History.

HAS THE FINANCIAL POLICY OF THE NINETEENTH CENTURY BEEN ON THE WHOLE JUST AND WISE?

AFFIRMATIVE ARTICLE.-I.

"There were times of old when sovereigns made progress through the land, and when, at the proclamation of their heralds, they caused to be scattered heaps of coin among the people. That may have been a goodly spectacle, but it is also a goodly spectacle, in the altered spirit and circumstances of our times, when a sovereign is enabled, through the wisdom of her Great Council assembled in Parliament, again to scatter blessings among the people in the shape of wise and prudent laws, which do not sap in any respect the foundations of duty, but which strike away the shackles from the arm of industry, which give new incentive and new reward to toil, and which win more and more for the throne, and for the institutions of the country, the gratitude, the confidence, and the love of an united people." -From the Speech of Mr. Gladstone on introducing the French Treaty.

I TAKE it that the distinctive financial policy of the present century is that popularly known as Free Trade, and it is a subject of great satisfaction to know that it is so simple a matter to prove to demonstration that this great policy is a sound one, and therefore just, wise, and beneficial, both to our own people and to the peoples of other nations.

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Indeed, the very term itself seems to contain within it the proof of its own justice, and it is extraordinary that we should be here discussing a matter which was proved and finally settled some thirty years ago. The question therefore occurs, Why are we doing so?" and to this the answer is a very simple, and is entirely a party-political one. The Tories last year tried the cry of "No Popery," and on that they were tremendously beaten. Taking advantage of the existing distress and depression of trade, they have again taken up, as a last resource, the already exhausted cry of "Protection," pretending with their usual plausibility that they are doing so out of consideration for the people. They know that the French Treaty will expire this year, and that the question of its renewal will come on for discussion in Parliament, and they possess a faint hope that they may by that time so successfully have imbued the people with their wilful misrepresentations, that they may have the bare possibility of defeating the Government on this question. That the good sense of the nation will prevent the realization of these projects there is not the slightest doubt.

That there is a great deal of distress, and a great depression of trade, is unfortunately true, but that neither results from Free Trade will be hereafter abundantly proved. That one or two trades have been injured by this policy may very well be, and that consequently each trade asks for and would like protection for itself, is perhaps natural enough, but this cannot be taken into account against the policy which benefits the nation as a whole. This individual desire is nothing more nor less than an extension of the wish which may probably be entertained by several persons who may carry on the same trade in the same street, and each of whom would like the others to be extinguished, so that his individual business might be thereby benefited.

The present inquiry is confined to this century, but I may just remind the reader that the policy of Free Trade was originated, although not carried into effect, in the last century by the Commercial Treaty with France then negotiated by William Pitt.

I propose in the first instance to show that this Free Trade policy is sound in principle and theory, and then to prove from experience that it is sound in practice.

The old policy was, either to prohibit the introduction of any article of foreign manufacture or produce, or to levy such enormous duties upon them as effectually to prevent their introduction.

Speaking of the past policy, Adam Smith, in his celebrated work on the "Wealth of Nations," says:

"The two principles being established, however, that wealth consisted in gold and silver, and that those metals could be brought into a country which had no mines, only by the balance of trade, or by exporting to a greater value than it imported, it necessarily became the great object of political economy to diminish as much as possible the importation of foreign goods for home consumption, and to increase as much as possible the exportation of the produce of domestic industry. Its two great engines for enriching the country, therefore, were restraints upon importation, and encouragement to exportation.

"The restraints upon importation were of two kinds :

"1st. Restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported.

"2nd. Restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous. Those different restraints consisted sometimes in bigh duties, and sometimes in absolute prohibitions.

"Exportation was encouraged, sometimes by drawbacks, sometimes by bounties, sometimes by advantageous treaties of commerce with foreign Istates, and sometimes by the establishment of colonies in distant countries."

I much regret that in this branch of the subject this article will consist almost entirely of quotations, but to prove a principle, I conceive I am compelled to show the authorities on which my

opinion is based, and the matter quoted, coming from the lips or pens of men eminent in financial science, can tell its own tale better without than with any comments of mine.

In speaking of the "unreasonableness of those restraints (on importation) even upon the principles of the commercial system," Dr. Smith proceeds thus :

"Those mutual restraints (by France and England) have put an end to almost all fair commerce between the two nations, and smugglers are now the principal importers, either of British goods into France, or of French goods into Great Britain. The principles which I have been examining in the foregoing chapter took their origin from private interest and the spirit of monopoly; those which I am going to examine in this, from national prejudice and animosity. They are, accordingly, as might well be expected, still more unreasonable. They are so even upon the prin ciples of the commercial system.

"1st. Though it were certain that in the case of a free trade between France and England, for example, the balance would be in favour of France, it would by no means follow that such a trade would be disadvan tageous to England, or that the general balance as to its whole trade would thereby be turned more against it. If the wines of France are better and cheaper than those of Portugal, or its linens than those of Germany, it would be more advantageous for Great Britain to purchase both the wine and the foreign linen which it had occasion for of France, than of Portugal and Germany. Though the value of the annual importations from France would thereby be greatly augmented, the value of the whole annual importations would be diminished, in proportion as the French goods of the same quality were cheaper than those of the other two countries. This would be the case even upon the supposition that the whole French goods imported were to be consumed in Great Britain.

"But secondly. A great part of them might be re-exported to other countries, where, being sold with profit, they might bring back a return equal in value, perhaps, to the prime cost of the whole French goods imported. What has frequently been said of the East India trade might possibly be true of the French,-that though the greater part of East India goods were bought with gold and silver, the re-exportation of a part of them to other countries brought back more gold and silver to that which carried on the trade than the prime cost of the whole amounted to. One of the most important branches of the Dutch trade, at present, consists in the carriage of French goods to other European countries. Some part even of the French wine drunk in Great Britain is clandestinely imported from Holland and Zealand. If there was either a free trade between France and England, or if French goods could be imported upon paying only the same duties as other European nations, to be drawn back upon exportation, England might have some share of a trade which is found so advan tageous to Holland.

"3rdly, and lastly. There is no certain criterion by which we can determine on which side what is called the balance between any two countries lies, or which of them exports to the greatest value. National prejudice and animosity, prompted always by the private interest of particular traders, are the principles which generally direct our judgment upon all questions concerning it. There are two criterions, however, which have frequently

been appealed to upon such occasions: the Custom-house books, and the course of exchange. The Custom-house books, I think it is now generally acknowledged, are a very uncertain criterion, on account of the inaccuracy of the valuation at which the greater part of goods are rated in them. The course of exchange is, perhaps, almost equally so."

That which Dr. Smith in 1775 shadowed forth as the probable result of a financial policy such as that which we have adopted, it will be seen has actually come to pass. But I give his own words:

"I have endeaured to show, even upon the principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous.

"Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which not only these restraints, but almost all the other regulations of commerce, are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies, may be, and coinmonly is, disadvantageous to the country in whose favour it is meant to be established, as I shall endeavour to show hereafter. But that trade which, without force or constraint, is naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both.

"By advantage or gain, I understand, not the increase of the quantity of gold and silver, but that of the exchangeable value of the annual produce of the land and labour of the country, or the increase of the annual revenue of its inhabitants.

"If the balance be even, and if the trade between the two places consist altogether in the exchange of their native commodities, they will, upon most occasions, not only both gain, but they will gain equally, or very near equally; each will in this case afford a market for a part of the surplus produce of the other: each will replace a capital which had been employed in raising and preparing for the market this part of the eurplus produce of the other, and which had been distributed among, and given revenue and maintenance to, a certain number of its inhabitants. Some part of the inhabitants of each, therefore, will indirectly derive their revenue and maintenance from the other, as the commodities exchanged too are supposed to be of equal value, so the two capitals employed in the trade will, upon most occasions, be equal, or very nearly equal: and both being employed in raising the native commodities of the two countries, the revenue and maintenance which their distribution will afford to the inhabitants of each will be equal, or very nearly equal. This revenue and maintenance, thus mutually afforded, will be greater or smaller in proportion to the extent of their dealings. If these should annually amount to £100,000, for example, or to a million on each side, each of them would afford an annual revenue in the one case of £100,000, in the other of a million to the inhabitants of the other.

"The sneaking arts of underling tradesmen are thus erected into political maxims for the conduct of a great empire: for it is the most underling

tradesmen only who make it a rule to employ chiefly their own customers, a great trader purchases his goods always where they are cheapest and best, without regard to any little interest of this kind.

"By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbours. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not, during the present and preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers. The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillity of any body but themselves.

A nation that would enrich itself by a foreign trade, is certainly most likely to do so when its neighbours are all rich, industrious, and commercial nations. A great nation, surrounded on all sides by wandering savages and poor barbarians, might no doubt acquire riches by the cultivation of its own lands, and by its own interior commerce, but not by foreign trade. It seems to have been in this manner that the ancient Egyptians and the modern Chinese acquire their great wealth. The ancient Egyptians, it is said, neglected foreign commerce, and the modern Chinese it is known hold it in the utmost contempt, and scarce deign to afford it the decent protection of the laws. The modern maxims of foreign commerce, by aiming at the impoverishment of all our neighbours, so far as they are capable of producing their intended effect, tend to render that very commerce insig nificant and contemptible."

Dr. Smith also inquires into the operation of the Corn Laws in a similar manner, and shows that the abolition of these laws must be advantageous to the country. On this part of the subject, however, I confine myself to a quotation from a supplemental note by Mr. McCulloch, the editor of the edition of Dr. Smith's work from which I have quoted. He says:—

"But the increase of prices is not the worst consequence of restricting the importation of corn. The fluctuations it occasions are still more injurious than their enhancement. Now that the freedom of the corn-trade is established, our prices can hardly ever differ more than 10s. or 12s. a quarter from the prices of corn of equal quality in the surrounding countries; for the expense of conveying a quarter of wheat from the United States, Dantzig, Hamburgh, &c. to London, does not exceed that And when prices in one country are governed by the average prices of the surrounding countries, they must necessarily approach much more nearly to a common level than under the restrictive system. The larger the surface from which a country draws it supplies of food, the less likely is it to be injuriously affected by variations of harvests. The weather that is unfavourable to the crops raised in a particular district, is

amount.