# Tales in Political Economy/Chapter 4

IV.
The Islanders' Experience of Foreign Trade.
Captain Adam's return in a ship of his own manned by a crew of English sailors, and laden with machinery and mechanics, was hailed with great joy by everyone in the island. The ship was a speeial attraction to every boy in Isle Pleasant, and the sailors soon became general favourites. There were a dozen lads who anxiously looked forward to the first outward-bound journey of the Carrier Pigeon, as the ship was called, for each had a hope that ​he would be wanted to make one of the crew. It was not many weeks after Captain Adam's return that the Carrier Pigeon set sail for San Francisco laden with some of the produce of nearly every industry on the island. These were plantains and plantain flour, cloth, plantain wine, many articles of clothing, some very fine specimens of cabinet work sent from the carpenter's shop, and many other things, too numerous to be set down here. Before sailing, the man who had been appointed captain of the Carrier Pigeon went to see each one of the men and women who had contributed something to the cargo, to know what they wished to have brought back in exchange for the things they had sent. He went first to the carpenter, who had reckoned that the things he had sent would fetch 20l. in San Francisco. "Your things are worth fully 20l.," said the sailor; "what shall I bring you back?" "Why, bring me 20l.," said the carpenter, "or as much more as you can get. I will give you a shilling out of every pound you bring me home." "All right," replied the sailor, and the bargain was ​struck. Everyone made a similar arrangement; for it was thought that when the ship returned and all those who had sent goods received a sum of money, they would be able to buy of their neighbours anything they wished for, and that this would be much better than spending the price of the goods in San Francisco. "We can make things for ourselves," they said; "so what's the good of buying them of the Yankees?"
So the Carrier Pigeon set sail, laden with agricultural produce and manufactured articles, that, speaking roughly, had cost every man, woman, and child on Isle Pleasant a month's labour. Everyone had sent something, and everyone anxiously waited for the return of the ship that would bring with it so much extra wealth and enjoyment (it was thought) to the whole island. If children asked their parents for a treat, the answer was, "Wait till the ship comes home." The Collinses wanted to add another room to their house, but they said they would wait till the ship came home, as they would then have money to buy the best materials and hire the most ​skilled labour. At last the Carrier Pigeon came in sight; and a few hours more brought it into the little natural harbour on the south side of the island. The captain was soon on shore. There was no cargo to unload, and therefore there was no delay. A sheet of paper, on which was written down the sum realized by the sale of the goods and the amount due to each person, and a heavy cash-box, were all that it was necessary to bring ashore. To the great joy of the islanders, their goods had sold for nearly double what they had expected. "Gold pieces are as thick as blackberries in San Francisco," said the captain. When the list was read out and the cash-box opened, everyone received a good round sum of money. The carpenter had 40l., Mr. and Mrs. Collins 37l., the best weaver 20l. Everybody had something, and even the little children received half-crowns and shillings for toys they had made and sent away to San Francisco to be sold.
After the first rejoicings at the return of the ship were over, everyone began to think what ​use he could make of his newly-gained wealth. One old man, who had waited till the ship came home before he supplied himself with a new jersey that he very much needed, came up to Mrs. Collins with money in his hand to buy one. "I'm very sorry, I'm sure," she said, "that I can't supply you. I sent away half-a-dozen, that would have fitted you exactly, in the Carrier Pigeon, and since that I've been busy making new suits for my husband and children, and so I haven't got any jerseys for sale at present." "Perhaps you'll be having some in a week or so," said the old man. "Well, I can't say, I'm sure," said she; "they say the Carrier Pigeon is to sail again in three weeks, and I want to make up a good parcel of things to send in it, for we get such good prices over there." "Well," he said, "if it's the price you're thinking of, I will give you as much for a jersey as it would sell for in San Francisco." "That's 30s.," she said. Now that was just double what the old man had paid for his last jersey; but he had a great deal more money now than he had then, and he wanted ​the jersey very badly, so rather than go without it he promised Mrs. Collins the 30s., and she agreed to let him have the jersey in a week. He went away feeling that he had been very unfortunate, and that he wasn't so much better off as he expected to be in consequence of his pocketful of silver.
The Collinses, now they had received the 37l., and were also receiving higher prices in the island itself for everything they could make, began to think they should do well to buy the materials they wanted for the addition to their house. Collins went to the carpenter to hear if he could come and work for them, and to see if he could buy planks, doors, and other woodwork. He found the carpenter hard at work on a beautiful carved side-board, on which he was working, as he said, "almost night and day." "Who is it for?" said Collins. "Why, for the Carrier Pigeon, to be sure," replied the carpenter; "she's the best customer I've got." When Collins explained what he wanted, the carpenter shook his head. "Impossible," he said; "I can't do it; it's as much ​as ever I shall do to finish this by the time the Carrier Pigeon sails, and I expect it will fetch a hundred guineas in San Francisco. I've been at work on it ever since the ship left for the first time, five weeks to-day; I shall be lucky if I finish it in another three; but it'll bring me a hundred guineas if it brings me a penny." "A hundred guineas," gasped Collins, "for eight weeks' work! Why, leaving out the Sundays, that's more than a guinea a day." "Right you are," said the carpenter, chuckling; "and that's what I shall want to earn now, whatever I work at and whoever I work for." Poor Collins went away, and said to his wife, "We must do without that new room—the carpenter won't work now under a guinea a day; he says he can make that by sending things to San Francisco, and that he won't work for less." Mrs. Collins was very angry. She had been out to buy cloth and various things that she wanted for the making of the clothes she intended to send away in the ship. She had found everything either about twice the price that it had been before the return of the ship, or that it was not to ​be had at any price. Not only were the goods that were sent away much dearer, but the things that were intended only for home consumption had gone up in price also. Many of the people who had been cultivators of a kind of plantain that was eaten raw, and which was a very favourite food in the island, had given up selling the fresh fruit; they were now busy in making it into a rich preserve which they intended to send away in the Carrier Pigeon; so of course those that were sold raw were much dearer: first, because their owners would have sent them all away if they did not receive a higher price at home than formerly prevailed; secondly, because those who wished to buy them had now more money in their possession in consequence of the gold brought back in the ship, and therefore they had it in their power to give the increased price demanded.
Although everyone worked away with great energy to provide a second cargo for the Carrier Pigeon, the delight that had been caused by the return of the ship had now quite ​died away. Nobody understood how it was, but everyone knew that, although he had more money than before, he was not so well off. The money had lost a great part of its purchasing power; it was more difficult than formerly to obtain supplies of the necessaries and comforts of life. It is not difficult for us to see how this happened; they had sent away the things that really support life and add to its enjoyments; they had parted with the food and clothing that a month's labour from the whole population had been able to produce. And what had they received in return? That which would feed no hungry mouths, and cover no bare backs. The gold that was brought to them would have tended to produce a rise in prices even if it had been a free gift and if no commodities had been sent away in exchange for it. But now that the available supply of commodities for home consumption was reduced whilst the supply of money was increased, of course money became relatively less valuable; and when money and commodities were exchanged—or in other words, when purchases ​were made—more money had to be given for the same commodities than heretofore.
The fact that in sending their manufactures and "the kindly fruits of the earth" to a foreign country and receiving in return certain pieces of metal stamped in a particular way, they were parting with the things that constitute real wealth and prosperity without receiving any adequate return, at length became painfully evident to all the inhabitants of Isle Pleasant. The more food and clothing that was sent to San Francisco, the less remained to be enjoyed by the islanders; at the same time the steady flow of gold and silver into the island, together with a falling off in the domestic trade, caused a very great rise both in prices and wages.
At last the captain of the Carrier Pigeon solved the difficulty that had arisen out of the manner in which the foreign trade of Isle Pleasant was carried on. It had always been a matter of great regret to him that the Carrier Pigeon should make her return journey without a cargo. It was wasting all that a voyage ​cost to bring her home empty. Now he observed that at first when he began his voyages, nearly everything sold for much more money in San Francisco than in Isle Pleasant; yet even at first there were some things, such as boots, that were much cheaper in San Francisco than in Isle Pleasant. Then as prices and wages rapidly advanced on the island, the prices of the exports she sent to San Francisco declined there; so it soon happened that there was not more difference in the cost, for instance, of plantain flour in San Francisco and Isle Pleasant than was sufficient to provide a remuneration for the labour and risk of bringing it from one place to the other. When this point was reached of approximate equality in prices between the two places, the trade, as long as it consisted entirely of exports from Isle Pleasant paid for in money by San Francisco, began to fall off. For if they could get as much money by selling their goods at home, the islanders had no inducement to send them abroad. Now, however, the captain resolved that the Carrier Pigeon should make her return ​journey empty no longer. The next time he was in San Francisco he laid out all the money he had earned as commissions on his former voyages in commodities which either could not be produced at all in the island, or could only be produced by much more labour there than at San Francisco. Among the former articles were wines, brandy, various useful medicines, books, and cutlery; among the latter were boots and all leather goods, wool, tallow, hides, and cloth. Getting a large cargo of these things on board the Carrier Pigeon, he set sail for the island. When he arrived he was pleased to find that his cargo of goods commanded a ready sale; the islanders were very pleased with the San Franciscan things. "Look at these boots," said one; "I bought them for 18s. I couldn't have got them here under 30s., and they'd not have been near such good ones." Mrs. Collins was delighted with the cloth; she could buy for 3s. a yard cloth much superior to that which was made in the island and sold there for 4s. 6d. The result of the general satisfaction was that the captain was commissioned not to bring back ​money after his next voyage to the owners of the goods exported to California, but to spend the price of the goods in things that could be produced at a greater advantage there than on the island. As this system of trade became general, little or no money passed between the island and San Francisco; the exports being made to pay for the imports without the transfer of coin from one country to another. It will be seen that both San Francisco and Isle Pleasant were benefited by trade carried on in this manner, for the island now shared in those commodities which San Francisco had a special advantage in producing, whilst San Francisco enjoyed a similar benefit in sharing those articles for the production of which the island was specially well adapted. Thus in the old days before any foreign trade was established, it took an islander the labour of eight days to produce a very rough and clumsy pair of boots; now by getting them in San Francisco, he could obtain them by sending there as much plantain flour as cost him four days' labour. Measured in the labour necessary to obtain them, the ​boots, therefore, only cost him half as much as before. In the same way the San Franciscans could obtain plantain preserves, cocoa-nuts, and palm oil from the island at the sacrifice of half the labour, compared with that which the things would have cost to produce in their own country.
In this way it was proved to the islanders that foreign trade, to be permanent and beneficial, must be in the nature of an exchange of commodities for commodities. If one country sends commodities and is paid entirely in money, it parts with its real wealth without receiving any substantial advantage; and if this kind of trade is carried on for any length of time, prices go up in the exporting country, and go down in the importing country, till at last prices in each country are made equal, and in this case the motive for trade carried on in this way ceases to exist. For when the islanders could obtain no more money for their goods in San Francisco than at home, they naturally preferred to sell them at home rather than to run the risk and to bear the delay of ​sending their commodities to a distant country. When foreign trade is not reciprocal (that is, when one country only sends commodities and is paid by the other in money) the advantage is all on one side, and therefore it has no permanence or stability; for the country which reaps no real advantage naturally gets tired of a trade from which it derives no benefit, and after a while such a trade is certain to cease. But when two countries exchange with each other the commodities which each has some comparative facility for producing, each country is permanently benefited, and therefore such a trade will be lasting and stable in its character. It is a first condition of any kind of permanent trade that each party to it shall be really benefited by the transaction; otherwise the one who is not benefited will withdraw from the trade, which would consequently come to an end. We have seen, then, that foreign trade, although the amount of it may be measured in money, must in reality be an exchange of commodities for commodities. But we have scarcely yet inquired "what commodities?" It will perhaps ​be thought that each country will always send away those commodities for the production of which she has greater facilities than the other country to which the commodities are sent. For instance, Isle Pleasant has a great advantage over San Francisco in the production of plantains. Plantains can be grown on the island with one-fourth the labour that it would be necessary to employ to grow them in San Francisco; whereas boots can be produced at one-half the labour in San Francisco that it would be necessary to give to produce them in Isle Pleasant. Therefore a profitable trade to both countries can be established if San Francisco sends boots to Isle Pleasant, and receives plantains in return. This is very true, but it does not always happen that one country has an absolute advantage over the other in any one particular branch of industry. Sometimes, owing to the greater fertility of the soil and other natural advantages, such as geographical position and the skill and industry of the population, one country has greater facility than the other with which it trades in producing every kind of commodity; ​that is to say, that the same amount of labour and capital produces a greater return in every branch of industry in one country than in another. Yet between two such countries a trade advantageous to each may be carried on. We will suppose that Isle Pleasant loses its special advantage in producing plantains, and when this advantage is lost, that San Francisco can produce all commodities at a smaller sacrifice of labour and capital than it takes to produce them in the island. It may be thought that in this case the San Franciscans would no longer wish to supply any of their wants from the products of the island, since they have themselves an advantage over the islanders in every branch of industry. This, however, will not be the case. Although the San Franciscans have the advantage in every kind of industry, their advantage is less in some industries than in others; and if their advantage over the islanders is less, for instance, in the production of matting than in the production of leather goods, a trade might be set up which would be permanently advantageous to each country ​in which San Franciscan leather was exchanged for the matting produced on the island. Let it be supposed that in San Francisco leather can be made for one-fifth of the sacrifice of labour and capital that is necessary to its production on the island; but that matting can be made on the island at only a slightly greater sacrifice of labour and capital (say one-tenth more) than at San Francisco. Then, if there is no trade between the two countries, it follows that these commodities exchange for each other at different rates of value in the two countries. Leather being so very difficult to produce in the island, exchanges there at a very high value compared with matting: a pair of boots, we will say, would exchange in the island for forty yards of matting. But at San Francisco, although both matting and leather can be produced with less capital and labour than on the island, the San Franciscans have a much greater advantage over the islanders in the production of leather than in the production of matting; the comparative value of the two commodities is therefore very different at San ​Francisco, for there a pair of boots can be obtained in exchange for five yards of matting. Now if this is the case, it is obvious that a trade in these two articles might be set up between the two countries, and would be very advantageous to both. We will suppose that the islanders send their matting to San Francisco, and that in the first instance they obtain for it the full value of matting, measured in boots, that prevails in that country. This, as we have seen, is at the rate of five yards of matting for one pair of boots, or eight times as high a value as the matting obtains in the island. But if the trade is conducted in this way, San Francisco does not obtain any advantage from it; she does not get her matting any cheaper than she did before, and she will have no inducement unless she gains something on the transaction beyond what she previously obtained to send away her leather goods to a foreign country. The islanders, therefore, will find that if they are to obtain a market in San Francisco for all the matting they are willing ​to send there, they must consent to a reduction in its exchange value. Instead of getting eight pairs of boots for their forty yards of matting, they will perhaps eventually have to consent to take only four; and at this rate of exchange we may imagine that a permanent trade is set up between the two countries. If this is the case, the island abandons altogether the production of an article (boots) in which her industrial disadvantages are the greatest, and devotes a larger portion of her labour and capital to the production of the commodity (matting) in which her industrial disadvantages are the least. In the same way, San Francisco gives up a trade in which her superiority is small to devote herself to one in which it is great; and by this means the industrial efficiency of each country is brought to its highest possible perfection. The advantage to each country is very apparent; the islanders now obtain boots at one-fourth of the labour and trouble which it was formerly necessary to give for them. The San Franciscans, before the ​trade with the island was established, gave a pair of boots for five yards of matting; a pair of boots, after the trade is set up, exchanges for ten yards of matting, so they now obtain their matting in exchange for one-half of the labour and trouble that they had formerly to give for it.
The whole secret of the advantage of foreign trade is, that it enables each country to apply its labour and capital as far as possible to those industries in which its advantages are the greatest, or in which its disadvantages are the least. Considered in this way, free trade between nations is an extension of the principle of division of labour. It sets nations free to do those things which they can do best; just as division of labour sets individual men and women free to do that kind of work which they can do best. England can obtain wine, tea, silk, and many other foreign products, at a much less sacrifice on her own part, by producing iron and manufactured cotton goods, than she would have to give if ​she attempted to produce these foreign goods on her own soil; just as everyone who earns his own living can best obtain the necessaries and comforts of life by applying himself to the one particular occupation in which he can do his best: he exchanges the result of his labour for the result of the labour of other people, and by this means a person of quite ordinary capacity obtains a degree of comfort and luxury which no man, however clever and however industrious he might be, could furnish himself with if he relied solely on what he was able to produce directly with his own labour.
In the example just given of the exchange of boots and matting between Isle Pleasant and San Francisco, it was shown that both places gained by the establishment of the trade. The islanders got their boots at one-fourth, and the San Franciscans their matting at one-half of the previous cost. But it must not be supposed that this benefit was obtained quite free of all counterbalancing disadvantages. The ​graziers and tanners on the island had a great deal to say against the use of San Franciscan leather; the matting manufacturers at San Francisco felt themselves very hardly treated when they were driven out of the market by the matting-makers from Isle Pleasant. Both these sets of people suffered a real loss in their businesses by the establishment of the trade between the two countries. They had gradually to transfer their labour and capital to other occupations, and this could not be done without considerable loss. It must, however, be remembered, that this loss could by no possibility be avoided except by inflicting a much more than corresponding loss on all the purchasers of boots on the island, and on all the purchasers of matting at San Francisco. If the San Franciscan boots had been excluded from the island, the graziers and tanners would have been saved a certain amount of loss, anxiety, and annoyance; but, on the other hand, every man, woman, and child would have had to give four times as much for shoe-leather ​as was necessary; or, in other words, a heavy poll-tax would have been imposed in order to please a small section of the inhabitants, and to enable them to confine a certain portion of the capital and labour of the island to an industry in which they were less productive of wealth than they would be if they were applied to the manufacture of matting. In the same way, the matting manufacturers of San Francisco could only have been saved the loss consequent on the introduction of the matting from Isle Pleasant by a similar process of distributing a much heavier loss over all the consumers of matting at San Francisco. It should also be remembered, that the loss inflicted on special classes of manufacturers by foreign competition is for the most part only temporary. It drives capital and labour to the industries in which they are most productive, and eventually by this means the very men who at first were most injured by foreign competition are frequently among the chief gainers by it. Whereas the loss inflicted by shutting ​out foreign competition is permanent; it locks up capital and labour in industries where they are comparatively unproductive, and thus detracts from the industrial efficiency of the nation. One sometimes hears the expression, when a person is doing work for which he is obviously unfitted, "It is like putting a race-horse to plough." The exclusion of foreign competition, or the "protection of native industry," as it is called, generally means a process very like setting a race-horse to plough. The poor creature cannot plough as well as a bullock; but the bullock is a foreigner, so we will have none of his ploughing, and we will put a heavy tax on all land ploughed by bullocks, in order that the race-horse may always continue to do the work for which he is so ill suited.
The islanders had come face to face with the question of "protection to native industry" when the plantain groves were discovered. The free-traders, then, had carried the day; and now that the question was raised again by the ​graziers and tanners in respect of the San Franciscan leather, the free-traders were equally successful; the islanders resolutely determined to maintain the trade, and when the choice was presented to them between a temporary loss on a few among their number, and a permanent loss on the whole of the inhabitants of the island, they had little difficulty in selecting the former as the less of two evils.
THE END.
LONDON: R. CLAY, SONS, AND TAYLOR, PRINTERS.