To these writers the entire advantage of for eign trade lay in exportation. Importation was at best a necessary evil. So far as individuals were concerned, it is true, the volume of business of both kinds was the measure of profitableness, and traders were prone to encourage all coin mem.; but from the standpoint of the kingdom as ;t whole that trade was reganled as profitable which resulted in an importation of specie.
The Physiocrats (q.v.) riddled the pretensions of these writers, and held up this policy to deri sion. Adam Smith demonstrated still more con clusively the weakness of their doctrine. He did not feel it necessary to insist that money and wealth were not synonymous terms, that an in crease in the former was not the sole goal of statecraft. In his day England's stock of the precious metals was adequate to its needs, and was therefore not a subject of peculiar solici tude for the statesman, as it had been in earlier times. Adam Smith states in the following terms the advantages to different countries of international trade: "It carries out that sur plus part of the produce of their land and labor for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives a value to their superfluities, by exchanging them for some thing else which may satisfy a part of their wants and increase their enjoyments. By means of it the narrowness of the home market does not hinder the division of labor in any particu lar branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labor may exceed the home consumption, it encourages them to improve its productive powers and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society." Trade enables a nation not only to obtain what it cannot produce itself, hut also to carry its own production to the highest degree of perfection by reason of this outside demand. The advantage of trade lies in its effect upon home industry, and trade is represented as a mutual and not as a one-sided advantage. The home market is now recognized to be the most important. and for eign trade as subsidiary to it, as significant only in so far as it promotes a better division of labor and more ()reductive employment. of capital at home. The emphasis is shifted from the purely mercantile side, and the question shown to he a much larger one than a mere increase or de crease of specie.
If the mercantilists insisted that the entire advantage of foreign trade lay in exportation, while Adam Smith deemed the advantage mutu al, later writers—as, for instance, John Stuart MII—have gone so far as to declare that the importance to the nation of its international trade WIIS measured by its imports. This is not. of course, a mere reversal of the mercantilist at titude, for the distinguished economist is far from contemplating the possibility of imports without corresponding exports. But to him the
imports of a nation represent a saving of energy, time, labor, and capital in the acquisition of goods. While the same goods, or many of them, could doubtless be produced at home, it would he at far greater expenditure of effort than that involved in producing the goods exported to pay for them. In following the history of eco nomic thought on the subject of trade, we have passed from the period of a crude but ultra pro tectionism to one of free trade.
In the meantime new questions have arisen At 'deli call for attention. It needs no expert to percei‘e the advantage of trade between tem perate and tropical flat in the trade of temperate countries among each taller the ail \ antage is not so apparent. It may, and I lov,, happen that a country ‘‘ ill import from another a commodity which it can produce at Inane at less labor cost than is expended upon its pro duction in the country whence it is imported. If such is the ease, it is clear that. production loes not always take place at the point of maxi mum adVaillage. It is assumed that within a given country production is carried on at the point of greatest advantage, because of the mo bility of capital and labor. but between differ ent nations there is not such perfect, mobility, and production continues under varying cirenni stamps of advantage and disadvantage. ln do mestic trade the costs of production, as a rule, determine pikes and values; but in international trade there must be another rule. If England can produce :t eomniodity A with It) units of pro ductkc power, while a foreign country roil:U.4.s 12 units for the same eounimility, England may buy of the foreign country, but certainly will not pay 12 units for the goods. The lirst ques which arises is, Why does not England in those produce the commodity .A? Nimplt beea use in the production of other c:nn modifies 11, C. 1), etc., it enjoys still greater advantages over foreign countries. Its maxi mum productivity is gained by concentration on these other lines of production. In the case mentioned the costs of production for England and the foreign country may be stated as fol lows for like quantities of each commodity: A. Englund 10 units, Iln• foreign Country 12 units.
11. " g 34 It is clear that it will be profitable for Eng land to produve 11. (`, I) for its own wants. and so mud: in excess thereof as it can persuade the foreign country to take, while it will pay the latter to eoncentrate its production upon A and supply till far as possible its needs for lb. and I) E• importations from England. This shows the motive for an trade under these circumstances. There is It t110114T question as to the rate at which these articles will be ex chnnged.