Part II: Chapter V, 1

When we contemplate a subject that spans the whole realm of humanity, as widely as the equator spans the earth, we cannot pursue it in a single direction. It touches every character and condition belonging to human life, joining the individual, the nation, and the world. A small spark lit in America has grown into a flame that cannot be extinguished. It does not consume like the Ultima Ratio Regum; it makes its way from nation to nation and conquers silently. A man discovers himself transformed, scarcely knowing how. By attending fairly to his own interests, he learns his rights, and finds at last that the strength and power of despotism lie entirely in the fear of resisting it, and that, in order “to be free, it is sufficient that he wills it.”

In all the preceding parts of this work, I have sought to establish a system of principles on which governments ought to be founded. I now turn to the ways and means of putting them into practice. But to introduce this part of the subject properly and forcefully, I must first make some observations drawn from, or connected with, those principles.

Whatever its form or constitution, government should have no object but the general happiness. When instead it creates and deepens misery in any part of society, its system is wrong and must be reformed. Customary speech divides human life into civilized and uncivilized conditions. To the first it attributes happiness and plenty, to the second hardship and want. Yet however powerfully pictures and comparisons may impress our imagination, a large share of humanity in supposedly civilized countries lives in poverty and misery far below the condition of an Indian. I do not speak of one country but of all. It is true in England and throughout Europe. Let us ask why.

The fault is not some natural defect in the principles of civilization, but the obstruction of their universal operation. This produces a permanent system of war and expenditure that drains countries and defeats the general happiness civilization could provide. All European governments, France now excepted, are founded not on universal civilization but on its opposite. In their relations with one another they occupy the very condition we imagine in savage, uncivilized life. They place themselves outside the laws of God and humanity alike and, in principle and mutual conduct, resemble so many individuals in a state of nature. Within every country, inhabitants governed by laws readily live together as civilized people. But governments remain uncivilized and almost constantly at war; they divert the abundance civilized life produces to extend their uncivilized activity. By grafting governmental barbarism onto a country's internal civilization, they draw from it, and especially from the poor, a large part of the earnings that should sustain and comfort them. Quite apart from moral and philosophical reflection, it is a sad fact that this barbarous system consumes more than one-fourth of humanity's labor every year. What keeps the evil alive is the financial advantage every European government finds in maintaining this uncivilized condition. It supplies pretexts for power and revenue that would have neither occasion nor justification if the circle of civilization were completed. Civil government alone, the government of laws, affords few pretexts for taxation: it works at home, directly under the country's eyes, making much deception impossible. But when governments conduct their uncivilized contests abroad, pretexts multiply; the country, no longer able to judge, is exposed to every imposition governments choose to practice. Not a thirtieth, hardly a fortieth, of the taxes levied in England arise from or are spent on civil government. It is plain that all the present government does in this respect is enact laws; the country itself administers and enforces them, at its own expense, through magistrates, juries, sessions, and assizes, on top of the taxes it pays. Seen this way, government has two distinct characters: civil government, or the government of laws, working at home, and court or cabinet government, working abroad according to the crude pattern of uncivilized life. One costs little; the other is extravagance without limit. They are so separate that if the latter vanished altogether, as though the earth suddenly opened and swallowed it, the former would continue undisturbed. It would go on because the nation shares an interest in its operation and all its means are already in use. Revolutions, then, aim to change the moral condition of governments. Such change will lighten public taxes and leave civilization free to enjoy the abundance now taken from it. In considering the whole question, I turn also to commerce. Wherever the subject has allowed it in my publications, I have championed commerce because I favor its effects. It is a peaceful system, bringing humanity into cordial relations by making nations, like individuals, useful to each other. I have never preached merely theoretical reform. The most effective course improves people's condition through their interests; that is the ground on which I stand. If commerce could work as universally as it is capable of doing, it would uproot the system of war and revolutionize the uncivilized condition of governments. Commerce was invented after those governments began; of all means not arising directly from moral principles, it has brought us closest to universal civilization. Anything that encourages civil relations among nations through an exchange of benefits deserves philosophical as well as political attention. Commerce is simply trade between two individuals multiplied across great numbers; the intercourse nature intended for two she intended, by the same rule, for all. To that end she scattered the materials for manufactures and commerce across distant parts of countries and the world. Since war cannot obtain them as cheaply or conveniently as commerce, she has made commerce the means of ending war. Because the two are nearly opposites, the uncivilized condition of European governments harms commerce. Destruction or disruption of any kind reduces its volume, wherever in the trading world the reduction begins. Like blood, it cannot be drawn from one part without diminishing the whole circulating supply, and everyone shares the loss. Destroy a nation's ability to buy and you injure the seller equally. If England's government could destroy every other nation's commerce, it would ruin its own most effectively. A nation may carry goods for the world, but it cannot be the world's merchant: it cannot both sell and buy its own merchandise. The capacity to buy must lie outside it. Thus the prosperity of any trading nation depends upon the prosperity of the others. If they are poor, it cannot be rich; whatever its condition, it registers the level of the commercial tide elsewhere. Reason will not deny that one can understand the principles and universal operation of commerce without understanding its practice; I argue on that basis alone. Commerce is one thing in the countinghouse and another in the world. In its operation it must be considered reciprocal: only half its power resides within a nation. Destroying the half outside it destroys the whole just as surely as destroying the half inside, for neither can act without the other. In the last war, as in earlier wars, English commerce sank because its volume fell everywhere. It is now rising because commerce is rising in every nation. If England now imports and exports more than ever before, its trading partners must necessarily do likewise: its imports are their exports, and conversely. No nation can flourish alone in commerce; it can only share in commerce, and injury to any part must affect all. When governments make war, therefore, they attack a common fund of commerce, with the same result as if each attacked its own. Today's growth in commerce should be credited not to ministers or political devices but to its natural operation under peace. Regular markets had been destroyed, channels of trade broken, the highway of the seas infested with robbers from every nation, and the world's attention turned elsewhere. Those interruptions have ended; peace has restored disordered things to their proper order.*25 It is worth noting that every nation calculates its balance of trade in its own favor; plainly something is wrong with the usual understanding of the subject. Yet according to what is called a balance, the fact is true, and that is why commerce enjoys universal support. Every nation feels a benefit, or it would give up trading. The illusion lies in how the accounts are drawn up and in assigning what are called profits to the wrong cause. Mr. Pitt has sometimes entertained himself by displaying what he called a balance of trade from the customs books. That method provides not merely an unreliable measure but a false one. First, every cargo leaving the customs house is entered in its books as an export. By its calculation, cargoes lost at sea and losses caused by foreign bankruptcies are counted as profits simply because they appear as exports.

Second, goods imported through smuggling do not appear in the customs books to be set against exports.

These records cannot therefore establish a balance proving superior advantage. Examining commerce's natural operation shows the idea to be false; if it were true, it would soon be harmful. Commerce chiefly depends on a balance that distributes benefits evenly among nations.

Two merchants from different nations who trade together can both grow wealthy, each recording a balance in his own favor. Neither, then, grows rich at the other's expense; the same holds for their nations. Each nation must grow rich from its own resources, increasing that wealth through something obtained in exchange from another.

If an English merchant sends abroad a manufactured article costing him one shilling at home, then imports something selling for two, he gains a balance of one shilling. But he does not gain it at the expense of the foreign nation or merchant, who does the same with the article received; neither has an advantage over the other. In their own countries the two articles were originally worth only two shillings together. By exchanging places they acquire a new value, twice the original, and share that increase equally.

A balance in foreign commerce is no different from one in domestic commerce. Merchants in London and Newcastle trade on the same principles and calculate their balances in the same fashion as if they lived in different countries. Yet London does not grow rich at Newcastle's expense, nor Newcastle at London's. Coal, Newcastle's merchandise, gains value in London, and London's merchandise gains value in Newcastle.

Though all commerce rests on the same principle, domestic commerce benefits a nation most, since the gains on both sides remain within it. In foreign commerce a nation shares in only half the gains.

The least profitable commerce of all is commerce tied to foreign dominion. A few individuals may gain from it simply because it is commerce, but the nation loses. The cost of maintaining dominion more than consumes the profits of any trade. Dominion does not increase the world's total quantity of commerce but diminishes it. Relinquish dominion and a greater volume would circulate; a share of that volume without the expense would be worth more than a greater share encumbered by it.

When we consider a subject as wide as all humanity, we cannot follow it in just one direction. It touches every kind of person and every human condition. It connects individuals, nations, and the world. A small spark lit in America has become a flame that will not go out. Unlike the Ultima Ratio Regum, it does not consume everything in its path. It moves quietly from nation to nation and wins people over. People find themselves changed, almost without noticing how. By paying proper attention to their own interests, they learn their rights. They then discover that despotism gets all its power from people's fear of resisting it, and that, in order "to be free, it is sufficient that he wills it."

In the earlier parts of this work, I have tried to establish the principles on which governments should be built. I will now explain how to put them into practice. First, I need to make some preliminary observations that follow from those principles or relate to them. This will provide a better and more effective introduction to this part of the subject.

Whatever form or constitution a government has, its only aim should be everyone's happiness. If it instead creates and increases suffering in any part of society, its system is wrong and must be reformed. People commonly divide human life into civilized and uncivilized conditions. They associate civilized life with happiness and plenty, and uncivilized life with hardship and need. Pictures and comparisons may lead us to imagine this is true. But many people in countries called civilized live in poverty and misery, far worse off than an Indian. I do not mean just one country. It is true in England and throughout Europe. Let us ask why.

The cause is not any natural flaw in the principles of civilization. The problem is that those principles are not allowed to work for everyone. As a result, there is a constant system of war and expense. It drains the country and prevents civilization from bringing happiness to all. Every European government except France is built on the opposite of civilization for all. In their relations with one another, these governments act as people are imagined to act in an uncivilized state. They place themselves beyond both God's law and human law. In their principles and dealings with each other, they behave like individuals without any government. Within each country, people living under civil laws can easily get along. But governments remain uncivilized and almost always at war. They divert the wealth produced by civilized life toward expanding their uncivilized activities. By attaching the barbarism of government to a country's civilized life, they take a large share of people's earnings, especially the earnings of the poor. That money should support and comfort those who earned it. Even without considering morality or philosophy, it is a sad fact that this barbaric system uses up more than one-fourth of humanity's labor every year. It continues because every European government has found it profitable to keep this uncivilized condition going. It gives them excuses to claim power and collect revenue. If civilization extended to all their dealings, they would have no need or excuse for either. Civil government, which means government by law, provides little excuse for many taxes. It works at home, directly in the country's sight, so it leaves little room for deception. But conflict between uncivilized governments creates many more excuses. The country can no longer judge what is happening and is exposed to whatever charges governments choose to impose. Not a thirtieth, perhaps not even a fortieth, of the taxes raised in England are needed for or spent on civil government. The government itself does little more in this area than pass laws. The country administers and enforces them at its own additional expense through magistrates, juries, sessions, and assize courts. It does this on top of paying taxes. We can therefore distinguish two kinds of government. One is civil government, or government by law, which works at home. The other is court or cabinet government, which operates abroad in the crude, uncivilized way. One costs little; the other spends without limit. They are so separate that civil government would carry on undisturbed even if court government suddenly vanished into the ground. The nation has a shared interest in keeping civil government working, and the means to do so are already in use. Revolutions therefore aim to change the moral condition of governments. That change will reduce the burden of public taxes and let people enjoy the plenty civilization produces, which they are now denied. This subject also leads me to commerce. Whenever the subject has allowed it, I have supported commerce in my writings because I favor its effects. It is a peaceful system. By making nations as well as individuals useful to one another, it helps people grow closer. I have never advocated reform that exists only in theory. The most effective method is to improve people's condition by working through their interests. That is the position I take. If commerce were allowed to operate as widely as it can, it would put an end to the system of war and transform the uncivilized condition of governments. Commerce was invented after those governments began. Among developments not arising directly from moral principles, it has brought us closest to civilization for all. Anything that encourages peaceful dealings between nations through mutual benefits deserves attention in both philosophy and politics. Commerce is simply trade between two people carried out on a larger scale. If nature intended two people to deal with each other, she intended everyone to do so. To make this possible, she placed the materials used in manufacturing and trade in different, distant parts of countries and of the world. Commerce lets people obtain these materials more cheaply and conveniently than war does. In that way, nature made commerce a means of ending war. Since the two are nearly opposites, the uncivilized condition of European governments harms commerce. Any destruction or disruption reduces the total amount of trade, wherever in the trading world it begins. Commerce is like blood: removing some from one part reduces the total circulating everywhere, and every part shares the loss. Destroy a nation's ability to buy, and you hurt its sellers too. If England's government could destroy every other nation's commerce, it would ruin England's own trade most effectively. A nation may carry goods for the world, but it cannot be the whole world's merchant. It cannot both buy and sell its own goods. Buyers must exist outside it. The prosperity of any trading nation therefore depends on the prosperity of the others. If they are poor, it cannot be rich. Its own condition, whatever it is, shows how high trade is running in other nations. Reason allows that someone can understand the principles of commerce and its worldwide effects without understanding its day-to-day practice. Those principles are the only basis of my argument. Commerce looks one way in a merchant's office and another in the wider world. To understand how it works, we must see that it depends on both sides. Only half its power lies within a nation. Destroy the other half, outside the nation, and the whole is destroyed as surely as if the half at home were destroyed. Neither half can work without the other. During the last war and earlier wars, England's commerce fell because trade fell everywhere. It is rising now because trade is rising in every nation. If England now imports and exports more than ever before, the countries trading with it must also be doing so. England's imports are their exports, and the reverse is also true. No nation can prosper alone in commerce. It can only share in prosperity, and damage to trade anywhere affects everyone. When governments go to war, they attack a shared stock of commerce. The result is the same as if each attacked its own. Today's growth in commerce is not the work of ministers or political schemes. It follows naturally from peace. Established markets had been destroyed, trade routes broken, the sea lanes plagued by robbers from every nation, and the world's attention turned to other things. These disruptions have ended, and peace has put things back in order.*25 It is worth noting that every nation believes its balance of trade favors itself. There must therefore be something wrong with the usual understanding of this subject. By the usual meaning of a favorable balance, each nation's belief is indeed true. That is why every nation supports commerce. Each benefits from it, or it would stop trading. The mistake lies in how the accounts are drawn up and in assigning what people call profits to the wrong cause. Mr. Pitt has sometimes entertained himself by presenting what he called a balance of trade from customs-house records. That method does not just fail to give a reliable measure; it gives a false one. First, every cargo leaving the customs house is recorded as an export. Under that way of calculating the balance, cargo lost at sea or lost through the failure of foreign buyers is counted as profit, because it appears as an export.

Second, smuggled imports do not appear in customs-house records to be set against exports.

Those records therefore cannot show that one nation gains more than another. Looking at how commerce naturally works also shows that the idea is false. If such an unequal balance really existed, it would soon do harm. Commerce depends most of all on benefits being balanced among nations.

Two merchants from different countries can trade together and both become rich. Each sees a favorable balance in his own accounts, so neither becomes rich at the other's expense. The same holds true for their countries. Each country must build wealth from its own resources and add to it through what it obtains from another in exchange.

Suppose an English merchant sends abroad a manufactured item that costs him one shilling at home. He brings back something he can sell for two shillings. His balance shows a gain of one shilling. But he has not taken that gain from the foreign country or its merchant. The foreign merchant does the same with what he receives, so neither gains at the other's expense. In their home countries, the two goods originally had a combined value of only two shillings. By changing places, they each gain value, doubling their original combined value. Both sides share that extra value equally.

A balance in foreign trade works no differently from a balance in domestic trade. Merchants in London and Newcastle trade by the same principles as merchants in different countries. They calculate their balances the same way. Yet London does not get rich at Newcastle's expense, or Newcastle at London's. Coal, Newcastle's product, becomes more valuable in London. London's products likewise become more valuable in Newcastle.

Although the principle is the same for all trade, domestic trade benefits a nation most. Both sides of its gains stay within the country. In foreign trade, the nation shares in only half the gains.

The least profitable commerce of all is trade tied to rule over foreign lands. It may benefit a few people, simply because it is trade, but the nation loses. Maintaining control costs more than the trade earns. Such rule does not increase the total amount of trade in the world; it reduces it. Giving up control would put more trade in circulation. A share in that larger trade without the cost of rule would be worth more than a larger share that comes with that cost.