ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY

CONTENTS.


ESSAY I.

Of the Laws of Interchange between Nations; and the Distribution of the
Gains of Commerce among the Countries of the Commercial World

ESSAY II.

Of the Influence of Consumption upon Production

ESSAY III.

On the Words Productive and Unproductive

ESSAY IV.

On Profits, and Interest

ESSAY V.

On the Definition of Political Economy; and on the Method of
Investigation proper to it




ESSAY I.

OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THE
GAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD.


Of the truths with which political economy has been enriched by Mr.
Ricardo, none has contributed more to give to that branch of knowledge
the comparatively precise and scientific character which it at present
bears, than the more accurate analysis which he performed of the nature
of the advantage which nations derive from a mutual interchange of their
productions. Previously to his time, the benefits of foreign trade were
deemed, even by the most philosophical enquirers, to consist in
affording a vent for surplus produce, or in enabling a portion of the
national capital to replace itself with a profit. The futility of the
theory implied in these and similar phrases, was an obvious consequence
from the speculations of writers even anterior to Mr. Ricardo. But it
was he who first, in the chapter on Foreign Trade, of his immortal
_Principles of Political Economy and Taxation_, substituted for the
former vague and unscientific, if not positively false, conceptions with
regard to the advantage of trade, a philosophical exposition which
explains, with strict precision, the nature of that advantage, and
affords an accurate measure of its amount.

He shewed, that the advantage of an interchange of commodities between
nations consists simply and solely in this, that it enables each to
obtain, with a given amount of labour and capital, a greater quantity of
all commodities taken together. This it accomplishes by enabling each,
with a quantity of one commodity which has cost it so much labour and
capital, to purchase a quantity of another commodity which, if produced
at home, would have required labour and capital to a greater amount.
To render the importation of an article more advantageous than its
production, it is not necessary that the foreign country should be able
to produce it with less labour and capital than ourselves. We may even
have a positive advantage in its production: but, if we are so far
favoured by circumstances as to have a still greater positive advantage
in the production of some other article which is in demand in the
foreign country, we may be able to obtain a greater return to our labour
and capital by employing none of it in producing the article in which
our advantage is least, but devoting it all to the production of that in
which our advantage is greatest, and giving this to the foreign country
in exchange for the other. It is not a difference in the _absolute_ cost
of production, which determines the interchange, but a difference in the
_comparative_ cost. It may be to our advantage to procure iron from
Sweden in exchange for cottons, even although the mines of England as
well as her manufactories should be more productive than those of
Sweden; for if we have an advantage of one-half in cottons, and only an
advantage of a quarter in iron, and could sell our cottons to Sweden at
the price which Sweden must pay for them if she produced them herself,
we should obtain our iron with an advantage of one-half, as well as our
cottons. We may often, by trading with foreigners, obtain their
commodities at a smaller expense of labour and capital than they cost
to the foreigners themselves. The bargain is still advantageous to the
foreigner, because the commodity which he receives in exchange, though
it has cost us less, would have cost him more. As often as a country
possesses two commodities, one of which it can produce with less labour,
comparatively to what it would cost in a foreign country, than the
other; so often it is the interest of the country to export the first
mentioned commodity and to import the second; even though it might be
able to produce both the one and the other at a less expense of labour
than the foreign country can produce them, but not less in the same
degree; or might be unable to produce either except at a greater
expense, but not greater in the same degree.

On the contrary, if it produces both commodities with greater facility,
or both with greater difficulty, and greater in exactly the same degree,
there will be no motive to interchange.