Sir James Steuart (1767)
It is quite impossible to go methodically through the subject of political oeconomy, without being led into anticipations. We have frequently mentioned this balance of work and demand, and shewed how important a matter it is for a statesman to attend to it. The thing, therefore, in general is well understood; and all that remains to be done, is to render our ideas more determinate concerning it, and more adequate, if possible, to the principles we have been laying down.
We have treated fully of demand, and likewise of competition. We have observed how different circumstances influence these terms, so as to make them represent ideas entirely different; and we have said that double competition supports the balance we are now to speak of, and that single competition overturns it.
The word demand in this chapter is taken in the most simple acceptation; and when we say that the balance between work and demand is to be sustained in equilibrio, as far as possible, we mean that the quantity supplied should be in proportion to the quantity demanded, that is, wanted. While the balance stands justly poised, prices are found in the adequate proportion of the real expence of making the goods, with a small addition for profit to the manufacturer and merchant.
I have, in the fourth chapter, observed how necessary a thing it is to distinguish the two constituent parts of every price; the value, and the profit. Let the number of persons be ever so great, who, upon the sale of a piece of goods, share in the profits; it is still essential, in such enquiries as these, to suppose them distinctly separate from the real value of the commodity. and the best way possible to discover exactly the proportion between the one and the other, is by a scrupulous watchfulness over the balance we are now treating of, as we shall presently see.
The value and profits, combined in the price of a manufacture produced by one man, are easily distinguished by means of the analysis we have laid down in the fourth chapter. As long as any market is fully supplied with this sort of work, and no more; those who are employed in it live by their trade, and gain no unreasonable profit: because there is then no violent competition upon one side only, neither between the workmen, nor between those who buy from them, and the balance gently vibrates under the influence of a double competition. This is the representation of a perfect balance.
This balance is overturned in four different ways.
Either the demand diminishes, and the work remains the same:
Or the work diminishes, and the demand remains:
Or the demand increases, and the work remains:
Or the work increases, and the demand remains.
Now each of these four relations between demand and work may, or may not, produce a competition upon one side of the contract only.
This must be explained.
If demand diminishes, and work remains the same, which is the first case, either those who furnish the work will enter into competition, in which case they will hurt each other, and prices will fall below the reasonable standard of the even balance; or they will not enter into competition, and then prices continuing as formerly, the whole demand will be supplied, and the remainder of the work will lie upon hand.
This is a symptom of decaying trade.
Let us now, on the other hand, suppose demand to increase, and work to remain as before.
This example points out no diminution on either side, as was the case before, but an augmentation upon one; and is either a symptom of growing luxury at home, or of an increase in foreign trade.
Here the same alternation of circumstances occurs. The demanders will either enter into competition and raise the price of work, or they will enter into no competition; but being determined not to exceed the ordinary standard of the perfect balance, will defer making their provision till another time, or supply themselves in another market; that is to say, the new demand will cease as soon as it is made, for want of a supply.
Whenever, therefore, this perfect balance of work and demand is overturned by the force of a simple competition, or by one of the scale preponderating, one of two things must happen; either a part of the demand is not answered, or a part of the goods is not sold.
These are the immediate effects of the overturning of the balance.
Let me next point out the object of the statesman's care, relatively to such effects, and shew the consequences of their being neglected.
We may now simplify our ideas, and instead of the former, make use of other expressions which may convey them.
Let us therefore say, that the fall or rise upon either side of the balance, is positive, or relative. Positive, when the side we talk of really augments beyond, or diminishes below the usual standard. Relative, when there is no alteration upon the side we speak of, and that the subversion of the balance is owing to an alteration on the other side.
As for example:
Instead of saying demand diminishes, and work remains the same, let us say, demand diminishes positively, or work increases relatively; according as the subject may lead us to speak either of the one or of the other. This being premised.
If the scale of work shall preponderate positively, it should be inquired, whether the quantity furnished has really swelled, in all respects, beyond the proportion of the consumption, (in which case the statesman should diminish the number of hands, by throwing a part of them into a new channel) or whether the imprudence only of the workmen has made them produce their work unseasonably; in which case proper information and even assistance should be given them, to prevent merchants from taking advantage of their want of experience: but these last precautions are necessary in the infancy of industry only.
If a statesman should be negligent on this occasion; if he should allow natural consequences to follow upon one another, just as circumstances shall determine; then it may happen, that workmen will keep upon hand that part of their goods which exceeds the demand, until necessity forces them to enter into competition with one another, and sell for what they can get. Now this competition is hurtful, because it is all on one side, and because we have supposed the prepondering of the scale of work to be an overturning of a perfect balance, which can by no means be set right, consistently with a scheme of thriving, but by the scale of demand becoming heavier, and re-establishing a double competition. Were this to happen before the workmen come to sell in competition, then the balance would again be even, after what I call a short vibration, which is no subversion; but when the scale of work remains too long in the same position, and occasions a strong, hurtful, and lasting competition, upon one side only, then, I say, the balance is overturned; because this diminishes the reasonable profits, or perhaps, indeed, obliges the workmen to sell below prime cost. The effect of this is, that the workmen fall into distress, and that industry suffers a discouragement; and this effect is certain.
But it may be asked, Whether, by this fall of prices, demand will not be increased? That is to say, will not the whole of the goods be sold off?
I answer, That this may, or may not, be the effect of the fall, according to circumstances: it is a contingent consequence of the simple, but not the certain effect of the double competition: but the distress of the workmen is a certain and unavoidable consequence of the simple competition.
But supposing this contingent consequence to happen, will it not set the balance even, by increasing the demand? I answer, the balance is then made even by a violent shock given to industry, but it is not set even from any principle which can support it, or make it flourish. Here is the criterion of a perfect balance: A positive moderate profit must balance a positive moderate profit; the balance must vibrate, and no loss must befound on either side. In the example before us, the balance stands even, it is true; the work and the demand are equally poised as to quantity; but it is a relative profit, which hangs in the scale, opposite to a relative loss. I wish this may be well understood; farther illustrations will make it clear.
Next, let me suppose the scale of demand to preponderate positively. In this case, the statesman should be still more upon his guard, to provide a proportional supply; because the danger here may at first put on a shew of profit, and deceive him.
The consequences of this subversion of the balance are either,
First, That a competition will take place among the demanders only, which will raise profits. Now if, after a short vibration, the supply comes to be increased by the statesman's care, no harm will ensue; competition will change sides, and profits will come down again to the perfect standard. But if the scale of demand remains preponderating, and so keeps profits high, the consequence will be, that, in a little time, not only the immediate seller of the goods, but also every one who has contributed to the manufacture, will insist upon sharing these new profits. Now the evil is not, that every one should share, or that the profits should swell, as long as they are supported by demand, and as long as they can truly be considered as precarious; but the mischief is, that, in consequence of this wide repartition, and by such profits subsisting for a long time, they insensibly become consolidated, or, as it were, transformed into the intrinsic value of the goods. This, I say, is brought about by time; because the habitual extraordinary gains of every one employed induce the more luxurious among them to change their way of life insensibly, and fall into the habit of making greater consumptions, and engage the more slothful to remain idle, till they are exhausted. When therefore it happens, that large profits have been made for a considerable time, and that they have had the effect of forming a taste for a more expensive way of living among the industrious, it will not be the cessation of the demand, nor the swelling of the supply, which will engage them to part with their gains. Nothing will produce this effect but sharp necessity; and the bringing down of their profits, and the throwing the workmen into distress, are then simultaneous; which proves the truth of what I have said, that these profits become, by long habit, virtually consolidated with the real value of the merchandize. These are the consequences of a neglected simple competition, which raises the profits upon industry, and keeps the balance overturned for a considerable time.
Secondly, Let me examine the consequences of this overturn in the actual preponderancy of demand, when it does not occasion a competition among the demanders, and consequently, when it does not increase the profits upon industry.
This case can only happen, when the commodity is not a matter of great necessity, or even of great use; since the desire of procuring it is not sufficient to engage the buyers to raise their price; unless, indeed, this difference should proceed from the ease of providing the same, in other markets, as cheap as formerly. This last is a dangerous circumstance, and loudly calls for the attention of the statesman. He must prevent the desertion of the market, by a speedy supply for all the demand, and must even perhaps give encouragement to manufacturers, to enable them to diminish the prices fixed by the regular standard. This is the situation of a nation which is in the way of losing branches of her foreign trade; of which afterwards.
Whatever therefore be the consequences of the actual preponderancy of the scale of demand; that is, whether it tend to raise profits, or to discredit the market; the statesman's care should be directed immediately towards making the balance come even of itself, without any shock, and that as soon as possible, by increasing the supply. For if it be allowed to stand long in this overturned state, natural consequences will operate a forced restitution; that is, the rise in the price, or the call of a foreign market, will effectually cut off a proportional part of the demand, and leave the balance in an equilibrium, disadvantageous to trade and industry.
In the former case, the manufacturers were forced to starve, by an natural restitution, when the relative profits and loss of individuals balanced one another. Here the manufacturers are enriched for a little time, by a rise of profits, relative to the loss the nation sustains, by not supplying the whole demand. This results from the competition of their customers; but so soon as these profits become consolidated with the intrinsic value, they will cease to have the advantage of profits, and, becoming in a manner necessary to the existence of the goods, will cease to be considered as advantageous. These forced restitutions then, brought about, as we have said, by selling goods below their value, by cutting off a part of the demand, or by sending it to another market, resembles the operation of a carrier, who sets his ass's burden even, by laying a stone upon the lightest end of it. He however loses none of his merchandise; but the absurdity of the statesman is still greater, for he appears willingly to open the heavy end of the load, and to throw part of his merchandise into the highway.
I hope, by this time, I have sufficiently shewn the difference in effect between the simple and the double competition; between the vibrations of this balance of work and demand, and the overturning of it. When it vibrates in moderation, and by short alternate risings and sinkings, then industry and trade go on prosperously, and are in harmony with each other; because both parties gain. The industrious man is recompenced in proportion to his ingenuity; the intrinsic value of goods does not vary, nor deceive the merchant; profits on both sides fluctuate according to demand, but never get time to consolidate with, and swell the real value, and never altogether disappear, and starve the workman.
This happy state cannot be supported but by the care of the statesman; and when he is found negligent in the discharge of this part of his duty, the consequence is, that either the spirit of industry, which, it is supposed, has cost him much pains to cultivate, is extinguished, or the produce of it rises to so high a value, as to be out of the reach of a multitude of purchasers.
The progress towards the one or the other of these extremes is easily perceived, by attending to the successive overturnings of the balance. When these are often repeated on the same side, and the balance set right, by a succession of forced restitutions only, the same scale preponderating a-new, then is the last period soon accomplished. When, on the contrary, the overturnings are alternate, sometimes the scale of demand overturning the balance, sometimes the scale of work, the last period is more distant. Trade and industry subsist longer, but they remain in a state of perpetual convulsion. On the other hand, when the balance gently vibrates, then work and demand, that is, trade and industry, like agriculture and population, prove mutually assisting to each other, in promoting their reciprocal augmentation.
In order therefore to preserve a trading state from decline, the greatest care must be taken, to support a perfect balance between the hands employed in work and the demand for their labour. That is to say, according to former definitions, to prevent demand from ever standing long at an immoderate height, by providing at all times a supply, sufficient to answer the greatest that ever can be made: or, in other words, still, in order to accustom my readers to certain expressions, to encourage the great, and to discourage the high demand. In this case, competition will never be found too strong on either side of the contract, and profits will be moderate, but sure, on both.
If, on the contrary, there be found too many hands for the demand, work will fall too low for workmen to be able to live; or, if there be too few, work will rise, and manufactures will not be exported.
For want of this just balance, no trading state has ever been of long duration, after arriving at a certain height of prosperity. We perceive in history the rise, progress, grandeur, and decline of Sydon, Tyre, Carthage, Alexandria, and Venice, not to come nearer home. While these states were on the growing hand, they were powerful; when once they came to their height, they immediately found themselves labouring under their own greatness. The reason of this appears from what has been said.
While there is a demand for the trade of any country, inhabitants are always on the increasing hand. This is evident from what has been so often repeated in the first book, and confirmed by thousands of examples. There never was any branch of trade established in any kingdom, province, city, or even village; but such kingdoms, province, &c. increased in inhabitants. While this gradual increase of people is in proportion to the growing demand for hands, the balance between work and demand is exactly kept up: but as all augmentations must at last come to a stop, when this happens, inconveniences must ensue, greater or less, according to the negligence or attention of the statesman, and the violence or suddenness of the revolution.
Let us now examine what may be the reason why, in a trading and industrious nation, time necessarily destroys the perfect balance between work and demand.
We have already pointed out one general cause, to wit, the natural stop which must at last be put to augmentations of every kind.
Let us now apply this to circumstances, in order to discover in what manner natural causes operate this stop, either by preventing the increase of work, on one side of the balance, or the increase of demand, on the other. When once we discover how the stop is put to augmentations, we may safely conclude, that the continuation of the same, or similar causes, will soon produce a diminution, and operate a decline.
We have traced the progress of industry, and shewn how it goes hand in hand with the augmentation of subsistence, which is the principal allurement to labour. Now the augmentation of food is relative to the soil, and as long as this can be brought to produce, at an expence proportioned to the value of the returns, agriculture, without any doubt, will go forward in every country of industry. But so soon as the progress of agriculture demands an additional expence, which the natural return, at the stated prices of subsistence, will not defray, agriculture comes to a stop, and so would numbers, did not the consequences of industry push them forward, in spite of small difficulties. The industrious then, I say, continue to multiply, and the consequence is, that food becomes scarce, and that the inhabitants enter into competition for it.
This is no contingent consequence, it is an infallible one; because food is an article of the first necessity, and here the provision is supposed to fall short of demand. This raises the profits of those who have food ready to sell; and as the balance upon this article must remain overturned for some time, without the interposition of the statesman, these profits will be consolidated with the price, and give encouragement to a more expensive improvement of the soil. I shall here interrupt the examination of the consequences of this revolution as to agriculture, until I have examined the effects which the rise of the price of food produces on industry, and on the demand for it.
This augmentation on the value of subsistence must necessarily raise the price of all work, because we are here speaking of an industrious people fully employed, and because subsistence is one of the three articles which compose the intrinsic value of their work, as has been said.
The rise therefore, upon the price of work, not being any augmentation of that part of the price which we call profits, as happens to be the case when a rise in demand has produced a competition among the buyers, cannot be brought down but by increasing the supply of subsistence; and were a statesman to mistake the real cause of the rise, and apply the remedy of increasing the quantity of work, in order to bring down the market, instead of augmenting the subsistence, he would occasion a great disorder; he would introduce the hurtful simple competition between people who labour for moderate profits, mentioned in the last chapter, and would throw such a discouragement upon their industry, as would quickly extinguish it altogether. On the other hand, did he imprudently augment the subsistence, by large importations, he would put an end to the expensive improvements of the soil, and this whole enterprise would fall to nothing. Here then is a dilemma, out of which he can extricate himself by a right application of public money, only.
Such a necessary rise in the price of labour may either affect foreign exportation, or it may not, according to circumstances. If it does, the price of subsistence, at any rate, must be brought down at least to those who supply the foreign demand; if it does not affect foreign exportation, matters may be allowed to go on; but still the remedy must be ready at hand, to be applied the moment it becomes expedient.
There is one necessary augmentation upon the prices of industry, brought about by a very natural cause, viz. the increase of population, which may imply a more expensive improvement of the soil; that is, an extension of agriculture. This augmentation may very probably put a stop to the augmentation of demand for many branches of manufactures, consequently may stop the progress of industry; and if the same causes continue to operate in a greater degree, it may also cut off a part of the former demand, may discredit the market, open a door to foreign consumption, and produce the inconveniences of poverty and distress, in proportion to the degree of negligence in the statesman.
I shall now give another example, of a very natural augmentation upon the intrinsic value of work, which does not proceed from the increase of population, but from the progress of industry itself; which implies no internal vice in a state, but which is the necessary consequence of the reformation of a very great one. This augmentation must be felt less or more in every country, in proportion as industry becomes extended.
We have said, that the introduction of manufactures naturally tends. to purge the lands of superfluous mouths: now this is a very slow and gradual operation. A consequence of it was said to be (Book I. Chap. xx.) an augmentation of the price of labour, because those who have been purged off, must begin to gain their whole subsistence at the expence of those who employ them.
If therefore, in the infancy of industry, any branch of it shall find itself assisted in a particular province, by the cheap labour of those mouths superfluously fed by the land, examples of which are very frequent, this advantage must diminish, in proportion as the cause of it ceases; that is, in proportion as industry is extended, and as the superfluous mouths are of consequence purged off.
This circumstance is of the last importance to be attended to by a statesman. Perhaps it was entirely owing to it, that industry was enabled to set up its head in this corner. How many examples could I give, of this assistance given to manufactures in different provinces, where I have found the value of a day's work, of spinning, for example, not equal to half the nourishment of the person. This is a great encouragement to the making of cloths; and accordingly we see some infant manufactures dispute the market with the produce of the greatest dexterity; the distaff dispute prices with the wheel. But when these provinces come to be purged of their superfluous mouths, spinning becomes a trade, and the spinners must live by it. Must not then prices naturally rise? And if these are not supported by the statesman, or if assistance is not given to these poor manufacturers, to enable them to increase their dexterity, in order to compensate what they are losing in cheapness, will not their industry fail? Will not the poor spinners be extinguished? For it is not to be expected, that the landlord will receive them back again from a principle of charity, after he has discovered their former uselessness.
A third cause of a necessary augmentation upon the intrinsic value of goods proceeds from taxes. A statesman must be very negligent indeed, if he does not attend to the immediate consequences of his own proper operations. I shall not enlarge on this at present, as it would be an necessary anticipation; but I shall return, to resume the part of my reasoning which I broke off abruptly.
I have observed, how the same cause which stops the progress of industry, gives an encouragement to agriculture: how the rise in the price of subsistence necessarily increases the price of work to an industrious and well-employed people: how this cuts off a part of the demand for work, or sends it to a foreign market.
Now all these consequences are entirely just, and yet they seem Contradictory to another part of my reasoning, (Book I, Chap. xvi.) where I set forth the advantages of a prodigal consumption of the earth's produce as advantageous to agriculture, by increasing the price of subsistence, without taking notice, on the other hand, of the hurt thereby done to industry, which supports the consumption of that produce.
The one and the other chain of consequences is equally just, and they appear contradictory upon the supposition only, that there is no statesman at the helm. These contradictions represent the alternate overturn of the balance. The duty of the statesman is, to support the double competition every where, and to permit the gentle alternate vibrations only of the two scales.
When the progress of industry has augmented numbers, and made subsistence scarce, he must estimate to what height it is expedient that the price of subsistence should rise. If he finds, that, in order to encourage the breaking up of new lands, the price of it must rise too high and stand high too long, to preserve the intrinsic value of goods at the same standard as formerly; then he must assist agriculture with his purse, in order that exportation may not be discouraged. This will have the effect of increasing subsistence, according to the true proportion of the augmentation required, without raising the price of it too high. And if this operation be the work of time, and the demand for the augmentation be pressing, he must continue to assist his agriculture and have subsistence imported, or brought from abroad, during that interval. This supply he may cut off whenever he pleases, that is, whenever it ceases to be necessary.
If the supply comes from a sister country, it must be so taken, as to occasion no violent revolution when it comes to be interrupted a-new. As for example: One province demands a supply of grain from another, for a few years only, until their own soil can be improved, so as to provide them sufficiently. The statesman should encourage agriculture, no doubt, in the province furnishing, and let the farmers know the extent of the demand, and the time it may probably last, as near as possible; but he must discourage the plucking up of vineyards, and even perhaps the breaking up of great quantities of old pasture; because, upon the ceasing of the demand, such changes upon the agriculture of the province furnishing, may occasion a hurtful revolution.
While this foreign supply is allowed to come in, the statesman should be closely employed in giving such encouragement to agriculture at home, according to the principles hereafter to be deduced, as may nearly balance the discouragement given to it by this newly permitted importation. If this step be neglected, the consequence may be, that the foreign supply will go on increasing every year, and will extinguish the agriculture already established in the country, instead of supplying a temporary exigency, which is within the power of the country itself to furnish. These, I suppose, were the principles attended to by the government of England, upon opening their ports for the importation of provisions from Ireland.
The principle, therefore, being to support a gentle increase of food, inhabitants, work, and demand, the statesman must suffer small vibrations in the balance, which, by alternate competition, may favour both sides of the contract; but whenever the competition stands too long upon either side, and threatens a subversion of the balance, then, with an artful hand, he must endeavour to load the lighter scale, and never, but in cases of the greatest necessity, have recourse to the expedient of taking any thing from the heavier.
In treating of the present state of France, we observed, in the chapter above-cited, how the vibration of the balance of agriculture and population may carry food and numbers to their height; but as foreign trade was not there the direct object of inquiry, I did not care to introduce this second balance of work and demand, for fear of perplexing my subject. I hope I have now abundantly shewn the force of the different principles, and it must depend upon the judgment of the statesman to combine them together, and adapt them to his plan: a thing impossible to be even chalked out by any person who is not immediately at the head of the affairs of a nation. My work resembles the formation of the pure colours for painting, it is the artist's business to mix them: all I can pretend to, is to reason consequentially from suppositions. If at any time I go farther, I exceed my plan, and I confess the fault.
I shall now conclude my chapter by introducing a new subject. I have been at pains to shew how the continued neglect of a statesman, in watching over the vibrations of the balance of work and demand, naturally produces a total subversion of it; but this is not, of itself, sufficient to undo an industrious people. Other nations must be taught to profit of the disorder; and this is what I call the competition between nations.
Mankind daily profit by experience, and acquire knowledge at their own cost.
We have said that what lays the foundation of foreign trade, is the ease and convenience which strangers find in having their wants supplied by those who have set industry on foot. The natural consequence of this foreign demand is to bring in wealth, and to promote augmentations of every kind. As long as these go on, it will be impossible for other nations to rival the traders, because their situation is every day growing better: dexterity increasing diminishes the price of work; every circumstance, in short, becomes more favourable; the balance never vibrates, but by one of the scales growing positively heavier, and it is constantly coming even by an increase of weight on the other side. We have seen how these revolutions never can raise the intrinsic value of goods, and have observed that this is the road to greatness.
The slower any man travels, the longer he is in coming to his journey's end; and when his health requires travelling, and that he cannot go far from home, he rides out in a morning and comes home to dinner.
This represents another kind of vibration of the balance, and when things are come to such a height as to render a train of augmentations impossible, the next best expedient is, to permit alternate vibrations of diminution and augmentation.
Work augments, I shall suppose, and no more demand can be procured; it may then be a good expedient to diminish hands, by making soldiers of them; by employing them in public works; or by sending them out of the country to become useful in its colonies. These operations give a relative weight to the scale of demand, and revive a competition on that side. Then the industrious hands must be gently increased a-new, and the balance kept in vibration as long as possible. By these alternate augmentations and diminutions, hurtful revolutions, and the subversion of the balance, may be prevented. This is an expedient for standing still without harm, when one cannot go forward to advantage.
If such a plan be followed, an industrious nation will continue in a situation to profit of the smallest advantage from revolutions in other countries, occasioned by the subversion of their balance; which may present an opportunity of new vibrations by alternate augmentations.
On such occasions, the abilities of a statesman are discovered, in directing and conducting what I call the delicacy of national competition. We shall then observe him imitating the mariners, who do not take in their sails when the wind falls calm, but keep them trimmed and ready to profit of the least breath of a favourable gale. Let me follow my comparison: The trading nations of Europe represent a fleet of ships, every one striving who shall get first to a certain port. The statesman of each is the master. The same wind blows upon all; and this wind is the principle of self-interest, which engages every consumer to seek the cheapest and the best market. No trade wind can be more general, or more constant than this; the natural advantages of each country represent the degree of goodness of each vessel; but the master who sails his ship with the greatest dexterity, and he who can lay his rivals under the lee of his sails, will, caeteris paribus, undoubtedly get before them, and maintain his advantage.
While a trading nation, which has got an established advantage over her rivals, can be kept from declining, it will be very difficult, if not impossible, for any other to enter into competition with her: but when the balance begins to vibrate by alternate diminutions; when a decrease of demand operates a failure of supply; when this again is kept low, in order to raise the competition of consumers; and when, instead of restoring the balance by a gentle augmentation, a people are engaged, from the allurements of high profits, to discourage every attempt to bring down the market; then the scissors of foreign rivalship will fairly trim off the superfluity of demand; prices will fall, and a return of the same circumstances will prepare the way for another vibration downwards.
Such operations as these, are just what is requisite for facilitating the competition of rival nations; and are the only means possible to engage those who did not formerly work, to begin and supply themselves.
Did matters stand so, the evil would be supportable; strangers would supply the superfluities only of demand, and the balance would still be found in a kind of equilibrium at home. But, alas ! even this happy state can be of short duration only. The beginnings of trade with the strangers will prove just as favourable to the vibration of their balance, by augmentations, as it was formerly to the home-traders; and now every augmentation to those, must imply a diminution to the others. What will then become of such hands, in the trading nation, as subsist by supplying the foreign market only? Will not this revolution work the same effect, as to these, as if an additional number of hands had been employed to supply the same consumption? And will not this utterly destroy the balance among the traders, by throwing an unsurmountable competition on the side of the supply? It will however have a different effect from what might have happened, if the same number of hands had been thrown into the trading nation; for, in this case, they might destroy the consolidated profits only upon labour, and perhaps restore the balance: the inconvenience would be equally felt by every workman, but profit would result to the public. But in the other case, the old traders will find no foreign sale for their work; these branches of industry will fall below the price of subsistence, and the new beginners will have reasonable profits in supplying their own wants, I say reasonable, because this transition of trade from one nation to another, never can be sudden or easy; and can take place in proportion only to the rise in the intrinsic value of goods in that which is upon the decline, not in proportion to the rise in their profits upon the sale of them: for as long as the most extravagant profits do not become consolidated, as we have said, with the value of the work, a diminution of competition among the consumers, which may be occasioned by a beginning of foreign industry, will quickly make them disappear; and this will prove a fatal blow to the first undertakings of the rival nations. But when once they are fairly so consolidated, that prices can no more come down of themselves, and that the statesman will not lend his helping hand, then the new beginners pluck up courage, and set out by making small profits: because in all new undertakings there is mismanagement and considerable loss; and nothing discourages mankind from new undertakings more than difficult beginnings.
As long, therefore, as a trading state is upon the rising hand, or even not upon the decline, and while the balance is kept right without the expedient of alternate diminutions, work will always be supplied from this quarter, cheaper than it possibly can be furnished from any other, where the same dexterity does not prevail. But when a nation begins to lose ground, then the very columns which supported her grandeur, begin, by their weight, to precipitate her decline. The wealth of her citizens will support and augment the home demand, and encourage that blind fondness for high profits, which it is impossible to preserve. The moment these consolidate to a certain degree, they have the effect of banishing from the market the demand of strangers, who only can enrich her. It is in vain to look for their return after the nation has discovered her mistake, although she should be able to correct it; because, before this can happen, her rivals will have profited of the golden opportunity, and during the infatuation of the traders, will, even by their assistance, have got fairly over the painful struggle against their superior dexterity.
Thus it happens, that so soon as matters begin to go backward in a trading nation, and that by the increase of their riches, luxury and extravagance take place of oeconomy and frugality among the industrious; when the inhabitants themselves foolishly enter into competition with strangers for their own commodities; and when a statesman looks coolly on, with his arms across, or takes it into his head, that it is not his business to interpose, the prices of the dextrous workman will rise above the amount of the mismanagement, loss, and reasonable profits, of the new beginners; and when this comes to be the case, trade will decay where it flourished most, and take root in a new soil. This I call a competition between nations.