The cosmopolitan theorists do not deny that prohibitions and import duties can bring into existence what they call "artificial" industries. But they do deny that this is to the advantage of a country. They regard such "artificial" industries as hot house plants that attract capital away from more useful economic activities, which would foster the expansion of the national economy (for example in agriculture) in a natural manner.
In all abstract branches of knowledge there is a serious misuse of technical terms which are not strictly defined. Thus in economics the word "capital" is particularly liable to misuse.1 Economic theorists apply the word to all sorts of quite different things such as
1. [List's note] Readers of the last 6 and the next 6 chapters of my treatise will know how to judge correctly the following argument of Adam Smith (Vol. II, p. 179) :
That this monopoly of the home market frequently gives great encouragement to that particular species of industry which enjoys it, and frequently turns towards that employment a greater share of both the labour and stock of the society than would otherwise have gone to it, cannot be doubted. But whether it tends either to increase the general industry of the society, or to give it the most advantageous direction, is not perhaps altogether so evident ...
The general industry of the society can never exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great
money, machinery, labour, population, or the intellectual qualities of a people. The word has been applied to the natural resources which men can use. But to check the validity of the conclusions drawn by economists it is necessary to know exactly what they mean when they use the word "capital".
In order to refute the objection to which we have referred above it is necessary that we should examine the various ways in which the word "capital" has been used by supporters of the theory of value.
What is needed to establish factories in an agricultural state? If First, land is required for workshops and houses. Water power is generally also necessary. More than enough land and water power are available in a purely agrarian country. The landowner who sells land to a manufacturer will doubtless secure a higher price than he could have hoped to obtain if the land had been sold for agricultural purposes.
To erect factories, workshops, and dwellings the manufacturer needs stone, sand, lime and timber. All these are of little or no value in a purely agricultural country but now they suddenly do have a value and a landowner can make a handsome profit by selling them.
Builders and factory workers consume food, while machines consume fuel. There is normally a surplus both of food and fuel in an agrarian country. The sale of such commodities stimulates the agrarian economy.
The factory owner uses wool, hemp, flax, vegetable oils, and dyestuffs. All these products are generally available in an agricultural country in far greater quantities than they are consumed. If these commodities were sent abroad and then imported again in the form of manufactured products far more warehouses would be needed than if they were manufactured in local factories.
Thus a country which grows its own cereals and then turns the
society, must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.
Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.
grain into flour and the flour into bread does not need to keep cereals stored in warehouses as would be necessary if the cereals were sent to England to be turned into flour and then imported again in processed form. The new factories do not deprive agriculture of either natural resources or supplies of cereals.
What then can agriculture lose? Intellectual capital? Very little intellectual capital exists in a purely agricultural country and if it did exist it would not be lost. In the early stages of industrialisation the necessary technical knowledge and skill must come from abroad (and not from local agriculture).
Is labour lost? No. There is a surplus of labour in all agricultural societies and the workers are relatively uneducated. Moreover factories provide employment for a type of labour that is useless on the land - namely the labour of women, children, and old people.
But if one assumes that the factories will create a considerable demand for labour it is also reasonable to assume that this will bring about a general rise in wages. While on the one hand landowners and farmers have to pay higher wages, they will on the other hand receive higher prices for the products that they sell to manufacturers. Moreover agricultural production will increase because the workers on the land are better paid and better fed. So the production of manufactured goods by the factories is a pure gain to society.
The significance of this fact - taken in conjunction with our previous observations - will become clear if one thinks of all those who work on the land as a single family engaged in a joint productive enterprise.1
It would surely be foolish for a country to fail to harness its waterfalls, or to let its minerals lie undisturbed in the earth, or to export raw materials and foodstuffs in return for manufactured goods of one tenth of their value. It would be folly for a society to allow most of its physical and intellectual resources to rot in idleness.
1. [List's note] The author considers that he should make it clear that he does not support the doctrines of the St Simonians. He does not believe in the possibility of establishing large communities in which property is held in common - at any rate in the present state of human society. Nevertheless the suggestion that we have made is correct. It is often possible to simplify the most abstruse economic problems if one thinks of a state as a single family, the members of which are not divided by private interests. On this assumption what is useful and advantageous - or harmful and disadvantageous - for society as a whole will be the same for its individual members.
It is obvious that what a country needs to become industrialised is an adequate labour force - easily available from the land - which will have to be taught technical skills and new habits of work. It is clear that industrialisation will not involve any loss of capital by agriculture, except what is needed to buy foreign machinery. On the contrary industrialisation will greatly increase the value of a country's natural resources.
It is astonishing that the exponents of the theory of value have for so long confused so clear a matter. It is still more surprising that the cosmopolitan economists have managed to keep silent concerning the great advantages of the policy of protection although it is self-evident that a system of tariffs safeguards industry and promotes the welfare of society. In England, the most advanced industrial country in the world, the policy of protection has safeguarded capital, technical knowledge, and skilled labour. People are attracted to a country which safeguards its industries by the policy of protection because they wish to share in the advantages provided by tariffs. This migration of foreign resources - physical and intellectual capital - is certainly not a gain made at the expense of a country's agriculture.
It cannot be denied that only advanced civilised countries - where a man is recompensed for leaving his homeland by the guarantee of personal freedom and the protection of his property - can hope to become industrialised by attracting English capital and technical knowledge.
The arguments that we have advanced are no mere abstract propositions. They are based upon established facts. All countries in which, under favourable circumstances, industries have been established through the policy of protection, have found that agriculture has gained amazingly in strength simply through the erection and operation of factories. Again, in a country in which canals and railways are built it is agriculture which first secures the most obvious advantage from these public works - a recompense for having, to a great extent, paid for them.1 1. [List's note] Adam Smith writes in Book IV, chapter 9 (of The Wealth of Nations): According to this liberal and generous system, therefore, the most advantageous method in which a landed nation can raise up artificers, manufacturers and merchants of its own, is to grant the most perfect freedom of trade to the artificers, manufacturers and merchants of all other nations. It thereby raises the