A Discourse on Trade

Nicholas Barbom
Milbourn: 1690

At the author's time, it was noted what great progress mankind had made, and this has largely been by virtue of transportation and trade. Even a century before the writing of this book, the life of the average person had been very isolated: all that he possessed or could possess was made within a short distance of his home - he made most things for himself and traded with his neighbors for other things, and goods from even the next town were rare. He had little and did without many of the things that are easily available a few generations later.

Because trade on any scale was previously unusual, very little is known or considered about the subject. There are many sentiments and superstitions about trade. Knowledge of the subject has propelled some (such as the Medici family of Florence) to amass immense wealth and ignorance of it has kept many in poverty and squalor. To that end, the present discourse.

Trade and Wares

Basically, trade is the exchange of things - but many other tasks are necessary for trade to take place. The things to be traded must be made and transported to the place where the exchange occurs. A great many professions are involved in these activities, but these activities are only necessary in order to engage in trade.

Wares are the things that are exchanged in a trade. A man may possess "things" that he intends for his own consumption, but when he arranges to possess things only because he intends to trade them with others, they are called "wares" to indicate this intent.

The goal of trade is to make a profitable bargain - to obtain something from someone else that is valued more than what must be given in exchange for it. Where trade is conducted for money, the "profit" of a trade can be quantified accordingly: the money received for a thing that is in excess of the costs of obtaining it.

(EN: The author is speaking entirely from a mercantile perspective and does not consider that a thing is of value for its consumption. So it is ultimately the consumer who decides how much he will give for the enjoyment of a thing that sets the value and determines the profit. Ignoring this can lead to many misconceptions.)

The most basic goods are raw materials - animal, vegetable, and mineral items that are taken from nature's bounty. But in many instances labor must be performed to make a basic good into something useful: raw cotton is of little value, but when spun, woven, and tailored it becomes an item of clothing that is beneficial to use.

The reason that different wares are available in different locations is that nature provides different raw materials: spices grow only in hot and damp locations, animals only give wool in cold locations, fish are only available in bodies of water, etc. Man may force the cultivation of a thing in a location that does not naturally yield it, but the product will be sparse and of poorer quality. Because grapes do not grow well in England, the English seek to trade with the French or the Spanish to obtain good wine. Those things that are best produced in a specific location (or country) is the foundation of its foreign trade - as it trades what is abundant in a place for what is scarce there.

Barbon dismisses the panic that any foreign good is necessary to the survival of a nation. All foreign goods are luxuries that can be done without. A nation can provide for its necessities on what it has within its own borders - were it not so, a nation would not have come into existence there in the first place. (EN: An interesting point, likely valid in the author's time, but in the present day there are locations where cities and nations have been established in places that cannot sustain life and are dependent on trade, or which have grown beyond the capacity of the land to sustain.)

He also dismisses the panic that trade diminishes the wealth of a nation. If an item was more wanted at home, it would be consumed at home. And with few exceptions, the resources of a country are sustainable: there is a new harvest every fall to replenish the stock of crops, the minerals of the earth are inexhaustible, the trees of the forest regrow, and the fish and fowl of nature reproduce themselves. Etc. (EN: this was largely true of his time, but it was well before mass-production caused raw materials to be harvested in significant quantities. In the present day, sustainability is a more serious issue.)

The Quantity and Quality of Wares

Some wares exist as indivisible units - one cannot wear half a coat or ride half a horse - and these units are the basis of their quantification. Other wares exist in more arbitrary quantities: liquids are sold by the quart, solids are sold by their weight, etc. There's some fussiness over solid goods that can be treated as liquids because they are small and "flow" freely - one can apply liquid measures to something like wheat or salt because it can be poured into a container. And then there are the odd items by which other measures are used - such as cloth sold by the square yard.

There is great potential for fraud in misrepresenting the quantity of a good, which is the reason that government often gets involved in establishing standards of measurement and assuring the fair assessment of the quantity of things. In some instances, a non-government arbiter can be used: a weighing-house that sells the service of measurement and assessment.

The quality of goods is a more difficult assessment to make. Essentially, a quality describes how goods are assessed by their sound, smell, taste, shape, or suitability for a given purpose. But much is subjective: two people may disagree over a given wine is "good" or "bad." Here, too, experts often intervene to provide independent judgments of quality and to grade the wares involved in a given exchange. People will generally give more in exchange for things they consider to be of better quality, and this too is an area in which there is potential for fraud when a good is misrepresented as being higher quality than it actually is.

Where trade occurs in a local market, sellers behave in a trustworthy manner because they are known to their customers. If a merchant cheats a customer, he will lose his future business. If his cheat is so outrageous as to cause offense, his customer may seek to retaliate against him directly. Where trade occurs between strangers who do not expect to see one another afterward, there is greater risk of fraud. The travelling gypsy caravan is viewed with great suspicion because it will be hundreds of miles away before the customer recognizes the gold ring they purchased is made of brass.

As trade expands to the broader market and more transactions are made among strangers, there is increased interest in having regulation and arbitration to ensure the honesty of trading partners.

The Value and Price of Wares

Ultimately, all wares are valued by a person who will make use of them. Wine is of value because someone will pay for the pleasure of drinking it. A seller does not set a price, but suggests it and the buyer may pay it or do without the benefit of the good. If there is no use for a thing, then no-one values it enough to pay anything for it, hence the thing has no commercial value.

Barbon considers the difference between necessities ("wants of the body") and luxuries ("wants of the mind") and observes that the majority of trade activity involves the latter. There is small profit to be made of wheat, but great profit to be made of jewels, spices, silks, and other things that are not necessary to the sustenance of life. Per the earlier remark, most nations can produce necessities for domestic consumption and need to trade only for luxury goods.

He also notes that very little is needed to sustain life, as is clear when one considers the living of savage tribes in temperate climates: these people go naked, live in caves, and gather food at their leisure. Their lives seem hard-scrabble, but little effort is necessary simply to sustain human life. Much of what we do is for our comfort.

Man's capacity for luxury is infinite: no matter what we have we are always interested in having more and better. And it is perhaps a drawback of trade that it exposes us to many luxuries of the mind that we would never have imagined on our own and would have been perfectly happy to do without until the moment we realized they could be had. And this is the source of envy, covetousness, and every other form of unhealthy desire.

He also considers the desire to have status among men because of the things we own. It is by clothing ourselves that we demonstrate that we are better than animals, and by wearing fine clothes the wealthy distinguish themselves from the lower classes. It is the sense of being lesser than others because of our possessions that embarrasses us most greatly, and feeds our desire to be equal to some and better than others, which drives us to do whatever is necessary to obtain it.

Back on topic ... there is no fixed price or value of anything. It all depends on the urgency with which someone wishes to possess it. What is valuable to one man is worthless to another. The hungry man will pay more for food than one who has just eaten his fill. The person who appreciates good wine will pay more for a bottle than one who does not have a taste for it. And so on.

The end consumer sets the price of things. All makers and merchants create and trade things with the intent to eventually sell it to someone who will use it. They cannot demand more for an item they have than someone is willing to give for it (as the customer will simply refuse to pay and do without it). Each person involved in manufacturing and trade must therefore consider the price he can get for a thing before he invests his money in creating or obtaining it - his success depends on it.

Money, Credit, and Interest

In most markets, direct barter in which wares are exchanged has been replaced by barter involving money given in exchange for a good. Money is a token of value that can be exchanged for any thing, and because it is a common element in most exchanges, the price of things is given in terms of the money exchanged for a good.

Historically, money has been made of gold or silver, or was a token of some kind that could be redeemed for gold or silver, but this is not absolutely necessary: it is merely a token of exchange, no matter what it is made of or what it can be exchanged for. It generally represents a given value in precious metals even though it cannot be always exchanged for them, and it is by threat of law that merchants must accept money as if it actually represented something of value.

However, when the value of money is fixed by law, only those subject to that law are beholden to accept it for the value it represents. It is common in international trade to bargain in specie (gold or silver) and to accept coins of specific nations based on the precious metal they contain, by calculating their weight and purity.

Where money is not made of precious metal, there is always some doubt as to its value. There is little point to forging a silver coin as it can be assessed and weighed and the truth of its content known to anyone who might accept it. Coins made of copper, brass, lead, and other metals as well as paper money are easily duplicated and the falseness cannot be as easily detected.

Where money is made of or backed by precious metals, it has the same value as those metals would in any physical form. It is also subject to the same fluctuations in value due to scarcity or abundance. The discovery of rich sources of gold in the New World caused gold to be more abundant, hence less valuable, when it is introduced to the European market. So it cannot be said that precious metals are certain or stable in their value - should the explorers of the new world come across an abundance of gold and silver, they may be deemed of no more value (and possibly less) than copper, iron, or other metals which are suitable to more purposes.

Credit is a promise of a man to make payment in the future, and is acceptable on two criteria: first, that his creditor believes he will have the means to pay in future, and second that he will make good on his promise to pay. It is not uncommon for a farmer to obtain the equipment and supplies he needs to plant his crop on promise that he will make payment when it is harvested - and this is similar to the rent of land, in which a farmer gains use of the acreage in exchange for payment when the crop grown on that land is harvested.

Credit can be used in trade where debts are transferred - where the merchant who is owed a payment gives someone else the right to collect it from his debtor. Notes of credit are thus passed from hand to hand among merchants in great cities of trade and there are banks of credit at which debts are maintained.

Where goods are given on credit, the price is always more because of the inconvenience of the merchant in having to wait for the payment: he would rather sell his wares for immediate compensation, and the buyer who wishes him to wait for payment must offer a little more for the privilege of paying later. This additional measure is referred to as the interest on credit extended.

In addition to the inconvenience of waiting to be paid, the lender incurs the risk that he will not be paid, and to cover this risk adds an additional measure of interest to all his debtors

The Use and Benefit of Trade

The main benefit of trade is to make available to men things that they are incapable of producing for themselves. The farmer who has no talent for carpentry can exchange some of his crop to the carpenter who has no talent for farming.

Trade also makes possible a wide range of professions: a man can make a living as a blacksmith, though his metal wares cannot sustain life they can be traded for food, clothing, shelter, and other necessities. Even those whose expertise is in frivolous things, such as music or other performing arts, can obtain the things they need by trading their services.

Where each man can do work to which he is best suited, the quality and quantity of goods available to all is improved. The shoes made by the baker and the bread made by a cobbler are very poor quality compared to the work of an artisan who specializes in the fabrication of a specific item. His work is much better, and can be done much more efficient manner.

And as said before, the existence of trade makes things available in a location where they cannot be naturally produced. Wines, spices, silk, tobacco, and many other goods that cannot be produced in Europe are available to Europeans only because they are brought for trade from distant lands.

Trade enables men to make better use of the resources they have. A man may need to plant only so many acres to feed his own family and has no incentive to plant any more unless it can be sold and traded for things he cannot produce, and finds himself with much idle time. Both the land and the men are better used when excess product can be traded for conveniences and luxuries.

It is also observed that trade has significantly decreased barbarism and violence. Where men have need of things they cannot produce, they often seek to claim them from others by violent means. For centuries the Vikings who live in cold and barren lands routinely pillaged Europe to obtain food for the harsh winters - but with trade they can obtain the things they need peacefully, offering some value in exchange for what they gain from others by voluntary exchange rather than by force.

Trade benefits government by way of taxation: it is far easier to account for and collect a share of the product of subjects where money is exchanged in a central market. And where taxes are collected in money, the money can be spent to gain whatever goods a government may need rather than seizing them from those who possess them. Government also gains revenue by regulating trade in a myriad of ways.

It's also suggested that trade has reduced famine, sickness, disease, and even death - as many of these conditions are caused by want of things. Where men are encouraged to produce more than they can consume, then there is more for all. Famine, caused by want of food, is often documented in ancient history - but there have been no great famines in Europe for three hundred years. Healthy men are less prone to disease. Consider the plagues in Italy that destroyed thousands, the consider the recent (1665) outbreak that, in all of Europe, claimed less than a hundred lives. Much of the misery that historians document is unknown in the author's time.

He turns again to the topic of war, and the vast amount of lives lost and resources consumed where countries seeked to enlarge themselves by military means: the soldiers lost in great battles and the need to maintain an occupying armies in distant lands, all to take by force their wares and means of production (as conquering land is only meaningful because the land is then farmed and the produce sent home). There is no need to conquer a land to obtain their wares when one can trade with them.

Trade also liberates a population, as men are guided by trade to produce what others need in order to enjoy prosperity. There is no need for government to direct the activities of men, to tell them what to produce and in what quantity, and to oversee them to ensure that they do so. Free people are more productive than slaves, and more enthusiastic about defending and supporting their government, which becomes the protector rather than the violator of their liberty.

There is a long passage in which Barbon considers the empires of ancient history and the empires of his time, and seems to conclude that empires are no longer established my military might but by economic might: the ability to move people and goods on ships to remote lands, and the eagerness with which people who live in squalor and oppression to assimilate to a mercantile culture. (EN: all of this seems rather like propaganda, as there are many assertions without much substantiation. It seems plausible, but it is more opinion than analysis.)

Factors that Promote Trade

The chief causes that promote trade are a desire to consume and industriousness to produce.

If there is no desire to consume things, there is no need to produce them. Moreover, the desire to consume must be liberal: a man must desire luxuries and comforts beyond the bare necessities in order to be inclined to produce more than he needs for his own consumption, which is necessary to have something to trade.

But desire to consume alone is insufficient because man may desire things he does not have and seek to take them from others or merely to covet them and never take the effort to obtain them. Therefore the desire to consume must be coupled with a willingness to undertake effort to produce for one's own consumption - and more, to produce wares to be traded for desired items rather than the objects of desire themselves.

The desire to gain wealth for its own sake does not promote trade. Wealth is merely a means to consume. There are miserly men who seek to amass great amounts of money, or of land, or of other things - but what is held in a personal horde is not contributing to trade. A man who amasses wealth is not rich, but poor - as his horde gives him no benefit. (EN: Other writers say much of hoarding, but the best conclusion is that it's of no long-term consequence. A miser's wealth is idle, but returns to society when he passes and his prodigal heirs squander his fortune.)

In the author's time clothing was a major industry. The availability of various textiles (cotton and silk) caused much activity in trade and production, and changing fashions caused people to abandon their clothes more regularly. As clothing is a visible badge of status, fashion drives production in a broad array of industries: exotic fabrics, dyes, buttons and adornments, and the like.

He also mentions buildings and their furnishing as a major industry: people built grand homes and furnish them lavishly, bringing materials from the far corners of the earth. While building materials and furnishings can be transported, the labor to assemble them remains local: trades such as masons, carpenters, plasterers, and so on are booming in local markets, enabling displaced labor from farms to be retrained to newer and more profitable professions.

He observes that most of this is merely social posturing: if a man lived in isolation, he would be happy with a crude house, plain clothing, and basic foodstuffs. But because he lives in a society he feels the need to keep pace with or even surpass the living standards of his neighbors. (EN: This drive is typical of some cultures but not of others.

Factors that Diminish Trade

Trade is an activity in which men gladly engage because they recognize the benefit they gain by doing so - but this activity can be discouraged by intrusion: where the cost of engaging in trade is greater than the benefit it promises, then men are discouraged to trade and trade in general becomes diminished.

The intrusion of the state into private affairs is generally damaging to trade. Very often, there are prohibitions, tariffs, or other discouragement to the purchase of foreign goods, on the belief that this will cause people to purchase from domestic suppliers - but if the domestic wares were of adequate quality and acceptable price, no legal interference would be required. And as domestic wares are not satisfactory, prohibiting imports makes them no less unsatisfactory and customers simply do not engage in trade to have them.

The damage done goes further than that: because consumers do not purchase goods, they are not driven to produce anything to exchange for these goods hence earn less for themselves. Where one state interferes with imports from a foreign nation, that nation often retaliates by imposing trade restrictions of its own. Where goods are taxed, the price is simply increased, so there is no benefit to the consumer or the seller for the additional cost. Where domestic producers are protected, they have no incentive to seek to discover and employ better and more efficient means of production, but continue in inefficient and outmoded production methods. Discouraging trade among nations is no more healthy than discouraging trade among provinces of the same nation. It makes goods less available and more expensive to all.

A high interest rate can also be discouraging to trade in numerous ways. The cost of interest adds to the expenses of creating a good, which increases the price that must be earned to cover the costs of production, which decreases demand for the good. Not only is the good less demanded in domestic markets, it is also less demanded in foreign ones where it cannot compete on cost with the wares of producers who must pay less to borrow capital.

Interest rates direct capital to where it can most productively be used, hence to interfere with interest rates causes capital to be misdirected. While setting a high interest rate to attract capital investment in a market seems a good idea, it also sets the rate too high for producers to be able to borrow because they cannot pay the interest without increasing their prices. It's suggested that this also causes to a decrease in the profitability of capital resources in general, and land in specific: the rent of land must be decreased to enable producers to use land profitably enough to pay the high interest rate on borrowed capitals.

(EN: There follows a rather long account of the manner in which trade restrictions and interest rates caused fluctuations in trade between England and Holland, but it seems to get lost in the details. Moreover, it does not contradict or add to what has already been said. After this, the piece abruptly ends.)