Tales in Political Economy

Front matter

TALES

IN

POLITICAL ECONOMY.

Chapter 1: The Srimats

TALES

IN

POLITICAL ECONOMY.

I.

The Srimats.

Free trade—Protection of native industry.

I was spending a week in a country house a short time ago in which there was also staying an old sailor, Captain Adam. He told me some wonderful stories of adventures he had had when he was young; and it occurred to me that some of them might teach people a good deal about political economy, if they would take the trouble to use their heads a little. The first story that he told me I shall call a free-trade story, because I think it gives a very good example of what people gain by free trade, and shows also how it is that some people are injured through the introduction of free trade.

Captain Adam was once cruising in the Indian ocean to the west of the island of Sumatra. His object was to land on a small island inhabited by the descendants of some of the first Dutch settlers in Sumatra, and to set up a communication between them and Acheen for trading purposes. The most remarkable thing about the people who inhabited this island was that they had had no intercourse with any other people for two hundred years. They were not dependent on any other nation for food, clothing, or machinery; everything that they used they made themselves; they had no trade either with Europe or with the other islands of the archipelago. So far as getting any good from mixing or trading with other people was concerned, they might as well have lived in the moon.

Captain Adam found the Srimats, as they were called, much more civilized than he had expected. They were mild, gentle, and very courteous to strangers; they lived in houses neatly and carefully built; they were completely and simply dressed; they spoke a kind of patois of Dutch and Malay, in which Dutch took the chief part: and they had an organized system of government, which the whole tribe regarded with great pride and veneration. This government was very curious. It consisted of a kind of council or parliament, which possessed absolute power over the life and property of every member of the tribe. There was nothing so very strange in this; but the thing that astonished Captain Adam was that no one but the hereditary members of this council was allowed to own the palm trees which yielded the palm oil; and in order to make their monopoly the more valuable, the council had ordained that no Srimat should allow the light of the sun to enter his dwelling. There was not a window to be seen throughout the place. The doors were hung with heavy double matting, through which not a chink of light could pass. The Srimats would certainly have died of suffocation had they not been graciously permitted by their chiefs to take down the matting at night, and thus let some fresh air into the darkened cells in which they were condemned to live.

The object of the council in making this extraordinary rule, was to secure a good market for their palm oil, by making it necessary that it should be burnt all through the day. If they had heard as much about free trade as we have in England, they would have been able to prove most effectually that to exclude the light of the sun from Srimat dwellings was simply to protect native industry. The council owned the palm trees; palm oil was made, by their rule about the windows, a first necessary of life. Two-thirds of the Srimats found their constant occupation in tending the trees and preparing the oil. In return for the oil which they necessarily consumed, the Srimats gave to their chiefs the best of everything that they possessed. The oil sometimes ran short; then what competition and strife there was among the different families of the tribe to see which could give the most costly presents to the chiefs in exchange for the sacred oil.

Captain Adam soon found that the question of the oil stood in the way of his being able to effect his object of setting up a communication for the exchange of merchandize and agricultural produce between the Srimats and the rest of the world. One of the old chiefs, to whom he broached the subject, pointed out, with much gravity, that his project was impracticable. "Two-thirds of our people," he said, "are occupied in our most important industry, the making of palm oil; the other third work hard to provide enough food and raiment for us all. We can only just produce enough to maintain the tribe in decency and comfort; we have no surplus that we could exchange for the products of other lands."

"Your soil must be very fertile," replied Captain Adam, "and your people very industrious and very skilful workmen if one-third of the tribe is able to produce all that is required by the whole Srimat population."

"Yes, yes; it is true," said the old man. "We have much to be thankful for." And he gazed upwards to the bad-smelling palm-oil lamp, the emblem to him of all that was sacred.

"I have been thinking," said the Captain, "that you have much more to be thankful for than you know of. Two-thirds of your people spend their lives in manufacturing this oil. Give me leave to put out all the lamps, and let my men knock holes in the walls of every house in the place; and you will have two-thirds of your people free to turn to the cultivation of spices, rice, and coffee, which you could send away, and receive in return agricultural implements, English cutlery, calico, and other things which you never will be able to make, but which we in England can make any quantity of."

The old chief frowned, and said very sternly, "Knock holes in the walls of our houses! Allow the sun to flood our market with his light! Our island would be ruined: our most important industry would be destroyed in a day. We should have 400 people, who now work in the palm plantations and in the oil presses, reduced to beggary at one blow!"

"But consider for one moment," urged Captain Adam: "these 400 people work hard all their lives to produce a light very inferior to that which you could all get for nothing if only you would have windows."

"The government is entrusted to the owners of the palm plantations," said the chief. "Put yourself in our place, and tell me if you would throw 400 people out of employment for the sake of a sentimental preference for the light of the sun over the light of the oil lamps. Call our people together. Describe your scheme of knocking holes in their walls and abandoning the plantations, and they would tear you to pieces, gentle as they are. It is easy for you to come here and advise us to ruin our industry; if we were so foolish as to take your advice we should have to bear the punishment of our folly, while you, when you saw the misery and desolation you had caused, would be able to hoist sail and leave us."

Captain Adam saw that the old man was too angry to listen to him any more, so he went away, first having obtained leave to come back in two or three days with a scheme which he said would prevent all the disasters which the chief had predicted as sure to follow the abandonment of the palm plantations.

Captain Adam set to work to get this plan into shape: the main feature of it was not to abandon the plantations suddenly, but gradually to transfer the labour they now absorbed to more profitable occupations. In two years he calculated that the whole 400 people now employed in the palm plantations might be growing spices and coffee enough to form a valuable export trade, and that at no time during the process of transition should any of the labourers be out of employment. They were to be removed from the palm plantations in companies of fifty at once; an eighth of the entire population was at the same time to be permitted the privilege of having windows; and in return for this favour the non-oil growers were to provide the ex-oil growers with necessary food and clothing till the first crops of coffee and spices could be sold, when the ex-oil growers would be quite independent of the help of their neighbours. Captain Adam was very pleased with his scheme; it was as clear as daylight, he thought, that it would make everybody in the island better off, and that owing to the great fertility of the land the transition from the palm to the coffee plantations could be carried out with very little difficulty.

A time was appointed for him to explain his plan to the council of the chiefs. They listened to him patiently till he came to the part where he tried to make it clear that in two years the palm plantations might be entirely abandoned; and then they rose in great wrath, and shouted him down. A comparative calm followed in a few minutes, when the old chief, to whom he had first broached the subject, rose and said: "Your scheme would ruin us; the palm plantations are our own property; you propose to us that they should be abandoned, and that we should submit to ruin and degradation. Leave our calm and peaceful island for ever: it was an evil day that ever you set foot in it."

Captain Adam blamed himself very much for not having found out that the palm planta- tions were the private property of the council, for he knew men too well to think they would ever pass laws involving loss to themselves. He tried to say something about compensation, and about other crops being raised on the land where the palm trees now stood; but they would listen to nothing, and ordered him forthwith to leave the island. This order he was obliged to obey, but not before he had attempted to interest the general population in his scheme. His success with the people, however, was not greater than with the chiefs; he tried to put the advantages of sunlight, good tools, ploughs, and scythes, and cheap clothing in as striking a light as possible; he did his best to show the people that they would have all these good things in exchange for their unwholesome oil. But they only saw in his plan the destruction of the most important industry in the island, and they joined heartily with their chiefs in driving him to his ship.

He left the Srimats full of indignation at their folly, and as far as he knows they are still living in a pestilential atmosphere, the darkness of which is feebly illumined by their ill-smelling oil-lamps.

This story is an illustration of the fact that when you have once got protection it is impossible to get rid of it without injuring the people who have invested their capital and labour in the protected industry. The case of the Srimats was an extreme one. The foreign competition with which the palm-oil industry was threatened would have swept the palm-owners out of the market in one day. The sun not only offered a vastly superior article, but he was ready to make a free gift of it to all comers. What tradesman could compete against such odds? The existence of protection interests a number of people in its maintenance, although its maintenance often fatally impoverishes the entire community. What protection really does is to take away labour and capital from those employments where they would produce the greatest return, in order to confine them to industries where they are comparatively unremunerative. The Srimats would have done the best thing possi- ble with their capital and labour if they had cultivated the spices, for which their land was particularly well suited. They threw away the advantages which nature had freely bestowed upon them, and by one of the most extraordinary cases of protection in the world imprisoned their capital and labour in an industry where it was absolutely unproductive of wealth to themselves or anyone else. And this in a modified degree is what happens in every case where a native industry is protected against foreign competition. Home-grown beet-root sugar, in France, is protected against the competition of West Indian cane sugar by a heavy import duty. If the duty were removed, West Indian sugar would undersell the French sugar. The effect of the duty is that all people who live in France pay more dearly for their sugar than they otherwise would; and that a certain amount of French capital and labour is driven into an industry in which it can only be made profitable by taxing those who consume the commodity produced by it. Nature gives more help to the production of sugar in the West Indies than in France. Just as the sun was ready to supply the Srimats gratuitously with light, so the sun, the soil, and the climate, in the West Indies, perform gratuitously a great part of the work of producing sugar. This free gift the French might profit by if they would. But they say, "No; we won't be under such an obligation to nature, we will not take from her more help than she can give us in our own country." And so they refuse the greater and accept the smaller gift; just as the Srimats refused to take their light as a free gift from the sun, although they could not have grown their palm trees without his aid.

Chapter 2: The Shipwrecked Sailors

II.

The Shipwrecked Sailors.

Division of labour—Exchange—Are luxurious expenditure and waste good for trade?—Demand for commodities not a demand for labour—Demand and supply—Competition—Value and price—Elements of value—Free trade—The influence of increase of population on the cost of food—The principle of diminishing productiveness of extractive industries—Increasing cost of agricultural products may be accompanied by a diminishing cost of manufacturing products.

Once Captain Adam and some twenty of the passengers and crew of a sailing vessel were shipwrecked on a small uninhabited island in the Pacific. They were like Robinson Crusoe in one respect, which was, that they were fortunate enough to be able to save a number of things off the wreck, which they found to be of immense value and comfort. They were not able, like Robinson Crusoe, to go to their vessel before it broke up, and ransack it for the most useful things they could find; they got nothing that was not washed ashore, so they obtained altogether a very motley collection. Their rule was that whoever found anything was the owner of it, or, as it was more tersely expressed by the sailors, "Findings is keepings." The consequence of this rule was that there was very soon a great deal of buying and selling in the little community. Three men, for instance, succeeded in hauling to the shore a case which proved to contain twelve dozen pairs of boots of various sizes. This bit of good luck made them for a time quite the capitalists of the little community. In exchange for the boots, which were very sorely needed by their companions, they obtained a share of the most useful things that had been found. One man, who had found a case of spirits, came and offered a bottle of rum for a pair of boots. Another man had found a box of carpenter's tools, and it so happened that he was quite unable to use them to advantage, whereas one of the men who had found the boots was a carpenter by trade, and very much longed to possess the box of tools. A harder bargain never was struck than between these two men. The carpenter began by offering a pair of boots in exchange for the tools. "Nay," said the other, "boots are very well in their way; but they tell me you have got scores of 'em; and I reckon I can get something more than a pair of boots for my tools. Besides, I rather think I shall keep the tools myself. I am not such a fool but what I can drive a nail and use a saw almost as well as if I had done nothing else all my life." They were not able to come to any agreement, and the finder of the tools so far got the best of it, that he succeeded in getting a pair of boots from one of the other men in exchange for the loan of the saw for one day. By this time the little colony were busy in making themselves small wooden huts in which they slept, and where they found shelter from storms. As the process of building these huts went on, Green, the man who had found the tools, discovered that by lending them he could obtain either a share in what had been found by the others, or an equivalent in the form of labour. "Lend us the axe and mallet, old fellow," said one, "and I'll give you three dinners off the fish I catch in the morning;" or perhaps it was, "Lend me the saw and plane to-day, and you shall have half the number of planks that I am able to make in the time."

It was not long before Green, and indeed all the party, found that amateur carpentering is a very expensive process. One man chopped his toe off with the axe when he was trying to cut down a tree, and was laid up for a month. The planks, that had been sawn and planed by an apothecary's apprentice, might have deserved to be sent to a museum of curiosities; but they were certainly not in their right place when he tried to make them into a door and keep out the blasts of a tropical hurricane. But the shipwrecked sailors not only found that it was easier to cut and bruise their own toes and fingers than to convert the young palms into decent habitations; there was another, and perhaps a more serious disadvantage attaching to their unskilful work. Green often found when the tools were returned to him that they had suffered almost as severely as those who had attempted to use them. The teeth of the saw were bent, the edge of the axe was turned, the chisel was broken in half, and almost as many nails were broken and bent, or were knocked in in the wrong places, as were driven home exactly on the spot where they were wanted. These various misfortunes made everybody see how much better things would go on if the carpenter did all the carpentering that was needed by the little colony. If the carpenter hired the tools of Green, Green would lose nothing, for the carpenter could give him more for the loan of them than anyone else, because no one could make such good use of them as the carpenter. The carpenter would also be a gainer, because he would then be able to turn his skill in his trade to the best account, and would get all his wants supplied by his companions in return for the services he rendered to them. Finally, the entire colony would gain by the carpenter having the use of the tools; for instead of chopping off their toes, bruising their fingers, and spoiling the tools, with the worst possible result in the carpenter- ing line, they now saved their own skin, the tools were not injured, their carpentering was well done; and in return for the services of the carpenter, every man and woman gave him a share of what he or she was most skilful in producing or most fortunate in finding. The advantage everyone enjoyed from this division of labour was apparent: the carpenter had no need to leave his trade in order to go hunting or fishing; he had very little skill in these pursuits, and had sometimes been out all day without bringing home enough for supper. Here was folly and waste of time! If he had stayed at home he could have finished Jack Collins's hut, and made a strong bench for Mrs. Collins; while Jack, who knows the ways of every bird that flies and every fish that swims, would bring back enough game and fish to last all the next day for himself, his wife, the carpenter, and half-a-dozen others; and Mrs. Collins, the swiftest of knitters, whose bench would have been a strange production if she had made it herself, would have made a pair of strong socks for the carpenter in return for the bench. It was there- fore agreed on all hands that everyone should find out what he or she could do best, and stick to it. Jack Collins and two others were able to provide the whole company with as much fish and game as they could eat. Mrs. Collins was in great request in consequence of her skill in knitting, mending, and patching. One man, who had been a blacksmith, found that the best thing he could do was to melt down all pieces of old iron, copper, and other metals that were washed up with the wreck, and convert them into nails, saucepans, &c. He was also able to repair the damage done by the unskilful use of the carpenter's tools. Everyone, in fact, found that there was some way in which he or she could be more useful than in others. There were two children, who were always hard at work collecting firewood for the blacksmith and for cooking; and they also searched about on the shore for pieces of the wreck that had copper bolts in them, or any fragments of metal, which the smith was not long in converting into pots and pans.

There was one man who had been a passen- ger on the ill-fated ship, who was certainly not very well adapted to a Robinson Crusoe life. Mr. Davies, on a desert island, was about as much at home as "a whale in a field of clover." He was a man who had always acted on the principle, that to have a new hat once a week, new lavender kid-gloves every day, innumerable suits of clothes, no one of which he ever wore more than three times, to smoke the most expensive cigars, to drink the rarest wines, to eat the most costly meats, and consume fruits and vegetables only when they were entirely out of season, was good for trade. He now found, however, that this way of encouraging trade was not appreciated by his companions; he expected that the best of everything on the island would be brought to him for his acceptance, and that if he approved it he would have the opportunity of buying it and paying for it with a cheque drawn on a New York banker. His disgust, when his cheques were refused, and when the dainties he coveted became the possession of those who could give either labour or other commodities in return, was amusing to witness. One day hunger overcame his laziness, and he consented to superintend the broiling of a quantity of fish, on condition that he was to share in the eating of the supper. The weather had been stormy, and fishing had been difficult and very unproductive for some time past; when therefore a large haul was made there was a great deal of rejoicing, and everyone promised himself a good supper. Great therefore was the wrath when it was found that Mr. Davies had left the fish on the fire to broil while he went to sleep under a tree, and that consequently it was burnt to a cinder. Everybody was cross, and no one was less so when Mr. Davies excused himself by saying that burning fish was good for trade. He was quite prepared to argue the point, and turning to Collins and the other men who had caught the fish, he said, "You have nothing to complain of; you have sold the fish that is burnt, and have got all kinds of things in exchange for it; and now everybody wants some more, and you will be able to sell twice as much and get twice as many things in return as you would if the first lot had not been spoiled." "According to you then, Davies," said the captain, "the best thing for all of us would be to pitch half of what we are able to scrape together into the fire. Collins would not have found any difficulty in disposing of all the fish he caught to-day. The only effect of your carelessness is, that everybody will have to pay twice over for their supper to-night, and consequently they will be less able to pay for their dinners to-morrow than they would otherwise have been. For instance, the carpenter has been at work all day making clothes'-pegs for Mrs. Collins; he has made two dozen; for one dozen he had bought his share of the fish you have spoiled; now he will have to give the other dozen with which he would have been able to buy his dinner to-morrow. So burning the fish has reduced his power of buying what he wants by the value of what he gave for his supper; and what is true of him is true of everybody who had bought a share in the food you spoiled. He is no better off now than he would have been if he had only made a dozen instead of two dozen clothes'-pegs; so I think the less you say about wasting things being good for trade, the better."

Poor Mr. Davies was a long time before he could get over his notion that the way to make everybody well off was for him to do nothing, and to eat as much as he could, and to destroy the products of his companions' labour as fast as possible. He was only prevented acting on this opinion by the stubborn resistance that was shown to it on the part of his comrades; and he had to learn by degrees that a demand for commodities is not a demand for labour; and that the only demand for labour is that which is ready to supply commodities to the labourer in exchange for those which his toil produces. If you demand commodities, you must supply the labourer who produces them with an equivalent value of some other commodities or services. So demand and supply cannot increase independently of each other. If demand increases, supply must increase at the same time. For instance, if Mrs. Collins wants the carpenter to make her a bedstead, she must supply him with a whole suit of clothes; if her demand increases, and she wants, besides the bedstead, two chairs, she must supply him not only with a suit of clothes, but with a dozen pairs of knitted socks into the bargain. It will be noticed, that if production increases, demand also increases; if, for example, Mrs. Collins finds out a new way of knitting by means of which she can make three pairs of socks in the same time that she previously employed to make two pairs, her power of buying the products of other people's labour is increased 50 per cent. Her demand for these products therefore increases in consequence of the increased productiveness of her own labour. It accordingly happens that general prosperity and an increased demand for commodities nearly always go together; but the increased demand is not the cause of the increased prosperity. On the contrary, the increase of production gives those who benefit by it greater power to purchase the products of other kinds of labour; in other words, increased prosperity makes a greater demand for commodities possible.

As the shipwrecked sailors on the island gradually got cleverer in the work they had undertaken to do, their labour became more productive; and directly their labour was more productive a greater number of things were bought and sold, or exchanged. In other words, when a greater amount of wealth was produced, there was a corresponding increase in the demand for, and the supply of, commodities.

Two or three of the sailors were fortunate enough to find a bag of wheat only slightly damaged by the salt water. As may be imagined, it was most carefully dried in the sun, and every grain was valued much more than if it had been made of solid gold. A favourable piece of ground was looked out; it was then dug by the men who had found the wheat, and when what they all thought the best season for sowing had arrived, the precious grains were carefully deposited in the rich soil. When the first green blades appeared above the ground there was a general feeling of re- joicing. It was many months since anyone on the island had tasted bread; for some time after the shipwreck a plentiful supply of sailors' biscuits had been washed ashore; but these were now all finished, or if any more were found on the beach they were so sodden with salt water that they were quite uneatable. Everyone, therefore, looked forward very eagerly to the time when the wheat would be converted into loaves of bread. The fortunate possessors of the small wheat-field spent nearly all their time in looking after it. In the dry season while the wheat was young, they watered it; and when it was nearly ripe, fearing it would be damaged by the violence of a tropical storm, they erected a strong bamboo fence all round it to protect it from the wind. At last the precious grains were ripe, and, after setting apart a due quantity for seed, it was bartered away at an enormously high value for the possessions and labour of the other inhabitants of the little colony. Everyone very much enjoyed his first bit of bread; but there was no doubt that its flavour was improved by the circumstances under which it was eaten. To tell the truth, it was sour and coarse, and the general remark about it soon was, not "How very nice the bread is," but "There's no doubt it will be much better next season." Nearly everyone had an opinion of his own why the first crop was not a success; one said it was watered too much when it was young; another said the bamboo fence kept the sun off it when it was ripening; another said the earth was not properly prepared. The result of all these differences of opinion was, that about a dozen people laid by part of the wheat they had procured for their own eating, resolving to use it as seed, and grow a crop of their own upon their own principles. The result was a great improvement, both in the quantity and quality of the wheat. Those who planted wheat the second season learnt by the experience of those who had planted it in the first season; and not only was there a yield four times as great, but the grain itself was much better in size and quality. As the seasons succeeded each other the growing of wheat became one of the staple industries of the island; and of course the more was produced the more easy it was to obtain it; that is to say, those who did not grow it for themselves could obtain it in exchange for a much smaller quantity of labour or commodities of their own manufacture than was possible after the first harvest had been gathered in. If the people on the island had carried on their exchanges by the means of money, we should say that the price of wheat went down very rapidly when a greater quantity was grown and when improved methods of cultivation were adopted. As, however, they did not use money, but exchanged commodities for commodities, we cannot speak of price declining; for price means the value of anything measured in money. But we can say that the value of the wheat went down; for value is measured by the rate at which commodities exchange for each other. Exchange without the use of money is called barter; and every schoolboy is familiar with its practice, which he calls "chopping." When we say, therefore, that the value of the wheat declined, it is not meant that the wheat became less useful; value, in political economy, is not determined by usefulness, although if a thing were utterly useless it would have no value whatever; the value of a thing is what you can get in exchange for it; everything therefore that has value must not only be useful in itself, but there must also be some degree of difficulty in obtaining it. The greater this difficulty is, the higher is the value of the commodity. Thus, the difficulty of getting a sea-water bath in your house when you are staying at the sea-side is very small; it consists only of carrying the water a short distance from the sea. The value of the water would therefore be very small. But if you want a sea-water bath in Central Africa, the difficulty in obtaining it would be very great, and the value of the water proportionately increased. The usefulness of the bath in the two places may be imagined to be exactly the same; the difference in value is caused by difference in the difficulty of obtaining it. The value of the wheat therefore gradually declined, because the difficulty of obtaining it became less. This decline in value was a very good thing for the islanders, because it showed that they were able to provide themselves with a staple of food at a smaller cost of labour and self-denial.