house books afford of the balance of trade, Mr. Stewart observed :)-

As Mr. Smith has not entered into any details, with regard to the nature of the objection to the evidence of the customhouse books in this respect, taking their fallaciousness for granted as a thing too well understood to require any particular illustration, it may not be improper to supply this elementary article of information, by a short statement of the particular facts and principles on which the doctrine may be justified. This is the more necessary, as the complicated commercial accounts of nations have been usually stated like the simple transactions of private merchants; and the technical businesslike appearance of accuracy which the results exhibit, are apt to procure to them a degree of popular credit to which they have in truth no claim, and which is daily employed to mislead the public mind, by writers who, at the time, are fully aware of their general incorrectness. In illustration of this subject, I gladly avail myself of some judicious remarks of Mr. Macpherson. "It has been customary," says that very laborious and accurate writer, "to consider our trade with those countries, from which we import a greater value than we export to them, as unprofitable; and that to those, to which our exports exceed the value of our imports, as profitable. But such a rule is liable to a great number of exceptions. The apparent balance must be frequently erroneous from the inaccuracy of the valuation. For example, the Irish linens are all rated in the custom-house entries in England at eightpence a yard on an average, whereas one shilling and fourpence a yard, the average price assumed in the Irish custom-house books, is rather under the value. linens generally constitute above a half of the value of the imports from Ireland to England and Scotland, the error in the value of that one article turns the balance of trade with Ireland against Great Britain; (See Lord Sheffield's Observations on the Manufactures, &c., of Ireland, p. 276, third edition, 1785;) and the valuations in many other branches of our commerce are not a whit more accurate. Money brought into Great Britain is not subject to entry, and

therefore does not appear in the custom-house books, any more than bills of exchange. Money carried out swells the amount of export entries, and consequently enlarges the supposed general profit; though, according to the doctrine that gold and silver are the only standard of wealth, such exportation is so much clear loss to the nation. Great quantities of goods, subject to high duties, totally prohibited, or shipped for exportation upon bounties or drawbacks, are clandestinely imported. Such importations, though not appearing in the general account, there is reason to believe, have considerable influence on the exchange with some neighbouring countries. And such of those smuggled goods as have been entered for exportation, perhaps over and over again, thus make great additions to the fallacious estimate of the profitable balance, without ever being, in reality, exported at all for foreign consumption. All goods exported for the use of our armies abroad, are part of the national expenditure, and can no more constitute a real part of the profitable balance, apparently swelled by their exportation, than the goods taken from his stock by a manufacturer or shopkeeper for his own use, can be stated as enlarging his profitable sales. Cargoes entered outward, which are lost at sea, or taken by the enemy, swell the amount of exports, and, consequently, of supposed profit, whereas, in fact, they are a dead loss to the nation, (and, in case of capture, tend to enrich the enemy, by whom they are in reality exported ;) while the want of the homeward cargo, which should have been imported in return, and which, to the individual sufferer, is not only a real loss but a heavy disappointment and derangement of his plans of trade, tends to enlarge the supposed balance of trade in our favour. And the loss or capture of homeward-bound ships in the same manner, by diminishing the amount of entered imports, fallaciously adds to the apparent favourable balance.

"On the other hand, there are branches of trade which would be ruinous if the imports did not exceed the exports, or, in other words, if the balance were not unfavourable, according to this standard of estimation. Such is the trade with all our West India settlements, which have been formed and supported by

British capitals, and, in a great measure, owned by proprietors residing in Great Britain. Therefore, the outward cargoes are to be considered as the stock employed in the culture of the plantations; and the homeward cargoes are, in fact, the proceeds of that culture, the excess of which is not a loss to the nation, but the real amount of the net profits coming into the pockets of the proprietors, and giving a very comfortable demonstration how much the amount of the product is more than the prime cost. In other words, the outward cargoes are the seed, and the inward cargoes are the harvest. . . . The same reasoning will also hold good with the trade to Hudson's Bay, and several others, wherein the excess of the imports is the real profit, and a continuation of favourable balances would, in a few years ruin the trade. In some branches of business, the goods exported are merely the charges of trade, as is the case in all fisheries.

"There is another kind of deceptive inference to be drawn from the custom-house entries, if not duly guarded against. It is necessary to advert, that the exports to some countries constitute the prime cost of cargoes to be shipped off from them to a third country. Thus, the wines of Madeira are sent to the British settlements in the East and West Indies, and, even if intended for Britain, are often carried by the circuitous route of those distant regions before they are brought home. The bulk of the cargoes from Africa consists of the miserable natives, who are sold in the West Indies; and the proceeds are generally remitted to great Britain in bills of exchange, which do not appear at all in the custom-house books. And, in like manner, most of the cargoes, carried from Newfoundland and the adjacent countries, consist of fish, which never come to Great Britain, but are sold in Spain, Portugal, and other Roman Catholic countries, and their proceeds also brought home in bills of exchange.

"Were we to estimate the prosperity of a country merely from the balance of trade in the custom-house books, Scotland must be pronounced to be in a ruinous state ever since the American war, the imports from foreign countries being frequently more

than the exports to them, as will appear by the accounts to be found in the subsequent part of this work. But the truth is, that since that event the people of Scotland have paid more attention than formerly to manufactures, which (by land carriage and coasting navigation, neither of which appear in the custom-house books) are carried to every part of Great Britain, and enter to a much greater amount into the exports of London than into those of Glasgow; and that, upon the whole, the trade of Scotland is now more flourishing than ever.

"From what has been said it will appear, that all arguments, calculations, or arrangements, founded upon the supposed balance of trade, are very fallacious; and that those founded upon the balance with any particular country, are generally much more fallacious than those deduced from the general balance of the whole foreign trade of the nation."*

Thus far I have followed the statements of Mr. Macpherson, whose observations appear to me to form a very interesting and instructive comment on that part of Mr. Smith's reply to the Mercantile system, in which he reasons with its advocates on their own fundamental principle. I now proceed to a still more important part of Mr. Smith's argument, in which he endeavours to show that the whole doctrine of the balance of trade is absurd.

It is now a considerable number of years since these liberal principles came to be adopted by all the most enlightened writers of Europe. Mr. Hume was one of the first in this country who stated them in such a form as to attract to them some share of the public favour; and he had undoubtedly the merit of encouraging, by his example, his friend Mr. Smith to devote his profound and comprehensive genius to a systematical illustration of them. His Political Discourses were first printed in the year 1752, and, according to himself, were the only part of his works which were successful on the first publication. They have undoubtedly very great merit, and although erroneous in some fundamental maxims, may justly be regarded, on the whole, as one of the most valuable performances of the author. [Annals of Commerce, &c., 1805, Part III. Vol. iii. pp. 341-344.]

The Essay on the Jealousy of Trade concludes with the following very striking reflections:-"Were our narrow and malignant politics to meet with success, we should reduce all our neighbouring nations to the same state of sloth and ignorance that prevails in Morocco and the coast of Barbary. But what would be the consequence? they could send no commodities; they could take none from us; our domestic commerce itself would languish for want of emulation, example, and instruction; and we ourselves should soon fall into the same abject condition to which we had reduced them. I shall therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself. I am at least certain, that Great Britain and all those nations would flourish more did their sovereigns and ministers adopt such enlarged and benevolent sentiments towards each other."*

At the period when this passage first appeared, it was considered as among the most paradoxical and dangerous parts of Mr. Hume's political writings; and yet it assumes nothing more than what a moment's consideration might have taught to any man of a plain and unprejudiced understanding, that a commercial nation has precisely the same interest in the wealth of its neighbours which a tradesman has in the wealth of his customers. It is to the general progress of civilized nations in the arts and improvements of social life, that the prosperity of England is chiefly owing. Nor is it going too far to say, with a late writer, "that not one acre is brought into cultivation in the wilds of Siberia which has not widened the market for English goods." On the other hand, it is no less manifest, that the benefits of this extended commerce are reciprocal; and that while English industry is thus encouraged by the progressive prosperity of its neighbours, it amply repays whatever it receives. It can only be employed in advancing civilisation and enjoyment over the whole earth; and it is actually exerted at this present moment, in consequence of the obstacles presented by the laws of nature to the impotent tricks of govern[Essays, Vol. I.]