replaces by every such operation two distinct capitals, "which had both been employed in supporting pro"ductive labor, and thereby enables them to continue "that support. The capital which sends Scotch manu"factures to London and brings back English manu"factures and corn to Edinburgh, necessarily replaces, 'by every such operation, two British capitals, which "had both been employed in the agriculture or manu"facturers of Great Britain.

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"The capital employed in purchasing foreign goods " for home consumption, when this purchase is made "with the produce of domestic industry, replaces too by every such operation two distinct capitals, but one of them only is employed in supporting domestic industry. The capital which sends British goods to Portugal, and brings back Portuguese goods to Great "Britain, replaces by every such operation only one "British capital. The other is a Portuguese one. Though the returns therefore of the foreign trade of consumption should be as quick as those of the home trade, the capital employed in it will give but oNE

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HALF THE ENCOURAGEMENT TO THE INDUSTRY OR

16 PRODUCTIVE LABOUR OF THE COUNTRY. ** * "A capital, therefore, employed in the home trade, "will sometimes make twelve operations, or be sent " out and returned twelve times, before a capital employed in the Foreign trade of consumption has made IF THE CAPITALS ARE EQUAL THEREFORE, THE ONE WILL GIVE FOUR AND TWENTY TIMES

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one.

What does Adam Smith mean by the expression— "replace capital!" It is an expression not to be passed over in haste, but well deserving to be attentively considered and analysed.

He means, that the whole value of a commodity is spent in its production, and yet re-appears in the shape of the new product. That in its production there is an expenditure not of the profit merely, but of the entire value, and that the whole of that expenditure not only maintains landlords, tenants, tradesmen and work people, but furnishes an effective demand and market for other productions. He means that the clear gain, the spendable revenue, the net income of the producing nation, is increased by the amount of the entire value of the domestic product, and that the nation is so much the richer. For while producing, it spends, and nevertheless after it has produced, it yet has the entire gross value.

He then goes on and says, that if with British commodities you purchase British commodities, you replace two British capitals; but if with British commodities you purchase foreign commodities, you replace only one British capital. That is to say, you might have

* Adam Smith's "Wealth of Nations," Book II, chap. 5. Say asserts the same thing, as we shall presently see. Say maintains the same position. "Le commerce interieur est le

had the entire gross value at both ends to spend, and thereby also to create and sustain markets; but you are content to have the value and the market at one

end only.

These observations of Adam Smith derive additional weight from the quarter from which they come. They are the admissions of the founder of the existing school of Political economists, on a point of vital importance, so vital that it affects the entire theory of free-trade.

At the risk therefore of being charged with prolixity and repetition, I venture to invite the candid and serious attention of the reader to a further consideration of it.

The entire price or gross value of every home-made article constitutes net gain, net revenue,* net income to British subjects. Not a portion of the value, but

plus avantageux. Les envois et les retours de ce commerce sont necessairement les produits du pays. IL PROVOQUE UNE DOUBLE PRODUCTION.” Liv. i. chap. 9. Vol. 2. p. 6, 4th Edition.

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+ Say concurs in this view. See Traité D'Economie Politique, Liv. ii. chap. v. Vol. II. p. 69, 4th Edition. He analyses the price of a watch, and shews how the whole of it is distributed as net income or revenue among those who have contributed to its production. He then observes. "C'est de cette manière que la valeur entière des produits se distribue dans la societé. Je dis leur valeur TOUTE ENTIERE. He then gives another illustration, by tracing the distribution of the value of cloth, and adds, "On ne peut concevoir AUCUNE PORTION de la valeur de ce drap, qui n'ait servi à payer UN REVENU. Sa valeur toute entiere y a été employée." And subjoins in a note, "Même la portion de cette valeur qui a servi au retablissement du capital du fabricant. Il a usé ses metiers par supposition. Il les a fait reparer par un mécanicien: le prix de cette reparation fait partie du revenu du mécanicien."

the whole value, is resolvable into net gain, income, or revenue maintaining British families, and creating or sustaining British markets. Purchase British articles with British articles, and you create two such aggregate values, and two such markets for British industry. Whereas, on the contrary, the entire value of every foreign article imported is net gain, or income to the foreigner, and creates and sustains foreign markets. Change your policy-purchase foreign articles with British articles, and you now create only one value for your own benefit instead of creating two, and only one market for British industry instead of two. lose by the change of policy, the power of spending the entire value on one side, which you might have had, as well as on the other, and you lose a market for British industry to the full extent of that expenditure.

You

It is not a small difference in price that can compensate the nation for the loss. For example, suppose England can produce an article for £100 and can import it for £99. By importing it instead of producing it, she gains £1; but though she pay for it with her own mauufactures, she loses (not indeed by the exchange itself, but by not producing at both ends of the exchange) £100 of wealth which she might have had to spend by creating the value at home; that is to say, on the balance, she loses £99 which she might have had in addition, by producing both commodities at home.

Let us examine a little more in detail the position, that the entire price or gross value of every homemade commodity constitutes net national gain or revenue,―net income to British subjects, such revenue as a man may spend with his tradesmen, and maintain his family upon, and yet the nation grow no poorer.*

Take a quarter of English wheat. Suppose the price to be 50s. The whole of this 50s. is resolvable into net income. A portion, say 5s., goes as rent to the English landlord, and is to him net income, which he may spend with his tradesmen in maintaining his family. Next 30s. go for wages. Those wages are the net income of the English labourer. Then 10s. go for rates and tithes. The first contribute to the net income of the poor, the second to the net income of the English Clergyman. Then 2s. 6d. go for implements of husbandry, the whole of which 2s. 6d. is also, as we shall presently see, resolvable into net income to some person or other. The residue being 2s. 6d., we will suppose is the net profit of the farmer, and would be net income to him, but that half of it, viz., ls. 3d., goes as interest to a friend who has lent him money. This last 1s. 3d. is, however, still net

* The attention of the reader is particularly invited to this part of the inquiry. He will observe that the expression net income' comprehends the spendable revenue of the whole community, from whatever source derived. The net profits of trade are but a part and a very small part of the net income of the nation. The wages of the labourer are his net income. The rent of the landlord, and the interest of the mortgagee are also net

income.