some foreign countries. Though it may replace by every operation two distinct capitals, yet neither of them belongs to that particular country. The capital of the Dutch merchant which carries the corn of Poland to Portugal and brings back the fruits and wines of Portugal to Poland replaces by every such operation two capitals, neither of which had been employed in supporting the productive labour of Holland; but one of them in supporting that of Poland and the other that of Portugal."1

And here again it must not be supposed that Adam Smith did not realise that the ships of a country are part of its capital and the crews of those ships part of its productive labour. For he goes on to say: "When indeed the carrying trade of any particular country is carried on with the ships and the sailors of that country that part of the capital employed in it which pays the freight is distributed among and puts in motion a certain number of productive labourers of that country. It does not, however, seem essential to the nature of the trade that it should be so." In our own times one of the most frequent complaints against our merchant shipping

1 The passage which immediately follows also illustrates very forcibly the distinction between profits and advantage. "The profits only return regularly to Holland and constitute the whole addition which this trade necessarily makes to the annual produce of the land and labour of that country."

A good example of the difference between profit and advantage is given in the chapter on Colonies (Bk. IV. ch. vii.). "In the trade, therefore, to which these regulations confine the merchant of Hamburg his capital can keep in constant employment a much greater quantity of German industry than it possibly could have done in the trade from which he is excluded." [The reference is to the exclusion from the distant trade of the British colonies.] "Though the one employment, therefore, may perhaps be to him less profitable than the other, it cannot be less advantageous to his country.'

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.1 That country gains the greatest advantage in whose exports there is the largest proportion of native produce and the least of mere re-exports.

§ 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 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