generally is that it employs a large amount of nonBritish labour; and that British merchants may send goods between foreign countries in foreign ships.

It must be remembered also that Adam Smith gave great praise to the Navigation Laws on the ground that they gave encouragement to British ships and British shipping. In treating of the pure carrying trade he deals with the point that to Britain the carrying trade is of peculiar advantage, because "its defence and security depend upon the number of its sailors and shipping." But he replies the same capital may employ as many sailors and shipping either in the foreign trade of consumption or even in the home trade when carried on by coasting vessels as it could in the carrying trade. Then again he observes that the number of sailors and shipping which any particular capital can employ does not depend on the nature of the trade, but partly on the bulk of the goods in proportion to their value and partly on the distance of the ports between which they are to be carried; chiefly on the former of these two circumstances. "The coal trade from Newcastle to London, for example, employs more shipping than all the carrying trade of England, though the ports are at no great distance." He concludes, therefore, that "to force by extraordinary encouragements a larger share of the capital of the country into the carrying trade than would naturally go into it will not always necessarily increase the shipping of that country."

§ 9. General Summary.

The national point of view is made prominent in the general summary of the argument. "The capital employed in the home trade of any country will generally give encouragement and support to a greater quantity of productive labour in that country and increase the value of its annual produce more than an equal capital employed in the foreign trade of consumption; and a capital employed in this latter trade has a still greater advantage over an equal capital employed in the carrying trade." The question is looked at from the standpoint of the particular country concerned. "The riches and, so far as power depends upon riches, the power of every country must always be in proportion to the value of its annual produce, the fund from which all taxes must ultimately be paid. It ought, therefore, to give no preference or superior encouragement to the foreign trade of consumption above the home trade, nor to the carrying trade above either of the other two." At the time when Adam Smith wrote it was an essential part of the mercantile system to encourage exports. Such encouragement was given by treaties of commerce, by the monopoly of the colonial trade, and especially by the method of bounties on exports.

In our own day there has been a recrudescence of the idea that the prosperity of a country is to be measured by the growth of the export trade. Adam Smith's insistence on the importance of the employ

ment of capital at home is aimed at this policy when he says that no artificial encouragement ought to be given to the foreign trade.

Again, in his view all foreign trade-except in the case where a country was purely passive-involved the export of part of the capital of the country, at any rate for a time. In proportion to the length of the time the capital was kept out of the country was the measure of its disadvantage.

The importance of the employment of capital at home is also shown in his estimate of the distribution of the advantage of foreign trade between different countries. That country gains the greatest advantage in whose exports there is the largest proportion of native produce and the least of mere re-exports.

1

§ 10. Importance of the Home Market. In considering generally the relations of the industry of the towns and that of the country-" the greatest and most important branch of the commerce of every nation is that which is carried on between the inhabitants of the town and those of the country -a passage occurs of singular significance: "Whatever tends to diminish in any country the number of artificers and manufacturers tends to diminish the home market, the most important of all markets, for the rude produce of the land, and thereby still further to discourage agriculture." Adam Smith's criticism

1 Book IV. chap. iii. part ii.

2

2 Book IV. chap. ix. This passage anticipates the main argument of Alexander Hamilton for the policy of protection of manufacturers in the United States, viz., that towns (with manufactures) must be developed in order to encourage agriculture.

of Mun, the great mercantilist, illustrates very forcibly the point in dispute: "The title of Mun's book, England's Treasure by Foreign Trade, became a fundamental maxim in the political economy not of England only, but of all other commercial countries. The inland or home trade the most important of all, the trade in which an equal capital affords the greatest revenue, and creates the greatest employment for the people of the country, was considered as subsidiary only to foreign trade. It neither brought money into the country it was said nor carried any out of it. The country, therefore, could never become either richer or poorer by means of it, except so far as its prosperity or decay might indirectly influence the state of foreign trade."1

§ 11. Export Duties on Wool and Coal.

Not only did Adam Smith maintain that the home employment of capital was generally more advantageous than any kind of foreign employment, but he accepted the principle that certain forms of capital should be retained specially for home use. Thus, for example, although he did not approve of the absolute prohibition of the export of wool (as enforced in his day), he approved of a very heavy export duty partly for the revenue to be obtained and partly on account of the encouragement given to the manufacture by the check imposed on the export and the consequent fall in the price. The whole passage is worth quoting as bearing on the very

1 Book IV. chap. i.

similar case of the export duty on coal under present conditions. "Every different order of citizens is bound to contribute to the support of the sovereign or commonwealth. A tax of five or even ten shillings upon the exportation of every tod of wool would produce a very considerable revenue to the sovereign. It would hurt the interest of the growers somewhat less than the prohibition, because it probably would not lower the price of wool quite so much. It would afford a sufficient advantage to the manufacturer because, although he might not buy his wool altogether so cheap, he would still buy it at least five or ten shillings cheaper than any foreign manufacturer could buy it, besides saving the freight and insurance which the other would be obliged to pay. It is scarce possible to devise a tax which could produce any considerable revenue to the sovereign and at the same time occasion so little inconveniency to anybody."

1

It would be easy to multiply instances of the importance assigned by Adam Smith to the employment of capital for the support and encouragement of

1 Book IV. chap. viii. The average price of wool 1703-1790 was 84d. per lb. (highest 13d., lowest 6d.), or about 20s. per tod of 28 lbs. (highest 30s. 4d. and lowest 14s.).

When Adam Smith made the final revision of his work (1783) the duty on the export of coal was 5s. per ton, in most cases more than the value at the pithead or even at the port. A duty was also imposed on the coal carried castwise between English ports. To this Adam Smith strongly objects as burdensome to consumers and detrimental to manufactures; and he says that "if a bounty could in any case be reasonable it might perhaps be so upon the transportation of coals from those parts of the country in which they abound to those in which they are wanted” (Bk. v. ch. ii.). This passage shows very clearly the importance, in his view, of using the natural resources of the country for the development of the home industries.