The wealth of England is the sum of the wealth of each individual in England. An individual may have £10,000 in England, £5000 invested in Australia. We may reckon his wealth in England either as including or excluding the £5000, which he could transfer (probably very speedily) to England in gold if he desired it tangibly. Whichever way we reckon his wealth and that of other individuals, we shall in like manner in the sum get the wealth of England: it will be in one case the wealth in England-in the other case the wealth in England plus the lien which residents in England have on other countries in the world.

In parallel manner the effective capital of England, which can be brought into the wages fund, must be the sum of the capital of all the individuals.

These two self-evident truths are capable of many applications: we see directly from them that the National Debt, so far as it is held by residents in England, neither diminishes the national wealth nor affects the wages fund. We see also directly that any exchange between an Englishman and a foreigner which gives a profit to the Englishman gives an equal profit to the English nation.

When a merchant buys 1000 quarters of wheat from America and pays in gold, he does so to make a profit for himself; but he cannot make a profit for himself without making an equal profit for the nation. The exchange of the wheat for gold is profitable to both seller and buyer; otherwise the bargain would not be struck. A value is added to the wheat by its being brought from Minnesota (where it is wanted, as all good things are wanted) to London, where it is much more wanted, and this increased value is greater than the cost of moving the wheat from Minnesota to London; this excess is the profit on the exchange which the buyer and seller divide between them. The exact shares in which they divide the profit between them depend on some of the most complicated considerations in the science of political economy. Indeed, political economy can no more work out a case in figures, even when every circumstance is given, than political economy can tell in pounds sterling what should be the rent of a given farm. But the point required for our present purpose is easy and certain,—unless the English buyer got some share in the profit he would not give his gold for the wheat.

The great principle of Free Trade is that in this, and in all similar cases, the individual shall be left to make what profit he can; that his dealings with foreigners shall be interfered with by Government in no way; that he shall not be checked in his operations by import duties, bounties on exports, staples, or any other of the numerous obsolete interferences in the statute-book. The principle is that each individual can manage his own trade better than Government can manage it for him; that, therefore, Government shall let any individual do his best in trade his own way, knowing that whatever profit an individual makes in foreign trade is an equal national profit.

It may be shortly stated that in the old Protectionist theory, destroyed by Adam Smith, gold was considered to be wealth. Hence, if an individual bought foreign wheat for gold, the English suffered a national loss of wealth, and the foreign nation made a national gain. It is unnecessary to occupy space in refuting this (to us absurd) idea, as no refutation can be more satisfactory than Adam Smith's own.

If I profit on the transaction of buying 1000 quarters of wheat for gold, I do so irrespectively of all other exchanges by others. Whether the firm next door to me has succeeded in selling to a Boston house £2000 worth of Sheffield cutlery or no is a matter entirely beside my bargain. My profit will depend practically on the movements in the English corn trade: a small rise in the price of wheat at Mark Lane between the date of my purchasing by cable the wheat in America and my selling it at Mark Lane, may give me a large profit, or vice versa. But my exchange of gold for the wheat is a separate transaction of itself: it stands entirely on its own bottom.

It is perfectly true that if my neighbour in Threadneedle Street does succeed in selling £2000 worth of cutlery to the New Englander, there is another distinct national profit to England and to America. [Footnote: I am assuming for simplicity throughout that every exchange made by private merchants in this foreign trade is a successful speculation; if in any particular speculation a merchant loses, his country loses the same amount. As foreign trade, on the whole, is an enormous national profit, I am justified in sinking the particular cases of loss. It may be said, "But perhaps all your exchange of gold for wheat is a national loss": it is evident that when the trade takes this form the merchants who import foreign corn stop their operations instantly; in practice they stop them with prescient instinct.] But whether he succeeds in making a bargain or not, I object to being interfered with by Government, and prevented making my own little profit. If my neighbour is practically deprived of his profitable bargain by Government action on the part of the Americans—if they are Protectionists and believe that gold is the only National Wealth, and put a heavy duty on cutlery—if by doing this they prevent an exchange profitable to both nations—they stop TWO merchants from a profitable stroke of business. Whether they injure the English merchant or the Bostonian would-be purchaser of cutlery MOST is (as above explained) very difficult to prove in any well-ascertained instance, but it is quite certain that the interference of the American import duty causes a loss to each merchant and to each nation.

Where now is Reciprocity and where Retaliation? We can no doubt say to the Americans, "As you have injured us in the matter of cutlery, so will we injure you by putting a duty on wheat." But it is merely cutting off one's nose to spite one's face. In the exchange of gold for wheat the division of the profit on one transaction is uncertain, but in the long run it is probably about equal between the English and the American merchants, i.e. between the English and the American nations. (I am not overlooking the fact that the ultimate benefit to England is cheap bread; but it is unnecessary in the present argument to follow the food down the throats of the consumers: the wheat is really worth to the corn merchants what they can get for it from the consumers.) We cannot stop the corn trade with America by a duty (or diminish it) without as great a loss to ourselves (probably a greater) than to them; the retaliation in putting a duty on corn because the Americans put a duty on cutlery would be (with our lights) mere spite: it would be as though a farmer who took one sample of wheat to market and one of barley, should meet a factor who offered him his price for the wheat, but would not spring to his price for the barley, and the farmer should thereupon sulkily carry both his samples home again.

The ideas of Reciprocity and Retaliation are pure relics of the old Protectionist commercial theory, viz. that there is always a national loss in parting with gold—that the foreign trade can only be profitable to England so long as the value of the exports exceeds that of the imports, so that a continual accumulation of gold may go on.

Now, first, we may meet this with the abstract scientific argument that there is no character by which gold can be diagnosed as wealth from steel or broadcloth. Our merchant who buys wheat for gold could buy from the Americans wheat for cutlery or wheat for broadcloth. The reason he gives gold for the wheat is merely because he makes a better profit by giving gold than by giving anything else in exchange for the wheat. The nation therefore gets a better profit that way too.

Descending a little from this abstract argument, our opponent says, "If you go on buying wheat for gold, and cannot sell your cutlery and broadcloth out of the country for gold, you must run out of gold." But the fact has been proved by many years' experience not so to be: for many years our imports have been some £150,000,000 sterling more than our exports, while our stock of gold in the Bank of England (and the gold in circulation) remain the same from year to year. This is one of those many things (like the supply of meat to London) which will regulate itself perfectly and insensibly (without any violent disturbances in trade or the money market) if Government will only leave the matter entirely alone. If our stock of gold is at all short our merchants give a little less per quarter for American wheat; the trade is checked; the sensibility of the market—the experience of our corn-traders—is such that the balance is preserved with very slight oscillations. The refusal of the Americans (enforced by an import duty) to purchase our cutlery, etc., does partially check the reflux of gold to this country, and does lower sensibly the price which the Americans get for their wheat from us. Errors in political economy avenge themselves—often fearfully—on their perpetrators. But our objector will still want to have explained to him where the £150,000,000 sterling required in England annually comes from. It is not essential to, or indeed any part of, my present argument to explain this; but I will anticipate matters so far as to say shortly here that this £150,000,000 is, roughly speaking, the interest on English capital invested in foreign countries paid in cash to the owners resident in England—it is equivalent to an annual tribute.

Professor Henry Fawcett's Lectures on Free Trade is a sound and admirable book: it is occupied a good deal with the practical question why so few foreign nations have adopted Free Trade, and how such foreign nations are to be converted to the orthodox creed of Adam Smith. But, as I think, unfortunately Professor Fawcett has in that book used the words Reciprocity and Retaliation pretty freely. Their mere use is enough to fortify a French or American Protectionist in his present policy; he naturally says, "The English Free-traders themselves admit that we are making money out of them: we take their gold for our wine and wheat; we refuse to give our gold for their cutlery and broadcloth: those English have now to come to us whining for Reciprocity; as to their Retaliation we are not alarmed—we know they must have wheat and will have wine." I would wish to expunge the words Reciprocity and Retaliation from the subject, as being words merely suggestive of false views. But the most fatal course to the adoption of a Free Trade policy by foreign nations has been our plan of humbling, begging (and indirectly giving a consideration for) Commercial Treaties. Such a course is enough to (and does) counterbalance with foreign nations all our theoretical writings about Free Trade. We go to France and say, "We will let in your wines at a lower duty provided you do us the favour and give us the advantage of lowering your duties on English manufactures." I cannot conceive any way of putting the matter more strongly calculated to convince the French that we believe we lose by purchasing their wines and gain by selling them our manufactures.

It appears to me that if we wish to convince Europe and America of the truth of Free Trade (as understood by our political economists), our proper course is to adopt Free Trade ourselves FULLY (if the principle is good for wheat it is good for tea—I shall return to this), and then to say to foreigners, "See how we prosper under Free Trade." If the Americans continue to maintain Protectionist duties on our manufactures, our line of conduct is not to offer to pay them indirectly to relax those duties, but to say, "You are losing more by your duties than we are; the proof of the pudding is in the eating." If I believe, as I do, that the Americans are gaining less wealth under Protection than they would under Free Trade, I cannot imagine any plan less likely to convert them to my views than my going to them and saying, "We will give you £5,000,000 sterling (or some valued political advantage) if you will alter your mistaken policy." If this course did not confirm the Americans in the very deepest suspicions that Protection is really advantageous to them, and that we in our inmost heart think so too, my ideas of human nature are altogether at fault. But every foreign debate, whether in France, Germany, or America, on Free Trade, convinces me that I am not mistaken in the effect which I attribute to our prayers to every foreign nation to grant us a Commercial Treaty.