affords support to another of Adam Smith's favourite positions.1

It is also remarkable that the first part of the old mercantile system to be seriously attacked and modified by British statesmen was this famous Navigation Act, (under Huskisson from 1821 to 1825). Commenting on the final repeal (1854) Dr. Cunningham writes: "It is impossible to say how much of the increased prosperity which has attended British shipping is due to a change of policy, and how much to the application of engineering skill in giving increased facilities for ocean traffic, but the expansion of foreign trade in the twenty years which followed the repeal of the Navigation Laws was unprecedented. The total imports and exports of British and foreign produce almost trebled, and English shipping interest shook off for a time their anxiety as to being outdone by their competitors in the United States." 2

It may also be pointed out, as shown by Adam Smith himself in another place, that with the progress of society war becomes more and more expensive, and accordingly opulence must itself be considered as one of the chief bulwarks of defence. It is quite possible and, indeed, very probable that the increase of national wealth due to the repeal of the navigation acts may have more than compensated any political loss, either in the way of injury inflicted on our enemies, or in the encouragement given to our own shipping.

1 Cf. p. 48. On the effect of the Navigation Act on the British colonies, see two admirable essays on England and America" and "American Smuggling," by Professor Ashley in Economic Surveys, pp. 310-360.

2 Vol. ii. part ii. p. 833.

See below, Chapter XVI.

§ 4. Adam Smith approves of Bounties for Defence.

It is worth recalling the fact that although, in general, Adam Smith attacked the system of bounties more severely than any other part of the mercantile system he approved of bounties' on the export of British-made sailcloth and gunpowder, because in this way these industries would be encouraged; he considered that the nation ought not to rely on foreign sources of supply for such important elements of national defence; better apparently for our enemies to rely on us.

§ 5. Extension of the Principle of Defence.

The present writer is not concerned with Adam Smith's work except in so far as the ideas are applicable to actual problems. From this point of view, whether or not the Navigation Act was a success is a matter only of historical interest (except so far as furnishing the negative argument for free trade with striking examples); whilst on the other hand the ideas by which Adam Smith justified the policy are of supreme importance at the present time. Pursued to its logical issue Adam Smith's argument leads to the general conclusion that the whole commercial policy of the nation ought to be framed in such a way as to make the defence of the nation abundantly It may be that on the whole it can be shown

secure.

1 Book IV. chap. v.: "If any particular manufacture was necessary, indeed, for the defence of the society it might not always be prudent to depend upon our neighbours for the supply."

that the increase of opulence is the surest safeguard, and that the surest way to the increase of opulence is by unrestricted trade with foreign countries. But the moral of Adam Smith's treatment is that we cannot take it for granted that this simple easy method is also the best for our purpose. To take a living example, the protection afforded by Germany to agriculture is partly justified at any rate on the ground of imperial defence; and it is at least theoretically possible that in the interests of defence the British Empire may find it expedient to interfere with the natural course of trade, although it may not be by protection to agriculture any more than by bounties on the export of sailcloth and gunpowder.

§ 6. Second Exception: Import duties to Balance Taxes on Home Products.

"The second case in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is when some tax is imposed at home upon the produce of the latter. In this case it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the home market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign

and domestic industry after the tax as nearly as possible upon the same footing as before it."

This second exception to free trade (or free imports) seems not only a natural corollary of the general argument on free trade, but also to be in harmony with common-sense ideas of natural justice. To act otherwise would be to give a bounty to foreign industry and to discourage home labour. In practice the most narrow of popular free traders would admit that to every excise duty there ought to be a corresponding customs duty. The difficulty is as usual not in the acceptance of the principle but in the carrying it out in particular cases.

§ 7. Import Duties if much heavier lead to

Monopoly.

There is, first of all, the danger pointed out by Adam Smith: "In Great Britain, when any such tax is laid upon the produce of domestic industry, it is usual at the same time, in order to stop the clamorous complaints of our merchants and manufacturers that they will be undersold at home, to lay a much heavier duty upon the importation of all foreign goods of the same kind." Whether or not such differential treatment is or is not desirable may be a matter for discussion, but it would certainly not be in accordance with the general principle of free trade, of which a full examination from the point of view of Adam Smith has already been given. much heavier "

If a

customs duty is imposed it will give the home producer a monopoly of the home market. It will be

M

noticed that as before Adam Smith deals with the case of high duties. But this is not the only difficulty.

§ 8. Meaning of " Goods of same Kind."

What is exactly meant by goods of the same kind? If the words are taken literally the application of the principle would be so curtailed as to be of little practical importance. The trade between nations does not consist of an exchange of identical commodities. Such an exchange would be absurd as a general rule; the great trades of the world are naturally in different kinds of things. But very different things may satisfy what are for practical purposes the same wants of consumers. One great difficulty in making taxes on commodities productive is that it is necessary to tax all possible substitutes.

§ 9. Taxation of possible Substitutes.

If the substitutes are not taxed the consumer will abandon the use of the taxed commodities.

The same principle ought to be applied in the case of the imposition of equivalent customs duties which are meant to balance the excises of the home country. Logically, the foreign substitutes ought to be taxed. Taxes on British beer and whisky, for example, are not fairly balanced by taxes on imported foreign beer and whisky, which would probably be negligible in quantity. Obviously the corresponding foreign substitutes are wines, brandies (and now potato spirit), etc. but then the difficulty arises what is to be the test of equivalence?