How Stock Is Naturally Distributed To Seek Employment Advantageous To Society

¹⁷² I have shown in Book 2 that every country’s mercantile stock naturally seeks the employment most advantageous to its own country.

If the stock is employed in the carrying trade, its country becomes the emporium of the goods of all countries. But that stock’s owner necessarily wishes to dispose as much of those goods as he can dispose at home.

He saves himself the trouble, risk, and cost of exportation. He will be glad to sell them at home for a smaller price and profit than abroad. He naturally tries to turn his carrying trade into a foreign trade of consumption.

If his stock is employed in a foreign trade of consumption, he will be glad to:

• dispose of those imported goods at home as much as he can, and
• turn his foreign trade of consumption into a home trade.

The country’s mercantile stock naturally:

• courts the near employment and shuns the distant employment,
• courts the employment where the returns are frequent and shuns that where they are distant and slow,
• courts the employment where it can maintain the most productive labour where it belongs or where its owner resides, and
  • It shuns the employment where it can maintain the fewest.
• courts the employment which is most advantageous ordinarily, and shuns that which is least advantageous.

The Invisible Hand Part 2

¹⁷³ Let us say that, in ordinary cases, those distant employments are less advantageous to the country than the nearer employments.

If the profit in those distant employments rise more than that of the nearer employments, such profit will draw stock from those nearer employments into the distant employments. This is until the profits of all return to their proper level.

This superiority of profit in the distant employments is a proof that:

• those distant employments are understocked
• the stock of the society is not distributed in the properest manner
• something is either bought cheaper or sold dearer than it should
• some class of citizens is oppressed by paying more or by getting less than the suitable equality between the different classes of people.

This equality is natural.

The same capital never will maintain the same amount of productive labour in a distant as in a near employment.

• But a distant employment may be as necessary for the society’s welfare as a near one.

The goods traded in the distant employment might be necessary for the nearer employments.

But if the profits of goods for distant employments are above their proper level, those goods will be sold dearer than they should, or above their natural price.

Everyone in the nearer employments will be oppressed by this high price.

In this case, their interest requires some stock to be withdrawn from those nearer employments and turned towards that distant one, in order to:

• reduce those profits to their proper level, and
• reduce the price of those goods to their natural price.

This is an extraordinary case.

The public interest requires that stock be withdrawn from the nearer employments and turned towards the distant employments, even if ordinarily, the distant employments were less advantageous to the public.

In this case, the natural interests of men is the same with the public interest as in all other ordinary cases.

• Their interests lead them to withdraw stock from the near and to turn it towards the distant employment.

¹⁷⁴ Thus, the private interests and passions of individuals naturally dispose them to turn their stocks towards employments most advantageous to the society in ordinary cases.

But if from this natural preference, they turn too much stock, its profits will fall while making profits rise in all other employments.

This will immediately make them alter this faulty distribution.

Without any intervention of law, the private interests and passions of men naturally lead them to divide and distribute the society’s stock among all the different employments most agreeable to the society’s interest.

The Mercantile System Destroys This Natural Distribution of Stock

¹⁷⁵ All the regulations of the mercantile system deranges this natural and most advantageous distribution of stock.

The mercantile regulations of the trade to America and the East Indies derange it perhaps more than any other. Those great trades absorb more stock than other trades. The regulations which derange those two trades are not the same.

Monopoly is the great engine of both. But the monopoly of both trades are different.

Monopoly seems the sole engine of the mercantile system.

¹⁷⁶ In the trade to America, every nation tries to engross the whole market of its own colonies by excluding other nations from any direct trade to them.

During the 16th century, the Portuguese managed the trade to the East Indies by claiming the sole right of sailing in the Indian seas because they first found the road to them.

The Dutch still continue to exclude all other European nations from any direct trade to their spice islands.

Monopolies of this kind are established against all other European nations.

Those nations are excluded from a trade which might be convenient for their stock.

They are obliged to buy the goods dearer than if they bought them directly from America and the Indies.

¹⁷⁷ Since the fall of the power of Portugal, no European nation has claimed the exclusive right of sailing in the Indian seas.

The principal ports in India are now open to all European ships.

Except in Portugal and France, the trade to the East Indies has been subjected to an exclusive company in every European country.

Monopolies of this kind are established against the very nation which erects them.

Most of that nation is excluded from a trade which might be convenient for their stock.

They are obliged to buy the goods from that trade dearer than if it was open and free to all their countrymen.

For example, since the establishment of the English East India company, other Englishmen were excluded from the trade.

They paid in the price of the East India goods which they consumed:

• all the extraordinary profits from the monopoly of the company, and
• all the extraordinary waste in the fraud and abuse.

These are inseparable from the management such a big company.

The absurdity of this monopoly by exclusive company is much more manifest than the absurdity of the monopoly by country.

¹⁷⁸ Both these monopolies derange the natural distribution of the society’s stock.

But they do not always derange it in the same way.