society at large the place is of vital importance. If capital is devoted to the construction of a railway in America, it may in perpetuity afford a much higher profit than if applied to the construction of a railway in England; but in the one case foreign labour is employed, and in the other English. In the first case, too, the American public is benefited, and gains all the advantages of the possession of this fixed capital. To take an extreme case, it is possible that if all the capital now devoted to manufactures in this country were sent to the United States it would yield greater returns; but the labourers must in that case either follow it or starve. The general principle is expanded into several doctrines peculiar to Adam Smith. Not only is the home trade of consumption more advantageous than the foreign trade, on the ground that in the first case two capitals are employed within the country, but the foreign trade of consumption is, for the same reason, more advantageous than the carrying trade, and trade with a near country is more advantageous than trade with a remote one. For example, Adam Smith considers the trade with France twenty-four times as advantageous as that with the American colonies. The reason is that in the latter case capital is longer out of the country and the employment of labour is less. If I expend £1,000 in making a commodity in a week, I employ a thousand labourers for one week. If I must wait a year for the returns, so far as this £1,000 is concerned I employ labour only one week in the year. If, however, the capital is returned to me in a week, and again employed, and so on, the capital is employed twenty-six weeks in the year, and, in the sense of Adam Smith, it is twentysix times as advantageous to the country. At the same time, he explicitly declares that the profits may be greater in the first case— the capitalist, in the second case, will on his £1,000 only get the same or even a less percentage per annum-but the difference to society is enormous. This proposition again throws light on the position of Adam Smith, that the nearer the producer is to the consumer so much less is the economic waste.

The general principle may be illustrated by a fallacious argument sometimes urged against the protection of home from foreign industries, and which, if sound, would render the establishment of the advantages of Free Trade a very simple matter. It is

said that if protection is good for one country against the world, it would be equally good for one part of the country as against any other part. But so long as the labour and capital of a country remain within that country the localization is a matter of indifference. If one town suffers another gains, and under a system of natural liberty capital and labour flow to the places where they can be employed to the greatest advantage. But a state is bound up with a certain territory; and if its capital and labour go beyond its boundaries, they go to increase the wealth and power of other countries. It is possible to conceive of a whole country becoming depopulated; and the history of commerce is the history of the migrations of industry, and, with industry, of political power and social progress. When Holland became the great lending state of Europe its wealth and power steadily diminished. To come to our own times, there can be no doubt that one of the chief causes of the late depression was the enormous transfer of capital from old countries such as England to new countries for the exploitation of their raw materials and the construction of railways.

It has been pointed out that within an isolated country Adam Smith considered agriculture a more advantageous employment of capital than manufactures, and the next step in the argument is to show that under the system of natural liberty the development of agriculture will precede the development of manufacture. The positive reasons given are indeed simple and obvious, but are none the less important. In the first place, subsistence is prior to luxury; and, secondly, agriculture is of all occupations the most pleasant. Apparently Adam Smith thought it unnecessary to repeat his former assertion, that capital employed in agriculture yields in general rent as well as profits. This natural order of progress he contends has simply been prevented by the policy of Europe, which imposed various fetters on agriculture; and he examines at considerable length the evils of entail, primogeniture, and large estates, and the discouragement of agriculture due to bad systems of land tenure, incidentally bestowing warm praise on peasant proprietors. The value of this part of Adam Smith's work is well illustrated by a passage in one of Cobden's letters:"If I were twenty-five or thirty, instead of being unhappily twice that number of years. I would take Adam Smith in hand.

I

would not go beyond him. I would have no politics in it. I would take Adam Smith in hand, and I would have a league for free trade in land just as we have a league for free trade in corn. You will find just the same authority in Adam Smith for the one as for the other; and if it were taken up, as it must be taken up to succeed, not as a political, revolutionary, radical, Chartist notion, but taken up on politico-economical grounds, the agitation would be sure to succeed." After this examination of the evils agriculture has suffered owing to the policy of Europe, Adam Smith is led to insist on the superiority of agriculture to manufactures on another ground. At the conclusion of the third book he writes: "The capital, however, that is acquired to any country by commerce and manufactures is all a very precarious and uncertain possession till some part of it has been secured and realized in the cultivation and improvement of its lands. A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his trade; and a very trifling disgust will make him remove his capital, and together with it all the industry which it supports, from one country to another. No part of it can be said to belong to any particular country till it has been spread, as it were, over the face of that country, either in buildings or in the lasting improvements of lands......The ordinary revolutions of war and government easily dry up the sources of that wealth which arises from commerce only. That which arises from the more solid improvements of agriculture is much more durable, and cannot be destroyed but by those more violent convulsions occasioned by the depredations of hostile and barbarous nations continued for a century or two together-such as those that happened for some time before and after the fall of the Roman Empire in the western provinces of Europe." But although Adam Smith strongly urges the necessity of taking off all restraints on agriculture, he by no means approves of giving it any artificial encouragement, whether by bounties or by restrictions on foreign trade. "Those systems therefore which, preferring agriculture to all other employments, in order to promote it, impose restraints upon manufactures and foreign trade, act contrary to the very end which they propose, and indirectly discourage that very species of industry which they

mean to promote. They are so far, perhaps, more inconsistent than even the mercantile system. That system, by encouraging manufactures and foreign trade more than agriculture, turns a certain portion of the capital of the society from supporting a more advantageous to support a less advantageous species of industry. But still it really and in the end encourages that species of inThose agricultural systems, on

dustry which it means to promote. the contrary, really and in the end discourage their own favourite species of industry."

It has been seen that just as in an isolated country Adam Smith considers certain methods of employing capital more advantageous than others, so also in foreign trade he considers the direct trade of consumption more advantageous than the indirect, and this again more advantageous than the carrying trade. But here also he maintains that no artificial restraints or encouragements are required. The positive arguments in support of this position are, as before, simple and obvious: "Every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry, provided always that he can thereby obtain the ordinary, or not a great deal less than the ordinary, profits of stock. Thus upon equal, or nearly equal, profits every wholesale merchant naturally prefers the home trade to the foreign trade of consumption, and the foreign trade of consumption to the carrying trade. In the home trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts; and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is necessarily brought home or placed under his own immediate view and command." This argument only requires to be supplemented by the fact that any attempt to keep capital, which would not naturally earn the ordinary rate of profits, within the country is doomed to failure, or rather worse than failure; and this is essentially the result arrived at in the elaborate examination of the mercantile system in the fourth book. He commences, indeed, by exposing the fallacy of the "favourable

balance of trade" estimated in money, and shows that a country can make use only of a certain amount of the precious metals, and that any addition is certain to be exported. The precise manner in which this exportation will take place has been shown much more clearly by later economists in their investigations on the distribution of the precious metals. It has been demonstrated by Ricardo and Mill that any addition to the circulating medium would be followed by a general rise in prices, the inevitable effect of which would be a decrease of exports and increase of imports, which could only be adjusted by exportation of the precious metals. Still more recently it has been pointed out by Mr. Goschen, Bagehot, and others, that any surplus bullion would really be intercepted by the banks, and be re-exported, owing to the movements of the rate of interest. A slight modification of the reasoning of Adam Smith and his successors on the movements of money will show the impossibility of artificially keeping capital within a country. A glut of capital must necessarily lead to lower prices, and give a stimulus to exportation. That this is not explicitly stated by Adam Smith is probably due to the fact that the rapid accumulation of capital in modern times found no parallel in his day.

Most people are aware that Mill admitted one exception to Free Trade, in allowing that it might be expedient to foster the industries of a young colony by protection; but it is not generally remembered that the authority of Adam Smith may be quoted in favour of the possible expediency of protection to home industries in other cases. He strongly approved of the Navigation Laws: "They are as wise as if they had all been dictated by the most deliberate wisdom." He admitted that "there may be good policy in retaliations where there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will more than compensate for the transitory inconvenience of paying dearer during a short time for some sorts of goods." He granted also that it might "sometimes be a matter of deliberation how far, or in what manner, it is proper to restore the free importation of foreign goods after it has been for some time interrupted, when particular manufactures, by means of high duties or prohibition upon all foreign goods which can come into com