE
?
Cobden
Club
NATIONS
CASSELL, PETTER, GALPIN & CO.:
LONDON, PARIS & NEW YORK.
1880.


ARTES
18371
SCIENTIA
VERITAS
LIBRARY
OF THE
UNIVERSITY OF MICHIGAN
E. PLURIBUS UNUM
TUELOOR
SI-QUAERIS-PENINSULAM AMOENAME
CIRCUMSPICE
HF
2045
.M74
1880
FREE TRADE 19
AND
ENGLISH COMMERCE.
BY
Um
AUGUSTUS MONGREDIEN.

AMONG
·PEACE
GOODWILL
Cobden
FREE TRADE
Club
TIONS
CASSELL, PETTER, GALPIN & CO.:
LONDON, PARIS & NEW YORK.
CHAP.
I. Introductory
CONTENTS.
PART I.
PAGE
5
II. Exports (unless in Payment of Debt) necessitate Imports
to the same Amount
9
III. Futility of the Attempt to Export Much and Import
Little
14
IV. If Protection be Beneficial as between Country and
Country, it must be Beneficial as between l'rovince
and Province
V. Reciprocity
•
16
18
VI. Division of Labour
21
VII. Protection applied to Young States
24
VIII. Protection in Old States
28
IX. What England is to do if she be the only Nation that
adopts Free Trade
32
X. Impossibility of encouraging Exports and at the same
time checking Imports
38
XI. Free Trade practised Internally by all Protectionist
States
XII. Concluding Remarks
289660
41
45
iv
CONTENTS.
CHAP.
PART I I.
XIII. Population, Debts, and Trade of the World
XIV. The Amount of our Foreign Trade has been Diminishing
since 1874
XV. Fall in Prices since 1874
XVI. Competition in Neutral Markets
XVII. Fall in the Wages of Labour
XVIII. Commercial and Banking Failures since 1874, and Ratio
PAGE
47
52
60
65
69
of Fall in Prices
73
XIX. The Increased Excess in the Amount of our Imports
over that of our Exports
80
XX. The Depression in Trade not confined to England,
but prevalent everywhere
91
XXI. The Effect on Trade of Political Complications and of
Losses on the Debts of Defaulting States
97
XXII. Summing up
•
99
FREE TRADE AND ENGLISH COMMERCE.
CHAPTER I.
INTRODUCTORY.
It is intended in the following pages to take a short review
of the present position of the free trade question in respect
to the world at large, and especially in respect to the com-
merce of England. Such an inquiry might be useful, and
perhaps interesting, at any time, but now, when commerce
is abnormally depressed, and when it is a moot point how
far that depression is connected with our free-trade policy,
it becomes an important and urgent one.
It is proposed, in the first part, to show the bearings of
free trade on the commerce and industry of nations gene-
rally; and in the second to examine into the real causes
of the present condition of English commerce, and ascertain
to what extent, if any, it may be ascribable to the operation
of free trade.
The subject will be treated from a practical and popular
point of view, its technical and scientific aspect having had
ample justice done to it by Professor Fawcett and others.
In matters of this kind, where the practical application of
scientific conclusions depends on the action of men
laboriously engaged in political or mercantile pursuits,
who have little time to devote to the study of abstract
questions, it is necessary to place the subject before them
in the most direct and concrete form, and to appeal to
demonstrable facts and undeniable figures, in order to arrest
6
FREE TRADE
their attention and obtain their assent.
Still more necessary
it is to treat the subject in a popular manner, in order to
secure a hearing from the mass of the public, who, not un-
naturally, shrink from the study of dry works on Political
Economy.
Neither is it necessary to study Political Economy as a
science in order to arrive at a definite conclusion as to the
principle of free trade. The question narrows itself into a
few simple issues, on which plain common sense is quite
competent to deliver a verdict.
We propose, in the first part, to show—
1. That balances due by one country to another are paid
directly or indirectly in commodities, and not in specie, un-
less occasionally and to an insignificant extent.
2. That, consequently, for every export of goods that is
not sent to pay a previous debt there must be an import of
goods to the same amount; and, vice versâ, for every im-
port of goods that is not received in liquidation of a pre-
vious debt there must be an export of goods to the same
amount.
3. That all artificial limitation of imports necessarily
limits exports to the same extent; that it curtails foreign
trade, neutralises the benefits of division of labour, and dis-
places labour and capital from productive into unproductive
channels of employment.
4. That various other inconveniences and disadvantages
result from the curtailment of foreign imports and the
restriction of commercial intercourse between man and
man.
To revert to the first proposition: a slight consideration
of the actual course of events as they occur under our own
eyes, shows that the precious metals play a very small part
indeed in the payment of debts between nation and nation.
Hardly any specie changed hands in the payment of the
enormous French indemnity to Germany; or in the trans-
mission of the £400,000,000 or so which we lent to foreign
countries in the years 1871, 1872, and 1873; or in the
settlement of the £230,000,000 which we imported in ex-
AND ENGLISH COMMERCE.
7
cess of exports during the last four years, 1875 to 1878.
The ebb and flow of bullion is on a scale far too minute to
do much towards the settlement of international accounts.
A country rarely possesses much more or much less specie
than is needed for the purposes of currency and of the arts;
and never exports specie so as to trench, beyond a trifling
extent, on the amount required for circulation. On the other
hand, a country never retains much of the specie that is in
excess of its circulation requirements. In the first case a
comparatively small withdrawal of gold raises the rate of
interest, lowers the price of goods, discourages importation
and encourages exportation, so that the balance is soon
restored. In the second case the redundant specie that
remains after the wants for circulation are supplied lowers
the rate of interest, raises prices, checks the outflow and
attracts the influx of merchandise, and finds its way abroad,
where its value is greater. This is constantly being exem-
plified by the action of the Bank of England. When it
is wanted to attract a few millions of gold from abroad, the
rate of interest is raised, and it flows in; when the stock
becomes redundant, the rate of interest falls, and the surplus
beyond circulation requirements gradually disappears. The
amounts which turn the scale are comparatively trivial.
sensitive is the money market, that three or four millions
abstracted from or added to the currency are quite
enough to depress or to raise the rates of interest sufficiently
to produce a counterbalancing effect either way. And yet
there are people who fancy that the balances owing to us,
or by us from and to foreign nations are paid in specie!
Last year (1878) we imported from abroad £63,000,000 in
excess of what we exported. To send abroad that amount
in specie, or one-half of it, or even one-quarter of it, would
have been simply an impossibility.
So
Specie tends, like water, to find its level everywhere, the
standard being the circulation requirements of each country.
When short of that, its value is raised; when in excess of
it, its value falls, and it flows in or flows out of the country
in proportion. It is under the operation of this law that
8
FREE TRADE
inconvertible paper money drives bullion out of a country.
If its circulation requirements be partly supplied by paper
money, less specie is wanted, and as a country does not
long retain specie in excess of its circulation requirements,
the precious metals (of course not the paper) are sent
abroad where they are in greater demand and of greater
value. If not a part but the whole of the circulation require-
ments be provided for by inconvertible paper money, then
the whole of the specie (except perhaps a little hoarded here
and there) will disappear.
If it be admitted that no diminution of, or increase to, the
amount of specie required for the circulation of a country
can be otherwise than both trifling and temporary, it follows
as a necessary consequence, that "balances due by one
country to another are paid directly or indirectly in com-
modities and not in specie, unless occasionally, to an insig-
nificant extent."
AND ENGLISH COMMERCE.
9
CHAPTER II.
EXPORTS (UNLESS IN PAYMENT OF DEBT) NECESSITATE
IMPORTS TO THE SAME AMOUNT.
If it is not specie that we receive in return for our exports,
or that we send in return for our imports, there is no
alternative but to conclude that they pay for each other.
In the case of national indemnities, subsidies, loans, interest
on loans and foreign investments, these are paid for by the
export of goods without any return for them. But as far
as commercial dealings go, it is utterly impossible to export
goods without importing goods to the same amount, and
vice versa. Of course, this is a mere truism to those who
are conversant with the subject, but there is a large number
of people who look with dread on large imports, and it is
necessary to make it clear to them that large imports mean
large exports. If it be, as they deem, an advantage to
import as little as possible, it follows as an indispensable
consequence that they deem it an advantage to export as
little as possible, and to have as little foreign trade as
possible; for reduced imports necessarily imply reduced
exports, and reduced foreign trade.
But let us suppose it possible for a country to export
largely without importing in return any commodity except
bullion, and to compel the retention of the bullion, by
prohibiting its re-exportation, would that country be the richer
for it? Certainly not. Let us work it out. There could
be no increase of real wealth, for the bullion being in over-
supply in respect to the commodities which it represents,
ΙΟ
FREE TRADE
would fall in value in the exact proportion of such over-
supply; in other words the money price of all commodities
would rise in that ratio. No one would be the richer for
that, for the exchangeable value of all commodities (that is,
their relation to each other) would remain precisely the same.
If the working man received twice his former wages, he
would have to pay double for all he consumed, which would
leave him where he was; indeed, the cost of living would
rise upon him far more rapidly than he could, by remon-
strance or strikes, &c., enforce a rise of wages from his
employers. The gold and silver coins being but the
counters used to represent the various objects that con-
stitute the wealth of the country, the result of doubling the
number of the counters would be, not to increase the wealth
of the country, but simply to diminish the purchasing power
of the counters, and make two of them necessary to repre-
sent the same commodity which was before represented by
one.
Meanwhile the money-cost of production would have
become so great that the foreigner could no longer afford to
purchase the productions of that gold-glutted country, and
exportation would cease. Foreign trade would, therefore,
be totally suppressed, and the happy country would, like
Japan of yore, live within itself, and be independent of
the foreigner-a model result of the perfection of protective
policy. True that there would be an accumulation of twice as
much bullion as before, but as its purchasing power would
be diminished by one-half the possessors would be no
richer than those men abroad who had but half the quantity.
The only way to obtain the full value of the accumulated
bullion would be to allow its export, and sell it to the
foreigner. But to export bullion means the importing of
goods, for what else could be got in exchange for it? And
that means a total abandonment of the gold-accumulating
policy. Yet what is to be done? Gold may be piled up in
mounds, but if it loses its purchasing power it ceases to
be wealth. Bullion is only worth what it will fetch in the
commodity-market. It will buy twice as much abroad as it
AND ENGLISH COMMERCE.
II
will at home. To utilise it, therefore, it must be sold to the
foreigner. Then there would occur the converse of the
There would
operations that produced the glut of bullion.
be large imports and small exports of goods, the protected
interests would be ruined, internal commerce would be
disorganised for a time, and everything would be unsettled
until the superfluous bullion had been worked off, and its
quantity reduced to the level of legitimate circulation
requirements. But what can be said of a policy that led
to such disasters as its reversal alone could remedy?
The supposititious case, however, of a country which
let specie flow in but allowed none to flow out, never did
actually occur, because no prohibitory measures ever could
prevent the precious metals from being transferred from a
country where their value is less to those countries where
their value is greater. But the hypothesis serves to show
that even if such regulations could be enforced, they would
be productive, not of advantage, but of evil.
There are countries of which the imports habitually exceed
the exports, and others in which the converse is the case.
These apparent exceptions to the rule that every import
must be balanced by an export are easily explained, and only
tend to prove the rule.
In the first place, the balance on either side is not paid
or received in specie, the movements of which, as we have
seen, are quite insignificant in comparison with the balances
in question. For instance, the imports into the United
Kingdom exceeded the exports in 1877 by £80,000,000,
and in 1878 by £63,000,000. If these enormous balances
had had to be paid in specie, they would have swept away
not only every coin, but also all the plate, watches, and
trinkets, in these islands. For it is calculated that the
entire circulation of the country, together with all the
precious metals it possesses as articles of ornament or
utility, from a gold tankard to a silver pencil-case, barely
amount to the £143,000,000 in question. But far from the
country being drained of its gold and silver, there is in it now
quite as much as there was two years ago, before these

I 2
FREE TRADE
balances arose, and our circulation requirements have not
been trenched upon in the slightest degree.
Neither has England obtained these £143,000,000 worth
of goods on credit. Merchants do not, in these days, give
or take the same long credits as formerly. If the enormous
sum in question had to be paid for by England at all, it has
been paid long ago. Indeed a certain portion of our
imports are paid for long before the goods themselves come
to hand. A cargo of wheat from California takes four to five
months from the day of ship's sailing before it reaches
England, but it is paid for by drafts on England at sixty
days' sight, which, sent forward by rail and steam, mature
one or two months before the wheat itself arrives here. No!
In whatever way we obtain the possession and use of this
immense mass of commodities over and above what we send
away, it is certain that the amount is not a debt owing by
Indeed, it is just the contrary; it is sent to us in satis-
faction of debts owing to us for interest and dividends on
money lent to, and invested in, foreign countries. We shall
treat this subject fully later on, meanwhile we will just
indulge in one or two remarks.
us.
All wealthy nations which have lent money to other
countries must of necessity import more than they export,
since the annual income which they derive from those
countries is paid them in goods. In the same way, the
poorer nations who have borrowed money from other
countries must of necessity export more than they import,
since it is in goods that they pay the yearly interest on
the money they owe. Indeed, the comparative wealth or
poverty of nations may be pretty fairly measured by the
amount by which their imports or exports are in excess
of each other. That amount which a nation exports
without receiving a return for it in imports, goes to pay a
debt that it owes. That amount which a nation imports
without sending out a return for it in exports, constitutes
the payment of a debt owing to it. Consequently, instead
of a large excess of exports being a matter of pride, it
is a proclamation of indebtedness; and on the other hand,
AND ENGLISH COMMERCE.
13
to view with regret the increased excess of imports over
exports, is to view with regret the increase of national
income arising from foreign investments.
In the following pages it is always to be understood that
in viewing the relation between imports and exports, allow-
ance is made for that portion of either that is sent or
received as payment for loans, war indemnities, subsidies,
interest on investments &c., leaving the question of the
commercial interchange of commodities to rest on its own
merits.
14
FREE TRADE
CHAPTER III.
FUTILITY OF THE ATTEMPT TO EXPORT MUCH AND IMPORT
LITTLE.
ALL parties seem to agree as to the great advantage it is to
a country to export largely. Each country produces some
things that are useful and desirable to other countries, and
whether from climate, soil, geological formation, natural
aptitude or practice and education, it has some speciality in
which it excels. It benefits itself by exchanging its surplus
productions for the productions of other countries, and the
latter are also benefited by the process. The more largely
that country exports, the greater the benefit to itself and
others. To put it more concisely-foreign trade is a
universal benefit. Up to this point the unanimity of
opinions is wonderful; and what we have said appears a
mere enunciation of a string of truisms. But how are these
truths acted on practically? By a persistent attempt on the
part of the majority (at present) of nations to export a great
deal and to import very little, ignoring the utter incompati-
bility of the two courses. All are agreed as to the great
advantage it is to a country to export largely, only it must
not be overlooked that those exports must be paid for in
goods, since, as we have seen, specie is not used for that
purpose (except sometimes provisionally and to a fractional
extent). If, therefore, you import little, you can only export
little. If you want to export much, you must import much.
You cannot curtail your bête noire, imports, without curtailing
to just the same extent your pet, exports. For every hundred
pounds' worth of foreign articles which, by prohibition or by
prohibitory duties, you prevent coming into your country,
AND ENGLISH COMMERCE.
15
you prevent one hundred pounds' worth of your own articles
of production from going abroad. It cannot be repeated
too often-because it is at the very root of the question—that
to restrict imports is (by the inexorable law of logical
sequence) to restrict exports to the same extent, and there-
fore to that extent, to restrict foreign trade. The delusion
of wishing to sell without buying is equivalent to the old
paradox of a valley without a mountain. In vain do the
prophets of protection preach-"Let us have an extensive
foreign trade to consist wholly of exports." It is simply an
impossibility. As well say let us have shadows without
light, or a square without corners. The doctrine that
foreign trade is an evil would be, though a questionable one,
at all events intelligible; but to maintain that foreign trade
is a good while the influx of foreign commodities is an evil,
is a palpable contradiction. Practically, all interchange of
commodities is barter, and money is merely a common
standard by which to measure their relative values.
16
FREE TRADE
1
CHAPTER IV.
IF PROTECTION BE BENEFICIAL AS BETWEEN COUNTRY AND
COUNTRY, IT MUST BE BENEFICIAL AS BETWEEN PROVINCE
AND PROVINCE.
Ir to protect native industry by putting such duties on
foreign commodities as shall keep them out of the market,
and compel the consumers to deal exclusively with native
producers, be beneficial to a country, the same system must,
for the same reasons, be beneficial if applied to the various
provinces of that country. Let us take an instance. Wales
at present buys her cotton goods from Lancashire, and her
pottery from Staffordshire. There are a few small cotton-
mills and three or four manufacturers of coarse earthenware
scattered here and there throughout the Principality, but
these cannot develop themselves under the competition of
English producers. Wales therefore demands "protection
for her native industry," through the imposition of such
protective duties on English cottons and pottery as shall
keep them out of the Welsh market. Supposing the request
granted, the Welsh cotton-mills and potteries at once receive
great extension; capital and labour are diverted to them
from other industries, and the entire Cambrian community
pays a heavy tax in the shape of high prices for bad goods,
in order to support a few native manufacturers, and in order
that capital and labour should be transferred from profitable
to unprofitable employments. We will suppose, however,
that this is a benefit to the Principality. If so—by parity of
reasoning-why should not the native industry of Monmouth-
shire be protected against the competition of the Carmar-
thenshire producers? And if we continue to carry out the
principle to its logical results, we finally arrive at a state of
AND ENGLISH COMMERCE.
17
things which in primitive times did really exist-viz., that in
which each family live on their own farm produce, and in
clothes of their own spinning and making a state of things
in which there would be no imports, and which would
afford complete protection against foreign competition.
We have put the case of England and Wales, but the
reasoning equally applies to the various parts of which all
large states are constituted. If America or France deem it
good policy to protect their population from foreign com-
petition at the expense of their foreign trade, they must, as
a logical sequence, deem it good policy for California to be
protected from the competition of New England, or for
Provence to be protected from that of Normandy. Why
should not San Francisco and Marseilles be protected
against the cotton goods of Lowell and Rouen, so as to
foster and develop cotton manufactures of their own? Why
should the west of America be dependent on the east, or
the south of France dependent on the north, for hardware
or linen fabrics? The fact of San Francisco and Lowell, or
of Marseilles and Rouen, being under the same national
government does not affect the question of free trade or
protection in the slightest degree, for it is an economic, not
a political question. If a free interchange of commodities
between two regions be an evil at all it must be an evil
inherent to the system itself, and not convertible into a
good, if the two regions happen to be under the same
government. If it be to the advantage of a community to
restrict its trade with the rest of the world by lessening its
imports, it can make no difference as to the truth of that
doctrine whether the community be large or small, or
whether it be independent or politically connected with
other communities. We shall have occasion in a subsequent
chapter to advert again to this subject.
B
18
FREE TRADE
CHAPTER V.
RECIPROCITY.
It has been proposed to enlarge our foreign trade by the
following curious process. We are to compel foreign coun-
tries to take more of our goods by threatening that, if they
do not, we shall take less of theirs. We are to induce our
neighbours to extend their foreign trade by proposing, as
the alternative, that we shall diminish our own. This is
called the reciprocity, but it ought to be called the re-
taliatory, system. If the foreign country with which we are
negotiating yield to our pressure, we increase our foreign
trade; if not, we diminish it. In the first case we increase
our exports and consequently our imports too. In the
second case we diminish our imports and consequently our
exports too. It is to be left to the caprice, ignorance, or
ill-will of a foreign nation to decide whether England is to
lose a portion of her foreign trade or not. For it cannot be
too often repeated that if we carry out our threat of import-
ing less, it necessitates our exporting less to the same ex-
tent. It is proposed that we should enter into a formal
international engagement to lop off a portion of our foreign
trade, and in various other ways to do ourselves a serious
injury, unless other people agree to alter their fiscal policy.
Supposing that other countries decline acceding to our
minatory invitation that they should reduce their tariffs,
and that we accordingly impose such an import duty on
articles that they have been in the habit of sending us, as
shall reduce our annual importations thereof by £10,000,000,
what then? No doubt they will not like it, but how shall
we? A reduction of imports of £10,000,000 means a cor-
AND ENGLISH COMMERCE.
19
responding reduction of exports to same amount, and is
equivalent to a diminution of our foreign trade to the ex-
tent of £20,000,000 per annum, to say nothing of the
disastrous effects to every consumer in the country, of the
rise that would ensue in the price of the articles which we
ceased to import, and the numerous other evils which the
change would entail. Are we prepared to enter into a
compact that we will submit ourselves to all these calamities
in the event of other countries declining to be coerced by
us into free trade? It is surely better to leave things as they
are than to resort to measures that shall subject us to such
an alternative.
Fortunately, reciprocity possesses one great advantage-
viz., it is impracticable. Among the articles which we re-
ceive from abroad there is hardly one that reciprocity can
lay hold of. Ninety-one per cent. of what we import consists
of raw materials, to tax which is out of the question, and
the nine per cent. of manufactured goods--which is all that
the entire world supplies to us-afford far too feeble a lever-
age to work with. This part of the subject has, however,
been made so clear in various recent publications that we
need not dwell on it.
There is the greater incongruity about the reciprocity
system from its being advocated by many who, in all other
respects, profess free-trade principles. For there is a mani-
fest inconsistency in asking our foreign friends to admit our
goods and so far adopt our policy of free trade, under the
alternative that, otherwise, we shall shut out theirs and so
far adopt their policy of protection. Since free trade teaches
us that it is unwise in foreign nations to exclude our com-
modities from their ports, how can it be wise in us to carry
out our threat and exclude their commodities from our
ports? It is tantamount to proclaiming to the foreigner,
"Unless you will become free traders we will become pro-
tectionists." We might just as fitly proclaim to the Turks,
"Unless you become converted to the blessed truths of
Christianity we will ourselves turn Mahometans." If free
trade be a truth and a reliable principle it must remain an
20
FREE TRADE
immutable standard of right to those who understand and
believe in it; and is not to be alternately professed and
ignored in order to drive a bargain or gain an advantage.
Those who entertain a firm conviction that free commercial
intercourse is for the benefit of all men in all countries, will
never consent to enter into conditional arrangements under
which there may be a possibility of their having to act in
opposition to that conviction. To adopt the reciprocity
system would be the first step towards re-enacting the Corn
Laws.
AND ENGLISH COMMERCE.
2 I
CHAPTER VI.
DIVISION OF LABOUR.
AMONG the many advantages conferred on mankind by free
foreign trade-that is, by the unrestricted interchange of
commodities between man and man throughout the globe—
one of the most signal is that, in the highest degree and to
its widest extent, it promotes division of labour. There is
surely no need to expatiate on the important part which
division of labour plays in multiplying and perfecting the
products of human industry. Through its instrumentality
the productive forces of the human race are employed in
such a way as to lead to the most efficient and remunerative
results. The larger the community or the aggregation of
communities, the more effectually the division of labour
can be carried out. In a country village, or in an incipient
colony, a shop is a miscellaneous store, a dealer devotes his
attention to a number of incongruous articles, and an artisan
a jack-of-all-trades. In a populous district labour is more
divided, and to each individual is allotted some special
work to do, which constant practice enables him to perform
with greatly-increased efficiency. In large countries each
province settles down more specially to certain forms of
industry, according to a variety of influences, such as geo-
graphical position, soil, climate, natural productions, here-
ditary tendencies, or early education of the people, sometimes
chance immigration, or other causes more or less accidental.
By means of this division of labour each province produces
more abundantly, more cheaply, and in greater perfection,
the special articles to which it devotes itself, and all work
harmoniously together for the common good. The benefits
conferred by this division of labour would be lost if these
22
FREE TRADE
provinces were to split among themselves, and each deter-
mine on combining within itself all the various trades and
industries which before formed the speciality, some of one
province, some of another. All of them would be losers;
because, whereas before, in each of them capital and labour
were concentrated on certain employments to which they
were the most competent, they are now diverted from these
and directed to a variety of others to which they are the
least competent. If the pottery district in Staffordshire
were to decide on diverting a portion of its capital and of
its skilled labour to the creation of woollen and linen manu-
factures, in order to become independent of Leeds and
Belfast, it is plain that the operation would be a losing one,
chiefly because the immense advantages derived from division
of labour and industrial organisation would be wantonly
thrown away.
So, in the world at large, had it not been for the per-
nicious interference of governments with the natural course
of things each country would have settled down more
specially to certain forms of industry, and, were trade left.
free, would, through this natural division of labour, each
produce cheaply and abundantly those special articles to
which it had devoted its attention, and contribute, to the full
extent of its productive power, to the wealth of the world.
It would, moreover, follow that as each country would
devote its energies to the production of those commodities
which it was more specially fitted to raise, with a view of ex-
changing the surplus for such commodities as other nations
were more specially fitted to produce, the amount of inter-
national traffic would be enormous, and foreign trade would
be developed to an extent at present undreamt of.
It is in the performance of this function of interchanging
the commodities of one country with those of another, that
foreign trade is instrumental in promoting division of labour
all the world over; and whatever tends to curtail the
former must impair the latter. Now, protection, by checking
imports checks exports, and in that proportion curtails
foreign trade.
It is, therefore, clear that the protective
AND ENGLISH COMMERCE.
23
system interferes detrimentally with the division of labour.
Indeed, if that system were carried out to its full extent by
not only isolating, as it now does, nation from nation, but
also province from province, community from community,
and family from family, division of labour would altogether
cease to exist.
Fortunately Nature herself interposes a limit to the isola-.
ting tendency of protection, by the diversity of the products
yielded by different parts of the earth. The most thorough
protectionist will admit that there are many foreign com-
modities which each country must either import or entirely
deprive itself of. The utmost he can accomplish is to
abridge foreign trade, he cannot altogether annihilate it.
Thus, under the operation of a natural law, no nation can,
without an intolerable degree of privation and suffering, be
completely self-dependent, and man is, in order to inter-
change some of the products of one zone with those of
another, compelled, apparently against his will, to exercise,
at all events to a certain extent, the humanising influence of
international commerce.
24
FREE TRADE
CHAPTER VII.
PROTECTION APPLIED TO YOUNG STATES.
THERE are two classes of states which, while admitting the
theoretical truth of the free-trade system, claim exemption
from its operation for contradictory reasons-young states
because they are young, old states because they are old.
The former say that were they old they would not dream of
maintaining protection, but being young their case is
exceptional. The latter say that, were they young they
would not dream of hampering themselves with protection,
which they now find so onerous, but being old their case is
exceptional.
Let us take the case of the young states first. Their plea
assumes the following shape. They are supposed to say,
"As a theory, free trade is, we admit, unassailable, but,
exceptionally, and for a time, it does not apply to young
nations or colonies, for they would never learn to manu-
facture anything for themselves unless their early efforts were
'protected' from the sweeping rivalry of older and more
expert producers. Give the native manufacturer a fair start
by artificially fostering his infant labours, and when he has
made some progress, and reached a certain amount of pro-
ficiency, we will then strip him of protection, let him breathe
the bracing air of open competition, and adopt free trade
without reservation." This doctrine will not, however, stand
the test of close examination. On the contrary, it can, we
think, be shown that it is precisely to young countries, or
newly-founded colonies, that the application of the protective
principle is most pernicious and indefensible.
These young communities are generally located in the
midst of an inexhaustible area of fertile land which only
AND ENGLISH COMMERCE.
25
waits the application of human industry to be converted
into mines of wealth. There is a strong demand for labour,
which accordingly receives a high rate of remuneration. But
so favourable are the natural conditions, that high wages are
perfectly compatible with the cheap production of articles
which foreign countries readily take in any quantity, giving
in exchange such other articles as the young country could
not produce except at a much greater cost. Its commerce
is thus carried on under the most favourable possible con-
ditions, and the working power of the young nation is all
directed into the most profitable channels.
It is now pro-
posed to alter this prosperous state of things. Some of the
articles hitherto obtained from abroad in exchange for the
staple commodities of the young country are, at any cost,
to be raised or manufactured at home, and the export of the
staple commodities lessened in proportion. The capital
and labour which are now working with admirable results
are to be abstracted from the production of commodities so
cheap and good that foreign countries willingly buy them,
and to be devoted to the production of commodities so dear
and bad that in order to compel the native consumers to
buy them, the importation of the same articles from abroad
has to be prevented by prohibitory duties. And who is it
that is benefited by this policy? No one, not even the
workman or capitalist whose labour and money are engaged
in the new manufacture; they were fully and remuneratively
employed before, and now competition keeps wages and
profits down to the average level, while to enable them to
get even that, the entire community has to be taxed.
Certainly not the rest of the nation, for they have to sub-
sidise the new industry to keep it going.
It is much more to the purpose to inquire who it is that
is injured by this policy. Everybody is. All the consumers
of the "protected" fabric, who are mulcted in the difference
between the low price at which they used to get a good
article from the foreigner and the high price which they
now have to pay for an inferior article to the native. All
the producers and traders in the country, who suffer from
ג
>
> *
9
3
1
26
FREE TRADE
the diminution that takes place in their foreign commerce in
consequence of the reduced amount of the importations.
And, finally, even the protected industries themselves; for,
while the labour and capital employed in them obtain no
more than the average remuneration, they are subject to
one peculiar disadvantage: they exist on sufferance, and
the system of protection by which they were brought into
being, and under which alone they can live at all, is pre-
carious, questionable, and liable to break down altogether
at any moment that the nation may get tired of paying a
yearly subscription for the purpose of artificially maintaining
it. These industries, the nurselings of well-meaning but
short-sighted patriots, are for the most part sickly, nerveless,
and etiolated; and although reared into existence with the
professed view that they shall some day stand the brunt of
foreign competition, the day never arrives when they are
equal to the struggle, and protection has either to be con-
tinued indefinitely, or its removal is their death-warrant.
As these fragile protected industries increase in number
and importance they at last become formidable obstacles to
the full adoption of free trade. As to encouraging their
growth with the idea that at some future period they will
willingly encounter, or be found able successfully to with-
stand, foreign competition, it is an error and a delusion of
which most old countries furnish abundant illustrations. The
time will come when those young countries which have
acted in that vain hope, will bitterly repent having done so.
They will have made sacrifices to create interests, the vitality
of which is entirely dependent on the national bounty, and
which will have either to be left to their fate, or will remain
a perpetual drain on the resources of the country. Far
better not to have called them into existence than to let
them grow until the alternative faces you of either immola-
ting them, or of unwillingly adhering to a commercial policy
which you know to be injurious, and which you only adopted
temporarily.
The plausible cry under which this mischievous policy is
sally inaugurated is, "Do not let us pay the foreigner for
AND ENGLISH COMMERCE.
27
what we can produce ourselves!" The answer is obvious,
"You do not pay the foreigner for his goods in the sense
you mean it, that is, in money. Imports are paid for by
exports, not in bullion." All commerce is barter. You
simply exchange with the foreigner what you can produce.
better than he can, for what he can produce better than you
can, and both parties are benefited. In prohibiting that
exchange, you at the same time nullify both the sale of your
own, and the purchase of the foreign commodity. In order
yourselves to produce the foreign article, you have to pro-
duce so much less of the native article which you would
otherwise have given in exchange for it; for the same capi-
tal and labour cannot produce both, and by stopping the
import of the former you stop the export of the latter. The
phrase, "Do not let us pay the foreigner for what we can
produce ourselves," correctly interpreted, means "Do not
let us exchange our productions for those of the foreigner,"
or, in other words, "Do not let us have foreign trade."
28
FREE TRADE
CHAPTER VIII.
PROTECTION IN OLD STATES.
THE doctrine that we have just examined—as to young states
being the only proper exceptions to the universal adoption
of free trade-offers a curious contrast to another which
asserts the precise contrary, viz., that it is the old states,
and not the young ones, that are entitled to form the ex-
ceptions in question. The plea may be condensed into the
following shape:-" As a theory, free trade is, we admit,
unassailable, but, exceptionally, it does not apply to old
states, in which interests have grown up under the shelter of
protection for such a length of time, and have attained such
dimensions, that the change now to a free-trade policy would
bring with it wide-spread ruin and desolation, and must
therefore be avoided. Would that these interests had never
been created and fostered by protective laws! But, un-
fortunately, here they are, and we shrink from the task of
disturbing them. Of course, young states would not be so
foolish as to encumber themselves with such burdens, but
our forefathers were unacquainted with political economy,
and hence the errors of which we are now feeling the
effects." We may observe, in the first place, that as the
truth of the free-trade theory is not controverted, and as
the only question is whether the positive and permanent
advantages which its adoption offers would compensate for
the temporary disturbance which it would occasion to pro-
tected interests of old standing, we need only address
ourselves to the latter topic.
To paraphrase the old Roman axiom, salus populi, suprema
lex, we may say that the good of the people ought to be the
first and paramount consideration. That the interests of
AND ENGLISH COMMERCE.
29
certain limited classes should be consulted to the detriment
of the country at large, that all should be injured in order
that a few should be favoured, is a doctrine which has too
often been acted upon, but has never been unblushingly
proclaimed, and which in the present day will be denounced
as utterly false and untenable. And yet that is, in plain
words, the doctrine advocated in the foregoing plea. It
implies opposition to all change and denial of all progress,
merely because the change might be injurious to a few,
though the progress would be beneficial to the many. It is,
no doubt, to be regretted that the interests which stand in
the way of the public good should ever, from a false policy,
have been placed in that position, and we may sympathise
with the individuals who may prove to be the innocent
victims of an evil system, but that sympathy must not blind
us to the fact that the community had for a long period
been suffering from the existence of the abuse, nor still less
induce us to stay the hand that is lifted to destroy it. The
longer the evil has lasted, the more just and necessary it is
to put a speedy end to it; and since we know that the change
is for the national good, our desire to confer a permanent
benefit on the community must overrule our regret at
abolishing privileges by which a few gained and all the rest
suffered.
All improvements in the machinery by which our social
requirements are supplied involve changes that are injurious
to some class or other. Railways occasioned a vast dis-
placement of the capital and labour employed in the pre-
viously-existing modes of conveyance. The adaptation of
electricity to lighting purposes would, if successful, occasion
heavy losses and deal a severe blow to the innocent holders
of shares in gas companies; and so on in hundreds of
analogous instances which are of constant recurrence.
no one has ever seriously maintained that these improvements
were to be "prohibited" in order to "protect" the interests
which such improvements interfered with. Even a century
ago, when the buckle-makers of Birmingham petitioned Par-
liament to protect them, by prohibiting shoe-ties, their
Yet
30
FREE TRADE
[
request was refused, although it was in perfect consonance
with the protective principles that then prevailed.
ance.
Under the Tudors and the Stuarts the protective system
in England assumed the shape of patents and monopolies
under the crown. By arbitrary edicts consumers were not
left free to buy where they could buy the best and cheapest
wares, but were compelled to deal for certain articles with
certain "protected" parties only, who frequently were new
and clumsy at their trade. This system became so costly
and oppressive that the Commons frequently remonstrated
with Elizabeth and James against it as an intolerable griev-
It was accordingly alternately remédied and renewed,
until the sturdy Puritans came and put an end to it alto-
gether. The people of Europe and America who at the
present day suffer by the protected trades, as we, of old,
suffered by patentees and monopolists, and who also are
not free to buy where they can buy the best and cheapest.
wares, but are compelled to deal for certain articles with
certain 'protected' parties only," have not yet thoroughly
realised the situation, and suffer in silence. The fact is,
that those who are pecuniarily interested in the maintenance
of high duties and protective laws, are few in number but
wealthy, energetic, clamorous, and united; while the people,
whose individual loss is small, though the aggregate is large,
are apathetic and frequently misinformed and misled.
hardly therefore to be wondered at that the rulers of
nations should, hitherto, have found it expedient to court
the alliance of the former, instead of siding with the inert
and indifferent mass of the public.
66
It is
But if statesmen are sincere in their recognition of the
advantages derivable from the adoption of free trade, and
only hesitate from the fear of injuring "old protected
interests," let them bear in mind that this disturbance of
interests is limited and temporary, since, as has been the
case with all new movements, whether from scientific or
political causes, the displaced capital and labour rapidly get
re-distributed into other channels, while the improvement is
universal, permanent, and expansive. Moreover, if it should
AND ENGLISH COMMERCE.
31
be absolutely necessary, the disturbance which is so much
dreaded can be mitigated by graduating the fiscal changes,
and spreading them over a certain space of time.
As a
certain quantity of the previously-prohibited articles gradually
obtained admittance from abroad into the country, its ex-
ports would increase to the same extent, and to the pro-
duction of this increased export, the capital and labour
disengaged by importing what was before produced at
home, would by degrees be applied. This process would
go on until the protective duties were wholly removed,
and very soon the "old interests," which were dependent
for a precarious existence on a subvention from the rest
of the community, would become "new interests," vigorous,
self-supporting, and contributing to the wealth of the
country instead of subtracting from it.
32
FREE TRADE
CHAPTER IX.
WHAT ENGLAND IS TO DO IF SHE BE THE ONLY NATION
THAT ADOPTS FREE TRADE.
IT has sometimes been asked, "Of what avail is the
adoption of free trade to a country if every other country
adheres to the protective system? What is a single free-
trading nation like Great Britain to do when every other
nation is tightening the bonds of restriction, and isolating
itself as much as it can from the rest of the world?
What is to become of our foreign trade if all other countries
resolve on having as few dealings as possible with each
other and, as a necessary consequence, with us?" In
the first place, let us observe that this question must
proceed from a free trader, and must pre-suppose that the
curtailment of foreign trade is an evil. For if it were not
so, and if the querist deemed commercial isolation to
be an advantage, what room has he for complaint if
foreign nations, by carrying the protective system out in
its integrity, should force upon us the blessings of isolation?
If it really be the final object of sound commercial policy
that each country shall supply its own wants (far da sè) and
be independent of the outer world, then it must be absurd
for us to hanker after foreign trade. Why should we repine
at protection indirectly producing the same effects on us
as on its own votaries? If those effects are beneficial
to them they must be so to us. It is evident then that
the querist is a free trader, only he is scared and shaken
by the unanimity with which free trade has so far been
scouted by foreign nations. True that all their scientific
inquirers are in favour of it, but the "still, small voice "
of science is drowned in the loud clamour of the interested,
AND ENGLISH COMMERCE.
33
the people not understanding the question are silent, and the
rulers side with the active and energetic.
(6
That protectionist doctrines and policy do prevail in
almost all countries but England, and among the people as
well as among the governing classes, is very true and some-
what strange. Not strange, perhaps, among the people,
to whom the old cries, such as, Keep the balance of trade
in your favour"—"Sell much, buy little "- "Do not be
dependent on foreigners "—and similar fallacies in the shape
of aphorisms have been handed down traditionally as the
condensed wisdom of their ancestors. But certainly strange
among the governing classes, whose business and duty it is
to study and make themselves masters of a subject of such
vital importance to the people whose destinies they rule.
On the question of the truth or falsity of free trade
principles, depends the policy which involves the greater
or lesser well-being of many millions of human beings.
The statesman who, in his fiscal measures, acts on the
protective principle without examining with the utmost care.
and conscientiousness whether it be a true and reliable one,
or whether it be (as political economists assure us) a false
and misleading one, is utterly unjustifiable. A grave re-
sponsibility rests on him if he persists in ignoring or
neglecting the warnings of scientific experts who have
devoted years to the investigation of the subject, and
stakes the welfare of a nation on a line of policy which
they utterly condemn.
It is a remarkable fact that among the eminent men who
have made political economy their special study there is not
one who does not uphold free trade and pronounce protec-
tion to be a disastrous error. In the Index to the Catalogue
of the London Library there is a list of seventy-seven
authors who have written on that science. Most of their
works are written in English and French, but several are in
German, Italian, and Russian. Here, then, are seventy-
seven professional witnesses, men who have investigated the
subject thoroughly, and whose opinion must, therefore,
carry great weight. What do they say? By a majority of
C
34
FREE TRADE
seventy-five to two (the two being eccentrics of no note), they
declare that the protective system is a mistake most injurious
to the country that adopts it. What a startling contrast!
The scientific men who have studied the subject, recommend
one line of policy; the statesmen who have not, mostly act
on the opposite. For a statesman to justify to his own
conscience the adoption of a protective policy, he must
have arrived at a moral certainty that all those men who
have scientifically analysed that policy, and as a conse-
quence have unreservedly condemned it, are utterly mis-
taken. Their verdict, however, will outlive his action,
for the conclusions of eminent thinkers are not to be
scornfully ignored, and the Napoleonic contempt for
Messieurs les idéologues is a thing of the past.
One thing is certain: there can be no compromise
between the two systems. Either the one or the other
must be irretrievably bad, and it is almost impossible to
adopt the one without totally discarding the other. The
fiscal measures requisite to carry out protection are in
diametrical opposition to those called for by free trade.
The question, therefore, as to which is right and which
is wrong is too important to be left in abeyance. It
ought to be settled at once and for ever. Scientific men
have done their part, and unanimously decided in favour
of free trade. It remains for the people and their rulers
to institute a thorough examination of the subject, and
to give practical effect to their decision. Symptoms of
awakened attention to this all-important matter are now
apparent in France, Germany, and the United States. In
all these countries the resisting power of vested interests
is strong; but, on the other hand, those nations abound in
able men and profound thinkers, and error will not live long
under the “fierce light" that they will throw upon the ques-
tion-a question that has hitherto been rather neglected
abroad, as being too abstract and technical for general
discussion.
There is a mistaken notion afloat in the minds of some
of our neighbours that of two countries that trade together
AND ENGLISH COMMERCE.
35
one gets a larger profit than the other, and that England,
for instance, in her mercantile transactions with other
nations, reaps from them more advantage than do those
she trades with. But a little consideration shows that
this is impossible. The act of trading, whether by sale,
purchase, or barter, is a purely voluntary one, and unless
it suited both parties it would not take place. A man
buys because he prefers the article that he purchases to the
money which he gives for it, and he sells for the con-
verse reason; but that preference is spontaneous, and he
yields to his own wish, not to compulsion. When two
persons interchange commodities, each is actuated by the
belief and expectation that he reaps a benefit from it.
National trade is but the aggregate of individual mercan-
tile operations, just as national profit is only the aggre-
gate of individual gains; and individual traders have so
keen a perception, and so eager a desire for lucrative
traffic, that they may safely be trusted only to do
business when they see a fair prospect of gain. And if
they gain, what matters it if the parties they deal with
gain too? It
It is of the very essence of commerce that
buyers and sellers, importers and exporters, should all be
benefited. In fact, were it otherwise, no interchange of
commodities would take place at all; for who would buy
were it only profitable to sell? And who could sell if
there were no buyers? For a government, therefore, to
restrain its subjects from buying because the seller is
benefited, or from selling because the buyer is benefited,
cannot be deemed a rational policy. If England has
profited largely by her foreign trade, it has not been
because her percentage of gain has been over the average
(for it could easily be shown that it has generally been
below it), but simply because of, and in proportion to, the
enormous dimensions to which it has reached.
Of this enormous expansion of her foreign commerce,
England owes the greatest part to her adoption of free trade.
The development of her commercial intercourse with the
rest of the world since the repeal of the Corn Laws in 1846,
36
FREE TRADE
and of the Navigation Laws in 1849, is marvellous. In 1840
our combined exports and imports were £172,000,000; in
1878 they were £611,000,000. True that in most countries
some increase of foreign trade has taken place within the
same period, but in many cases it has only been slight, and
in no instance has it progressed in anything like the same
ratio. It is open to all nations to obtain similar results by
the adoption of the same commercial policy. That free
trade causes an increase of imports is admitted by its
opponents, and, indeed, forms the very ground of their
complaint, and since increased exports follow as a necessary
consequence, there ensues a proportionate development of
foreign trade.
1)
It
And that all nations will sooner or later adopt the free
trade system there is not, we conceive, the slightest room
for doubt. How slow the world is in recognising and
acting upon scientific truths there is many a precedent to
show. Almost every improvement has had to make its way
through a long period of neglect, misconception, prejudice,
and, where "old interests were encroached upon, positive
and obstinate resistance. A theory may be slighted, mis-
represented, pooh-poohed, and even persecuted for a time,
but if it possesses the vitality of truth, the day will come
when it will pierce through all opposition, and triumph in
universal recognition. So will it be with free trade.
has become a scientific truth, and has gone through the
ordeal of the most critical examination. All who have
seriously studied it have become converts. It is neglected,
not confuted. It is as a policy, not as a theory, that it has
opponents. This discrepancy, however, cannot long pre-
vail. Practice has a slow but steady tendency to conform to
principle. The mass of the people do not yet clearly see
how injuriously they are affected by a protective policy,
because the tax which it inflicts on them is paid indirectly,
and as it were imperceptibly, in the shape of the enhanced
prices that they have to give for the protected articles. If
that tax were collected from them directly and avowedly, their
eyes would quickly be opened. They would soon begin to
AND ENGLISH COMMERCE.
37
inquire why they should be asked to subscribe so much a
year in order that A B & Co., and C D & Co., should be
enabled to make money out of a losing business. And when
the process of inquiry is once entered on, discussion and
analysis will lay bare the truth, and a general reaction will
take place in favour of free trade.
Meanwhile, all that England needs to do is to pursue her
way unmoved, trade with other nations as much as they will
let her, be ready to multiply dealings with them when they
are, and open up new markets when opportunities offer. As
to trying to force our intercourse upon others by raising our
tariffs against them, we have already shown that all such
retaliatory measures are much worse than useless, and have
for effect merely to wilfully abridge our own foreign trade, in
order to spite those who refuse to increase theirs.
38
FREE TRADË
CHAPTER X.
IMPOSSIBILITY OF ENCOURAGING EXPORTS AND AT THE
SAME TIME CHECKING IMPORTS.
The
FORTUNATELY no government and no legislation can succeed
in altogether putting a stop to international trade.
world is preserved from the complete application of pro-
tectionism by two important influences. The one is the
fact that there are several commodities which a country must
either do without or import from abroad, as the native pro-
duction of them is impossible. No amount of protection
could enable England to produce her own wine, or France
to raise her own cotton, or America to grow her own tea.
To some extent, therefore, Nature compels nations to inter-
change commodities, and thus she points the way to free
trade.
The other influence is almost as forcible and effective. It
arises out of the intense desire that exists everywhere, and
is perhaps most intense in protected countries, to sell, that
is, to export, to the greatest possible amount. Indeed, this
eagerness to export did formerly often, and does even now
sometimes, prompt governments to grant bounties on the
exportation of certain articles, so as to enable the producer
to sell his goods cheap abroad, while he gets the full price
of them at home. This simply amounts to taxing the
community in order to make a present to the foreigner of a
portion of the proceeds. This absurdity, however, proved
too flagrant to endure, and has therefore nearly (not quite)
become obsolete. All governments and all nations are
exceedingly anxious to swell the amount of their exports to
the rest of the world, and, strangely enough, this passion for
selling co-exists with a vehement aversion to buying, or
*
AND ENGLISH COMMERCE.
39
importing from other countries! As if the achievement of
both these purposes at once were not an utter impossibility!
It has been clearly shown that if a community desires to
export, it must, from the nature of things, import in propor-
tion—and if it determines on curtailing its imports, it must
be content, in a similar ratio, to curtail its exports.
As we have elsewhere pointed out, some nations do
indeed export more than they import, but that is because
they are in debt to the rest of the world, either for interest
on loans, &c., or for war indemnities, or for tribute to a
suzerain power, and such like. These debts are provided
for, not by the transmission of specie, but by the export of
goods, and for that portion of their exports those countries,
of course, receive no imports in return. So likewise some
countries (among which England stands foremost) import
more than they export, because the rest of the world is in
debt to them, and this excess of imports being sent in pay-
ment of that debt, no return is made for it in the shape of
exports. But beyond the amount of such debt-payments, it
is an incontrovertible fact that for every hundred pounds'
worth exported, a country must receive back one hundred
pounds' worth of foreign commodities. If you determine on
only importing fifty pounds' worth of foreign commodities,
you must be content with only exporting fifty pounds' worth
of your own productions. Such must of necessity be the
final result of your commercial transactions with the world
at large. Of course, with one or more individual countries,
your separate account may stand differently; you may
export largely to them, and get but few imports from them
in return; but your imports will be, in the same proportion,
- larger from, and your exports smaller to, some other
countries, so as to restore the equilibrium, and in the
aggregate, your imports and exports will balance each
other.
It is this passion for exporting which practically acts,
to a certain extent, as a counterpoise to the aversion of
protectionist countries to the importation of foreign com-
modities. They cannot indulge their love for selling, and,
40
FREE TRADE
at the same time, indulge their repugnance to buying. Of
this they are unaware, and they delude themselves by a vain
expectation that they can compel the foreigner to pay in
specie for the goods which they sell to them. But it is not
so, it cannot be so, and even if it were so, it would do them
no good, for the reasons which we have given elsewhere.
Those goods will be paid for in goods. Practically and
substantially all commerce is barter.
Some have proposed, as a milder and more admissible
form of protection, that protective duties should be levied
on foreign manufactured goods only, and not on agricultural
produce or raw materials. The reason assigned is that the
former represents a larger percentage of capital and labour
than the latter class of commodities. This distinction, if
admissible, would not meet any of the objections to which
we have shown the protective system to be open. But it is
not admissible. The only difference (and that a slight one)
is that the element of rent of land enters rather more directly
into the value of raw material than into that of a manu-
factured article. But otherwise, fifty pounds sterling's worth
of the former represents as much of wages of labour and
remuncration to capital as fifty pounds' worth of the latter.
The identity of their market price shows the identity of
their exchangeable value, and, as nearly as possible, the
equivalence of their cost of production. There is un-
doubtedly more labour and capital absorbed in a £50
pianoforte than in a ton of pig iron at £5 per ton; but not
more than in ten tons of the same pig iron, since they also
represent the same sum of £50. It is not the question
of relative bulk or weight which we have to consider, but
that of relative value, and whether it is expensive cutlery or
cheap raw cotton that constitute the import, the same value
of each represents, as nearly as possible, the same amount
of capital and labour.
AND ENGLISH COMMERCE.
4I
CHAPTER XI.
FREE TRADE PRACTISED INTERNALLY BY ALL PROTECTIONIST
STATES.
THE avowed and no doubt sincere object of the protectionist
statesman is "to foster native industry, by employing it to
supply the wants of the community, instead of paying
tribute to the foreigner by resorting to him for the supply of
those wants." This is only the isolation principle in another
shape. If you wish for an outlet for your productions, you
must submit to employ and pay the foreigner for his produc-
tions to the same value, for you will have to receive them in
payment for yours. If, on the other hand, you wish your
country's wants to be supplied exclusively by its own inhabi-
tants, you must cease interchanging commodities with the
outer world, lose the advantages of division of labour on a
large scale, and, as the Japanese formerly did from choice
and on system, or as our remote ancestors did from
ignorance and necessity, shut yourselves up within your own
circle of resources.
But even then you are not relieved from the detested
presence of free trade. It reigns paramount within your own
country. It may not exercise its baneful influence on your
relations with other countries, but it does exercise its full
influence (baneful or not) on the relations of one part of
your country with the rest. All the commercial intercourse
that takes place between the various provinces of your empire
is entirely governed by free trade principles. Yet it is not
found that this unrestricted competition benefits some to the
injury of others. On the contrary, each part works har-
moniously with the rest, and all are left free to adjust their
dealings under the natural laws of supply and demand.
Each district settles down to that form of industry to which
circumstances have best adapted it, and requires no Govern-
ment interference to protect it against the competition of
42
FREE TRADE
neighbouring districts. All trades in all places within that
country are open to all men, and no one would deem it to
be a benefit that a heavy tax should be imposed on
the cheap and good wares produced in one spot, in order
to force the sale of dear and bad wares produced in another.
In fact, the principle of free trade has been, and is, acted
upon to the fullest extent by all governments within the
limits of their own dominions. There may have been some
few apparent exceptions, such as the octroi duties on the
introduction of certain commodities into some Continental
towns, and similar local taxes, but these were levied for the
purpose of revenue, not of protection. In the completest
and widest sense, it is a fact that no government, however
protectionist in its practice towards other countries, has ever
acted counter to free trade principles within the range of its
own empire.
It is not easy to justify this inconsistency. If free trade
be an evil as between the United States of America and the
other countries of the world, how can it be a good as
between, say, Pennsylvania and the other states of the
Union? The economic relations of these to each other are
not in any way affected or modified by the fact of their being
members of the same political confederation. The native
industries of Kentucky and Illinois remain exposed to the
competition of the well-organised and old-established indus-
tries of New York and Massachusetts in spite of their being
all represented in Congress at Washington. If protection be
so beneficial to the country at large, why not extend its
blessings to each of the states of which it is composed?
Until recently, Italy was split up into several different
realms, and each was (of course for the "good of the
people") "protected" against the productions of the other.
But when the Italian states merged into one nation, those
restrictions were removed. If those protective shields.
against competition had really worked efficiently for the
good of the people," their removal must have occasioned
great suffering and distress, but no "cry of anguish" has
reached us on that score. If, twenty years ago, it had been
(6
AND ENGLISH COMMERCE.
43
really good for the people of Piedmont and Naples re-
spectively to have had few commercial dealings with one
another, the mere accident of a change of government
cannot have altered the eternal fitness of things, or made it
right now, as it was wrong then, to leave those two popu-
lations exposed to the injury of unrestricted commercial
intercourse with each other.
Again, let us imagine the deplorable contingency (which
we most sincerely trust may never occur) of the Western and
Eastern States of America separating and forming two
several independent republics, what then about protective.
customs' duties? If it be a wise and beneficial policy for
the present United States to protect its people against the
cheap manufacturers of old Europe, it would follow as a
necessary consequence, that it would also be a wise and
beneficial policy for the Western republic to protect its
people against the comparatively cheap manufactures of the
older Eastern states. To judge by all historical precedents
of what men would do under such circumstances, we should
infer that the government of the new dominion would un-
doubtedly (unless they were very much in advance of the
present state of public opinion in America) adopt the usual
old policy of "fostering native industry" by means of the
protective system. But here again there would be a mani-
fest and palpable inconsistency. If, in case of separate
sovereignty, the welfare of the Western republic of America
required the adoption of a protective policy against the
Eastern states, why should such not be required now? The
pleas as to fostering native industry, protecting infant
manufactures, and being independent of extraneous supplies
are as urgent at the present time as they would be then.
Why are those pleas to be only attended to in case of
secession, and disregarded while the Union is maintained?
Or are the same objects attained by internal free trade
under the present form of government which, under another,
would only be attainable by protection?
Each state of the Union is at present exposed to the
competition of more than forty other states and territories
44
FREE TRADE
extending over a vast continent and occupying a space
equal to one-fifteenth of the habitable part of the globe,
and yet none of them have uttered a syllable of complaint
in respect to the system of free trade which prevails among
them, or asked for the enactment of defensive tariffs to
protect them against each other. Yet, at the same time,
the aggregate of these forty or fifty states fancy that they
cannot get on without a defensive tariff to protect the entire
body of them from other countries. If one-fifteenth of the
world can prosper under internal free trade, why should
not a third, or a half, or indeed the whole of the world?
But let us glance at another contingency. At present, the
United States and the Dominion of Canada form two sepa-
rate and distinct governments. Accordingly, each is hedged
round by chevaux de frise of tariffs, and their commercial
intercourse is checked and hampered by impost duties and
restrictions having for avowed object the protection of their
respective populations and the increase of their prosperity.
According to the protectionist theory, each nation is bene-
fited by these arrangements, and would be injured by their
removal. Very good; but let us suppose that political
changes were to bring about the admission of Canada into
the Union, and a fusion of the two dominions into one
federal republic, what would happen with regard to the
fiscal regulations which are now declared to be essential to
the prosperity of both populations? Would they be per-
severed in? It is not likely; it would be an unexampled
anomaly that one part of a republic should be debarred
from free commercial intercourse with the other parts. Con-
sequently, the principle of free trade which now governs
the commercial relations of the different states of the Union
among themselves would be extended to Canada, and the
results of unrestricted commercial intercourse between the
two dominions, now so carefully guarded against, would
have to be faced. It is pretty evident to us that those
results would be found, not only not to justify protectionist.
apprehensions, but indicative of largely-increased prosperity
to all.
AND ENGLISH COMMERCE.
45
CHAPTER XII.
CONCLUDING REMARKS.
SOMETIMES objections are made to free trade, not founded
on any imperfection in the theory. itself, but arising from
altogether extrinsic considerations. But such objections are
quite irrelevant. Each science has its own province of
inquiry, and its conclusions are confined to the topics that
form the special objects of its investigation. The purpose
of political economy is to ascertain the laws under which
human industry can produce the most ample results, and
the "wealth of nations" be best developed. It is no im-
pugnment of the truths which it propounds to contend that
there are considerations foreign to the science itself which
render it inexpedient to act on its conclusions.
In an
æsthetical point of view, factories may be objects too hideous
to be tolerated, and it may be better to leave a coal-mine
unworked than to destroy the lovely trees which adorn its
surface. In a political point of view, it may be better that
each country should keep itself independent of foreign
commerce, so as to be prepared, at any moment, without
feeling its loss, to wage war with other nations. Or, in a
theological point of view, it may be better for men not
to devote too much attention to such subjects, as tending
to seduce their minds into mammon-worship. But it is
the business of the statesman, not of the political economist,
to examine these allegations, and allow them practically
such weight as they may deserve. The mission of political
economy is confined to the elucidation of economic prin-
ciples and their application to plutology or the science of
wealth; and it is no refutation of the truth of its conclusions
that objections may be raised to their practical adoption,
which arise out of a quite different order of considerations.
46
FREE TRADE
66
We have confined ourselves, in these pages, to some of
the most salient points connected with the antagonism be-
tween free trade and protection. There are, however, a
variety of subsidiary and collateral topics that might furnish
ample matter for contrasting the two principles. To quote
only a few instances, we might enlarge on the tendency of
hostile tariffs to awaken and maintain feelings of irritation
between one country and another, and on the contrary ten-
dency of large international dealings, through free trade,
to bind nations together by a strong community of interests,
and thus to check and discourage war. We might advert
to the beneficial operation of free trade in partially obviating
gluts," that is, the over-production of some articles as
compared with others, and in rendering the commercial
world far more sensitive than it now is to variations in
supply and demand, so that incipient fluctuations would
be quickly checked, and would never reach the extreme
range which they now attain. We might point out that
free trade would tend to equalise prices throughout the
world, and would pave the way to many important improve-
ments, such as the general unification of weights, measures,
and coins; perhaps even to the assimilation and codification
of the laws which now in each country variously affect
commerce. But we must refrain from dwelling on these
matters, for this does not pretend to be an exhaustive treatise
on free trade; it is simply a rough sketch of its principal
features as they practically affect the commerce of the
world.
We shall now proceed to examine the relation in which
free trade stands to the commerce of the United Kingdom,
and see how far the present depression of trade may or
may not be connected with its adoption here about thirty
years ago.
AND ENGLISH COMMERCE.
47
PART II-ENGLISH COMMERCE.
CHAPTER XIII.
POPULATION, DEBTS, AND TRADE OF THE WORLD.
THAT there exists a great and general depression in trade
throughout the United Kingdom is so notorious and recog-
nised a fact, that it is needless to do more than to assert it.
This depression has been growing in intensity since the year
1874, when it only just began to be perceptible; and the
hopes that have from time to time been entertained that it
had reached its maximum, and that a reaction was at hand,
have hitherto been disappointed. What are the causes that
have led to this untoward state of things? Are those causes
of a permanent, or only of a transitory, nature ? If the
former, are they remediable by a change in our commercial
policy? If the latter, when may we look for their ceasing
to operate, and can any measures be devised to accelerate
that result?
These are the inquiries to which we purpose to turn our
attention, and in order to give shape and method to our
investigation, we shall examine and analyse the following
propositions, which are all intimately connected with the
subject in hand :-
1. The amount of our foreign trade (combined imports.
and exports) has been diminishing since 1874.
2. Since 1874 the price of almost every commodity, British
and foreign, has been gradually falling-in many cases, con-
siderably, but, more or less, in nearly all.
3. Since then, there has been greater competition than
before in neutral markets, between the English and foreign
producer.
48
FREE TRADE
4. The wages of labour have been forced down by the
decline in the price of goods.
5. Since 1874, there have been heavy failures among
merchants, manufacturers, and banking establishments.
6. Since then, the excess in the amount of our imports
over that of our exports has exhibited a marked and unpre-
cedented increase.
7. The inactivity of trade and the decline in prices have
during the last few years been more or less general through-
out the civilised world.
8. The peace of Europe has been much disturbed the last
few years by actual war and by rumours of war.
9. Since 1874, there have been some additional large
national defaulters in the payment of interest on the loans
made to them.
10. Since then, we have made fewer foreign loans, and
embarked in fewer foreign enterprises than before.
II. There is, and there has been of late years, a larger
amount in the country than usual of surplus unemployed
capital.
Before we enter on the consideration of these various
topics, we must put forward an important statistical docu-
ment which we have been at some pains to draw up as
accurately as possible. It exhibits at a glance a compara-
tive view of the population, of the indebtedness, and of the
foreign trade of every country that can make any pretension
to be called civilised. By a reference to it, it will be seen
that, ist, it records the financial and commercial position of
fifty-six states whose united population amounts to nearly
1,200,000,000—that is, within about 200,000,000 of the
computed population of the entire globe.* 2nd. The
amount owing collectively by the specified fifty-six govern-
*
From the reports of the latest African travellers, we are led to
think that the population of Central Africa has hitherto been under-
rated, and we are inclined to estimate the number of the uncivilised
nations of the earth (those not enumerated in our table) at nearly
400,000,000; which would make the total population of the earth
about 1,600,000,000.
AND ENGLISH COMMERCE.
49
1
ments to a number of individuals residing in all parts of the
world, for loans made to them, is £4,818,000,000, and on
that sum the lenders are entitled to yearly interest according
to certain stipulated rates. Seventeen states, however,
have ceased paying interest on their debts, amounting
to £929,000,000. On the remaining amount, viz.,
£3,889,000,000, interest is being paid, and of this interest,
we are led, by what research we have been able to make,
to estimate the average rate to be 4 per cent. Assuming
this to be correct, the holders of these various government
stocks are in the annual receipt of £165,000,000 from the
aggregate of the indebted countries. It may be remarked
that these loans were contracted for at somewhat less
than the nominal capital, not all of which therefore passed
into the borrowers' hands, but they, nevertheless, engaged to
repay the nominal capital in full, and meanwhile to pay
interest thereon.
In the customs' returns of a country's imports, the amount
is always in excess of what has actually to be paid to the
foreigner; for the valuation taken of them includes freight,
insurance, and other expenses, whereas the foreign sender
has only to receive the net amount after deduction of those
charges. To him the importer has only the cost of the
goods to pay; he has to pay the freight to quite a different
person, viz., to the ship-owner. What percentage must, on
the average, be deducted from the customs' valuation of
imports in order to arrive at the correct sum which accrues
to the foreign sender is a question of some difficulty. On
cheap and bulky articles the percentage of freight is large,
as is also the insurance when the voyages are long. On the
other hand it is the reverse on compact articles of value and
on short voyages. Taking everything into consideration,
we have come to the conclusion that we shall be near the
mark in estimating the average of freight, insurance, and
other minor charges at 11 per cent. on the customs' valua-
tion of imports. Accordingly, if we take 11 per cent. off the
£1,450,000,000 which we find imported from all countries.
during the one year given, it reduces the amount to
D
50
FREE TRADE
£1,296,000,000, which is within a mere trifle of the
£1,316,000,000 exported, in totality, by the same countries.
during the same year.
TABULAR VIEW OF THE POPULATION, INDEBTEDNESs,
AND FOREIGN TRADE OF ALL THE (MORE OR LESS)
CIVILISED COUNTRIES OF THE EARTH.
N. B.-I. In the figures given o0,000's are omitted: that is, our figures
represent millions and tenths of millions. Thus, 5.9 stands for
5,900,000; £16. for £16,000,000, and so on.
2. The population, debt, and annual trade given are those of the
latest year of which we could obtain a record.
3. The annual foreign trade given is the aggregate of both imports
and exports.
4. The National Debts include both the home and the foreign, but
not the floating debts.

States.
tion.
Popula- National
Debt.
Annual
Divided into
Foreign
Trade.
Imports. Exports.
£
£
£
Algeria
Argentine Confedera-
tion & Buenos Ayres
Austria and Hungary,
2.9
16.
:
1.8
21.
17.
7.
37.
343.
103.
52.
9.
£
7.
10.
51.
Belgium
Bolivia
Brazil
...
5.
47.
185.
98.
13000
87.
2.
3.3
2.
I.
I.
IO.
74.
32.5
15.5
17.
Canada
Cape Colony
Ceylon
...
3.7
30.
35.
20.
15.
1.4
6.
9.
5.
2.4
.8
IO. I
5.6
Chili...
China
2.
12.7
13.
7.
...
425.
2.
45.
21.
24.
Colombia
Costa Rica
Denmark
Ecuador
Egypt
France
Germany
Greece
...
3.
14.7
3.3
1.3
NADAAGN
4.5
6.
2
3.4
1.5
.6
9
2.
IO.
23.
13.
IO.
I.
::
3.3
.7
.3
.4
17.
87.
16.
4.
12.
37.
750.
367.
174.
193.
43.
190.
324.
196.
128.
1.5
15.
8.
5.
دب
States.
AND ENGLISH COMMERCE.
Popula- National
Annual
tion.
Debt,
Foreign
Trade.
Divided into
Imports. Exports.
5 I

£
£
£
£
Haiti
Guatemala
Honduras
I.2
.9
1.2
.6
.6
3.
2.5
1.2
.3
6.
.4
.2
India
Italy
...
Japan
Java
Mexico
Morocco
Natal...
240.
127.
114.
49.
27.
400.
85.
45.
.6
I. 3
•
65.
40.
2
33.
3.5
10.3
4.&
5.5
18.
...
...
17.
7.
IO.
9.3
6.
79.
10.7
5.7
5.
2.6
1.5
on
I. I
...
.3
.3
1.9
I.
.9
Netherlands
New South Wales
3.9
80.
104.
59.
45.
.6
12.5
27.6
14.6
13.
New Zealand
Nicaragua
.4
20.7
13.3
7.
6 3
.4
2.
.3
.2
I
Paraguay
.2
Persia
...
Peru
Portugal
Queensland
Roumania
5-5
3.2
252
3.
.2
. I
.I
3.9
2.4
1.5
49.
12.
4.
8.
4.
85.
14.
8.
6.
.2
5.3
23
6.5
6.8
21,
9.4
∞ +
3.2
3.6
4. I
5.3
Russia
$8.
350.
109.
59.
50.
San Salvador
.4
.9
I. I
.5
.6
Servia
1.7
2.9
1.3
1.6
Spain
Siam ...
South Australia
Sweden and Norway
Switzerland
Tasmania
9.
2.8
I.
I.S
.2
4.3
8.9
4.
4.9
17.
460.
31.
15.
16.
6.
14.
46.
27.
19.
2.
4
1.3
6.
3.5
2.5
.3
1.5
2.7
1.3
1.4
Tunis
2.7
5.
I. I
.4
.7
Turkey
...
United Kingdom
United States
Uruguay
Venezuela
Victoria
Western Australia
21.I
194.
32.
14.
18.
लं
34.
778.
611.
366.
245.
47.
460.
226.
87.
139.
1.8
*
.8
.I
со сол
12. I
5.8
2.8
3.
8.
6.2
17.
.2
31.
.7
16.
فاضه
3.2
15.
.3
.4
TOTAL
1,189.94,818.9 2,772.4 1,456. 1,316.4
52
FREE TRADE -
CHAPTER XIV.
THE AMOUNT OF OUR FOREIGN TRADE HAS BEEN
DIMINISHING SINCE 1874.
THE subjoined table exhibits the fluctuations in our foreign
trade (exports and imports combined) since 1867; in mil-
lions of sterling.
Total trade in
523., an increase of 4 per cent. compared with 1867
2 per cent.
3 per cent.
12 per cent.
9 per cent.
ΠΕΝΤΙ
1878 ...
669.,
682.,
2 per cent.
668., a decrease of 2 per cent.
656.,
632.,
2 per cent.
3 per cent.
646., an increase of 2 per cent.
611., a decrease of 5 per cent.
In the above trade returns, the influx and efflux of bullion
are not included. But the balance between the export and
import of the precious metals is, on an average of years, so
insignificant and has so slight a connection with our trade
in goods, that it is of very little account. Taking the three
last years of the above series, viz., 1876, 1877, and 1878,
the total amount of the gold and silver imported into, and
exported from, the United Kingdom during that period was
as follows:-
AND ENGLISH COMMERCE.
53
Importation during the three years, of gold £59,000,000
Exportation
""
""
51,500,000
Excess £7,500,000
Importation during the three years, of silver £46,800,000
Exportation
""
Excess
44, 100,000
£2,700,000
So that the operations of the country in bullion and specie
during the last three years resulted in an excess of impor-
tation amounting to about £10,000,000, or a little more
than £3,000,000 a year. It may, by-the-by, be as well to
note that, during those same three years, the aggregate ex-
cess of our imports over our exports amounted to upwards
of £200,000,000, and that, instead of our sending our bullion
abroad to pay for this excess of imports, as the protectionists
assume, we actually received £10,000,000 in bullion from
-other countries. But we shall refer to this more fully else-
where.
It appears, then, that in the years 1871 and 1872 there
occurred a large and sudden inflation in the amount of our
foreign trade. Instead of the previous steady and normal
advance of about 2 per cent. each year, it, at that period,
increased by sudden jumps of 12 per cent. one year, and
9 per cent. the next. A brisk demand arose for all kinds
of commodities, and the activity extended more or less to
every branch of trade. In the year 1872 we sent abroad
and received from abroad goods to
goods to the amount of
£120,000,000 more than in 1870. Not that this
enormous increase in the money value represented a pro-
portionate increase in the quantities exported and imported.
Mines, collieries, factories, &c., when in ordinary fair work,
as they were when this exceptional activity sprang up, could
not be made suddenly to increase their productiveness be-
yond a certain ratio. The enhanced amount of our trading
operations was to no small extent due to the great and rapid
54
FREE TRADE
·
This
was
rise that took place in the prices of commodities.
rise (as will be shown further on by tables) was entirely
confined to our own productions. While we charged much
dearer for our exports, we paid no dearer for our imports,
and the increased money amount of the latter
owing to their increased volume. But, as regards our
exports, the increase in their amount was largely due to
enhancement of prices, and only partially to increase of
quantity. The demand from abroad for our staple pro-
ductions was, during the height of the inflation, far in ad-
vance of the supply, and the advanced prices caused by the
competition of buyers yielded magnificent profits to the
manufacturers, abundant wages to the working men, and
stimulated production to its utmost. Capital and credit
came forward profusely, and almost pressingly, to share in
the general prosperity, and increased the activity of trade by
the unusual facilities which they afforded.
That this feverish prosperity was short-lived, and that, as
is usual, it was followed by a grievous reaction, we know
but too well, for we are still under the chilling influence of
that reaction. It is now well understood and admitted
that the operation of that brief period of lurid prosperity
was injurious to the permanent and legitimate progress of
the country. We had to give way and yield back a large
part of the ground which we had gained by an ill-advised
rush, and this, like all retreats, was attended with losses
and disaster. Habits of indulgence and even of extrava-
gance had been fostered by the rich profits and high wages
of those halcyon days. Increased expenditure prevailed
among all classes of society, and everything was couleur de
rose, even to the budgets of the Chancellor of the Ex-
chequer. But the bubble burst. Prices declined, foreign
trade-diminished, and profits and wages have, since 1874,
been continually falling. We are in the position of an
individual who, having had his income unexpectedly doubled
by some lucky accident, and having adapted his style of
living to his improved circumstances, suddenly finds his
income cut down again to its old limit, and has to go
1
AND ENGLISH COMMERCE.
55
through various unpleasant processes of retrenchment and
self-denial.
If, instead of the "leaps and bounds" which our foreign
trade made in 1871 and 1872 (as shown by the tables at
p. 52), we had only progressed at the old steady rate of
2 per cent. per annum, a calculation will show that, starting
from the amount of our foreign trade in 1870, viz.,
£547,000,000, it would by this time have arrived at a
higher figure than it actually has attained, notwithstanding
the jumps of 12 per cent. and 9 per cent. in 1871 and
1872. For instance, adding the supposed gradual increase
of
per cent. per annum, our foreign trade would have
reached
£558,000,000 in 1871, instead of the actual sum of £615,000,000
569,000,000 in 1872
581,000,000 in 1873
593,000,000 in 1874
605,000,000 in 1875
617,000,000 in 1876
669,000,000
682,000,000
668,000,000
656,000,000
632,000,000
629,000,000 in 1877
641,000,000 in 1878
وو
,,
༤་
646,000,000
611,000,000
As, therefore, the causes that led to the inflation of our
trade in 1871 and 1872 are, as it were, at the root of the
commercial depression from which we are now suffering,
it is of importance to trace and determine them, in order to
arrive at a correct view of our present position.
Among those causes, the most direct and the most potent
was the immense amount of money which England lent to
foreign nations in the course of the years 1870, 1871, 1872,
and 1873. During that period France, Russia, Turkey, Egypt,
Peru, Brazil, India, American States and cities, together with
a host of South American republics, and also the pro-
moters of foreign undertakings of all sorts, such as railways,
telegraphs, gas-works, water-works, &c., appeared as suc-
cessful borrowers in the English money-market to an extent
totally unprecedented till then, and quite unequalled since.
No doubt a certain share of the amount was contributed by
foreign investors, but it was British capital that provided a
56
FREE TRADE
very large proportion of the colossal sum that was raised.
It is very difficult to ascertain with any degree of precision
the total amount that England had to remit abroad in con-
sequence of making these loans, for they were contracted
for at various rates of deduction from the nominal capital-
some were payable in instalments, and of others a portion
was set aside for sinking funds, &c. But it may not perhaps
be very wide of the mark to estimate the total amount that
England had during the four years, 1870 to 1873, to
transmit abroad in fulfilment of these engagements at
£450,000,000; forming an average of £110,000,000 per
annum.
A
How was the transfer of this enormous amount accom-
plished? Assuredly not by shipments hence of bullion and
specie. We have already seen that no large movements of
money from one country to another are ever effected by
corresponding displacements of the precious metals.
comparative slight encroachment on the circulation require-
ments of the exporting country so violently disturbs the
exchanges that the balance is speedily redressed. But
setting aside all theoretical reasoning, it is a fact that
English imports and exports of bullion and specie for the
four years during which the transmission abroad of the vast
sum in question took place, were as follows:-
YEAR.
1870
1871
...
1872
1873
...
GOLD AND SILVER.
IMPORTS.
£29,400,000
38,100,000
29,600,000
33,600,000
£130,700,000
...
...
...
...
EXPORTS.
£18,900,000
33,700,000
30,300,000
28,900,000
£111,800,000
We, therefore, during the four years in question, received
from abroad gold and silver bullion and specie to the
amount of £19,000,000 more than we sent away.
AND ENGLISH COMMERCE.
57
In proceeding to solve the question, it must be borne in
mind, in the first place, that British investments abroad had
for many years before 1870 been constantly on the increase,
so that by that time the dividends which foreign debtors
had to remit yearly to England formed a very considerable
sum. Each year after 1870 those annual payments have
become larger, and by this time they have expanded into a
prodigious total. It has been shown (p. 49) that after
deducting the dividends that should be, but are not, paid
by the insolvent States, the yearly sum of £165,000,000 is
still actually divided among the holders of national stock
throughout the world. To these dividends on national
loans must be added the dividends payable on a multipli-
city of foreign, municipal, joint-stock, and other public invest-
ments which will swell the total sum distributed annually
among private investors to upwards of £200,000,000.
What proportion of this amount falls to the share of the
British investors can only be a matter of conjecture. It
must, however, be observed that, with the exception of
France, the United States, Portugal, and, perhaps, one or
two others, only a small proportion of the money borrowed
by the fifty other States of the world has been lent to them
by their own subjects respectively. Who, then, are the
lenders? France, Germany, and Holland are wealthy
nations, and are holders of a considerable amount of foreign
stocks; as also are, of course, a certain number of opulent
individuals in most civilised countries, but, undoubtedly, it
is British capital that is the most profusely invested abroad,
and that is the recipient of a proportionately large share of
the total annual dividends.
Whatever that share may now be, there is reason to
believe that in 1870 the annual amount accruing to Eng-
land for interest and dividends on foreign investments was
at least £30,000,000, and that by 1874 this amount was
increased, by the large fresh advances made meanwhile,
to £50,000,000, which gives an average of £40,000,000
for the intervening period. This sum would naturally form
a part of the £110,000,000 remitted to the borrowers
58
FREE TRADE
abroad each year of the four in question, leaving
£70,000,000 still to be accounted for. This enormous
amount was supplied, either directly or indirectly, by an
increase to the same annual amount in the exportation
of British goods. That this was the case, we have both
negative and positive proofs. Negative, because there is
no other way of showing how the money was handed over
to the borrowers. That they did receive it, nobody denies;
that it was not sent to them in the shape of bullion or
specie we have made abundantly clear; there is, therefore,
no other possible way in which it could have reached them,
except in goods, either directly or indirectly. And as re-
gards proof positive, we have merely to refer to the unerring
records of the Board of Trade. These show that the
exports from the United Kingdom during the four years
1871-1874 averaged nearly £68,000,000 in excess of
those of the preceding four years, 1867-70; which excess
as nearly as possible accounts for the £70,000,000 which
remained to be provided for out of the £110,000,000.
The following are the exact figures:
Total exports (in millions of £) from the United
Kingdom for the years
1867
1868
1869
1870
...
£226.
1871
...
£284.
228.
1872
314.
237.
1873
311.
245.
1874
298.
£936.
£1,207.
Annual average, £302.
Annual average, £234.
exhibiting an excess of £68,000,000 per annum in the
latter four years.
To show that the great increase in the exports of the
years 1871-1874 was owing not to the natural growth
of trade, but to the abnormal stimulus given to exportation
by the vast sums which England had then contracted to
lend to foreign nations, we append a statement of the
AND ENGLISH COMMERCE.
59
annual exports (in millions) of the four years which followed
the cycle of 1871-1874, viz:-
1875
1876
1877
1878
£281.
257.
...
252.
...
245.
£1,035.
Annual average, £259.
>>
It is evident, therefore, that, as soon as the "abnormal
stimulus to exportation was withdrawn by the cessation
of England's mania for making foreign loans, the amount
of our exports rapidly diminished, and they have continued
gradually receding until at the present time they have fallen
to the exact point in 1870 (£245,000,000 per annum)
from which they darted forward so briskly in 1871.
No small portion of the loans made to foreign countries
had been handed over direct to them in the shape of
commodities required for national purposes, such as iron
rails, locomotives, iron steamers, machinery, fire-arms,
steam-coal, and similar objects; and while exportation
generally was stimulated to an unprecedented extent, the
articles above referred to were, beyond all others, forced up
to unnatural prices. Of course, these were the articles that
most keenly felt the reaction. England, after 1874, not
only lent money abroad much more sparingly, but had
yearly to receive more from abroad for interest and divi-
dends. Exportation, therefore, no longer artificially excited,
gradually fell off, and now flows within its former natural
channels, so that compared with its previous impetuosity,
the current appears to have become languid and sluggish !
So much for the causes of the transient prosperity of the
years 1871-1874, and for their bearings on the depression
in trade that has since prevailed.
FREE TRADE
60
1
CHAPTER XV.
FALL IN PRICES SINCE 1874.
We have already adverted to the fact that the great increase
in the amount of our exports in 1872 and 1873 was more
the result of advanced prices than of augmented production.
Similarly the decrease in the amount of our exports since
then has been far more the result of diminished prices than of
diminished supply. We will endeavour to verify and as
nearly as possible measure this decline in values.
We append a table of the comparative quantities and
values of the leading articles of export for the years 1872 and
1878 respectively, these years being the highest and lowest
points of our exportation since 1868. It will show, among
other interesting inferences, that the amount exported in
1878 represents nearly as many tons, yards, &c., of goods,
as the larger amount exported in 1872.
TABLE.--IN MILLIONS AND TENTHS OF MILLIONS; THAT 15, 00,000's
OMITTED.

QUANTITIES QUANTITIES AMOUNTS AMOUNTS
!
ARTICLES EXPORTED.
IN 1872.
IN 1878.
IN 1872.
IN 1878.
£
£
Alkali....
cwts.
4.5
5.6
2.5
2.
Bags and Sacks.......doz.
3.7
5.2
1.6
1.6
Coal, Coke, &c.
.tons
13.2
15.5
10.4
7.3
Cotton Yarn…….
lbs.
212.3
250.5
16.7
13.
Cotton Goods
Iron and Steel
Linen Goods
Linen Yarn
Woollen Yarn
yds.
3,538.
3,618. I
63.5
48.
.tons
3.4
2.3
36.
18.4
•
yds.
245.
161.
8.2
4.9
lbs.
31.2
18.5
2. I
I.2
.lbs.
39.7
31.2
6. I
3.9
Worsted Stuffs
+
..yds.
345.
192.6
20.9
7.4
4,436.
4,300.5
168.
107.7
It appears from the above, supposing that the important
articles named afford a fairly approximative index to the rest
that if the quantities exported in 1878 had been at the same
prices as ruled in 1872, the amount thereof would have been
AND ENGLISH COMMERCE.
6I
£162,900,000 instead of the actual amount, £107,700,000;
consequently the general fall of prices must have been in
that proportion, viz., 34 per cent.; of course, the decline
was lighter in some articles, and heavier in others, but that
must have been the average percentage.
*
On the other hand, the prices we paid in 1878 for our
imports were also much reduced, though not in the same
proportion, because in them the previous rise had not been
great. By a table, which will be found in next page, of
the comparative quantities and values of the leading articles
of import for the years 1872 and 1878 respectively, it will
be seen that the average decline since the former year in
the prices of those articles is about 22 per cent.
For, taking the leading articles selected as a criterion
for the rest, if the quantities imported in 1878 had been
worth the same prices as those which ruled in 1872, the
amount thereof would have been £285,500,000, instead
of the £222,200,000 that they actually did amount to.
Consequently the general fall of prices must have been
in that proportion, viz., 22 per cent.
That this fall in values is chiefly due to reaction from
their sudden inflation in 187 1-2-3 is beyond all question,
but it must be observed that the fall has been hastened and
probably intensified by another cause that is working slowly
and silently, but efficiently and continuously. We allude
to the diminished, and still diminishing, production of gold,
in the face of the yearly extension of its use for currency
purposes. Not only are the auriferous districts of California
* In these calculations we have taken for basis the total quantities
and the total amounts. In working out each article separately, the
result is somewhat different, because in some years the changes are
greatest in those items which represent the greatest value, while, in
others, the contrary occurs. But in the long run these variations cor-
rect each other, and for the comparison of large results, the total values
of the total quantities constitute sufficient data to indicate the general
tendency. The per-centages of fall on the various items by themselves
are as follows :-Alkali, 35 per cent.; bags and sacks, 30 per cent. ;
coal and coke, 40 per cent.; cotton yarn, 34 per cent. ; cotton goods,
26 per cent.; iron and steel, 25 per cent. ; linen goods, 9 per cent. ;
linen yarn, no change; woollen yarn, 19 per cent. ; and worsted stuffs,
37 per cent.
The above remarks also apply to imports.
62
FREE TRADE
TABLE.-IN MILLIONS AND TENTHS OF MILLIONS; THAT IS, 00,000's
OMITTED.

QUANTITIES QUANTITIES AMOUNTS AMOUNTS
ARTICLES IMPORTED.
IN 1872.
IN 1878.
IN 1872.
IN 1878.
£
£
Bacon
cwts.
1.8
ปี
लं
3.5
3.8
6.7
Butter
I. I
1.8
6.
""
9.9
Cheese
Coffee
I. I
2.
""
3.
4.9
1.5
1.3
5.2
6.
Corn Wheat
42.
49.8
26.
27.4
Flour
4.4
7.8
4. I
6.8
Maize,
Barley, &c.
""
55.3
71.6
20.7
24. I
Cotton (Raw)
12.6
12.
>>
53.6
33.5
Flax
2.
1.6
5.
3.5
Hides
I.4
I.2
4.9
3.5
Jute
4.
4.2
4.
3.2
Linseed
1.5
1.9
4.5
Rice
""
6.9
6. I
3.5
Silk (Raw)
...lbs.
7.2
4.2
7.7
557
4.9
3.2
3.7
Sugar
.cwts.
15.5
18.2
21. I
20.8
Tea
..lbs.
186.
205.5
12.8
13.1
Tobacco
46.5
91.4
2.6
Wine
galls.
19.9
16.5
7.7
6.
فارض
3.7
Wood & Timber ...loads
4.9
5.3
12.7°
13.1
Wool
...lbs.
302.9
395.5
IS. I
22.8
Woollen Yarn
II.7
11.3
1.4
1.4
730.2
912.7
228.4
222.2
and Australia yielding smaller quantities than formerly, but,
at the same time, gold has been rapidly replacing silver as
the chief circulating medium of France, Germany, and
Holland; and as the bi-metallic system loses ground, the
currency of Europe will consist more and more of gold, and
will absorb it in greater quantities. Tending in the same
direction is the fact that the greater the production, the
commerce, and the wealth of the world, the larger become
its circulation requirements. As the objects constituting
material wealth multiply, so either the number of golden
counters by which they have to be represented must be
multiplied in the same proportion, or else, each counter will
AND ENGLISH COMMERCE.
63
have to represent more of such objects than before, that is
to say, prices will have to fall.
For a time, the increasing demand for gold was amply
met by copious supplies from California and Australia.
Indeed at one period it was thought that there would be a
great excess of supply, and speculations were rife as to the
extent to which prices might be expected to rise in con-
sequence. But, for some years past, the yield of the gold-
fields has fallen off, and has not kept pace with the increased
demand for gold. If this disparity should continue, and
a fortiori, if it should become greater, there must necessarily
ensue a corresponding fall in the money-equivalent, or price,
of all commodities. Were it not for two incidental cir-
cumstances, this general fall of prices would be of little
importance, as commodities would still retain the same
relative, or exchangeable value, and the wealth of the world.
would remain unaltered. But these two circumstances,
which are
as follows, introduce some rather complex
elements into the subject.
1. The recipients of fixed incomes, such as interest on
loan investments, &c., will have to receive the same nominal
sum, whatever rise may take place in the value of money,
and, in proportion to such rise, will they be receiving more
than the real amount contemplated when those liabilities to
them were originally contracted. Such variations are of
small consequence as long as they keep within a limited.
range. There have constantly been some fluctuations in
the value of money, but these have never gone beyond
certain bounds, and the oscillations have sometimes moved
in one direction, sometimes in the other. But should the
supply of gold persistently continue inadequate to the
demand (and it must be remembered that, besides what is
used in the arts, the actual wear and tear, by abrasion, &c.,
and loss by shipwreck, hoarding, &c., amount to many
millions per annum), the aggregate deficiency year after year
must be productive of serious changes in the relations
between the payers and the receivers of fixed annual sums;
between the governments throughout the world and their
-creditors, the holders of stock. If the time should come
64
FREE TRADE
when gold shall have so increased in value as to acquire
twice the purchasing power which it now possesses, England,
for instance, will find herself in a very peculiar position.
The yearly interest of her own debt, if then nominally the
same, will in reality be twice as costly and onerous as it now
is; while, on the other hand, the £50,000,000, or there-
abouts, which the British public now receive yearly from
abroad for interest, &c., on foreign investments will, if then
paid, be equivalent to £100,000,000 of money at its
present value; or, as the sum would be received in imports
at half the present range of prices, foreign nations will have
to send to England twice the quantity of commodities which
they now send, in payment of the same nominal sum.
2. A tendency to lower prices is generally adverse to the
revival of trade. Capital and credit, the two wheels on
which commerce revolves, and without which it drags, keep
aloof from falling markets, and distrust the security of
property that is declining in money value. It is when prices
are rising that capital and credit freely come forward and
accelerate the rise. They like to connect themselves - with
prosperity, and it is their recklessness in assisting it that
often pushes it beyond the mark; just as, when the reaction
comes, the wild rush of alarm with which they tear them-
selves away aggravates the panic from which they seek to
fly. It is best for the interests of trade that prices should
remain as steady as possible, or, at all events, should be free
from other fluctuations than those to which it is inherently
liable. But unless the increasing circulation requirements
be met by an increasing supply of the medium of circulation,
the divergence will materially affect the stability of prices,
independently of all other causes.
The disturbing influence which a very deficient gold
supply would exercise may, let us hope, be averted by
increased production, and even if not, it is only by degrees,
and in the course of years, that its effects would be felt to
any severe extent. We thought it right, however, when
treating of the fall of prices, to advert to a cause which,
although only a subordinate one for the present, is likely, as
time advances, to become more and more powerful.
AND ENGLISH COMMERCE.
65
CHAPTER XVI.
COMPETITION IN NEUTRAL MARKETS.
IN 1872 our exports amounted to £314,000,000. In 1877
they had sunk to £252,000,000. To what extent was that
decline in our exports due to the successful competition in
neutral markets of our foreign rivals? An interesting and
important question, which the detailed information afforded
us by the Board of Trade returns will enable us to solve
without difficulty. On examination, we find that the
deficiency of £62,000,000 in the exports of 1877 as com-
pared with those of 1872, is entirely made up of the decline
of our exports to six only out of the 56 countries enu-
merated in table at p. 50, with which we trade. Here
are the figures, the accuracy of which are beyond all
dispute.
EXPORTS IN MILLIONS AND TENTHS OF MILLIONS
(00,000's OMITTED).

IN 1872.
IN 1877. DEFICIENCY.
£
£
To Russia
To Germany
To Holland
To the United States
To Egypt
...
To South American Republics,
viz., Columbia, Uruguay,
Peru
9.5
6.
3.3
43.I
28.9
14.2
24.3
16.
8.3
323
4
...
45.9
19.9
26.
7.3
2.3
5.
8.4
3.4
5.
ம்
•
138.5
76.7
61.8
E
66
FREE TRADE
Our total Exports in 1872 were £314,000,000
""
1877
""
252,000,000
Deficiency £ 62,000,000
which is (within a fraction) the deficiency on our exports to the six
states named.
It is quite clear, therefore, that the large diminution
referred to in the amount of our exports in 1877 arose
entirely out of, and is fully accounted for by, our dealings
with the six States indicated. To the rest of the world
we have exported as much in amount in 1877 as in 1872,
and, taking into consideration the fall in prices, at least
25 per cent. more in quantity. Taking the average of
the other fifty markets which we supply with goods, they
have last year taken from us 25 per cent. more in weight,
measure, and bulk than they did in 1872, when, in conse-
quence of high prices, the amount of our exports reached
the highest point. To put it in another way, if we leave out
the six countries we have referred to, to the rest, that is to the
fifty neutral markets, our exports in 1872 at the high prices,
amounted to £175,000,000, whereas in 1877, had the same
prices existed, they would have amounted to £219,000,000.
We have taken 1877 as the basis of calculation because the
reports of that year were complete, but our remarks and
inferences are quite as applicable to 1878, as the exports
were then within two per cent. of the former year, and for
that difference we have amply allowed by taking the fall
of prices at 25 per cent., which is less than the reality.
In the face of these facts, there does not exist the
slightest ground for supposing that we have been sup
planted to any extent whatever in the neutral markets of
the world. On the contrary, we have been sending to
them and receiving from them more and more goods
every year. A collateral proof of this fact will be found
in the following statement of the tonnage of British and
foreign vessels (sailing and steam), entered and cleared
each year with cargoes at ports in the United Kingdom
from and to foreign countries and British possessions :-
AND ENGLISH COMmerce.
67
...
::
31,624,680 tons
35,502,797
37, 154, 292
>>
1870
1871
1872
1873
1874
...
1875
1876
1877
...
...
37,934,422
38,834,893
39,453,667
""
42,537,484
43,326,980
It is also deserving of notice that as we admit foreign
manufactures free of duty we should, if we were undersold
by them at all, be undersold in our own country nearly as
effectually as in neutral markets; yet what is the fact? Of
our total imports 91 per cent. consist of raw materials and
articles of food, and barely 9 per cent. consist of manu-
factured articles; while of this fraction, fully half consists of
silks and woollen fabrics, which we have always been in the
habit of importing. In contrast to this, 92 per cent. of our
exports consist of manufactured goods, and only 8 per cent.
of raw produce, of which latter two-thirds consist of coal,
coke, and pig iron.
Let us now examine our position with regard to the six
countries to which our exports in 1877 were £62,000,000
less than in 1872. Is this serious diminution the result of
foreign competition, and have we been supplanted in those
six countries by our rivals? Not at all! The real causes
are obvious. In the case of the United States, it is in-
creased import duties that have excluded our goods from
their markets. It is protective tariffs that have curtailed
both their and our foreign trade. If the Americans prefer
a policy of commercial isolation, that is not our fault,
and it proves anything but our inferiority in the art of cheap
production. Our exports to Germany (direct and through
Holland) received a sudden and enormous expansion in
1872 and 1873, chiefly owing, no doubt, to the expen-
diture of the French war indemnity, but the trade soon
subsided to its previous level. In the case of Egypt and
the three South American republics, they have bought less.
from us recently because we have lent them less. In
1872 we sold them large quantities because they paid us
68
FREE TRADE
with our own money. In 1877 we sold them much less
because they then had to pay us with theirs. As to
Russia, the deficiency is slight, and is accounted for by
the state of her political relations with us.
It may perhaps be said that the two years that we have
selected for comparison, viz., 1872 and 1877, might happen
to furnish data exceptionally favourable to our views. We
have therefore taken the average of the three years, 1871
to 1873, to compare with the average of three later years,
1875 to 1877, and we find that they yield the same result.
Here are the figures :-
EXPORTS, IN MILLIONS AND TENTHS OF MILLIONS.

TOTAL EXPORTS TO
IN THREE IN THREE
YEARS,
1871—2—3.
£
YEARS,
1875-6-7.
TOTAL
DEFICIENCY.
£
£
...
Russia
Germany
Holland ...
...
...
31.
118.3
26. I
92 7.
4.9
25.6
United States
Egypt
::
71.
54.8
16.2
121.3
65.2
56.1
20.7
8.
12.7
Three South American Re-
publics
...
...
...
22.3
9.9
12.4
384.6 256.7
I27.9
Our total exports during the three years 1871—2—3
were
Ditto
...
ditto
ditto 1875-6-7
£910,000,000
791,000,000
Total deficiency
L119,000,000
The decline in the exports to Holland arises chiefly from
a diminution in the sendings to Germany in transit through
Holland.
AND ENGLISH COMMERCE.
69
CHAPTER XVII.
FALL IN THE WAGES OF LABOUR.
JUST as commerce, after having been unduly stimulated in
1871, 1872, and 1873, has since been suffering from the
consequent reaction, so wages, after rising enormously
during the same period, were affected by the same reaction,
and have been from that time gradually falling. The well-
being of the wage-receivers, or working men, has fluctuated
with that of the profit-receivers, or capitalists. In both
instances the intoxication arising from sudden and inordi-
nate prosperity led to improvidence and rashness. The
employers were tempted into erecting too many new mills
and factories, or into working poor mines that could only
pay as long as prices continued exceptionally high. The
operatives, in most of the flourishing industries, not content
with an advance of from 30 to 120 per cent. on their former
wages, insisted on working shorter hours, and on lessening
the value of that work by unsteadiness and unpunctuality.
In the coal districts they adopted the suicidal policy of
limiting the output with the view of enhancing prices and
keeping wages up; as if, the smaller the harvest the more
food there would be for everybody. This policy was very
much akin to that of the Dutch formerly, who are said to
have burnt all the spices their tropical islands produced
beyond a certain quantity, in order to enhance their value.
When, after the unnatural inflation, demand subsided into
its legitimate channels, wages gradually fell, and have con-
tinued to fall, in sympathy with, but hardly in the same
proportion as, the profits of capital and the prices of
commodities.
70
FREE TRADE
Against this decline the wage-receivers have (as is natural
and excusable) fought inch by inch. By concerted action,
by strikes, by the partial adoption of co-operation, and by
every weapon which trade-unionism put in their hands, they
opposed all the resistance in their power to the reduction of
their wage.
But the irresistible course of events proved too
strong for them, and they had to yield.
In former times the effects of such severe and protracted
commercial depression as that which we have gone through
would have been visible in the general destitution of the
people, in mass-meetings of hundreds of thousands of un-
employed workmen, in an immense increase of pauperism,
and in lawless and destructive riots, such as were of
periodical recurrence a generation or two ago, when we
were a highly "protected" people. That nothing of the
kind should have occurred in the present day, is no doubt
partly due to the better education and softer manners that
now prevail among the working men, but it must be
observed that the fall in prices has pressed far more heavily
on the mercantile than on the operative classes. If the
latter received less pay than before, on the other hand,
their outgoings were less, and there was more than a pro-
portionate reduction in the cost of living. Moreover, in
consequence of the fact, to which we have adverted, of
the volume of our productions not having diminished since
the culminating period of excitement, 1872, there was
plenty of work to be done, although it might be paid for
at a lower rate. If there was less employment for labour in
some branches of our industries, there was more of it in
others, and the surplus in the former quickly became
absorbed in the latter. That the transition from high to
moderate wages has not inflicted severe distress on the
wage-receivers, and that the condition of the bulk of the
people has been continuously improving, is made evident
by the following facts:-
1. Pauperism has decreased. Here are the numbers of
the paupers relieved yearly in England and Wales since
1871-
AND ENGLISH COMMERCE.
71
1871
1872
1873
1874
1875
...
1876
1877
1878
1,081,926
...
977,664
890,372
829,281
815,587
749,593
728,350
742,703
་
2. Emigration has decreased. The yearly number since
1871 of emigrants from the United Kingdom to America,
Australia, and other places, is given below :—
1871
1872
1873
1874
1875
1876
1877
252,432
295,213
...
310,614
241,015
140,675
109,460
95, 105
Against the 95,105 emigrants in 1877, there were no less
than 81,848 immigrants.
3. Convictions for criminal offences are fewer relatively
to the population. Here are the numbers of the convic-
tions for the United Kingdom and of the population since
1871-
CONVICTIONS.
1871
1872
...
16,387
15,686
1873
1874
15,741
16, 107
1875
15,643
1876
16,590
1877
16,255
...
POPULATION.
31,513,000
31,836,000
32, 125,000
32,426,000
32,749,000
33,093,000
33,447,000
Here are
4. The Excise has yielded a larger revenue.
the yearly amounts since 1871 :—
1871
1872
£23,339,000
23,386,000
1873
...
1874
25,904,000
27,116,000
1875
27,254,000
1876
...
28,300,000
1877
1878
28,408,000
28,381,000
72
FREE TRADE
5. The people consume more per head of sugar, tea,
tobacco, and imported food than ever. We give the
average annual consumption of the following articles per
head of the total population of the United Kingdom in lbs.
and rooths of lbs. :-

IN LBS. AND
IOOTHS OF LBS.
Bacon ...lbs.
Wheat
& Flour
Sugar
(Raw)
Tea
Tobacco
1871. 1872. 1873. 1874. 1875. 1876. 1877.
1.38 5.44 9.07 7.84 8.26 9.49 8.04
150.63 162.86 170.79 162.11 197.08 167.80 203.26
41.40 41.18 43.96 47.48 53.97 50.16 54.06
3.92 4.01
4. II
1.36 1.37
1.41
4.23 4.44
4 60 4.52
I.44 1.46
I.47 I.49
6. The deposits in the Savings Banks have increased.
Below is a statement showing the amount invested in both
the Trustee's Savings Banks and the Post Office Savings
Banks, year by year, from 1871 to 1877 :—
1871
1872
1873
...
1874
...
1875
1876
1877
£55,844,667
59,406,687
61,667,884
64,663,418
67,595,114
...
70,280,120
72,979,443
We come therefore to the conclusion that while the wages
of labour have undergone a considerable decline since the
extravagant rise of 1871-1873, it is no less certain that it
has by no means seriously deteriorated the condition of
either the wage-receiver or of the bulk of the community;
and that it is the manufacturing and trading classes that
have most suffered from the commercial depression that has
prevailed for the last few years.
AND ENGLISH COMMERCE.
73
CHAPTER XVIII.
COMMERCIAL AND BANKING FAILURES SINCE 1874, AND
RATIO OF FALL IN PRICES.
Ir is in the nature of things that, during the period that,
from whatever cause, prices are falling, commercial operations
should, as a general rule, result in losses. During the tran-
sition from high to low values, a purchase made one week
is dear the next. At whatever price a merchant may buy
an article, he will be undersold in a few days, or at all
events before he can get quit of his merchandise. Under
these circumstances, he naturally curtails his operations and
buys less from the manufacturer. The latter finds, therefore,
that, in spite of his having submitted to gradual reductions
in price, his stocks are accumulating; and as he cannot pay
wages and meet engagements, without making sales, he is
compelled, whatever his loss, to tempt purchasers by still
lower and lower prices. To meet this reduction in the
value of his fabric, he has to lower the rate of wages. After
a struggle the wage-receiver submits, but as he has less
money to spend among the tradespeople, they, in their
turn, come in for their share of the bad times. As the
process continues each step downward makes matters worse.
The depreciation of value extends to all sorts of property.
Not only do commodities become cheaper, but factories,
mills, mines, machinery, stock, shares in industrial enter-
prises, houses and even land, all participate in the depre-
ciation. Banking capital that has all along been freely
making advances on commercial securities, now takes fright,
and seeks to disengage itself from those investments by
74
FREE TRADE
calling in its advances or contracting their amount. This
demand falls heavily on the trader at this moment, for, in
declining markets, everything he touches loses money, what
stocks he holds have sunk in value, those who owe to him—
themselves under pressure from the same cause-defer their
payments, the credit by which he was before assisted is
now sparingly given or withheld, and he finds difficulty even
in discounting his bills. In spite of all this, he must go on,
or his business and position will be compromised. Those
who have sufficient strength and capital, withstand the
pressure and can afford to wait to recoup themselves when
good times return; but some have to give way, and one
failure leads to another.
Some banks, when deeply involved with one or more
large and over-weighted mercantile firms, have tried to prop
them up and carry them through the transition period,
hoping thus to retrieve the fortunes of both; but in most
cases they have themselves sunk under the burden, and the
efforts made to avert the catastrophe have only tended to
render it doubly disastrous. Thus enormous and unexpected
bank failures have contributed their sinister effects to the
general loss and depression.
These are the features by which the commercial history
of the last few years have been marked, and such features
have always more or less accompanied a continuous fall in
prices. The brunt of the evil has been borne by the
trading and professional (that is the middle) classes; for,
as to the wage-receivers we have before explained that the
reduction in the cost of living has nearly coincided with
the reduction in wages; and as to the receivers of fixed in-
comes, they have been, not injured, but positively benefited
by the fall in the value of commodities.
We may conclude that while the commercial and banking
failures that have occurred of late years are the outcome,
and not the cause, of the fall in prices that set in in 1874
and 1875; on the other hand, they undoubtedly contributed
to increase the gloom and ruin out of which they sprung..
Since the upward or downward tendency of prices pro-
AND ENGLISH COMMERCE.
75
duces so powerful an effect on commercial prosperity, it
becomes of the utmost importance to ascertain: (1) at what
point of the fall we have now arrived; (2) how far prices
have sunk below the level from which they started upwards
in 1871; and (3) at what stage we may fairly hope to have
reached the turning-point. The first two inquiries we may
solve without much difficulty.
By means of tables constructed on the plan of those given
at page 60 (the details of which, however, would occupy
too much space here) we have arrived at the conclusion
that the following are the exponent numbers that represent
the comparative average prices of the chief articles of our
export trade for the undermentioned eight years, taking
1861 as the standard, and assuming that the average price
of our export commodities for that year were represented by
the figure 1,000 :—
Average prices of exports for 1857 represented by 1,087.
>>
1861
1865
1867
1870
1872
TIT!
1876
1878
From the above it will be seen :-
1,000.
1,593.
1,305.
1,283.
1,396.
1,023.
923.*
1. That average prices rose to a higher point in 1865
than in 1872. This was chiefly owing to the enhanced
value of cotton goods in 1865, arising from the scarcity and
dearness of the raw material in America.
2. That prices in 1878 sank to a lower point than in any
other of the years given, and are 8 per cent. below the
average of those of 1861, which was a year of great com-
mercial embarrassment and stagnation.
* Thus, supposing the average prices of 1861 to be represented by the
figure 1,000, the higher or lower figures appended to the other years
indicate the relative rise or fall in the average prices of those years as
compared with 1861. Hence 1865 shows the highest and 1878 the
lowest prices of the series.
76
FREE TRADE
The latter is a fact of peculiar significance, and we shall
shortly advert to it more fully. But it is necessary, in order
to take an accurate survey of the course which the average
prices of all commodities have taken for some years past,
to turn to our imports, and examine into the fluctuations
of price that have taken place in that branch of our trade.
On the plan of the table given at page 62 of the com-
parative quantities and values of certain articles of import,
I have constructed a series of others by which I have
arrived at a number which represents the comparative
average price of all the articles of import comprised in that
table for each year. The articles which I have selected as
bases of calculation are 21 in number, out of about 100
which appear in the Board of Trade list, but they are by far
the largest and most important, for they constitute nearly
two-thirds of the entire amount of the imports, leaving only
one-third to be represented by the remaining 79 articles.
These, it may be assumed, fluctuate in nearly the same
lines as the larger items, and if there are any small devia-
tions in one direction or the other, they are pretty sure, in
obedience to the law of averages, to neutralise each other.
The following are the results which these investigations
have yielded. Given that the average prices of our imports
for the year 1861 shall be represented by the figure 1,000,
then
The average price of imports for 1861 is indicated by 1,000.
""
""
>>
"
"
""
1867
1870
935.
887.
1872
>>
871.
""
1876
745.
1878
678.
From these remarkable deductions let us draw a few
inferences :-
1. While our exports have generally ruled at higher
(sometimes much higher) prices than those of the year
1861, the prices of our imports have since that year been
continuously declining.
AND ENGLISH COMMERCE.
77
2. While the articles we sell now (end of 1878) command
within 8 per cent. of the prices of 1861, the articles we
buy are 32 per cent. cheaper than they were at that
period.
3. The articles of which the prices remain nearly the
same as in 1861 (those we export) consist in great measure
of manufactures. The articles of which the prices have
fallen largely since 1861 (those we import) consist almost
exclusively of raw materials and agricultural produce.
4. For the same quantity of our exported goods for
which we got £1,000 in 1861, we got £1,396 in 1872.
For the same quantity of imported goods for which we paid
£1,000 in 1861, we only paid £871 in 1872. Thus the
brisk trade of the latter year did not raise the prices of
foreign commodities, but only, for a time, checked the
rapidity of their fall.
On
5. The prices of our export goods which had in 1872
advanced 393 per cent. from those of 1861, fell in 1878 to
7 per cent. below those of 1861. This is a fall of 47 per
cent., taking 1861 as the standard, and is equivalent to a
fall of 34 per cent. on the increased prices of 1872.
the other hand, the prices of our foreign importations,
which in 1872 had fallen 13 per cent. below those of 1861,
fell in 1878 to 32 per cent. below them, which is equivalent
to a fall of 22 per cent. on the diminished prices of 1872.
In other words, the fall on our goods of 34 per cent.
between 1872 and 1878 was upon a great rise; that on
foreign goods of 22 per cent. during the same period was
upon prices already reduced.
6. The alteration that has steadily beer going on in the
relative, or exchangeable, values of the two great classes of
commodities, viz., the agricultural and the manufactured, is
very suggestive, and leads to some interesting considera-
tions, for which, however, we cannot find place here.
It is easy enough to trace the course which the price
of each separate article takes from year to year be-
cause you have to deal with single factors; but the result
is of no use in an inquiry as to the march of prices
78
FREE TRADE
generally. The difficulty is to trace the course from year to
year of the total average price of all commodities. Not only
is their variety immense, but their relative quantities must
also enter into the calculation. In the table which follows
we have averaged the price-exponents of our exports and of
our imports, making due allowance for the relative quantities.
of each. It will therefore show the relative average prices
of one year to another of the entire volume of commodities
that constitute the import and export trade of the United
Kingdom, assuming that the leading articles (in value and
bulk) fairly represent the rest. Indeed, as
our trade
embraces nearly every article of any importance which the
world produces, and as the variations in price that occur in
our markets are rapidly responded to in every part of the
globe, our table may be said, in a rough way, to represent
the relative average prices of all the world's commodities.
Given that the average prices of all the articles both of
export and import for the year 1861 shall be represented
by the figure 1,000, then
The average price of all articles for 1861 is indicated by 1,000.
""
"
1867
1870
""
""
""
1872
""
""
1876
>>
1878
""
I, 102.
1,064.
1,118.
858.
776.
We arrive, then, at the conclusion that since 1861 the
average price of commodities,
has again fallen, and is now 22
of that year, and 30 per cent.
it had reached in 1872.
after rising for some years,
per cent. below the average
below the high figure which
If a reaction from the high prices of 1872-1873 had been
the sole origin of the existing depression of trade, we must
by this time have more than reached the turning-point, for
prices have receded much beyond the level from which they
started. But another cause is at work. We have already
adverted to the influence exercised over prices by the
decreased production of gold, and the increased volume of
AND ENGLISH COMMERCE.
79
commodities which gold has to represent. The combined
operation of these two agencies, while it has no effect on
exchangeable value, has produced, is producing, and will
continue to produce, a reduction more or less rapid in the
money value of commodities. The strain on gold is the
heavier on account of the demonetisation of silver in some
countries, so that gold has to do additional work. But this
is far too large a subject to be treated in a cursory manner,
and is fully entitled to a separate and careful inquiry.
At all events, we have seen that, from whatever combina-
tion of causes, prices have descended to a lower level than
mere reaction warranted, and that the fall since 1861 has
been considerably greater on foreign goods than on those of
our own production.
80
FREE TRADE
CHAPTER XIX.
THE INCREASED EXCESS IN THE AMOUNT OF OUR IMPORTS
OVER THAT OF OUR EXPORTS.
THAT we import foreign goods to an amount largely in
excess of that of our exports, and that this excess has, of
late years, been far greater than it ever was before, are
notorious facts which have attracted general attention. The
prevailing notion among a large portion of the community
is, that this state of things is an evil, and many persons
consider that it betokens the decline of our trade and the
diminution of our wealth. "Foreign countries," say they,
"resort to every device to curtail and pare down their
purchases from us, while we go on purchasing enormously
and increasingly from them. It is not our goods but our
money that the foreigner wants in exchange for his goods;
and the increasing excess of our purchases over our sales is
the measure of our decadence." That this view of the
matter is utterly erroneous, and that it is only a reproduction
of the old exploded fallacies about the "balance of trade,"
is susceptible of easy proof. As the shortest way, we pro-
pose to establish the following propositions, which lead to
precisely opposite conclusions:
1. This excess of imports does not cause our money to
flow out of the country.
2. It is the sign, not of our decay, but of our wealth.
3. All prosperous nations import more than they export,
and vice versâ, an excess of exports nearly always indicates
an indebted or a declining country.
Before going further into the matter, let us see what have
been the actual relative values of our exports and imports
for a series of years past. It will be found that they are
considerably less divergent from each other than would
AND ENGLISH COMMERCE.
81
appear from a primâ facie view of the annual returns of
the Board of Trade. As for the imports, we must, for the
reasons given at page 49, deduct 11 per cent. from the
official returns, in order to arrive at the actual amount which
the foreign seller has to receive from us in payment of his
goods.*
As for the exports, the official returns do not, as
they do in the case of the imports, include the freight,
insurance, &c. But two-thirds of the goods we export are,
and have been for many years, conveyed to their destination
in British ships. The total tonnage that in 1878 cleared
with cargoes from British ports to foreign countries was
17,544,000 tons. Of this tonnage the proportion of British
was 12,050,000 tons, of foreign of all nations 5,494,000.
In at least the same proportion, the insurance on the cargoes
was effected in London. Two-thirds, therefore, of the 11 per
cent. freight and charges which the foreign consignees of
our exports have to pay, are paid to British shipowners and
underwriters, and must be added to the official returns of
exports in order to arrive at the real amount, which the
foreign buyer has to remit to us in payment of our goods.
Accordingly in the table, which we append, of our imports
and exports for each year since 1861, we have made the
deductions and additions called for by the above considera-
tions, and have thus elicited the real differences that have
occurred between what we have had to pay for our imports,
and what we have had to receive for our exports for the last
eighteen years.
From this table we collect that, with the exception of
1871, 1872, and 1873, we have regularly for many years im-
ported more than we exported, and that the excess of imports
during the entire series of eighteen years has, on balance, been
* It is true that only two-thirds of our imports are brought in
British bottoms, and that one-third of the II per cent. in question is
paid to foreign shipowners, but we have left this as a set-off against the
amount of freight which our immense mercantile navy earns from the
foreigners (and remits to England) on intermediate voyages between
one foreign port and another. This amount is greater than that which
we leave to stand against it.
F
82
FREE TRADE

TABLE OF THE REAL EXCESS OF IMPORTS OVER EXPORTS, OR OF EXPORTS OVER
IMPORTS, SINCE 1861 (IN MILLIONS OF POUNDS).
Gross
Year.
11 per cent.
off for
Imports.
Freight, &c.
Real
Imports.
II per cent.
Exports.
added on
two-thirds.
Real
Exports.
Excess of
Imports.
Excess of
Exports.
£
£
£
£
£
£
£
£
1861
217
24
193
160
12
1862
226
25
201
166
12
1863
249
27
222
197
14
224
172
21
178
23
211
II
...
1864
275
30
245
213
16
229
16
1865
271
30
241
219
16
235
6
1866
295
32
263
}
239
18
257
6
1867
275
30
245
226
17
243
2
1868
295
32
263
228
17
245
18
1869
295
32
263
237
18
255
10000
1870
303
33
270
244
1871
331
36
295
285
1872
355
39
316
315
1873
371
41
330
311
1 2 2 2
18
262
8
со со
21
23
23
306
- 338
334
...
II
22
4
1874
370
4I
329
298
22
320
9
1875
374
4I
333
282
21
303
30
+ ::
1876
375
4I
334
257
19
276
58
1877
394
43
35I
252
19
271
1878
366
40
326
245
18
263
63
£359
£37
AND ENGLISH COMMERCE.
83
£322,000,000, of which £231,000,000 represents the excess
on the last four years alone, viz., 1875, 1876, 1877, and 1878.
Now the question is, did we, or did we not, pay for this
£322,000,000 excess of importations in specie? Or for
what part of it did we pay in specie? Or, finally, did we pay
in specie for any part of it whatever? There is no difficulty
at all in solving this question, for we have an exact record
of all the specie and bullion we received from, and sent to,
foreign countries during the period referred to.
We open
those valuable returns of the Board of Trade, which substi-
tute for idle rhetoric the arbitrament of cold, stern, immu-
table figures, and we find as follows :—
TABLE OF EXPORTS AND IMPORTS OF GOLD AND SILVER
BULLION AND SPECIE FROM AND INTO THE UNITED
KINGDOM FOR THE FOLLOWING YEARS (IN THOU-
SANDS OF POUNDS).

YEAR.
EXPORTS.
IMPORTS.
£
£
1861
20,811
18,747
1862
29,326
31,656
1863
26,544
30,031
1864
33, 132
27,728
1865
15,092
21,462
1866
22,639
34,287
1867
14,324
28,821
1868
20,220
24,853
1869
16,377
20, 501
1870
18,920
29,456
1871
33,760
38, 140
1872
30,336
29,608
1873
28,899
33,599
1874
22,584
30,379
1875
27,628
33,265
1876
29,464
37,054
1877
39,798
37,163
1878
26,687
32,421
446,541
539,171
Showing an excess of imports of £92,630,000.
84
FREE TRADE
These figures are decisive. Far from our having sent out
any specie whatever in payment for the £322,000,000 ex-
cess of imports during the eighteen years referred to, we
actually received from abroad during that period an excess
of specie amounting to £92,630,000! This sum gives an
average of £5,000,000 per annum, which is about what it
is calculated that we require annually to supply the demand
for art purposes, to replace wear and tear, and to meet the
increase in circulation.
Let us look at it in another way. During the four years
1871, 1872, 1873, and 1874, we exported more than we im-
ported by £28,000,000; during the four years 1875, 1876,
1877, and 1878, we imported more than we exported by
£231,000,000. Now if international balances were paid in
specie, it would follow that we must have received from
abroad gold in far larger quantities than usual during the
first of those two periods; and sent away large quantities of
gold during the second. But what do we find to be the
fact? If any one will make the calculation from the figures
in the table just given, he will see that during the first
period, the balance of specie received over the specie
sent was £16,147,000, while during the second it was
£16,326,000. That is to say, during the four years that
we exported largely, we received £180,000 less specie from
abroad than we did during the four years that we imported
£231,000,000 in excess of our exports. Is it possible to
show more clearly and conclusively that we do not pay
in specie for the excess of our imports over our exports?
In fact, as we have shown before, no large international
payments are ever made in specie. The stock of it in each
country (except at places of production) is totally inadequate
to such a purpose. When in 1871 to 1873 we undertook
to send large sums abroad as loans to foreign countries,
they went not in specie, but in the shape of increased ex-
ports. France, after 1871, had an enormous indemnity to
pay to Germany. What part of it was paid in specie? The
merest fraction. In the Economist of March 15th, 1873,
there appeared a statement to the following effect :-that
AND ENGLISH COMMERCE.
85
the French Government had just completed a payment to
Germany of £94,600,000, and that the various items of
which the payment consisted were as follows :—
French gold and silver
...
...
Bank-notes, French and German
...
£6,400,000
8,200,000
Bills of Exchange on Belgium and Holland... 16,000,000
33
Germany
England
40,000,000
24,000,000
£94,600,000
The Economist adds that the £80,000,000 on Holland,
Germany, and England represent the excess of commodities
which France has furnished in order to meet the ransom;
and that, meanwhile, the bullion in the Bank of France has
been maintained at £30,000,000. Thus the circulation
requirements of France were not interfered with by this
enormous payment, and even the £6,000,000 of gold and
silver paid were probably the produce of the hoards that
had been accumulating in the old stockings and under the
hearthstones of the frugal and industrious French peasantry,
and that had not before been in circulation.
We dwell the more on this topic because it is a very
common notion that the balances due from nation to nation
are paid in specie, and it is this radical error chiefly that
leads protectionists to aim at selling as largely as possible
and buying as sparingly as possible, in the delusive hope of
getting the difference in specie. The futility of such an aim
is at once apparent, when it is clearly seen that specie is
not the medium through which the balance is maintained
between exports and imports, or through which heavy pay-
ments, from whatever cause, are made by one country to
another.
We undertook next to show that our large excess of im-
ports over exports is "the sign, not of our decay, but of our
wealth."
86
FREE TRADE
That England, or rather that individual Englishmen (using
that term generically for the inhabitants of the United King-
dom) have yearly to receive from almost every foreign
country large sums of money for interest, dividends, &c.,
on loans, shares, and other investments, everybody is aware,
but what the aggregate amount is that has thus to be annually
transmitted to this country, is a mere matter of conjecture,
and has been variously estimated at any sum between
£30,000,000 and £70,000,000 sterling. Mr. E. Seyd in
1876 estimated the indebtedness of other countries to this
at £1,100,000,000 with an annual interest of £40,000,000
to £50,000,000. Professor Fawcett, in his recent work on
"Free Trade and Protection," says that "it has been calcu-
lated by competent authorities that the balance annually due
to England as interest on capital invested in India and
America alone is about £30,000,000," which seems high,
considering that it refers to only two countries. We have
taken considerable pains to collect all available data on
which to found a conclusion, but even these still leave a
considerable margin for mere conjecture. If any one will
consult Wetenhall's official "London Daily Stock and Share
List," he will see a classified enumeration of the various foreign
securities in sterling money for which London is the central,
and, in some cases, the only market. Besides these, there
are a vast number of others which are in foreign currency,
and of which the chief markets are abroad. After analysing
these, calculating the yearly return yielded by each, and
estimating as closely as possible the portion thereof which
has annually to be remitted to England, including the
amount which India has to send each year in payment of
that portion of her government expenditure that is defrayed
here, we find the total to reach the sum of £55,700,000.
On the next page is a detailed statement of the various
classes of securities of which the total is made up.
It therefore appears that we are the recipients of an
income from abroad of about £56,000,000 per annum, in
addition to which, if we take into account the repayment of
some small part of some few loans which takes place every
AND ENGLISH COMMERCE.
87
ANNUAL INTEREST AND DIVIDENDS ON FOREIGN INVESTMENTS, &C.,
IN THOUSANDS OF POUNDS.
TOTAL.
TO BE ANNUALLY RE-
MITTED TO LONDON.
£4,628
90%
£4,165
...
10,680
117,000
15%
17,550
506
4,874
90%
4,387
I, 149
80%
919
1,542
85%
1,311
3,473
85%
2,952
6,700
20%
1,340
298
70%
208
1,991
85%
1,692
£45,710
10,000
Colonial Government Securities
Foreign Stocks, Bonds, &c., of which the dividends have all to be
remitted to London (not including the bad debts, such as Spanish,
South American, Turkish, &c.)*
Foreign Stocks, Bonds, &c., dividends payable abroad
Railways in British Possessions, chiefly India
Indian Railway Debentures, Bonds and Stocks, all
Foreign Railways, financed and dividends paid in London
Railway Obligations, Mortgages, &c.
payable in American currency.
Colonial and Foreign Mines
American Bonds and Shares-sterling-payable in £ sterling
""
Gas, Water, and Miscellaneous
Sum that has annually to be remitted by India for a portion of her Government Ex-
penditure defrayed here-average
£55,710
In addition to the above, there are a number of private industrial and other enterprises abroad, in which
British capital is engaged, and from which it derives a revenue, which are not represented or dealt in on the
London Stock Exchange.
* We insert the whole of this amount because, although the Stocks are not all held by Englishmen, it has all to be remitted
to London, where it is distributed to the investors, whether British or foreign.
88
FREE TRADE
year, the profits remitted here on British capital invested
in private undertakings never heard of on the Stock
Exchange, and those sent from numerous branch houses
abroad to the parent firms here, we shall probably find that
the amount which has to be remitted each year to England
from abroad does not fall far short of £60,000,000.
It is that large amount which, being transmitted to us in
the shape of goods, constitutes the excess of our imports
over our exports, and as long as our debtors continue to
fulfil their engagements, so long (and long may it be !) shall
we continue to witness the same excess of imports. Indeed,
it would have been considerably larger but for the cessation.
of dividend payments by defaulting states. We have for
half a century past been a lending nation, and therefore have
always been receiving an income from abroad in return for
British investments (though by no means to the same extent as
now), but a reference to the table at page 82 will show that
since 1863 and up to 1874 the excess of imports, in spite of
the income in question, was but small; and indeed, in the years.
-1871, 1872, and 1873, it was the exports that were in excess
of the imports.
Of these fluctuations the reason is obvious.
From 1863 to 1870, we were steadily investing money in
foreign loans, &c., and thus absorbing in fresh investments
part of the sums that we were receiving for interest, &c., on
our previous ones, and accordingly during those years there
was but a small excess of imports. But during the years
1871, 1872, and 1873, we suddenly and largely increased
our foreign investments; we contracted foreign loans with
indiscriminate eagerness, and lavished our money abroad
with almost blind profusion. Hence exports received an
extraordinary stimulus and an unprecedented development.
The money which the British capitalist lent was largely laid
out with the British manufacturer, mine-owner, shipbuilder,
&c. Wages rose, traders made more and spent more, and
the pulse beat quicker throughout the whole commercial
body. Thus not only were the sums absorbed that we were
receiving as returns for our previous investments, but more
was required, to provide for which we had to export in
AND ENGLISH COMMERCE.
89
excess of our imports, as pointed out at p. 58. However,
this mania for lending money to foreign countries rather
suddenly came to a stop in 1875, partly because our surplus
capital had been pretty well exhausted for a time, but chiefly
because several of the countries to which we had lent money
declared their inability to pay their dividends, and a well-
founded apprehension arose that the example would be
followed by others. These defaults caused heavy losses.
to British investors, and made them so cautious, that from
that time up to this, very little money has been lent to
foreign countries. The consequences of this change were
immediately visible. Our income from foreign investments,
which we have shown to be nearly £60,000,000, not being
neutralised by any outflow for loans as it was during the
preceding years, and being of course sent to us in goods,
there was a proportionate increase in the excess of our
imports. According to the preceding calculations, that
excess ought to be equal to the amount of our investment
income, viz., £60,000,000 per annum. On reference to the
table at p. 82, it will be seen that the excess of imports
for the four years 1875, 1876, 1877, and 1878, amounted to
£231,000,000, which gives an average of £58,000,000 per
annum.
The effect of this abstention during the last four years
from foreign investments has manifested itself in two
directions: 1. A great collapse in the export trade which
the loan system had stimulated to an abnormal extent.
The British capitalist no longer lends money to be laid out
with the British manufacturer, mine-owner, &c. Wages
have fallen, traders have made less and spent less, and the
pulse beats more feebly throughout the whole commercial
body. 2. A large accumulation in England of capital that
seeks, but cannot yet find, profitable and safe employment.
Our large income from abroad, instead of being squandered
in loans to foreign nations, is retained in the country, and is
daily adding to the mass of money that is lying unused.
The rate of interest has sunk as low as it has ever been
known, consols are rising, and seem likely to reach par, and
9༠
FREE TRADE
1
it is estimated that the amount now lodged on deposit at
the various banks throughout the United Kingdom is
upwards of £600,000,000-an amount far exceeding all
precedent.
That excess of imports proves the wealth of a country
and excess of exports its indebtedness, is a fact that
necessarily results from the foregoing considerations, and has
been the subject of some remarks at p. 12. But we shall
give here a few illustrations of its truth. On a reference to
the table at p. 50, it will be seen that, besides England,
imports are in excess of exports in Germany, Belgium, the
Netherlands, Denmark, Sweden, and Norway, all wealthy or
improving countries with debts that are moderate compared
with their foreign trade. The case of Norway is a peculiar
one. It is the large mercantile navy of that little state that
brings them in so rich a tribute from the foreigner every
year. In 1878, there entered with cargoes at British ports,
1,734,000 tons of Norwegian shipping, by far the largest of
any foreign country; Germany coming next with 1,048,000,
and the United States lagging a long way behind with
542,000. On the other hand, we find that the countries in
which the exports exceed the imports are the United States,
Spain, Turkey, Austria, Brazil, India, and Peru, all of them
indebted states with large debts as compared with their
foreign trade. As to France, she has not yet wholly
recovered from the financial and commercial disturbance
occasioned by the German indemnity, but she is rapidly
assuming her place among the over-importing countries, as
all wealthy and progressive nations must do.
AND ENGLISH COMMERCE.
91
CHAPTER XX.
THE DEPRESSION IN TRADE NOT CONFINED TO ENGLAND,
BUT PREVALENT EVERYWHERE.
IF, as some assert, free trade be the main cause of the
depression in trade that has prevailed in England for the
last three or four years, it would follow that those countries
that lived under the protective system should, by way of
contrast, exhibit great commercial activity, and be revelling
in prosperity. If it be from the unwholesome influence of
free trade that our commerce is suffering, the commerce of
those countries that are free from that influence ought to be
healthy and vigorous. But this is far from being the case.
The trade of the rest of the world is mostly in a more
depressed state than it is here. From every country on the
continent of Europe there arise loud cries of distress both
from the employers and the sellers of labour; and the
shield of protection hangs so uneasily on them that they
are asking for it to be shifted, either higher or lower, they
hardly know which. As to the United States of America,
the most highly protected country in the world, the con-
dition of the trading and industrial classes is, in spite of
their access to abundant, fertile, and cheap land, worse than
it is in Europe. Of this conclusive proofs are at hand.
the two years 1872 and 1873, at the highest point of our
commercial inflation, when labour was both scarce and dear,
466,000 persons emigrated from the United Kingdom to the
United States of America. In 1876 and 1877, when trade
In
92
FREE TRADE
here was greatly depressed, the number of emigrants had
dwindled down to 54,000 and 45,000 respectively. Indeed,
during the latter years, nearly as many returned to England
from the United States as went there. Surely the great fall
in wages here in 1876 and 1877 ought to have stimulated
our working men to leave us for America in very much
larger numbers than in 1872 and 1873 when they were
getting ample wages, and labour was in great demand.
Instead of which, quite the contrary has happened, and
emigration has almost come to a stop. How was it possible
for this to occur if the protective system was working bene-
ficially for the United States, while free trade was working
detrimentally for England? If this should meet the eye of
some working man yearning after protection, we beg that
he will ponder over that question. The fact is that while
industrial prosperity had declined in England, it had, in
spite of all the protection lavished upon it, declined in a far
greater degree in the United States. Of this, the working
classes here, deeply interested in ascertaining the value of
labour in different labour-markets, became so well aware,
that they preferred moderately low wages here to idleness or
starvation wages in the United States. It is clear, therefore,
that free trade cannot be accused of causing a state of things
which exists in an aggravated form in countries where the
contrary system prevails.
"C
As an instance (and it is an important one) of the com-
parative results of free trade in England and of protection in
the United States, let us look at the relative success of each
in securing a share in the carrying trade of the world—a
prize worth contending for. Up to 1849, Great Britain
protected" her mercantile navy by the celebrated Naviga-
tion Laws, which created almost a monopoly of our trade
for our own merchantmen. In that year, we repealed those
laws, and boldly threw our trade open to universal com-
petition. Of course, the total downfall of our mercantile
navy was confidently predicted by the protectionist party,
but their fears were not realised. Instead of decadence
came development; our mercantile marine became more
AND ENGLISH COMMERCE.
93
pre-eminent than ever; we have become the carriers for the
world, and our flag waves in every port where any trade
exists at all. This was the effect of discarding protection.
Now let us look at the working of the opposite system.
(protection) on the carrying trade of the United States.
Previously to 1860 the American mercantile marine com-
peted stoutly with our own as carriers of merchandise from
one part of the world to another, and they obtained a
considerable share of that lucrative employment for capital
and labour. Nearly three-fourths of the goods that were
sent from, or brought to, their own shores were conveyed in
United States vessels, and the Stars and Stripes were con-
stantly found alongside the Union Jack in the principal
trading ports of the world. The unfortunate Civil War
between North and South put a temporary stop to this
competition, for with the characteristic spirit of the Anglo-
Saxon race, all the energies of the American people were
concentrated on that fierce struggle. But after the close of
the war there was apparently nothing to prevent the Ameri-
can ship-owners from resuming their rank among the
mercantile navies of the world. One thing, however, had
occurred meanwhile which destroyed all their chances of
success. The protective system had assumed formidable
dimensions. The ruling party carried it out to an unprece-
dented extent, and by the imposition of excessive import
duties shut out cheap foreign goods, to be replaced by dear
native ones. Prices were raised thereby to such a point
that it became no longer possible for America to construct
and equip merchant ships (whether sailers or steamers)
on terms that would allow the owners to compete with
British merchantmen, and the latter have accordingly had
the carrying trade almost to themselves ever since. The
United States, nevertheless, possess a large and very fine
mercantile navy, but its operations are in great measure
restricted to their extensive coasting and internal trade.
Owing to her immense sea-board bathed by two vast oceans,
the Atlantic and the Pacific-to the noble rivers that afford
navigable access to the very heart of the country-to the
94
FREE TRADE
great expanse of her lakes, or rather inland seas-owing,
above all, to the free trade system that prevails between
state and state, and to the skill and enterprise with which it
is utilised in the extension of trade between one part of the
huge continent and the other, a very large tonnage is re-
quired to meet that internal demand. But when we come
to the external relations of the United States, in which free
trade is abolished and replaced by protection, American
shipping is so heavily handicapped that it is distanced by
some even of the minor states of Europe. From her own
ports her own produce is now carried away mostly in foreign
bottoms. We have before us a recent number of a publica-
tion (Dornbusch's "Floating Grain Cargoes List ") in which
the names and nationalities are given of 107 vessels which
were then loading grain for England at San Francisco,
California, and Portland, Oregon. Of these 107 vessels,
most of them of large size, 84 were British, 9 were German,
2 were French, and only 12 were American. Without
having similarly precise statistics, our inquiries lead us to
believe that in the eastern ports of the United States the
proportion of foreign tonnage employed in conveying.
American produce to Europe is equally large. Such are the
effects of discarding free trade.
It is curiously typical of the two systems adopted in the
two countries respectively, that while we in the United
Kingdom take three-fourths of the total American ex-
ports, the United States barely take one-twelfth of the total
of ours.
Some are shocked at the contrast, and think that
it means a heavy loss to us. No such thing! How can it
be a loss to us to buy what we want? It would really be a
loss if wanting a thing we could not get it, but how we lose
by getting it is not easy to understand. If, indeed, it
were forced upon us, that would be objectionable; but, no!
our purchases are quite spontaneous. Some people talk as
though it were an act of great kindness and condescension
on our part to buy largely from the Americans, and that
they ought to be very grateful to us for it. This is a
delusion. If we import cotton or wheat from the United
AND ENGLISH COMMERCE.
95
States, is it out of love and regard for our American
cousins? Do we do so in order to confer upon them so
great a favour that it entitles us to ask them in return to
alter their fiscal system in order to please us? Not a bit of
it ! We buy their commodities out of selfish motives,
because it suits us to do so, and it entitles us to no
gratitude whatever. The very men who tell us that we
ought to discourage the importation of American produce,
encourage it by eating bread made from American wheat
and wearing garments made from American cotton. If it is
so wrong to buy from Americans because they do not
choose to buy from us, why then do we do it?
"Oh!"
it will be said, "they inundate us with their wheat and
maize, and once here what can we do?" Now, it is a
great though a common mistake to say that the Americans
inundate us with their grain. Far from that being the case,
the Americans do not send us as much as one ship-load of
grain in the course of the whole year. Many years ago the
Americans used to consign a little wheat and maize to
Liverpool for sale, but of late years none at all. There are
not 100,000 qrs. of grain of all kinds imported in a year for
American account. The whole of the large importations
into the United Kingdom of American wheat, maize, &c.,
are purchases made in New York, Baltimore, &c., by
English millers and dealers, which are shipped there for
English account, at English risks, and paid for by the
English buyer before he can get possession of the goods.
This is a very different thing from sending the grain over
to seek a sale for it here. Nor does it look as if the
Americans were foisting their produce on us. They are
not pedlars who bring their goods to your door and ask you
to buy. They keep an open shop where you may go if you
want anything. If it is such a grand favour to them and
such a bad thing for you to buy their grain and their bacon
and their cotton, why do you do it? There is no com-
pulsion. The fact is that you do it for your own sake,
not for theirs; and it suits you to buy quite as much as
it suits them to sell. As to their being ungrateful because
96
FREE TRADE
they prefer making their things themselves at a heavy cost
instead of buying them cheaply from you, that is nonsense.
It may be a mistaken policy of theirs (and we are sure that
it is) to restrict their dealings with the rest of the world
when they might expand them threefold or more by
adopting free trade, but, after all, it is their own affair,
and while you may have a right to feel regret, you have
none to express indignation.
AND ENGLISH COMMERCE.
97
CHAPTER XXI.
THE EFFECT ON TRADE OF POLITICAL COMPLICATIONS AND
OF LOSSES ON THE DEBTS OF DEFAULTING STATES.
THE depression in trade, of which we have been tracing
the main causes, was no doubt in some degree enhanced
by the fear lest the political complications connected with
the Eastern Question might drag us into war. Indeed, the
evil effects of war on trade are chiefly felt just before its
commencement from uncertainty, and just after its close
from reaction. Actual hostilities occasion a large expendi-
ture on the part of Government, and a stimulus is given to
a variety of trades. Hence a brisk demand for labour and
corresponding animation among the retail dealers. Money
is rapidly circulated, and for a time the industrial and mercan-
tile classes enjoy a factitious and artificial prosperity. But at
the close of a war a reaction sets in very much akin to that
which followed the "leaps and bounds" of our commerce
in 1872–3, and stagnation and distress ensue. Thus it was,
after the termination of the long war with Napoleon in
1815, that the country underwent a crisis more severe than
any that she has since sustained. Hundreds of thousands
were thrown out of employ and were driven to desperation.
Incendiary fires, attempts at plunder, and "bread or blood"
riots spread alarm throughout the country during the years
1816 and 1817. Again, the close of the war with Russia in
1856 was succeeded by a severe panic in 1857. Numerous
failures occurred, and the aggregate liabilities of the failed
houses were computed to amount to £45,000,000. Govern-
ment had to interfere, and saved commerce from a dead-
lock by empowering the Bank to extend its issues beyond
their legal limits.
G
98
FREE TRADE
We do not think, however, that political apprehensions.
exercised much influence on the recent state of trade-
certainly less than resulted from the losses sustained by
the British investing public through the non-payment of
dividends by several indebted states. Not only did there
ensue the immediate loss of the interest that was due, but
also the fear that the capital itself was endangered. Neither
individual nor national suspensions are often followed by a
resumption of payments. When a country once forfeits its
credit by the non-payment of its dividends, it loses one
great incentive to the punctual performance of its engage-
ments, viz., the hope of contracting fresh loans. These losses
were, pro tanto, a diminution of the available capital of the
country, and thus they contributed in a certain measure to
the general depression. Fortunately the bulk of them fell
on wealthy persons, to whom they brought disappointment,
but not ruin. One compensating effect attended them.
The faith of English capitalists in the solvency and morality
of foreign governments was thoroughly shaken. Very few
fresh investments have been made abroad the last few years,
and the savings of the country, roughly estimated at from
£180,000,000 to £220,000,000 per annum, have mostly
remained at home to accumulate into the unprecedentedly
large sum that now lies nearly idle, and is eagerly seeking
fresh fields for profitable employment.
AND ENGLISH COMMERCE.
99
CHAPTER XXII.
SUMMING UP.
We have in the course of these pages endeavoured,
among other things, to show:-
1. That the amounts due by a country, or to a country,
whether for an excess of imports or of exports, or in settle-
ment of a debt, are paid, not in bullion or specie, but in
goods.
2. That for every export of goods, except what is sent to
pay a previous debt, there must be an import of goods to
the same amount, and vice versa. So that to restrict imports
is, to that extent, to restrict exports, and to diminish foreign
trade.
3. That free trade is the only system under which capital
and labour find their most natural and profitable fields for
employment.
4. That the protective system transfers capital and labour
from natural and profitable into forced and unprofitable
employments, artificially raises the cost of commodities,
forfeits the advantages accruing from the division of labour,
reduces foreign trade, and tends to isolate a country from
the rest of the world.
5. That the reciprocity or retaliatory system, were it
practicable (and it is not), would be fraught with all the
evils of protection, of which it is the reproduction under a
different name.
6. That the sudden increase of our exports in 1871:and
100
FREE TRADE
+
1872 was caused by the exceptionally large sums which,
at that period, we sent abroad by way of loans to divers
foreign countries and other foreign investments.
7. That on the cessation of that exceptional state of
things, a reaction took place, and the amount of our foreign
trade has been decreasing since 1874.
8. That while the money value of our foreign trade (com-
bined exports and imports) has declined, the bulk or volume
of the goods which we have sent out and received in, has
undergone no diminution.
9. That owing partly to reaction, and partly to diminished
gold production, a general fall has taken place in the average
price of all commodities, and it has been by far the heaviest
on those articles which we import from abroad. The
present average price of all British produce is 8 per cent.,
and the present average price of all foreign produce is 32
per cent., below the average price of the same two classes
of commodities respectively in the year 1861.
10. That the wages of labour have also fallen, but not in
full proportion to the fall that has taken place in prices
generally, so that the pressure of the times has chiefly
weighed on the mercantile and middle classes.
II. That the depression in trade was not confined to
England, but was universal, and has been severest in the
most protected countries, so that it cannot be ascribed to
free trade.
12. That we have not suffered from foreign rivalry in
neutral markets.
13. That the increased excess of our imports over our
exports is the sign of our wealth, not of our decay; and that
all prosperous nations import more than they export; while,
on the other hand, an excess of exports is a sure sign of
indebtedness.
14. That our recent abstention from foreign investments
has produced a larger accumulation in the country of un-
!
AND ENGLISH COMMERCE.
ΙΟΙ
employed floating and loanable capital than has perhaps.
ever been known.
The conclusion to which all these considerations lead us
is, that just as the free trade system enabled us to take the
utmost possible advantage of the period of prosperity, so it
has enabled us to meet the phase of reaction and adversity
with less strain on our resources than any of the protected
countries; and that any change in, or modification of, our
commercial policy would prove in the highest degree inex-
pedient and disastrous. The present combination of low
prices and of abundant capital warrant the expectation that
before long there will be a movement towards higher values.
As soon as this occurs, business operations will become
more profitable, capital will regain confidence and circulate
more freely, commerce will resume its activity, and we shall
enter on a fresh cycle of prosperous years. Such periodical
oscillations in trade are of never-failing recurrence, and we
ought by this time to be prepared for them. But instead of
this, when business is brisk and flourishing, we act as if
high prices and large profits were the normal condition of
trade; while, when prices fall and profits vanish and the
depression" comes on, we sink into gloom and despair,
fancy that things never were so bad before, that "this time"
trade is past all recovery, and we clutch at any quack
nostrum as a kill or cure" remedy.
remedy. This same thing has
happened every ten years on an average since the com-
mencement of the century, and there is no merchant with
some experience who does not remember within his own
time two or three "crises," each of them being "the worst that
ever before occurred." These alternations are, in regard to
their frequency, duration, and intensity, subject to certain
laws which it would be useful to study and bear in mind.
It may safely be predicted, for instance, that a cycle of
prosperous years will be of shorter or longer duration ac-
cording to the steadiness or the precipitancy of the upward
movement. The swifter the pace at which, and the greater
the height to which, prices are driven up, the greater will
be the corresponding reaction, and the sooner it will occur.
66
(C
102
FREE TRADE AND ENGLISH COMMERCE.
The more moderate the rate of progress, the longer will it
be before we experience a check, and the less violent will
that be when it does come.
But, no doubt, the lessons which we are thus taught will
soon be forgotten or unheeded, and when the time of ex-
citement comes, each one of us will push and press on with
all his might until prices reach their climax, when reaction
will ensue, and another period will supervene of loss, de-
pression, and gloom, similar to that through which we have
been passing, and from which we hope and believe that we
shall before long emerge.
THE END.
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་ ་ ་ ་ ་



JUST PUBLISHED,
In TWO VOLUMES, demy Svo, price 24s.
THE LIFE
OF
THE RIGHT HONOURABLE
William Ewart Gladstone,
M.P., D.C.L., &c.
BY
GEORGE BARNETT SMITH,
Author of "Shelley: a Critical Biography,"
Poets and Novelists," &c.
"A trustworthy and interesting picture of a noble life and character."-Daily News.
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epoch."-Daily Telegraph.
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admiration."-Daily Chronicle.
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Barnett Smith undertakes to write, and he has discharged the task with a minute and pains-
taking fidelity which is beyond all praise."--Observer.
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London News,
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