are most used in support of free trade, and which historically had most influence.

The test of the relative advantages of different modes of employing an equal amount of capital is not merely the quantity of productive labour that is put in motion; but "likewise the value which that employment adds to the annual produce of the land and labour of the country.""

On Adam Smith's view of national advantage it is true that the labour of the country should be as fully employed as the amount of capital will allow; but it is equally true also that this labour should be employed in the most economical or most effective

manner.

If we look merely to the employment of labour we fall at once into the popular fallacy of "making work," which, if acted on, except in temporary emergencies, is always prejudicial to the interests of labour as a whole. There are endless examples of the evil effects of this most popular of all fallacies: the "work made" by the old Poor Law for the unemployed and the partial recrudescence of a similar remedy in our own times; the "work made" by some of the old regulations of Trade Unions; the opposition to the introduction of machinery on account of the displacement of labour-these are illustrations on a large scale of the national loss involved in "making_work"; which in other words in general means "wasting labour."

Adam Smith disposes of the "making work" fallacy

1 Book II. chap. v., first sentence.

by taking account of the whole productive forces of the society which are engaged in getting the great annual revenue for the people. And his argument here gives what is still the best presentation of the most popular argument for free trade, the argument, namely, from cheapness. "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country being always in proportion to the capital which employs it will not thereby be diminished no more than that of the above-named artificers; but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make. The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition that commodity could be purchased from foreign countries cheaper than it can be made at home; it could therefore have been purchased with a part only of the commodities, or what is the same thing with a part only of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. The industry of the country,

therefore, is thus turned away from a more to a less

advantageous employment; and the exchangeable value of its annual produce instead of being increased according to the intention of the lawgiver must necessarily be diminished by every such regulation."

The words italicised suggest the essence of the argument, and it will be observed that even in this, the most familiar of all the free trade arguments, the popular interpretation is generally more simple than that of Adam Smith himself. Adam Smith does not content himself by saying that it is best for the consumer to buy in the cheapest market. In this passage he does not even mention the consumer.1 As always, labour is made fundamental; labour and the reward of labour. If we take account of the whole labour of the country there is an advantage to that labour if we import goods that can be bought at a cheaper price than we can make them; because in this indirect way we employ less labour in making the particular things in question, that is to say, we avoid "making work" by prohibitions; and with the labour set free we make "something else" instead of "work." The argument is clenched by the famous illustration of the wine made from Scottish grapes. "By means of glasses, hotbeds, and hot-walls very good grapes can be grown in Scotland, and very good wine can be made of them, too, at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines merely to encourage the making of claret and Burgundy in Scotland?"

1 See next chapter.

In an extreme case like this-or that of Bastiat's candlemakers' petition against the sun, perhaps suggested by it-every one would probably admit that making work by artificial restraints would not increase employment and its reward, when the question is regarded from the national point of view and not from the point of view of particular interests.

§ 8. Fourth Answer: Displaced Labour and Capital will find Employment at Home.

In economics the principle of continuity warns us that a difference in degree may often amount, for practical purposes, to a difference in kind. In other words, the argument from extreme cases is often fallacious.

Adam Smith, however, in this case pushes the argument of the grapes to the extreme limit. "But if there would be a manifest absurdity in turning towards any employment thirty times more of the capital and industry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted, there must be an absurdity, though not altogether so glaring, yet exactly of the same kind, in turning towards any such employment a thirtieth, or even a threehundredth part more of either." But as the following sentences show, this argument implies (as in the former extreme case) that the displaced capital and labour can find other and more advantageous employment. For he continues: "Whether the advantage which one country has over another be

natural or acquired is in this respect of no consequence. As long as the one country has those advantages, and the other wants them, it will always be more advantageous for the latter to buy of the former rather than to make. It is an acquired advantage only which one artificer has over his neighbour who exercises another trade; and yet they both find it more advantageous to buy of one another than to make what does not belong to their particular trades."

"1

It is clear that Adam Smith's argument in favour of free imports can only be reconciled with his position on the relative advantage of the home employment of capital and labour, if it is proved that in fact (and not merely as an assumption) the capital and labour displaced by the foreign import will find employment at home. If the result were that the capital would be sent abroad, or if it would not be replaced as it gradually was worn out, and if labour was unemployed or forced to emigrate the effect on the total of home industry would in general be disadvantageous, according to Adam Smith's ideas of advantage, i.e. from the national standpoint.

In this connection it is noteworthy that Adam Smith states that "in manufactures a very small advantage will enable foreigners to undersell our own workmen, even in the home market." 2 And accordingly he argues that it is merchants and manufacturers (as contrasted with agriculturists) who