wontwo
wontwof
The Wealth of Nations - Part 2
But the statement that gold preponderated is
founded merely on the fact that the value of the gold coined in the periods
i6th December, 1602, to 19th July, 1606, and 20th September, 1611, to 14th
April, 1613, was greater than that of the silver coined in the same time, which
proves nothing about the proportions in the whole stock of coin. The state-
ment is repeated below, p. 281. The note appears first in ed. 2.
“®Ed. I reads “European.” ^^Ed. i reads “European.”
“^Ed. I reads “one fifth part of it, or to twenty per cent.”
Above, pp. 168, 201. Above, p. 170. “‘Ed. i reads “European.”
Gold is
nearer its
lowest
possible
price than
silver.
-^4 the wealth of nations
Diamonds
are nearer
still
It may be
necessary
to reduce
still fur-
ther the
tax on sil-
ver in
Spanish
America
Ed I places the “it would seem” after “computed,” omits “in the Span-
ish market,” and puts the whole sentence at the end of the paragraph.
Ed. I places the “indeed” here Ed. i reads “that.”
Above, p. 209.
Ed. I reads “It must still be true, however, that the whole mass of Am-
erican gold comes to the European market at a price.”
Ed. I contains another paragraph, “Were the king of Spain to give up his
tax upon silver, the price of that metal might not, upon that account, sink im-
mediately in the European m^ket As long as the quantity brought thither
continued the same as before, it would still continue to sell at the same price.
The first and immediate effect of this change, would be to increase the profits
of mining, the pdertaker of the mine now gaining all that he had been used
to pay to the king These great profits would soon tempt a greater number of
people to undertake the working of new mines. Many mines would be wrought
which cannot be wrought at present, because they cannot afford to pay this
tax, and the quantity of silver brought to market would, in a few years be so
much augmented, probably, as to sink its price about one-fifth below its
present standaid. This diminution in the value of silver would again reduce
the profits of mining nearly to their present rate ”
Above, pp. 169, 202.
^'^Ed I reads from the beginning of the paragraph, “It is not indeed very
probable, ^ that any part of a tax which affords so important a revenue, and
which IS imposed, too, upon one of the most proper subjects of taxation, will
ever be given up as long as it is possible to pay it The impossibility of paying
It, however, may in time make it necessary to diminish it, in the same manner
as it made it necessary to diminish the tax upon gold ”
Spanish silver. When all expences are computed, the whole quan-
tity of the one metal, it would seem, cannot, in the Spanish mar-
ket, be disposed of so advantageously as the whole quantity of the
other.^®'^ The tax, indeed, of the King of Portugal upon the
gold of the Brazils, is the same with the ancient tax of the King
of Spain upon the silver of Mexico and Peru; or one-fifth part of
the standard metal.^®^ It may, therefore, be uncertain whether to
the general market of Europe the whole mass of American gold
comes at a price nearer to the lowest for which it is possible to
bring it thither, than the whole mass of American silver.
The price of diamonds and other precious stones may, perhaps,
be still nearer to the lowest price at which it is possible to bring
them to market, than even the price of gold.^'^®
Though it is not very profitable, that any part of a tax which is
not only imposed upon one of the most proper subjects of taxation,
a mere luxury and superfluity, but which affords so very important
a revenue, as the tax upon silver, will ever be given up as long as it
is possible to pay it; yet the same impossibility of paying it, which
in 1736 made it necessary to reduce it from one-fifth to one-
tenth, may in time make it necessary to reduce it still further;
in the same manner as it made it necessary to reduce the tax upon
gold to one-twentieth .^'^2 That the silver mines of Spanish America,
like all other mines, becomes gradually more expensive in the work-
DIGRESSION ON SILVER 215
ingj on account of the greater depths at which it is necessary to
carry on the works, and of the greater expence of drawing out the
water and of supplying them with fresh air at those depths, is ac-
knowledged by every body who has enquired into the state of those
mines.
These causes, which are equivalent to a growing scarcity of sil-
ver (for a commodity may be said to grow scarcer when it becomes
more difficult and expensive to collect a certain quantity of it),
must, in time, produce one or other of the three following events.
The increase of the expence must either, first, be compensated al-
together by a proportionable increase in the price of the metal; or,
secondly, it must be compensated altogether by a proportionable
diminution of the tax upon silver; or, thirdly, it must be compen-
sated partly by the one, and partly by the other of those two ex-
pedients. This third event is very possible. As gold rose in its price
in proportion to silver, notwithstanding a great diminution of the
tax upon gold; so silver might rise in its price in proportion to la-
bour and commodities, notwithstanding an equal diminution of the
tax upon silver.
Such successive reductions of the tax, however, though they may
not prevent altogether, must certainly retard, more or less, the rise
of the value of silver in the European market. In consequence of
such reductions, many mines may be wrought which could not be
wrought before, because they could not afford to pay the old tax;
and the quantity of silver annually brought to market must always
be somewhat greater, and, therefore, the value of any given quan-
tity somewhat less, than it otherwise would have been. In conse-
quence of the reduction in 1736, the value of silver in the Euro-
pean market, though it may not at this day be lower than before
that reduction, is, probably, at least ten per cent, lower than it
would have been, had the Court of Spain continued to exact the old
tax.1^3
That, notwithstanding this reduction, the value of silver has,
during the course of the present century, begun to rise somewhat in
the European market, the facts and arguments which have been al-
leged above, dispose me to believe, or more properly to suspect and
conjecture; for the best opinion which I can form upon this subject
scarce, perhaps, deserves the name of belief. The rise, indeed, sup-
posing there has been any, has hitherto been so very small, that
This paragraph appears first in ed. 2.
Ed I reads from the beginning of the paragraph, “That the first of these
three events has already begun to take place, or that silver has, during the
course of the present century, begun to rise somewhat in its value in the Eu-
The great-
er cost of
raising sil-
ver must
lead to an
increase of
its price,
or a re-
duction
of the tax
upon it, or
both.
The re-
duction of
the tax in
the past
makes sil-
ver at
least 10
per cent,
lower
than it
would
otherwise
have been.
Silver has
probably
risen
somewhat
in the
present
century.
The an-
nual con-
sumption
must at
length
equal the
annual
importa-
tion,
and will
then ac-
commo-
date itself
to chang-
es in the
importa-
tion.
Gold and
silver are
supposed
to be still
falling be-
cause they
arein-
creasingin
quantity
and some
sorts of
rude pro-
216 XHE WEALTH OF NATIONS
after all that has been said, it may, perhaps, appear to many peo-
ple uncertain, not only whether this event has actually taken place;
but whether the contrary may not have taken place, or whether the
value of silver may not still continue to fall in the European market.
It must be observed, however, that whatever may be the supposed
annual importation of gold and silver, there must be a certain
period, at which the annual consumption of those metals will be
equal to that annual importation. Their consumption must increase
as their mass increases, or rather in a much greater proportion. As
their mass increases, their value diminishes. They are more used,
and less cared for, and their consumption consequently increases in
a greater proportion than their mass. After a certain period, there-
fore, the annual consumption of those metals must, in this manner,
become equal to their annual importation, provided that importa-
tion is not continually increasing; which, in the present times, is
not supposed to be the case.
If, when the annual consumption has become equal to the annual
importation, the annual importation should gradually diminish, the
annual consumption may, for some time, exceed the annual im-
portation. The mass of those metals may gradually and insensibly
diminish, and their value gradually and insensibly rise, till the an-
nual importation becoming again stationary, the annual consump-
tion will gradually and insensibly accommodate itself to what that
annual importation can maintain.^*^^
Grounds of the Suspicion that the Value of Silver still continues to
decrease
The increase of the wealth of Europe, and the popular notion that,
as the quantity of the precious metals naturally increases with the
increase of wealth, so their value diminishes as their quantity in-
creases, may, perhaps, dispose many people to believe that their
value still continues to fall in the European market; and the still
gradually increasing price of many parts of the rude produce of
land may confirm them still further in this opinion.
That that increase in the quantity of the precious metals,
which arises in any country from the increase of wealth, has no
ropean market, the facts and arguments which have been alledged above dis-
pose me to believe. The rise, indeed, has hitherto ”
The last two paragraphs appear first in Additions and Corrections and
ed. 3
Ed. I reads “may besides” Ed. i reads “perhaps” here.
Ed. I reads “That the increase of.”
Ed. I places the “which arises” here.
217
DIGRESSION ON SILVER
tendency to diminish their value, I have endeavoured to show al-
ready.^®^ Gold and silver naturally resort to a rich country, for the
same reason that all sorts of luxuries and curiosities resort to it;
not because they are cheaper there than in poorer countries, but
because they are dearer, or because a better price is given for them.
It is the superiority of price which attracts them, and as soon as
that superiority ceases, they necessarily cease to go thither.
If you except corn and such other vegetables as are raised alto-
gether by human industry, that all other sorts of rude produce, cat-
tle, poultry, game of all kinds, the useful fossils and minerals of the
earth, &c. naturally grow dearer as the society advances in wealth
and improvement, I have endeavoured to show already Though
such commodities, therefore, come to exchange for a greater quan-
tity of silver than before, it will not from thence follow that silver
has become really cheaper, or will purchase less labour than before,
but that such commodities have become really dearer, or will pur-
chase more labour than before. It is not their nominal price only,
but their real price which rises in the progress of improvement. The
rise of their nominal price is the effect, not of any degradation of
the value of silver, but of the rise in their real price.
Different Effects of the Progress of Improvement upon three differ-
ent Sorts of rude Produce
These different sorts of rude produce may be divided into three The real
classes. The first comprehends those which it is scarce in the power
of human industry to multiply at all. The second, those which it can sorts of
multiply in proportion to the demand. The third, those in which rudepro-
the efficacy of industry is either limited or uncertain. In the prog-
ress of wealth and improvement, the real price of the first may rise progress
to any degree of extravagance, and seems not to be limited by any of ini-
certain boundary. That of the second, though it may rise greatly,
has, however, a certain boundary beyond which it cannot well pass
for any considerable time together. That of the third, though its
natural tendency is to rise in the progress of improvement, yet in
the same degree of improvement it may sometimes happen even to
fall, sometimes to continue the same, and sometimes to rise more or
less, according as different accidents render the efforts of human
industry, in multiplying this sort of rude produce, more or less suc-
cessful.
Above, p. i 88 ff. Above, pp. 174-176.
duce are
rising
It has al-
ready
been
shown
that the
increase of
the metals
need not
diminish
their
value
and the
rise of
cattle,
etc, is
due to a
rise in
their real
price, not
to a fall
of silver
2I8
THE WEALTH OF NATIONS
(i) The
sort
which
cannot be
multiplied
by human
industry,
such as
game.
First Sort
The first sort of nide produce of which the price rises in the prog-
ress of improvement, is that which it is scarce in the power of hu-
man industry to multiply at all. It consists in those things which
nature produces only in certain quantities, and which being of a
very perishable nature, it is impossible to accumulate together the
produce of many different seasons. Such are the greater part of
rare and singular birds and fishes, many different sorts of game, al-
most all wild-fowl, all birds of passage in particular, as well as many
other things. When wealth and the luxury which accompanies it
increase, the demand for these is likely to increase with them, and
no effort of human industry may be able to increase the supply
much beyond what it was before this increase of the demand. The
quantity of such commodities, therefore, remaining the same, or
nearly the same, while the competition to purchase them is con-
tinually increasing, their price may rise to any degree of extrava-
gance, and seems not to be limited by any certain boundary. If
woodcocks should become so fashionable as to sell for twenty guin-
eas a-piece, no effort of human industry could increase the number
of those brought to market, much beyond what it is at present. The
high price paid by the Romans, in the time of their greatest grand-
eur, for rare birds and fishes, may in this manner easily be ac-
counted for. These prices were not the effects of the low value of
silver in those times, but of the high value of such rarities and
curiosities as human industry could not multiply at pleasure. The
real value of silver was higher at Rome, for some time before and
after the fall of the republic, than it is through the greater part of
Europe at present. Three sestertii, equal to about sixpence sterling,
was the price which the republic paid for the modius or peck of the
tithe wheat of Sicily. This price, however, was probably below the
average market price, the obligation to deliver their wheat at this
rate being considered as a tax upon the Sicilian farmers. When the
Romans, therefore, had occasion to order more corn than the tithe
of wheat amounted to, they were bound by capitulation to pay for
the surplus at the rate of four sestertii, or eight-pence sterling, the
peck; and this had probably been reckoned the moderate and
reasonable, that is, the ordinary or average contract price of those
times; it is equal to about one-and-twenty shillings the quarter.
Eight-and-twenty shillings the quarter was, before the late years of
As mentioned above, p. 150. Cicero, In Verr., Act. IL, lib. iii., c. 70, is the
authority.
DIGRESSION ON SILVER 219
scarcity, the ordinary contract price of English wheat, which in
quality is inferior to the Sicilian, and generally sells for a lower
price in the European market. The value of silver, therefore, in
those ancient times, must have been to its value in the present, as
three to four inversely; that is, three ounces of silver would then
have purchased the same quantity of labour and commodities which
four ounces will do at present. When we read in Pliny, therefore,
that Seius bought a white nightingale, as a present for the em-
press Agrippina, at the price of six thousand sestertii, equal to about
fifty pounds of our present money; and that Asinius Celer pur-
chased a surmullet at the price of eight thousand sestertii, equal to
about sixty-six pounds thirteen shillings and four-pence of our pres-
ent money; the extravagance of those prices, how much soever it
may surprise us, is apt, notwithstanding, to appear to us about one-
third less than it really was. Their real price, the quantity of labour
and subsistence which was given away for them, was about one-
third more than their nominal price is apt to express to us in the
present times. Seius gave for the nightingale the command of a
quantity of labour and subsistence equal to what 66^. 135.
would purchase in the present times; and Asinius Celer gave for
the surmullet the command of a quantity equal to what 88/. 17^.
pd.-l, would purchase. What occasioned the extravagance of
those high prices was, not so much the abundance of silver, as the
abundance of labour and subsistence, of which those Romans had
the disposal, beyond what was necessary for their own use. The
quantity of silver, of which they had the disposal, was a good deal
less than what the command of the same quantity of labour and sub-
sistence would have procured to them in the present times.
Second Sort
The second sort of rude produce of which the price rises in the (2) The
progress of improvement, is that which human industry can multi-
ply in proportion to the demand. It consists in those useful plants bemulti-
and animals, which, in uncultivated countries, nature produces with
such profuse abundance, that they are of little or no value, and ^ttie,^
which, as cultivation advances, are therefore forced to give place to poultry,
some more profitable produce. During a long period in the progress
of improvement, the quantity of these is continually diminishing,
while at the same time the demand for them is continually increas-
^ Lib. X. c. 29. “Scio sestertiis sex candidam alioquin, quod est prope in-
usitatum, venisse, quae Agrippinae Claudii prindpis conjugi dono daretur.”
“Seius” seems to be the result of misreading “Sdo.”
’^Lib. ix. c. 17. This and the previous note appear first in ed. 2 .
When it
becomes
profitable
to culti-
vate land
to yield
food for
cattle, the
price of
cattle can-
not go
higher.
It must go
to this
220 XHE WEALTH OF NATIONS
ing. Their real value, therefore, the real quantity of labour which
they will purchase or command, gradually rises, till at last it gets
so high as to render them as profitable a produce as any thing else
which human industry can raise upon the most fertile and best cul-
tivated land. When it has got so high it cannot well go higher. If it
did, more land and more industry would soon be employed to in-
crease their quantity.
When the price of cattle, for example, rises so high that it is as
profitable to cultivate land in order to raise food for them, as in or-
der to raise food for man, it cannot well go higher. If it did, more
corn land would soon be turned into pasture. The extension of till-
age, by diminishing the quantity of wild pasture, diminishes the
quantity of butcher’s-meat which the country naturally produces
without labour or cultivation, and by increasing the number of
those who have either corn, or, what comes to the same thing, the
price of corn, to give in exchange for it, increases the demand. The
price of butcher’s-meat, therefore, and consequently of cattle, must
gradually rise till it gets so high, that it becomes as profitable to
employ the most fertile and best cultivated lands in raising food for
them as in raising corn. But it must always be late in the progress of
improvement before tillage can be so far extended as to raise the
price of cattle to this height; and till it has got to this height, if the
country is advancing at all, their price must be continually rising.
There are, perhaps, some parts of Europe in which the price of cat-
tle has not yet got to this height. It had not got to this height in any
part of Scotland before the union.^®® Had the Scotch cattle been al-
ways confined to the market of Scotland, in a country in which the
quantity of land, which can be applied to no other purpose but the
feeding of cattle, is so great in proportion to what can be applied to
other purposes, it is scarce possible, perhaps, that their price could
ever have risen so high as to render it profitable to cultivate land
for the sake of feeding them. In England, the price of cattle, it has
already been observed,^®® seems, in the neighbourhood of London,
to have got to this height about the beginning of the last century;
but it was much later probably before it got to it through the greater
part of the remoter counties; in some of which, perhaps, it may
scarce yet have got to it. Of all the different substances, however,
which compose this second sort of rude produce, cattle is, perhaps,
that of which the price, in the progress of improvement, first rises
to this height.
Till the price of cattle, indeed, has got to this height, it seems
scarce possible that the greater part, even of those lands which are
Above, pp. 149, 162. Above, p. 151, and cp. below, p. 225,
221
DIGRESSION ON SILVER
capable of the highest cultivation, can be completely cultivated. In height in
all farms too distant from any town to carry manure from it, that
is, in the far greater part of those of every extensive country, the complete
quantity of well-cultivated land must be in proportion to the quan- cultiva-
tity of manure which the farm itself produces; and this again must
be in proportion to the stock of cattle which are maintained upon
it. The land is manured either by pasturing the cattle upon it, or
by feeding them in the stable, and from thence carrying out their
dung to it. But unless the price of the cattle be sufficient to pay
both the rent and profit of cultivated land, the farmer cannot afford
to pasture them upon it; and he can still less afford to feed them in
the stable. It is with the produce of improved and cultivated land
only, that cattle can be fed in the stable; because to collect the
scanty and scattered produce of waste and unimproved lands would
require too much labour and be too expensive. If the price of the
cattle, therefore, is not sufficient to pay for the produce of im-
proved and cultivated land, when they are allowed to pasture it,
that price will be still less sufficient to pay for that produce when
it must be collected with a good deal of additional labour, and
brought into the stable to them. In these circumstances, therefore,
no more cattle can, with profit, be fed in the stable than what are
necessary for tillage. But these can never afford manure enough for
keeping constantly in good condition, all the lands which they are
capable of cultivating. What they afford being insufficient for the
whole farm, will naturally be reserved for the lands to which it can
be most advantageously or conveniently applied; the most fertile,
or those, perhaps, in the neighbourhood of the farm-yard. These,
therefore, will be kept constantly in good condition and fit for till-
age. The rest will, the greater part of them, be allowed to lie waste,
producing scarce any thing but some miserable pasture, just suffi-
cient to keep alive a few straggling, half-starved cattle; the farm,
though much understocked in proportion to what would be neces-
sary for its complete cultivation, being very frequently overstocked
in proportion to its actual produce. A portion of this waste land,
however, after having been pastured in this wretched manner for
six or seven years together, may be ploughed up, when it will yield,
perhaps, a poor crop or two of bad oats, or of some other coarse
grain, and then, being entirely exhausted, it must be rested and
pastured again as before, and another portion ploughed up to be
in the same manner exhausted and rested again in its turn. Such ac-
cordingly was the general system of management all over the low
country of Scotland before the union. The lands which were kept
constantly well manured and in good condition, seldom exceeded a
Conse-
quently
new colo-
nies are
poorly
222 the wealth of nations
third or a fourth part of the whole farm, and sometimes did not
amount to a fifth or a sixth part of it. The rest were never manured,
but a certain portion of them was in its turn, notwithstanding, regu-
larly cultivated and exhausted. Under this system of management,
it is evident, even that part of the lands of Scotland which is cap-
able of good cultivation, could produce but little in comparison of
what it may be capable of producing. But how disadvantageous so-
ever this system may appear, yet before the union the low price of
cattle seems to have rendered it almost unavoidable. If, notwith-
standing a great rise in their price, it still continues to prevail
through a considerable part of the country, it is owing, in many
places, no doubt, to ignorance and attachment to old customs, but
in most places to the unavoidable obstructions which the natural
course of things opposes to the immediate or speedy establishment
of a better system: first, to the poverty of the tenants, to their not
having yet had time to acquire a stock of cattle sufficient to culti-
vate their lands more completely, the same rise of price which
would render it advantageous for them to maintain a greater stock,
rendering it more difficult for them to acquire it; and, secondly, to
their not having yet had time to put their lands in condition to
maintain this greater stock properly, supposing they were capable
of acquiring it. The increase of stock and the improvement of land
are two events which must go hand in hand, and of which the one
can no-where much out-run the other. Without some increase of
stock, there can be scarce any improvement of land, but there can
be no considerable increase of stock but in consequence of a con-
siderable improvement of land; because otherwise the land could
not maintain it. These natural obstructions to the establishment of
a better system, cannot be removed but by a long course of fru-
gality and industry; and half a century or a century more, perhaps,
must pass away before the old system, which is wearing out gradu-
ally, can be completely abolished through all the different parts
of the country. Of all the commercial advantages, however,
which Scotland has derived from the union with England, this rise
in the price of cattle is, perhaps, the greatest. It has not only
raised the value of all highland estates, but it has, perhaps, been
the principal cause of the improvement of the low country.
In all new colonies the great quantity of waste land, which can
for many years be applied to no other purpose but the feeding of
cattle, soon renders them extremely abundant, and in every thing
great cheapness is the necessary consequence of great abundance.
Though all the cattle of the European colonies in America were
Eds. 1-3 read “of all commercial’
DIGRESSION ON SILVER 223
originally carried from Europe, they soon multiplied so much there, cultivat-
and became of so little value, that even horses were allowed to run
wild in the woods without any owner thinking it worth while to
claim them. It must be a long time after the first establishment of
such colonies, before it can become profitable to feed cattle upon
the produce of cultivated land. The same causes, therefore, the
want of manure, and the disproportion between the stock employed
in cultivation, and the land which it is destined to cultivate, are
likely to introduce there a system of husbandry not unlike that
which still continues to take place in so many parts of Scotland.
Mr. Kalm, the Swedish traveller, when he gives an account of the
husbandry of some of the English colonies in North America, as he
found it in 1749, observes, accordingly, that he can with difficulty
discover there the character of the English nation, so well skilled in
all the different branches of agriculture. They make scarce any
manure for their corn fields, he says; but when one piece of ground
has been exhausted by continual cropping, they clear and cultivate
another piece of fresh land; and when that is exhausted, proceed to
a third. Their cattle are allowed to wander through the woods and
other uncultivated grounds, where they are half-starved; having
long ago extirpated almost all the annud grasses by cropping them
too early in the spring, before they had time to form their flowers,
or to shed their seeds.^®® The annual grasses were, it seems, the best
natural grasses in that part of North America; and when the Euro-
peans first settled there, they used to grow very thick, and to rise
three or four feet high. A piece of ground which, when he wrote,
could not maintain one cow, would in former times, he was assured,
have maintained four, each of which would have given four times
the quantity of milk which that one was capable of giving. The
poorness of the pasture had, in his opinion, occasioned the degrada-
tion of their cattle, which degenerated sensibly from one generation
to another. They were probably not unlike that stunted breed
which was common all over Scotland thirty or forty years ago, and
which is now so much mended through the greater part of the low
country, not so much by a change of the breed, though that exped-
ient has been employed in some places, as by a more plentiful meth-
od of feeding them.
Kalm’s Travels, vol. i. p. 343, 344. Travels into North America, contain-
ing its natural history and a circumstantial account of its Plantations and Ag-
riculture in general, with the civil, ecclesiastical and commercial state of the
country, the manners of the inhabitants and several curious and important re-
marks on various subjects, by Peter Kalm, Professor of (Economy in the Uni-
versity of Aobo, in Swedish Finland, and member of the S. Royal Academy of
Sciences. Translated by John Reinhold Forster, FA.S., 3 vols. 1770. The
note appears first in ed. 2.
Cattle are
the first of
this sec-
ond sort
of rude
produce
to bring
in the
price ne-
cessary to
secure cul-
tivation,
and veni-
son is the
last;
other
things are
interme-
diate,
such as
poultry,
224 THE WEALTH OF NATIONS
Though it is late, therefore, in the progress of improvement be-
fore cattle can bring such a price as to render it profitable to culti-
vate land for the sake of feeding them; yet of all the different parts
which compose this second sort of rude produce, they are perhaps
the first which bring this price; because till they bring it, it seems
impossible that improvement can be brought near even to that de-
gree of perfection to which it has arrived in many parts of Europe.
As cattle are among the first, so perhaps venison is among the
last parts of this sort of rude produce which bring this price. The
price of venison in Great Britain, how extravagant soever it may
appear, is not near sufficient to compensate the expence of a deer
park, as is well known to all those who have had any experience in
the feeding of deer. If it was otherwise, the feeding of deer would
soon become an article of common farming; in the same manner as
the feeding of those small birds called Turdi was among the ancient
Romans. Varro and Columella assure us that it was a most profit-
able article.^^® The fattening of ortolans, birds of passage which ar-
rive lean in the country, is said to be so in some parts of France. If
venison continues in fashion, and the wealth and luxury of Great
Britain increase as they have done for some time past, its price may
very probably rise still higher than it is at present.
Between that period in the progress of improvement which
brings to its height the price of so necessary an article as cattle, and
that which brings to it the price of such a superfluity as venison,
there is a very long interval, in the course of which many other
sorts of rude produce gradually arrive at their highest price, some
sooner and some later, according to different circumstances.
Thus in every farm the offals of the barn and stables will main-
tain a certain number of poultry. These, as they are fed with what
would otherwise be lost, are a mere save-all; and as they cost the
farmer scarce any thing, so he can afford to sell them for very little.
Almost all that he gets is pure gain, and their price can scarce be so
low as to discourage him from feeding this number. But in coun-
tries ill cultivated, and, therefore, but thinly inhabited, the poultry,
which are thus raised without expence, are often fully sufficient to
supply the whole demand. In this state of things, therefore, they
are often as cheap as butcher’s-meat, or any other sort of anim^
food. But the whole quantity of poultry, which the farm in this
manner produces without expence, must always be much smaller
than the whole quantity of butcher’s-meat which is reared upon it;
and in times of wealth and luxury what is rare, with only nearly
^ Varro, De re rustica, iii., 2, and Columella, De re rustica, viii., 10, ad fin.,
where Varro is quoted.
DIGRESSION ON SILVER 225
equal merit, is always preferred to what is common. As wealth and
luxury increase, therefore, in consequence of improvement and cul-
tivation, the price of poultry gradually rises above that of butch-
er’s-meat, till at last it gets so high that it becomes profitable to cul-
tivate land for the sake of feeding them. When it has got to this
height, it cannot well go higher. If it did, more land would soon be
turned to this purpose. In several provinces of France, the feeding
of poultry is considered as a very important article in rural (econ-
omy, and sufficiently profitable to encourage the farmer to raise a
considerable quantity of Indian corn and buck-wheat for this pur-
pose. A middling farmer will there sometimes have four hundred
fowls in his yard. The feeding of poultry seems scarce yet to be gen-
erally considered as a matter of so much importance in England.
They are certainly, however, dearer in England than in France, as
England receives considerable supplies from France. In the prog-
ress of improvement, the period at which every particular sort of
animal food is dearest, must naturally be that which immediately
precedes the general practice of cultivating land for the sake of
raising it. For some time before this practice becomes general, the
scarcity must necessarily raise the price. After it has become gen-
eral, new methods of feeding are commonly fallen upon, which en-
able the farmer to raise upon the same quantity of ground a much
greater quantity of that particular sort of animal food. The plenty
not only obliges him to sell cheaper, but in consequence of these
improvements he can afford to sell cheaper; for if he could not af-
ford it, the plenty would not be of long continuance. It has been
probably in this manner that the introduction of clover, turnips,
carrots, cabbages, &c. has contributed to sink the common price of
butcher’s-meat in the London market somewhat below what it was
about the beginning of the last century.
The hog, that finds his food among ordure, and greedily devours hogs,
many things rejected by every other useful animal, is, like poultry,
originally kept as a save-all. As long as the number of such animals,
which can thus be reared at little or no expence, is fully sufficient to
supply the demand, this sort of butcher’s-meat comes to market at
a much lower price than any other. But when the demand rises be-
yond what this quantity can supply, when it becomes necessary to
raise food on purpose for feeding and fattening hogs, in the same
manner as for feeding and fattening other cattle, the price neces-
sarily rises, and becomes proportionably either higher or lower than
that of other butcher’s-meat, according as the nature of the coun-
try, and the state of its agriculture, happen to render the feeding
of hogs more or less expensive than that of other cattle. In France,
milk, but-
ter and
cheese.
226 the wealth of nations
according to Mr. Buffon, the price of pork is nearly equal to that of
hteiP^ In most parts of Great Britain it is at present somewhat
higher.
The great rise in the price both of hogs and poultry has in Great
Britain been frequently imputed to the diminution of the number
of cottagers and other small occupiers of land; an event which has
in every part of Europe been the immediate forerunner of improve-
ment and better cultivation, but which at the same time may have
contributed to raise the price of those articles, both somewhat soon-
er and somewhat faster than it would otherwise have risen. As the
poorest family can often maintain a cat or a dog, without any ex-
pence, so the poorest occupiers of land can commonly maintain a
few poultry, or a sow and a few pigs, at very little. The little offals
of their own table, their whey, skimmed milk and butter-milk, sup-
ply those animals with a part of their food, and they find the rest
in the neighbouring fields without doing any sensible damage to
any body. By diminishing the number of those small occupiers,
therefore, the quantity of this sort of provisions which is thus pro-
duced at little or no expence, must certainly have been a good deal
diminished, and their price must consequently have been raised
both sooner and faster than it would otherwise have risen. Sooner
or later, however, in the progress of improvement, it must at any
rate have risen to the utmost height to which it is capable of rising;
or to the price which pays the labour and expence of cultivating the
land which furnishes them with food as well as these are paid upon
the greater part of other cultivated land.
The business of the dairy, like the feeding of hogs and poultry, is
originally carried on as a save-all. The cattle necessarily kept upon
the farm, produce more milk than either the rearing of their own
young, or the consumption of the farmer ^s family requires; and
they produce most at one particular season. But of all the produc-
tions of land, milk is perhaps the most perishable. In the warm sea-
son, when it is most abundant, it will scarce keep four-and-twenty
hours. The farmer, by making it into fresh butter, stores a small
part of it for a week: by making it into salt butter, for a year: and
by making it into cheese, he stores a much greater part of it for sev-
eral years. Part of all these is reserved for the use of his own family.
The rest goes to market, in order to find the best price which is to
be had, and which can scarce be so low as to discourage him from
sending thither whatever is over and above the use of his own fam-
ily. If it is very low, indeed, he will be likely to manage his dairy in
a very slovenly and dirty manner, and will scarce perhaps think it
^ Histoire Naturelle,yo\ v (1755), p 122
DIGRESSION ON SILVER 227
worth while to have a particular room or building on purpose for it,
but will suffer the business to be carried on amidst the smoke, filth,
and nastiness of his own kitchen; as was the case of almost all the
farmers dairies in Scotland thirty or forty years ago, and as is the
case of many of them still. The same causes which gradually raise
the price of butcher’s-meat, the increase of the demand, and, in
consequence of the improvement of the country, the diminution of
the quantity which can be fed at little or no expence, raise, in the
same manner, that of the produce of the dairy, of which the price
naturally connects with that of butcherWeat, or with the expence
of feeding cattle. The increase of price pays for more labour, care,
and cleanliness. The dairy becomes more worthy of the farmer’s at-
tention, and the quality of its produce gradually improves. The
price at last gets so high that it becomes worth while to employ
some of the most fertile and best cultivated lands in feeding cattle
merely for the purpose of the dairy; and when it has got to this
height, it cannot well go higher. If it did, more land would soon be
turned to this purpose. It seems to have got to this height through
the greater part of England, where much good land is commonly
employed in this manner. If you except the neighbourhood of a few
considerable towns, it seems not yet to have got to this height any-
where in Scotland, where common farmers seldom employ much
good land in raising food for cattle merely for the purpose of the
dairy. The price of the produce, though it has risen very consider-
ably within these few years, is probably still too low to admit of it.
The inferiority of the quality, indeed, compared with that of the
produce of English dairies, is fully equal to that of the price. But
this inferiority of quality is, perhaps, rather the effect of this low-
ness of price than the cause of it. Though the quality was much
better, the greater part of what is brought to market could not, I
apprehend, in the present circumstances of the country, be disposed
of at a much better price; and the present price, it is probable,
would not pay the expence of the land and labour necessary for pro-
ducing a much better quality. Through the greater part of England,
notwithstanding the superiority of price, the dairy is not reckoned
a more profitable emplo3mient of land than the raising of corn, or
the fattening of cattle, the two great objects of agriculture.
Through the greater part of Scotland, therefore, it cannot yet be
even so profitable.
The lands of no country, it is evident, can ever be completely cul- The rise
tivated and improved, till once the price of every produce, which ^eSg ne-
human industry is obliged to raise upon them, has got so high as to cessary
pay for the expence of complete improvement and cultivation In for good
cultiva-
tion,
should be
regarded
with satis-
faction.
It is due
not to a
tall of sil-
ver but to
a rise in
the real
price of
the pro-
duce.
( 3 ) The
sort in re-
gard to
which the
ef&cacy of
industry
is limited
or uncer-
tain,
e. g. wool
and hides,
which are
append-
dagesto
228 XHE WEALTH OF NATIONS
order to do this, the price of each particular produce must be suf-
ficient, first, to pay the rent of good corn land, as it is that which
regulates the rent of the greater part of other cultivated land; and
secondly, to pay the labour and expence of the farmer as well as
they are commonly paid upon good corn-land; or, in other words,
to replace with the ordinary profits the stock which he employs
about it. This rise in the price of each particular produce, must evi-
dently be previous to the improvement and cultivation of the land
which is destined for raising it. Gain is the end of all improvement,
and nothing could deserve that name of which loss was to be the
necessary consequence. But loss must be the necessary consequence
of improving land for the sake of a produce of which the price could
never bring back the expence. If the complete improvement and
cultivation of the country be, as it most certainly is, the greatest of
all public advantages, this rise in the price of all those different
sorts of rude produce, instead of being considered as a public ca-
lamity, ought to be regarded as the necessary forerunner and at-
tendant of the greatest of all public advantages.
This rise too in the nominal or money-price of all those different
sorts of rude produce has been the effect, not of any degradation in
the value of silver, but of a rise in their real price. They have be-
come worth, not only a greater quantity of silver, but a greater
quantity of labour and subsistence than before. As it costs a greater
quantity of labour and subsistence to bring them to market, so
when they are brought thither, they represent or are equivalent to a
greater quantity.
Third Sort
The third and last sort of rude produce, of which the price nat-
urally rises in the progress of improvement, is that in which the ef-
ficacy of human industry, in augmenting the quantity, is either
limited or uncertain. Though the real price of this sort of rude
produce, therefore, naturally tends to rise in the progress of im-
provement, yet, according as different accidents happen to render
the efforts of human industry more or less successful in augmenting
the quantity, it may happen sometimes even to fall, sometimes to
continue the same in very different periods of improvement, and
sometimes to rise more or less in the same period.
There are some sorts of rude produce which nature has rendered
a kind of appendages to other sorts; so that the quantity of the one
which any country can afford, is necessarily limited by that of the
other. The quantity of wool or of raw hides, for example, which any
DIGRESSION ON SILVER 229
country can afford, is necessarily limited by the number of great
and small cattle that are kept in it. The state of its improvement,
and the nature of its agriculture, again necessarily determine this
number.
The same causes, which, in the progress of improvement, grad-
ually raise the price of butcher’s-meat, should have the same effect,
it may be thought, upon the prices of wool and raw hides, and raise
them too nearly in the same proportion. It probably would be so,
if in the rude beginnings of improvement the market for the latter
commodities was confined within as narrow bounds as that for the
former. But the extent of their respective markets is commonly ex-
tremely different.
The market for butcher’s-meat is almost every-where confined to
the country which produces it. Ireland, and some part of British
America indeed, carry on a considerable trade in salt provisions;
but they are, I believe, the only countries in the commercial world
which do so, or which export to other countries any considerable
part of their butcher’s-meat.
The market for wool and raw hides, on the contrary, is in the
rude beginnings of improvement very seldom confined to the coun-
try which produces them. They can easily be transported to distant
countries, wool without any preparation, and raw hides with very
little: and as they are the materials of many manufactures, the in-
dustry of other countries may occasion a demand for them, though
that of the country which produces them might not occasion any.
In countries ill cultivated, and therefore but thinly inhabited, the
price of the wool and the hide bears always a much greater propor-
tion to that of the whole beast, than in countries where, improve-
ment and population being further advanced, there is more demand
for butcher’s-meat. Mr. Hume observes, that in the Saxon times,
the fleece was estimated at two-fifths of the value of the whole
sheep, and that this was much above the proportion of its present
estimation.^®^ In some provinces of Spain, I have been assured, the
sheep is frequently killed merely for the sake of the fleece and the
tallow. The carcase is often left to rot upon the ground, or to be de-
voured by beasts and birds of prey. If this sometimes happens even
in Spain, it happens almost constantly in Chili, at Buenos Ayres,^®^
and in many other parts of Spanish America, where the horned cat-
tle are almost constantly killed merely for the sake of the hide and
the tallow. This too used to happen almost constantly in Hispan-
iola, while it was infested by the Buccaneers, and before the settle-
other
sorts of
produce.
Wool and
hides in
early
times
have a
larger
market
open to
them than
butcher’s-
meat.
In thinly
inhabited
countries
the wool
and hide
are more
valuable
in propor-
tion to the
carcase.
History, ed. of 1773, vol. i., p. 226.
Juan and Ulloa, Voyage historique, 2de ptie, liv. i., chap, v., vol. i., p. 552.
lathe
progress
of im-
prove-
ment the
wool and
hide
should
rise,
though
not so
much as
the car-
case.
Butin
England
wool has
fallen
since 1339.
230 THE WEALTH OF NATIONS
merit, improvement, and populousness of the French plantations
(which now extend round the coast of almost the whole western
half of the island) had given some value to the cattle of the Span-
iards, who still continue to possess, not only the eastern part of the
coast, but the whole inland and mountainous part of the country.
Though in the progress of improvement and population, the price
of the whole beast necessarily rises, yet the price of the carcase is
likely to be much more affected by this rise than that of the wool
and the hide. The market for the carcase, being in the rude state of
society confined always to the country which produces it, must nec-
essarily be extended in proportion to the improvement and popu-
lation of that country. But the market for the wool and the hides
even of a barbarous country often extending to the whole commer-
cial world, it can very seldom be enlarged in the same proportion.
The state of the whole commercial world can seldom be much af-
fected by the improvement of any particular country; and the mar-
ket for such commodities may remain the same, or very nearly the
same, after such improvements, as before. It should, however, in
the natural course of things rather upon the whole be somewhat ex-
tended in consequence of them. If the manufactures, especially, of*
which those commodities are the materials, should ever come to
flourish in the country, the market, though it might not be much
enlarged, would at least be brought much nearer to the place of
growth than before; and the price of those materials might at least
be increased by what had usually been the expence of transporting
them to distant countries. Though it might not rise therefore in the
same proportion as that of butcher^s-meat, it ought naturally to
rise somewhat, and it ought certainly not to fall.
In England, however, notwithstanding the flourishing state of its
woollen manufacture, the price of English wool has fallen very con-
siderably since the time of Edward III. There are many authentic
records which demonstrate that during the reign of that prince (to-
wards the middle of the fourteenth century, or about 1339) what
was reckoned the moderate and reasonable price of the tod or twen-
ty-eight pounds of English wool was not less than ten shillings of
the money of those times,^^^ containing, at the rate of twenty-pence
the ounce, six ounces of silver Tower-weight, equal to about thirty
shillings of our present money. In the present times, one-and-twen-
ty shillings the tod may be reckoned a good price for very good
English wool. The money-price of wool, therefore, in the time of
^®See Smith’s Memoirs of Wool, vol. i. c. 5, 6, and 7; also, vol. ii. c. 176.
Ed. I does not give the volumes and chapters. The work was Chronicon Rus-
Ucum-Commerciale, or Memoirs of Wool, etc., by John Smith, and pub-
lished 1747; see below, p. 616.
DIGRESSION ON SILVER 231
Edward III, was to its money-price in the present times as ten to
seven. The superiority of its real price was still greater. At the rate
of six shillings and eight-pence the quarter, ten shillings was in
those ancient times the price of twelve bushels of wheat. At the rate
of twenty-eight shillings the quarter, one-and-twenty shillings is in
the present times the price of six bushels only. The proportion be-
tween the real prices of ancient and modern times, therefore, is as
twelve to six, or as two to one. In those ancient times a tod of wool
would have purchased twice the quantity of subsistence which it
will purchase at present; and consequently twice the quantity of
labour, if the real recompence of labour had been the same in both
periods.
This degradation both in the real and nominal value of wool,
could never have happened in consequence of the natural course of
things. It has accordingly been the effect of violence and artifice:
First, of the absolute prohibition of exporting wool from Eng-
land; Secondly, of the permission of importing it from Spain
duty free; Thirdly, of the prohibition of exporting it from Ireland
to any other country but England. In consequence of these regula-
tions, the market for English wool, instead of being somewhat ex-
tended in consequence of the improvement of England, has been
confined to the home market, where the wool of several other coun-
tries is allowed to come into competition with it, and where that
of Ireland is forced into competition with it. As the woollen manu-
factures too of Ireland are fully as much discouraged as is consis-
tent with justice and fair dealing, the Irish can work up but a small
part of their own wool at home, and are, therefore, obliged to send
a greater proportion of it to Great Britain, the only market they
are allowed.
I have not been able to find any such authentic records concern-
ing the price of raw hides in ancient times. Wool was commonly
paid as a subsidy to the king, and its valuation in that subsidy as-
certains, at least in some degree, what was its ordinary price. But
this seems not to have been the case with raw hides. Fleetwood,
however, from an account in 1425, between the prior of Burcester
Oxford and one of his canons, gives us their price, at least as it was
stated, upon that particular occasion; viz. five ox hides at twelve
shillings; five cow hides at seven shillings and three pence; thirty-
six sheep skins of two years old at nine shillings; sixteen calves
See below, p. 612, and Smih’sMemoirs of Wool, vol. i., pp. i 59 j 182.
Eds. I and 2 read “importing it from all other countries.”
^®®Eds. I and 2 read “wool of all other countries.”
This has
been
caused by
artificial
regula-
tions.
The real
price of
hides at
present is
somewhat
lower
than in
the fif-
teenth
century,
but their
average
price dur-
ing the
present
century is
probably
higher.
232 the wealth of nations
skins at two shillings In 1425, twelve shillings contained about
the same quantity of silver as four-and-twenty shillings of our pres-
ent money. An ox hide, therefore, was in this account valued at the
same quantity of silver as 45.|-ths of our present money. Its nom-
inal price was a good deal lower than at present. But at the rate of
six shillings and eight-pence the quarter, twelve shillings would in
those times have purchased fourteen bushels and four-fifths of a
bushel of wheat, which, at three and six-pence the bushel, would in
the present times cost 51^. 4d. An ox hide, therefore, would in
those times have purchased as much corn as ten shillings and three-
pence would purchase at present. Its real value was equal to ten
shillings and three-pence of our present money. In those ancient
times, when the cattle were half starved during the greater part of
the winter, we cannot suppose that they were of a very large size.
An ox hide which weighs four stone of sixteen pounds averdupois,
is not in the present times reckoned a bad one; and in those ancient
times would probably have been reckoned a very good one. But at
half a crown the stone, which at this moment (February 1773) I
understand to be the common price, such a hide would at present
cost only ten shillings. Though its nominal price, therefore, is high-
er in the present than it was in those ancient times, its real price,
the real quantity of subsistence which it will purchase or command,
is rather somewhat lower. The price of cow hides, as stated in the
above account, is nearly in the common proportion to that of ox
hides. That of sheep skins is a good deal above it. They had prob-
ably been sold with the wool. That of calves skins, on the contrary,
is greatly below it. In countries where the price of cattle is very
low, the calves, which are not intended to be reared in order to keep
up the stock, are generally killed very young; as was the case in
Scotland twenty or thirty years ago. It saves the milk, which their
price would not pay for. Their skins, therefore, are commonly good
for little.
The price of raw hides is a good deal lower at present than it was
a few years ago; owing probably to the taking off the duty upon
seal skins, and to the blowing, for a limited time, the importation
of raw hides from Ireland and from the plantations duty free, which
was done in 1769.^^® Take the whole of the present century at an
average, their real price has probably been somewhat higher than
it was in those ancient times. The nature of the commodity renders
Chrordcon predosum, ed. of 1707, p. 100, quoting from Rennet’s Par
Ant. Burcester is the modem Bicester.
9 Geo. III., c. 39, for five years; continued by 14 Geo. Ill, c 86, and ji
G eo. m , c. 29.
DIGRESSION ON SILVER 233
it not quite so proper for being transported to distant markets as
wool. It suffers more by keeping. A salted hide is reckoned inferior
to a fresh one, and sells for a lower price. This circumstance must
necessarily have some tendency to sink the price of raw hides pro-
duced in a country which does not manufacture them, but is obliged
to export them; and comparatively to raise that of those pro-
duced in a country which does manufacture them. It must have
some tendency to sink their price in a barbarous, and to raise it
in an improved and manufacturing country. It must have had some
tendency therefore to sink it in ancient, and to raise it in modern
times. Our tanners besides have not been quite so successful as our
clothiers, in convincing the wisdom of the nation, that the safety of
the commonwealth depends upon the prosperity of their particular
manufacture. They have accordingly been much less favoured. The
exportation of raw hides has, indeed, been prohibited, and declared
a nuisance: but their importation from foreign countries has
been subjected to a duty; and though this duty has been taken
off from those of Ireland and the plantations (for the limited time
of five years only), yet Ireland has not been confined to the market
of Great Britain for the sale of its surplus hides, or of those which
are not manufactured at home. The hides of common cattle have
but within these few years been put among the enumerated com-
modities which the plantations can send no-where but to the mother
country; neither has the commerce of Ireland been in this case op-
pressed hitherto, in order to support the manufactures of Great
Britain.
Whatever regulations tend to sink the price either of wool or of
raw hides below what it naturally would be, must, in an improved
and cultivated country, have some tendency to raise the price of
butcher’s-meat. The price both of the great and small cattle, which
are fed on improved and cultivated land, must be sufficient to pay
the rent which the landlord, and the profit which the farmer has rea-
son to expect from improved and cultivated land. If it is not, they
will soon cease to feed them. Whatever part of this price, therefore,
is not paid by the wool and the hide, must be paid by the carcase.
The less there is paid for the one, the more must be paid for the
other. In what manner this price is to be divided upon the different
parts of the beast, is indifferent to the landlords and farmers, pro-
vided it is all paid to them. In an improved and cultivated country,
'‘’"By 5 Eliz, c 22; 8 Eliz., c 14; r8 Eliz., c. 9; 13 and 14 Car. II., c. 7,
which last uses the words ‘common and public nuisance.” See Blackstone,
Commentaries, vol iv, pp. 167-169.
‘“""g Ann., c. ii.
They are
not so
easily
trans-
ported as
wool,
and tan-
ners have
not been
so much
favoured
by legis-
lation as
clothiers.
Regula-
tions
which
sink the
price of
wool or
hides in
an im-
proved
country
raise the
price of
meat,
but not in
an unim-
proved
country.
The
Union
sank the
price of
Scotch
wool,
while it
raised the
price of
Scotch
meat.
The effi-
cacy of
industry
in increas-
ing wool
234 THE WEALTH OF NATIONS
therefore, their interest as landlords and farmers cannot be much
affected by such regulations, though their interest as consumers
may, by the rise in the price of provisions.^^^ It would be quite oth-
erwise, however, in an unimproved and uncultivated country, where
the greater part of the lands could be applied to no other purpose
but the feeding of cattle, and where the wool and the hide made the
principal part of the value of those cattle. Their interest as land-
lords and farmers would in this case be very deeply affected by
such regulations, and their interest as consumers very little. The fall
in the price of the wool and the hide, would not in this case raise the
price of the carcase; because the greater part of the lands of the
country being applicable to no other purpose but the feeding of cat-
tle, the same number would still continue to be fed. The same quan-
tity of butcher’s-meat would still come to market. The demand for
it would be no greater than before. Its price, therefore, would be the
same as before. The whole price of cattle would fall, and along with
it both the rent and the profit of all those lands of which cattle was
the principal produce, that is, of the greater part of the lands of the
country. The perpetual prohibition of the exportation of wool,
which is commonly, but very falsely, ascribed to Edward III,^°-
would, in the then circumstances of the country, have been the
most destructive regulation which could well have been thought of.
It would not only have reduced the actual value of the greater part
of the lands of the kingdom, but by reducing the price of the most
important species of snrall cattle, it would have retarded very much
its subsequent improvement.
The wool of Scotland fell very considerably in its price in conse-
quence of the union with England, by which it was excluded from
tibe great market of Europe, and confined to the narrow one of
Great Britain. The value of the greater part of the lands in the
southern counties of Scotland, which are chiefly a sheep country,
would have been very deeply affected by this event, had not the rise
in the price of butcher^s-meat fully compensated the fall in the price
of wool.
As the efficacy of human industry, in increasing the quantity
either of wool or of raw hides, is limited, so far as it depends upon
the produce of the country where it is exerted; so it is uncertain so
far as it depends upon the produce of other countries. It so far de-
pends, not so much upon the quantity which they produce, as upon
^^This passage, from the beginning of the paragraph, is quoted at length
below, p. 617.
John Smith, Memoirs of Wool, vol. i., p. 25, explains that the words ‘Tt
shall be felony to carry away any wool out of the realm until it be otherwise
ordained” do not imply a perpetual prohibition.
DIGRESSION ON SILVER 235
that which they do not manufacture; and upon the restraints
which they may or may not think proper to impose upon the ex-
portation of this sort of rude produce. These circumstances, as
they are altogether independent of domestic industry, so they nec-
essarily render the efficacy of its efforts more or less uncertain. In
multiplying this sort of rude produce, therefore, the efficacy of hu-
man industry is not only limited, but uncertain.
In multiplying another very important sort of rude produce, the
quantity of fish that is brought to market, it is likewise both lim-
ited and uncertain. It is limited by the local situation of the coun-
try, by the proximity or distance of its different provinces from the
sea, by the number of its lakes and rivers, and by what may be
called the fertility or barrenness of those seas, lakes and rivers, as
to this sort of rude produce. As population increases, as the annual
produce of the land and labour of the country grows greater and
greater, there come to be more buyers of fish, and those buyers too
have a greater quantity and variety of other goods, or, what is the
same thing, the price of a greater quantity and variety of other
goods, to buy with. But it will generally be impossible to supply the
great and extended market without employing a quantity of labour
greater than in proportion to what had been requisite for supplying
the narrow and confined one. A market which, from requiring only
one thousand, comes to require annually ten thousand ton of fish,
can seldom be supplied without employing more than ten times the
quantity of labour which had before been sufficient to supply it. The
fish must generally be sought for at a greater distance, larger vessels
must be employed, and more expensive machinery of every kind
made use of. The real price of this commodity, therefore, naturally
rises in the progress of improvement. It has accordingly done so, I
believe, more or less in every country.
Though the success of a particular day’s fishing may be a very
uncertain matter, yet, the local situation of the country being sup-
posed, the general efficacy of industry in bringing a certain quan-
tity of fish to market, taking the course of a year, or of several years
together, it may perhaps be thought, is certain enough; and it, no
doubt, is so. As it depends more, however, upon the local situation
of the country, than upon the state of its wealth and industry; as
upon this account it may in different countries be the same in very
different periods of improvement, and very different in the same
period; its connection with the state of improvement is uncertain,
and it is of this sort of uncertainty that I am here speaking.
In increasing the quantity of the different minerals and metals
which are drawn from the bowels of the earth, that of the more
and hides
is both
limited
and un-
certain.
The same
thing is
true of
fish,
which
naturally
rise in
the prog-
ress of
improve-
ment.
The con-
nexion of
success in
fi«;hing r
with the
state of
improve-s
mentis
uncertain.
Inin-
crea^g
minerals
the effi-
cacy of
industry
is not
limited
but un-
certain.
The
quantity
of the
precious
metals in
a country
depends
on its
power of
purchas-
ing and
the fertil-
ity of the
mines.
So far as
it depends
on the
former
circum-
stance
the real
price is
likely to
rise with
improve-
ment;
so far as It
depends
on the
latter cir-
cumstance
the real
price will
vary with
the fer-
tility of
the mines,
which has
no con- •
nexion
with the
state of
236 the wealth of nations
precious ones particularly, the efficacy of human industry seems not
to be limited, but to be altogether uncertain.
The quantity of the precious metals which is to be found in any
country is not limited by any thing in its local situation, such as the
fertility or barrenness of its own mines. Those metals frequently
abound in countries which possess no mines. Their quantity in
every particular country seems to depend upon two different cir-
cumstances; first, upon its power of purchasing, upon the state of
its industry, upon the annual produce of its land and labour, in con-
sequence of which it can afford to employ a greater or a smaller
quantity of labour and subsistence in bringing or purchasing such
superfluities as gold and silver, either from its own mines or from
those of other countries; and, secondly, upon the fertility or bar-
renness of the mines which may happen at any particular time to
supply the commercial world with those metals. The quantity of
those metals in the countries most remote from the mines, must be
more or less affected by this fertility or barrenness, on account of
the easy and cheap transportation of those »metals, of their small
bulk and great value. Their quantity in China and Indostan must
have been more or less affected by the abundance of the mines of
America.
So far as their quantity in any particular country depends upon
the former of those two circumstances (the power of purchasing),
their real price, like that of all other luxuries and superfluities, is
likely to rise with the wealth and improvement of the country, and
to fall with its poverty and depression. Countries which have a great
quantity of labour and subsistence to spare, can afford to purchase
any particular quantity of those metals at the expence of a greater
quantity of labour and subsistence, than countries which have less
to spare.
So far as their quantity in any particular country depends upon
the latter of those two circumstances (the fertility or barrenness of
the mines which happen to supply the commercial world) their real
price, the real quantity of labour and subsistence which they will
purchase or exchange for, will, no doubt, sink more or less in pro-
portion to the fertility, and rise in proportion to the barrenness, of
those mines.
The fertility or barrenness of the mines, however, which may
happen at any particular time to supply the commercial world, is a
circumstance which, it is evident, may have no sort of connection
with the state of industry in a particular country. It seems even to
have no very necessary connection with that of the world in gen-
eral. As arts and commerce, indeed, gradually spread themselves
DIGRESSION ON SILVER 237
over a greater and a greater part of the earth, the search for new
mines, being extended over a wider surface, may have somewhat a
better chance for being successful, than when confined within nar-
rower bounds. The discovery of new mines, however, as the old ones
come to be gradually exhausted, is a matter of the greatest uncer-
tainty, and such as no human skill or industry can ensure. All indi-
cations, it is acknowledged, are doubtful, and the actual discovery
and successful working of a new mine can alone ascertain the re-
ality of its value, or even of its existence. In this search there seem
to be no certain limits either to the possible success, or to the pos-
sible disappointment of human industry. In the course of a century
or two, it is possible that new mines may be discovered more fer-
tile than any that have ever yet been known; and it is just equally
possible that the most fertile mine then known may be more barren
than any that was wrought before the discovery of the mines of
America. Whether the one or the other of those two events may hap-
pen to take place, is of very little importance to the real wealth and
prosperity of the world, to the real value of the annual produce of
the land and labour of mankind. Its nominal value, the quantity of
gold and silver by which this annual produce could be expressed or
represented, would, no doubt, be very different; but its real value,
the real quantity of labour which it could purchase or command,
would be precisely the same. A shilling might in the one case rep-
resent no more labour than a penny does at present; and a penny in
the other might represent as much as a shilling does now. But in the
one case he who had a shilling in his pocket, would be no richer than
he who has a penny at present ; and in the other he who had a penny
would be just as rich as he who has a shilling now. The cheapness
and abundance of gold and silver plate, would be the sole advantage
which the world could derive from the one event, and the dearness
and scarcity of those trifling superfluities the only inconveniency it
could suffer from the other.
Conclusion of the Digression concerning the Variations in the Value
of Silver
The greater part of the writers who have collected the money prices
of things in ancient times, seem to have considered the low money
price of corn, and of goods in general, or, in other words, the high
value of gold and silver, as a proof, not only of the scarcity of those
metals, but of the poverty and barbarism of the country at the time
when it took place. This notion is connected with the system of po-
industry.
The high
value of
the pre-
cious
metals is
no proof
of poverty
and bar-
barism,
23B THE WEALTH OF NAIIONS
litical ceconomy which represents national wealth as consisting in
the abundance, and national poverty in the scarcity, of gold and sil-
ver; a system which I shall endeavour to explain and examine at
great length in the fourth book of this enquiry. I shall only observe
at present, that the high value of the precious metals can be no
proof of the poverty or barbarism of any particular country at the
time when it took place. It is a proof only of the barrenness of the
mines which happened at that time to supply the commercial world.
A poor country, as it cannot afford to buy more, so it can as little af-
ford to pay dearer for gold and silver than a rich one; and the value
of those metals, therefore, is not likely to be higher in the former
than in the latter. In China, a country much richer than any part
of Europe, the value of the precious metals is much higher than
in any part of Europe. As the wealth of Europe, indeed, has in-
creased greatly since the discovery of the mines of America, so the
value of gold and silver has gradually diminished. This diminution
of their value, however, has not been owing to the increase of the
real wealth of Europe, of the annual produce of its land and labour,
but to the accidental discovery of more abundant mines than any
that were known before. The increase of the quantity of gold and
silver in Europe, and the increase of its manufactures and agricul-
ture, are two events which, though they have happened nearly
about the same time, yet have arisen from very different causes, and
have scarce any natural connection with one another. The one has
arisen from a mere accident, in which neither prudence nor policy
either had or could have any share: The other from the fall of the
feudal system, and from the establishment of a government which
afforded to industry the only encouragement which it requires, some
tolerable security that it shall enjoy the fruits of its own labour.
Poland, where the feudal system still continues to take place, is at
this day as beggarly a country as it was before the discovery of
America. The money price of corn, however, has risen; the real
value of the precious metals has fallen in Poland, in the same man-
ner as in other parts of Europe. Their quantity, therefore, must
have increased there as in other places, and nearly in the same pro-
portion to the annual produce of its land and labour. This increase
of the quantity of those metals, however, has not, it seems, in
creased that annual produce, has neither improved the manufac-
tures and agriculture of the country, nor mended the circumstances
of its inhabitants. Spain and Portugal, the countries which possess
the mines, are after Poland, perhaps, the two most beggarly coun-
^The same words occur above, p. 189.
DIGRESSION ON SILVER 239
tries in Europe. The value of the precious metals, however, must be
lower in Spain and Portugal than in any other part of Europe; as
they come from those countries to all other parts of Europe, loaded,
not only with a freight and an insurance, but with the expence of
smuggling, their exportation being either prohibited, or subjected
to a duty. In proportion to the annual produce of the land and la-
bour, therefore, their quantity must be greater in those countries
than in any other part of Europe: Those countries, however, are
poorer than the greater part of Europe. Though the feudal system
has been abolished in Spain and Portugal, it has not been succeeded
by a much better.
As the low value of gold and silver, therefore, is no proof of the
wealth and flourishing state of the country where it takes place; so
neither is their high value, or the low money price either of goods in
general, or of corn in particular, any proof of its poverty and bar-
barism.
But though the low money price either of goods in general, or of
corn in particular, be no proof of the poverty or barbarism of the
times, the low money price of some particular sorts of goods, such
as cattle, poultry, game of all kinds, in proportion to that of
corn, is a most decisive one. It clearly demonstrates, first, their
great abundance in proportion to that of corn, and consequently the
great extent of the land which they occupied in proportion to what
was occupied by corn; and, secondly, the low value of this land in
proportion to that of corn land, and consequently the uncultivated
and unimproved state of the far greater part of the lands of the
country. It clearly demonstrates that the stock and population of
the country did not bear the same proportion to the extent of its
territory, which they commonly do in civilized countries, and that
society was at that time, and in that country, but in its infancy.
From the high or low money price either of goods in general, or of
corn in particular, we can infer only that the mjpes which at that
time happened to supply the commercial world with gold and silver,
were fertile or barren, not that the country was rich or poor. But
from the high or low money price of some sorts of goods in propor-
tion to that of others, we can infer, with a degree of probability that
approaches almost to certainty, that it was rich or poor, that the
greater part of its lands were improved or unimproved, and that it
was either in a more or less barbarous state, or in a more or less civ-
ilized one.
Any rise in the money price of goods which proceeded altogether
but the
low price*
of cattle,
poultry,
game, &c.,
is a proof
of pover-
ty or bar-
barism.
^ Ed. I does not contain “&c.’
A rise of
price due
entirely to
degrada-
tion of
silver
would af-
fect all
goods
equally,
but corn
has risen
much less
than other
provi-
sions,
and has
indeed
been
somewhat
lower in
1701-64
than in
1637-
1700
while its
recent
high price
has been
due only
to bad
seasons.
The dis-
tinction
between a
rise of
prices and
240 the wealth of nations
from the degradation of the value of silver, would affect all sorts of
goods equally, and raise their price universally a third, or a fourth,
or a fifth part higher, according as silver happened to lose a third,
or a fourth, or a fifth part of its former value.^^^ But the rise in the
price of provisions, which has been the subject of so much reasoning
and conversation, does not affect all sorts of provisions equally.
Taking the course of the present century at an average, the price of
corn, it is acknowledged, even by those who account for this rise by
the degradation of the value of silver, has risen much less than that
of some other sorts of provisions. The rise in the price of those other
sorts of provisions, therefore, cannot be owing altogether to the deg-
radation of the value of silver. Some other causes must be taken
into the account, and those which have been above assigned, will,
perhaps, without having recourse to the supposed degradation of
the value of silver, sufficiently explain this rise in those particular
sorts of provisions of which the price has actually risen in propor-
tion to that of corn.
As to the price of corn itself, it has, during the sixty-four first
years of the present century, and before the late extraordinary
course of bad seasons, been somewhat lower than it was during the
sixty-four last years of the preceding century. This fact is attested,
not only by the accounts of Windsor market,^®® but by the public
fiars of all the different counties of Scotland, and by the accounts
of several different markets in France, which have been collected
with great diligence and fidelity by Mr. Messance,^^® and by Mr.
Dupre de St. Maur.^®^ The evidence is more complete than could
well have been expected in a matter which is naturally so very dif-
ficult to be ascertained.
As to the high price of corn during these last ten or twelve years,
it can be sufficiently accounted for from the badness of the seasons,
without supposing any degradation in the value of silver.
The opinion, therefore, that silver is continually sinking in its
value, seems not to be founded upon any good observations, either
upon the prices of corn, or upon those of other provisions.
The same quantity of silver, it may, perhaps, be said, will in the
present times, even according to the account which has been here
given, purchase a much smaller quantity of several sorts of pro-
visions than it would have done during some part of the last cen-
^The arithmetic is slightly at fault. It should be, ^‘happened to lose a
fourth, a fifth, or a sixth part of its former value.’ ^
Below, pp. 257, 258. Above, p. 76,
Recherckes sur la Popidation, pp. 293-304.
^ Essai sur les monnoies ou rijiexions sur U rapport entre V argent et les
denrees, 1746, esp. p. 181 of the “Variations dans les prix ”
DIGRESSION ON SILVER 241
tury ; and to ascertain whether this change be owing to a rise in the
value of those goods, or to a fall in the value of silver, is only to es-
tablish a vain and useless distinction, which can be of no sort of ser-
vice to the man who has only a certain quantity of silver to go to
market with, or a certain fixed revenue in money. I certainly do not
pretend that the knowledge of this distinction will enable him to
buy cheaper. It may not, however, upon that account be altogether
useless.
It may be of some use to the public by affording an easy proof of
the prosperous condition of the country. If the rise in the price of
some sorts of provisions be owing altogether to a fall in the value
of silver, it is owing to a circumstance from which nothing can be
inferred but the fertility of the American mines. The real wealth of
the country, the annual produce of its land and labour, may, not-
withstanding this circumstance, be either gradually declining, as in
Portugal and Poland; or gradually advancing, as in most other
parts of Europe. But if this rise in the price of some sorts of pro-
visions be owing to a rise in the real value of the land which pro-
duces them, to its increased fertility; or, in consequence of more ex-
tended improvement and good cultivation, to its having been ren-
dered fit for producing corn; it is owing to a circumstance which in-
dicates in the clearest manner the prosperous and advancing state
of the country. The land constitutes by far the greatest, the most
important, and the most durable part of the wealth of every exten-
sive country. It may surely be of some use, or, at least, it may give
some satisfaction to the Public, to have so decisive a proof of the in-
creasing value of by far the greatest, the most important, and the
most durable part of its wealth.
It may too be of some use to the Public in regulating the pecun-
iary reward of some of its inferior servants. If this rise in the price
of some sorts of provisions be owing to a fall in the value of silver,
their pecuniary reward, provided it was not too large before, ought
certainly to be augmented in proportion to the extent of this fall. If
it is not augmented, their real recompence will evidently be so much
diminished. But if this rise of price is owing to the increased value,
in consequence of the improved fertility of the land which produces
such provisions, it becomes a much nicer matter to judge either in
what proportion any pecuniary reward ought to be augmented, or
whether it ought to be augmented at all. The extension of improve-
ment and cultivation, as it necessarily raises more or less, in pro-
portion to the price of com, that of every sort of animal food, so it
as necessarily lowers that of, I believe, every sort of vegetable food.
It raises the price of animal food; because a great part of the land
a fall in
the value
of silver
is not
useless:
it affords
an easy
proof of
the pros-
perity of
the coun-
try,
and may
be of use
in regu-
lating the
wages of
the inferi-
or ser-
vants of
the state.
The poor
are more
distressed
by the ar-
tificial rise
of some
manufac-
tures than
by the
natural
rise of
rude pro-
duce other
than corn.
But the
natural
effect of
improve-
ment is to
242 the wealth of nations
which produces it, being rendered fit for producing corn, must af-
ford to the landlord and farmer the rent and profit of corn land. It
lowers the price of vegetable food; because, by increasing the fer-
tility of the land, it increases its abundance. The improvements of
agriculture too introduce many sorts of vegetable food, which, re-
quiring less land and not more labour than corn, come much cheap-
er to market. Such are potatoes and maize, or what is called Indian
corn, the two most important improvements which the agriculture
of Europe, perhaps, which Europe itself, has received from the great
extension of its commerce and navigation. Many sorts of vegetable
food, besides, which in the rude state of agriculture are confined to
the kitchen-garden, and raised only by the spade, come in its im-
proved state to be introduced into common fields, and to be raised
by the plough: such as turnips, carrots, cabbages, &c. If in the prog-
ress of improvement, therefore, the real price of one species of food
necessarily rises, that of another as necessarily falls, and it becomes
a matter of more nicety to judge how far the rise in the one may be
compensated by the fall in the other. When the real price of butch-
er’s-meat has once got to its height (which, with regard to every
sort, except, perhaps, that of hogs flesh, it seems to have done
through a great part of England more than a century ago) , any rise
which can afterwards happen in that of any other sort of animal
food, cannot much affect the circumstances of the inferior ranks of
people. The circumstances of the poor through a great part of Eng-
land cannot surely be so much distressed by any rise in the price of
poultry, fish, wild-fowl, or venison, as they must be relieved by the
fall in that of potatoes.
In the present season of scarcity the high price of corn no doubt
distresses the poor. But in times of moderate plenty, when corn is
at its ordinary or average price, the natural rise in the price of any
other sort of rude produce cannot much affect them. They suffer
more, perhaps, by the artificial rise which has been occasioned by
taxes in the price of some manufactured commodities; as of salt,
soap, leather, candles, malt, beer, and ale, &c.
Ejects of the Progress of Improvement upon the real Price of
Manufactures
It is the natural effect of improvement, however, to diminish
gradually the real price of almost all manufactures. That of the
manufacturing workmanship diminishes, perhaps, in all of them
without exception. In consequence of better machinery, of greater
RENT OF LAND PRICE OF MANUFACTURES ^43
dexterity, and of a more proper division and distribution of work,
all of which are the natural effects of improvement, a much smaller
quantity of labour becomes requisite for executing any particular
piece of work; and though, in consequence of the flourishing cir-
cumstances of the society, the real price of labour should rise very
considerably, yet the great diminution of the quantity will general-
ly much more than compensate the greatest rise which can happen
in the price.^^^
There are, indeed, a few manufactures, in which the necessary
rise in the real price of the rude materials will more than compen-
sate all the advantages which improvement can introduce into the
execution of the work. In carpenters and joiners work, and in the
coarser sort of cabinet work, the necessary rise in the real price of
barren timber, in consequence of the improvement of land, will
more than compensate all the advantages which can be derived
from the best machinery, the greatest dexterity, and the most prop-
er division and distribution of work.
But in all cases in which the real price of the rude materials
either does not rise at all, or does not rise very much, that of the
manufactured commodity sinks very considerably.
This diminution of price has, in the course of the present and
preceding century, been most remarkable in those manufactures of
which the materials are the coarser metals. A better movement of a
watch, than about the middle of the last century could have been
bought for twenty pounds, may now perhaps be had for twenty
shillings. In the work of cutlers and locksmiths, in all the toys
which are made of the coarser metals, and in all those goods which
are commonly known by the name of Birmingham and Sheffield
ware, there has been, during the same period, a very great reduction
of price, though not altogether so great as in watch-work. It has,
however, been sufficient to astonish the workmen of every other
part of Europe, who in many cases acknowledge that they can pro-
duce no work of equal goodness for double, or even for triple the
price. There are perhaps no manufactures in which the division of
labour can be carried further, or in which the machinery employed
admits of a greater variety of improvements, than those of which
the materials are the coarser metals.
In the clothing manufacture there has, during the same period,
been no such sensible reduction of price. The price of superfine
cloth, I have been assured, on the contrary, has, within these five-
and-twenty or thirty years, risen somewhat in proportion to its
quality; owing, it was said, to a considerable rise in the price of the
^Ubove, p. 86. ^Lectures, pp. iS9, 164*
dimmish
the price
of manu-
factures.
In a few
manufac-
tures the
rise in the
price of
raw ma-
terial
counter-
balances
improve-
ment in
execution,
but in
other
casesprice
falls con-
siderably.
Since
1600 this
has been
most re-
markable
in manu-
factures
made of
the
coarser
metals.
Clothing
has not
fallen
much in
the same
period,
244
but very
consider-
ably since
the fif-
teenth
century.
Fine cloth
has fallen
to less
than one-
third of
its price
in 1487,
and coarse
cloth has
THE WEALTH OF NATIONS
material, which consists altogether of Spanish wool. That of the
Yorkshire cloth, which is made altogether of English wool, is said
indeed, during the course of the present century, to have fallen a
good deal in proportion to its quality. Quality, however, is so very
disputable a matter, that I look upon all information of this kind as
somewhat uncertain. In the clothing manufacture, the division of
labour is nearly the same now as it was a century ago, and the
machinery employed is not very different. There may, however,
have been some small improvements in both, which may have oc-
casioned some reduction of price.
But^^^ the reduction will appear much more sensible and un-
deniable, if we compare the price of this manufacture in the present
times with what it was in a much remoter period, towards the end
of the fifteenth century, when the labour was probably much less
subdivided, and the machinery employed much more imperfect,
than it is at present.
In 1487, being the 4th of Henry VII.^^^ it was enacted, that
“whosoever shall sell by retail a broad yard of the finest scarlet
grained, or of other grained cloth of the finest making, above six-
teen shillings, shall forfeit forty shillings for every yard so sold.”
Sixteen shillings, therefore, containing about the same quantity of
silver as four-and-twenty shillings of our present money, was, at
that time, reckoned not an unreasonable price for a yard of the fin-
est cloth; and as this is a sumptuary law, such cloth, it is probable,
had usually been sold somewhat dearer. A guinea may be reckoned
the highest price in the present times. Even though the quality of
the cloths, therefore, should be supposed equal, and that of the
present times is most probably much superior, yet, even upon this
supposition, the money price of the finest cloth appears to have
been considerably reduced since the end of the fifteenth century.
But its real price has been much more reduced. Six shillings and
eight-pence was then, and long afterwards, reckoned the average
price of a quarter of wheat. Sixteen shillings, therefore, was the
price of two quarters and more than three bushels of wheat. Valuing
a quarter of wheat in the present times at eight-and-twenty shill-
ings, the real price of a yard of fine cloth must, in those times, have
been equal to at least three pounds six shillings and sixpence of our
present money. The man who bought it must have parted with the
command of a quantity of labour and subsistence equal to what that
sum would purchase in the present times.
The reduction in the real price of the coarse manufacture, though
considerable, has not been so great as in that of the fine.
^ Ed. I does not contain “but.”
^*C. 8.
RENT OF LAND PRICE OF MANUFACTURES ^45
In 1463? being the 3d of Edward it was enacted, that
servant in husbandry, nor common labourer, nor servant to any ar-
tificer inhabiting out of a city or burgh, shall use or wear in their
clothing any cloth above two shillings the broad yard.” In the 3d of
Edward IV . two shillings contained very nearly the same* quantity
of silver as four of our present money. But the Yorkshire cloth
which is now sold at four shillings the yard, is probably much su-
perior to any that was then made for the wearing of the very poorest
order of common servants. Even the money price of their clothing,
therefore, may, in proportion to the quality, be somewhat cheaper
in the present than it was in those ancient times. The real price is
certainly a good deal cheaper. Ten-pence was then reckoned what is
called the moderate and reasonable price of a bushel of wheat. Two
shillings, therefore, was the price of two bushels and near two pecks
of wheat, which in the present times, at three shillings and sixpence
the bushel, would be worth eight shillings and nine-pence. For a
yard of this cloth the poor servant must have parted with the power
of purchasing a quantity of subsistence equal to what eight shillings
and nine-pence would purchase in the present times. This is a
sumptuary law too, restraining the luxury and extravagance of the
poor. Their clothing, therefore, had commonly been much more
expensive.
The same order of people are, by the same law, prohibited from
wearing hose, of which the price should exceed fourteen-pence the
pair, equal to about eight-and-twenty pence of our present money.
But fourteen-pence was in those times the price of a bushel and near
two pecks of wheat; which, in the present times, at three and six-
pence the bushel, would cost five shillings and three-pence. We
should in the present times consider this as a very high price for a
pair of stockings to a servant of the poorest and lowest order. He
must, however, in those times have paid what was really equivalent
to this price for them.
In the time of Edward IV. the art of knitting stockings was prob-
ably not known in any part of Europe. Their hose were made of
common cloth, which may have been one of the causes of their dear-
ness. The first person that wore stockings in England is said to have
been Queen Elizabeth, She received them as a present from the
Spanish ambassador
C 5. The quotations from this Act and from 4 Hen. VIL, c. 8, are not
quite verbatim.
'^“Dr. Howell in his History of the World, vol. ii., p. 222, relates ‘that
Queen Elizabeth, in this third year of her reign, was presented with a pair of
black knit silk stockings by her silk woman, Mrs. Mountague, and thenceforth
she never wore doth ones any more.^ This eminent author adds ‘that King
fallen to
less than
one half
of its
price in
1463.
Hose have
fallen
very con-
siderably
since 1463,
when they
were
made of
common
cloth.
The ma-
chinery
for mak-
ing cloth
has been
much im-
proved.
which ex-
plains the
fall of
price.
The
coarse
manufac-
ture was
a house-
hold one,
246 the wealth of nations
Both in the coarse and in the fine woollen manufacture, the ma-
chinery employed was much more imperfect in those ancient, than it
is in the present times. It has since received three very capital im-
provements, besides, probably, many smaller ones of which it may
be difficult to ascertain either the number or the importance. The
three capital improvements are: first, the exchange of the rock and
spindle for the spinning-wheel, which, with the same quantity of la-
bour, will perform more than double the quantity of work. Second-
ly, the use of several very ingenious machines which facilitate and
abridge in a still greater proportion the winding of the worsted and
woollen yarn, or the proper arrangement of the warp and woof be-
fore they are put into the loom; an operation which, previous to the
inventions of those machines, must have been extremely tedious and
troublesome. Thirdly, The employment of the fulling mill for thick-
ening the cloth, instead of treading it in water. Neither wind nor
water mills of any kind were known in England so early as the be-
ginning of the sixteenth century, nor, so far as I know, in any other
part of Europe north of the Alps. They had been introduced into
Italy some time before.
The consideration of these circumstances may, perhaps, in some
measure explain to us why the real price both of the coarse and of
the fine manufacture, was so much higher in those ancient, than it
is in the present times. It cost a greater quantity of labour to bring
the goods to market. When they were brought thither, therefore,
they must have purchased or exchanged for the price of a greater
quantity.
The coarse manufacture probably was, in those ancient times,
carried on in England, in the same manner as it always has been in
countries where arts and manufactures are in their infancy. It was
probably a houshold manufacture, in which every different part of
the work was occasionally performed by all the different members
of almost every private family; but so as to be their work only when
they had nothing else to do, and not to be the principal business
from which any of them derived the greater part of their subsist-
Henry VIII., that magnificent and expensive Prince, wore ordinarily cloth
hose, except there came from Spain, by great chance, a pair of silk stockings;
for Spain very early abounded in silk. His son, King Edward VI., was pre-
sented with a pair of long Spanish silk stockings by his merchant. Sir Thomas
Gresham, and the present was then much taken notice of.’ Thus it is plain
that the invention of knit silk stockings originally came from Spain. Others
relate that one William Rider, an apprentice on London Bridge, seeing at the
house of an Italian merchant a pair of knit worsted stockings from Mantua,
made with great skill a pair exactly like them, which he presented in the year
1564 to William Earl of Pembroke, and were the first of that kind worn in
England.”— Adam Anderson, Historical and Chronological Deduction of the
Origin of Commerce, 1764, a.d. 1561.
RENT OF land: CONCLUSION -47
ence. The work which is performed in this manner, it has already
been observed, comes always much cheaper to market than that
which is the principal or sole fund of the workman’s subsistence.
The fine manufacture, on the other hand, was not in those times
carried on in England, but in the rich and commercial country of
Flanders ; and it was probably conducted then, in the same manner
as now, by people who derived the whole, or the principal part of
their subsistence from it. It was besides a foreign manufacture, and
must have paid some duty, the ancient custom of tonnage and
poundage at least, to the king. This duty, indeed, would not prob-
ably be very great. It was not then the policy of Europe to restrain,
by high duties, the importation of foreign manufactures, but rather
to encourage it, in order that merchants might be enabled to supply,
at as easy a rate as possible, the great men with the conveniencies
and luxuries which they wanted, and which the industry of their
own country could not afford them.
The consideration of these circumstances may perhaps in some
measure explain to us why, in those ancient times, the real price of
the coarse manufacture was, in proportion to that of the fine, so
much lower than in the present times.
Conclusion of the Chapter
I SHALL conclude this very long chapter with observing that
every improvement in the circumstances of the society tends either
directly or indirectly to raise the real rent of land, to increase the
real wealth of the landlord, his power of purchasing the labour, or
the produce of the labour of other people.
The extension of improvement and cultivation tends to raise it
directly. The landlord’s share of the produce necessarily increases
with the increase of the produce.
That rise in the real price of those parts of the rude produce of
land, which is first the effect of extended improvement and cultiva-
tion, and afterwards the cause of their being still further extended,
the rise in the price of cattle, for example, tends too to raise the rent
of land directly, and in a still greater proportion. The real value of
the landlord’s share, his real command of the labour of other people,
not only rises with the real value of the produce, but the proportion
of his share to the whole produce rises with it. That produce, after
the rise in its real price, requires no more labour to collect it than
Above, pp. ii6, 1 1 7.
Towards the end of chapter x. the same words occur, omitting “very.”
but the
fine was
carried on
in Flan-
ders by
people
who sub-
sisted on
it, and
was sub-
ject to
customs
duty,
which ex-
plains
why the
coarse
was in
those
times low-
er in pro-
portion
to the
fine.
Every im-
prove-
ment in
the cir-
cum-
stances of
society
raises
rent.
Extension
of im-
prove-
ment and
cultiva-
tion raises
it directly,
and so
does the
rise in
the price
of cattle,
&c
Improve-
ments
which re-
duce the
price of
manufac-
tures raise
it indi-
rectly,
and so
does every
increase
in the
quantity
of useful
labour
employed.
The con-
trary cir-
cum-
stances
lower
rent.
There
are three
parts of
produce
and three
original
orders of
society.
The inter-
est of the
proprie-
tors of
248 XHE WEALTH OF NATIONS
before. A smaller proportion of it will, therefore, be sufficient to re-
place, with the ordinary profit, the stock which employs that la-
bour. A greater proportion of it must, consequently, belong to the
landlord.^^®
All those improvements in the productive powers of labour,
which tend directly to reduce the real price of manufactures, tend
indirectly to raise the real rent of land. The landlord exchanges that
part of his rude produce, which is over and above his own consump-
tion, or what comes to the same thing, the price of that part of it,
for manufactured produce. Whatever reduces the real price of the
latter, raises that of the former. An equal quantity of the former be-
comes thereby equivalent to a greater quantity of the latter; and
the landlord is enabled to purchase a greater quantity of the con-
veniencies, ornaments, or luxuries, which he has occasion for.
Every increase in the real wealth of the society, every increase in
the quantity of useful labour employed within it, tends indirectly to
raise the real rent of land. A certain proportion of this labour nat-
urally goes to the land. A greater number of men and cattle are em-
ployed in its cultivation, the produce increases with the increase of
the stock which is thus employed in raising it, and the rent increases
with the produce.
The contrary circumstances, the neglect of cultivation and im-
provement, the fall in the real price of any part of the rude produce
of land, the rise in the real price of manufactures from the decay of
manufacturing art and industry, the declension of the real wealth
of the society, all tend, on the other hand, to lower the real rent of
land, to reduce the real wealth of the landlord, to diminish his
power of purchasing either the labour, or the produce of the labour
of other people.
The whole annual produce of the land and labour of every coun-
try, or what comes to the same thing, the whole price of that an-
nual produce, naturally divides itself, it has already been ob-
served, into three parts; the rent of land, the wages of labour,
and the profits of stock; and constitutes a revenue to three different
orders of people; to those who live by rent, to those who live by
wages, and to those who live by profit. These are the three great,
original and constituent orders of every civilized society, from
whose revenue that of every other order is ultimately derived.
The interest of the first of those three great orders, it appears
from what has been just now said, is strictly and inseparably con-
nected with the general interest of the society. Whatever either pro-
^ The opposite of this is stated on p 318 below ^ Above, p 52
RENT OF land: CONCLUSION 249
motes or obstructs the one, necessarily promotes or obstructs the
other. When the public deliberates concerning any regulation of
commerce or police, the proprietors of land never can mislead it,
with a view to promote the interest of their own particular order; at
.least, if they have any tolerable knowledge of that interest. They
are, indeed, too often defective in this tolerable knowledge. They
are the only one of the three orders whose revenue costs them neith-
er labour nor care, but comes to them, as it were, of its own accord,
and independent of any plan or project of their own. That indo-
lence, which is the natural effect of the ease and security of their sit-
uation, renders them too often, not only ignorant, but incapable of
that application of mind which is necessary in order to foresee and
understand the consequences of any public regulation.
The interest of the second order, that of those who live by wages,
is as strictly connected with the interest of the society as that of the
first. The wages of the labourer, it has already been shewn,^^® are
never so high as when the demand for labour is continually rising,
or when the quantity employed is every year increasing consider-
ably. When this real wealth of the society becomes stationary, his
wages are soon reduced to what is barely enough to enable him to
bring up a family, or to continue the race of labourers. When the
society declines, they fall even below this. The order of proprietors
may, perhaps, gain more by the prosperity of the society, than that
of labourers: but there is no order that suffers so cruelly from its
decline. But though the interest of the labourer is strictly connected
with that of the society, he is incapable either of comprehending
that interest, or of understanding its connexion with his own. His
condition leaves him no time to receive the necessary information,
and his education and habits are commonly such as to render him
unfit to judge even though he was fuHy informed. In the public de-
liberations, therefore, his voice is little heard and less regarded, ex-
cept upon some particular occasions, when his clamour is animated,
set on, and supported by his employers, not for his, but their own
particular purposes.
His employers constitute the third order, that of those who live
by profit. It is the stock that is employed for the sake of profit,
which puts into motion the greater part of the useful labour of
every society. The plans and projects of the employers of stock reg-
ulate and direct all the most important operations of labour, and
profit is the end proposed by all those plans and projects. But the
rate of profit does not, like rent and wages, rise with the prosperity,
and fall with the declension, of the society. On the contrary, it is
^Above, pp 69-71
land is in-
separably
connected
with the
general
interest
of the
society.
So also is
that of
those who
live by
wages.
but the
interest of
those who
live by
profit has
not the
same con-
nexion
with the
general
interest of
the so-
ciety.
250 the wealth of nations
naturally low in rich, and high in poor countries, and it is always
highest in the countries which are going fastest to ruin. The interest
of this third order, therefore, has not the same connexion with the
general interest of the society as that of the other two. Merchants
and master manufacturers are, in this order, Ae two classes of people,
who commonly employ the largest capitals, and who by their wealth
draw to themselves the greatest share of the public consideration.
As during their whole lives they are engaged in plans and projects,
they have frequently more acuteness of understanding than the
greater part of country gentlemen. As their thoughts, however, are
commonly exercised rather about the interest of their own particu-
lar branch of business, than about that of the society, their judg-
ment, even when given with the greatest candour (which it has not
been upon every occasion) , is much more to be depended upon with
regard to the former of those two objects, than with regard to the lat-
ter. Their superiority over the country gentleman is, not so much in
their knowledge of the public interest, as in their having a better
knowledge of their own interest than he has of his. It is by this su-
perior knowledge of their own interest that they have frequently
imposed upon his generosity, and persuaded him to give up both his
own interest and that of the public, from a very simple but honest
conviction, that their interest, and not his, was the interest of the
public. The interest of the dealers, however, in any particular
branch of trade or manufactures, is always in some respects differ-
ent from, and even opposite to, that of the public. To widen the
market and to narrow the competition, is always the interest of the
dealers. To widen the market may frequently be agreeable enough
to the interest of the public; but to narrow the competition must al-
ways be against it, and can serve only to enable the dealers, by rais-
ing their profits above what they naturally would be, to levy, for
their own benefit, an absurd tax upon the rest of their fellow-citi-
zens. The proposal of any new law or regulation of commerce which
comes from this order, ought always to be listened to with great pre-
caution, and ought never to be adopted till after having been long
and carefully examined, not only with the most scrupulous, but
with the most suspicious attention. It comes from an order of men,
whose interest is never exactly the same with that of the public, who
have generally an interest to deceive and even to oppress the pub-
lic, and who accordingly have, upon many occasions, both deceived
and oppressed it.
JRENT OF land: CONCLUSION
251
The average Price of
Years Price of the Quarter Average of the dif- each Year in Money
XIL of Wheat each ferent Prices of the of the present
Year.^ 2 ^ same Year. Times.^^^
1202
1205
1223
1237
1243
1244
1246
1247
1257
1258
1270
1286
Total, 35 9 3
Average Price, 2 19 i|
^ As is explained above, p. 185, the prices from 1202 to 1597 are collected
from Fleetwood {Chronicon Pnciosum, 1707, pp. 77-124), and from 1598 to
1601 they are from the Eton College account without any reduction for the
size of the Windsor quarter or the quality of the wheat, and consequently
■'identical with those given in the table on p. 256 below, as to which see note.
^ In the reduction of the ancient money to the eighteenth century standard
the table in Martin Folkes {Table of English Silver Coins, 1745, p. 142) ap-
pears to have been followed. Approximate figures are aimed at {e.g., the factor
3 does duty both for 2*906 and 2*871), and the error is not always uniform,
e,g,, between 1464 and 1497 some of the sums appear to have been multiplied
by the approximate i^and others by the exact 1*55.
252
THE WEALTH OE NATIONS
Years
XII.
Price of the Quarter
of Wheat each
Year,
Average of the dif-
ferent Prices of the
same Year.
The Average Price of
each Year in Money
of the present
Times.
1287
1288
1289
£. d.
3 4 .
8
I
I
I
1
2
3
9
12
6
2
10
£. 5. d.
0 1223
3 4 .
— 10 if
£. d,
— 10 —
- 9 — f
I 10 41^24
1290
1294
1302
1309
1315
1316
1317
1336
1338
— 16
— 16 —
— 4 —
— 7 2
I —
I —
I 10
1 12
2 —
24 —
— 14 —
2 13 —
4 — —
I- 6 _8
— 3 4
I 10 6
I 19 6
2 8 —
28 —
— 12 —
I I 6
3 — —
4 II 6
5 18 6
— 6 —
— 10 —
Total, 23 4 1I4
Average Price, i 18 8
^ This should be 2s. 7f d. The mistake is evidently due to the 3s. 4d. be-
longing to the year 1287 having been erroneously added in.
Sic in all editions. More convenient to the unpractised eye in adding up
than “i”
“And sometime xxs. as H. Knighton.” — ^Fleetwood, Chronicon Preciosum,
p, 82.
^■®Miscopied: it is £2 13s. 4d. in Fleetwood, op. cit.j p. 92.
RENT OF land: CONCLUSION
253
Years
XIL
1
Price of the Quarter
of Wheat each
Year,
i
Average of the dif-
ferent Prices of the
same Year. |
The average Price of
each Year in Money
of the present
Times.
1339
d,
9 —
1
1
1
£. d,
I 7 —
1349
— 2 —
— — —
— S 2
1359
168
— — —
322
1361
— 2 —
— — —
- 4 8
1363
— — —
I 15 —
1369
r I 1
1 I 4 —/
12 —
2 9 4^27
1379
— 4 —
— — —
— 9 4
13S7
— 2 —
— — —
— 48
1390
f— 13 4]
— 14 5
I 13 7
1401
[- 16 -1
— 16 —
I 17 4
1407
1
f— 4 4i\
1—34/
— 3 10
- 8 II
1416
— 16 —
—
I 12 —
Total, IS 9 4
Average Price, i $ 9I
£.
j. d .
£.
s .
d .
£.
S .
d .
1^23
—
8 —
—
—
—
—
16
—
1425
—
4 —
—
—
—
—
8
—
1434
I
6 8
—
—
—
2
13
4
1435
—
s 4
—
—
—
—
10
8
1439
{:
6 8/
I
3
4
2
6
8
1440
I
4
—
—
—
2
8
—
1444
{=
—
4
2
—
8
4
I 44 S
4 6
—
—
%
—
9
—
1447
—
8 —
—
—
—
—
16
—
1448
—
6 8
—
—
—
—
13
4
1449
—
5 —
—
—
—
—
10
1451
—
8 —
—
—
— 1
—
16
Total, 12 IS 4
Average Price, i i si
Obviously a mistake for £2 iis. 4d.
254
THE WEALTH OF NATIONS
Years
XIL
Price of the Quarter
of Wheat each
Year.
Average of the dif-
ferent Prices of the
same Year.
The average Price of
each Year in Money
of the present
Times,
1453
£. 5. d.
— 5 4
1 ^
1
1
£. .r. d.
— 10 8
1455
— 12
— — —
— 2 4
1457
- 7 8
— — —
15 4
1459
— 5 —
— — —
— 10 —
1460
~ 8 ~
— — — .
— 16 —
1463
{- I s)
— I 10
- 3 8
1464
— 6 8
^
— 10 —
i486
I 4 —
— — —
I 17 —
1491
— 14 8
— — —
12 —
1494
— 4 —
— — —
— 6 —
T495
— 3 4
— — —
— 5 —
1497
I — — -
— — —
I II —
Total, 89 —
Average Price, — 14 i
£.
d.
£.
s.
d.
£.
s.
d.
1499
—
4
—
—
—
—
—
6
—
1504
5
8
—
—
—
—
8
6
1521
I
—
—
—
—
—
I
10
—
1551
—
8
—
—
—
—
—
2
—
1SS3
—
8
—
—
—
—
—
8
—
ISS4
—
8
—
—
—
—
—
8
—
1555
—
8
—
—
—
—
—
8
—
1556
f ~
8
A
—
—
—
—
8
ISS7
=
T-
5
8
:)
—
17
gl228
—
17
i 2
13
4]
1558
8
—
—
—
—
8
—
IS59
—
8
—
—
—
—
—
8
—
1560
—
8
—
—
—
—
8
—
Total, 6 0 2I
Average Price, — 10
®^This should be 17s. 7d. here and in the next column. Eds. i and 2 read
“i2s. 7d.,” a mistake of £i having been made in the addition.
"“This should obviously be los./^ d. Eds. i and 2 read “£6 5s. id.^^ for the
total and “los. 5d.” for the average, in consequence of the mistake mentioned
in the preceding note.
RENT OF land: CONCLUSION
255
Years
XII.
Price of the Quarter
of Wheat each
Year,
Average of the dif-
ferent Prices of the
same Year.
The average Price of
each Year in Money
of the present
Times.
1561
1
^00
cti 1
1
£. s. d.
£. s. d.
— 8 —
1562
— 8 —
— — —
— 8 —
1574
/ 2 16 — 1
1 I 4 — J
1
2 — —
2 — —
1587
34 —
— — —
3 4 —
IS 94
2 16 —
— — —
2 16 —
IS 9 S
2 13 —230
— — —
2 13 —
1596
— — —
4 — —
IS 97
/ s 4 — 1
1 4 J
1
M
4 12 —
1S98
2 16 8
— — —
2 16 8
IS 99
I 19 2
I 19 2
1600
I 17 8
I 17 8
1601
I 14 1
— —
I 14 10
Total, 28 9 4
Average Price, 2 7
^^Miscopied: it is £2 13s, 4d. in Fleetwood, Chronicon Preciosum, p. 123.
^See p. 251,* note 221.
Eds. I and 2 read £2 4s. 9 Jd-j the 89s. left over after dividing the pounds
having been inadvertently divided by 20 instead of by 12,
2S6
THE WEALTH OF NATIONS
Prices of the Quarter of nine Bushels of the best or highest priced Wheat at Windsor
Market, on Lady-Day and Michaelmas, from I5p5 to 1764, both inclusive;
the Price of each Year being the Medium between the highest Prices of those
Two Market-days.^^^
Years
IS95,
150 ,
1597 ,
1598,
1599,
1600,
1601,
1602,
1603,
1604,
1605,
1606,
1607,
1608,
1609,
1610,
1611,
1612,
1614,
1615,
1616,
1617,
1618,
1619,
1620,
£.
5 .
d .
Years
£.
5 .
d .
—
2
0
0
1621,
—
I
10
4
—
2
8
0
1622,
—
2
18
8
—
3
9
6
1623,
—
2
12
0
—
2
16
8
1624,
—
2
8
0
—
I
19
2
1625,
—
2
12
0
—
I
17
8
1626,
—
2
9
4
—
I
X 4
10
1627,
—
I
16
0
—
I
9
4
1628,
—
I
8
0
—
1
IS
4
1629,
—
2
2
0
—
I
10
8
1630,
—
2
IS
8
—
I
15
10
1631,
—
3
8
0
—
I
13
0
1632,
—
2
13
4
—
I
16
8
1633,
—
2
18
0
—
2
16
8
1634,
—
2
16
0
—
2
10
0
163s,
—
2
16
0
—
I
IS
10
1636,
—
2
16
8
—
I
18
8
—
—
—
2
2
4
16)40
0
0
—
2
8
8
—
—
—
2
I
2
10
0
—
I
18
8
—
2
0
4
—
2
8
8
—
2
6
8
—
I
IS
4
I
10
4
26)54
0^
2
I
The list of prices, but not the division into periods, is apparently copied
from Charles Smith (Tracts on the Corn Trade, 1766, pp. 97-102, cp. pp. 43,
104), who, however, states that it had been previously published, p. 96.
RENT OF land: CONCLUSION
257
Wheat per quarter.
'ears
£.
s .
d .
1637, —
2
13
0
1638, —
2
17
4
1639. —
2
4
10
1640, —
2
4
8
1641, —
2
8
0
1642,'! f
0
0
0
0
0
0
i644.hg^||s|
0
0
0
0
0
0
1646, —
2
8
0
1647, —
3
13
8
1648, —
4
S
0
1649, —
4
0
0
1650, —
3
16
8
1651, —
3
13
4
1652, —
2
9
6
i 6S3 j —
I
IS
6
1654, —
I
6
0
1655, —
I
13
4
1656, —
2
3
0
1657, —
2
6
8
1658, —
3
5
0
1659, —
3
6
0
1660, —
2
16
6
1661, —
3
10
0
1662, —
3
14
0
1663, —
2
17
0
1664, —
2
0
6
:66s, —
2
9
4
1666, —
I
16
0
1667, —
I
16
0
1668, —
2
0
0
1669, —
2
4
4
1670, —
2
I
8
Carry over,
79
14
10
Wheat per quarter.
Years
£.
s .
Brought over,
79
14
10
1671,
—
2
2
0
1672,
—
2
I
0
1673.
—
2
6
8
1674,
—
3
8
8
167s,
—
3
4
8
1676,
—
I
18
0
1677,
—
2
2
0
1678,
—
2
19
0
1679,
—
3
0
0
1680,
—
2
5
0
1681,
—
2
6
8
1682,
1683,
—
2
4
0
—
2
0
0
1684,
—
2
4
0
1685,
—
2
6
8
1686,
1687,
—
I
14
0
I
S
2
1688,
—
2
6
0
1689,
—
I
10
0
1690,
—
I
14
8
1691,
—
I
14
0
1692,
—
2
6
8
1693,
—
3
7
8
1694,
—
3
4
0
169s,
—
2
13
0
1696,
—
3
II
0
1697,
—
3
0
0
1698,
—
3
8
4
1699,
—
3
4
0
1700,
—
2
0
0
60)153
I
8
2
II
oi
8
Years
THE WEALTE
Wheat per quarter.
£. s . d .
[ OF NATIONS
Wheat per quatrer.
Years £. s . d .
1701,
—
I
17
8
Brought over, 69
8 8
1702,
—
I
9
6
1734,
— I
18 10
1703,
—
I
16
0
I 73 S.
— 2
3 0
1704,
—
2
6
6
1736.
— 2
0 4
170S,
—
I
10
0
1737,
1738,
— I
18 0
1706,
—
I
6
0
— I
15 6
1707,
—
I
8
6
1739,
— I
18 6
1708,
2
I
6
1740,
— 2
10 8
1709,
—
3
18
6
1741,
— 2
6 8
1710,
—
3
18
0
1742,
— I
14 0
1711,
—
2
14
0
1743,
— I
4 10
1712,
—
2
6
4
1744.
— I
4 10
1713,
—
2
II
0
I 74 S,
— I
7 6
1714,
—
2
10
4
1746,
— I
19 0
1715,
1716,
—
2
3
0
1747 .
— I
14 10
—
2
8
0
1748,
— ' I
17 0
1717,
—
2
5
8
1749,
— I
17 0
1718,
— -
I
18
10
1730,
— I
12 6
1719,
—
I
IS
0
1751,
— I
18 6
1720,
—
I
17
0
1752,
— 2
I 10
1721,
—
I
17
6
1753,
— 2
4 8
1722,
—
I
16
0
I 7 S 4 ,
— I
14 8
1723,
—
I
14
8
1755 ,
1756,
— I
13 10
1724,
—
I
17
0
— 2
5 3
1725,
—
2
8
6
1757,
— 3
0 0
1726,
—
2
6
0
1758,
— 2
10 0
1727,
—
2
2
0
1759,
1760,
— I
19 10
1728,
—
2
14
6
— I
16 6
1729,
—
2
6
10
1761,
— I
10 3
1730,
—
I
16
6
1762,
— I
19 0
1731,
—
I
12
10
1763,
— * 2
0 9
1732 ;
—
I
6
8
1764,
— 2
6 9
1733, — 184
Carryover, 69 8 8
Wheat per quarter.
Years £. d .
Years
64)129 13 6
2 06
Wheat per quarter.
£. d .
1731,
—
I
12
10
1741,
— 2
6 8
1732,
—
I
6
8
1742,
— I
14 0
1733.
—
r
8
4
1743,
— I
4 10
1734.
—
I
18
10
1744,
~~ I
4 10
i 73 S>
—
2
3
0
1745,
— I
7 6
1736.
—
2
0
4
1746,
— I
19 0
I 737 >
1738,
—
I
18
0
1747,
— I
14 10
—
I
IS
6
1748,
— I
17 0
I 739 >
—
I
18
6
1749,
— I
17 0
1740,
2
10
8
1750.
— I
12 6
10)18
I
12
17
8
35
10) r6
I
18 2
13 9 i
®’*This should be A*
BOOK II
Of the Nature, Accumulation, and Employment of Stock
INTRODUCTION
In that rude state of society in which there is no division of labour,
in which exchanges are seldom made, and in which every man pro-
vides every thing for himself, it is not necessary that any stock
should be accumulated or stored up beforehand, in order to carry
on the business of the society. Every man endeavours to supply by
his own industry his own occasional wants as they occur. TOien he
is hungry, he goes to the forest to hunt; when his coat is worn out,
he clothes himself with the skin of the first large animal he kills:
and when his hut begins to go to ruin, he repairs it, as well as he can,
with the trees and the turf that are nearest it.
But when the division of labour has once been thoroughly intro-
duced, the produce of a man’s own labour can supply but a very
small part of his occasional wants. The far greater part of them are
supplied by the produce of other mens labour, which he purchases
with the produce, or what is the same thing, with the price of the
produce of his own. But this purchase cannot be made till such time
as the produce of his own labour has not only been completed, but
sold. A stock of goods of different kinds, therefore, must be stored
up somewhere sufficient to maintain him, and to supply him with
the materials and tools of his work, till such time, at least, as both
these events can be brought about. A weaver cannot apply himself
entirely to his peculiar business, unless there is beforehand stored up
somewhere, either in his own possession or in that of some other
person, a stock sufficient to maintain him, and to supply him with
the materials and tools of his work, till he has not only completed
but sold his web. This accumulation must, evidently, be previous to
his applying his industry for so long a time to such a peculiar
business.^
In the
rude state
of society
stock is
unneces-
sary.
Division
of labour
makes it
necessary.
Lectures, p. i8i.
Accumu-
lation of
stock and
division
of labour
advance
together.
Accumu-
lation
causes the
same
quantity
of indus-
try to
produce
more.
This Book
treats of
the nature
of stock,
the ef-
fects of
its accu-
mulation,
and its
different
employ-
ments.
260 the wealth oe nations
As the accumulation of stoci must, in the nature of things, be
previous to the division of labour, so labour can be more and more
subdivided^ in proportion only as stock is previously more and
more accumulated. The quantity of materials which the same num-
ber of people can work up, increases in a great proportion as labour
comes to be more and more subdivided; and as the operations of
each workman are gradually reduced to a greater degree of sim-
plicity, a variety of new machines come to be invented for facili-
tating and abridging those operations. As the division of labour
advances, therefore, in order to give constant employment to an
equal number of workmen, an equal stock of provisions, and a
greater stock of materials and tools than what would have been
necessary in a ruder state of things, must be accumulated before-
hand. But the number of workmen in every branch of business gen-
erally increases with the division of labour in that branch, or rather
it is the increase of their number which enables them to class and
subdivide themselves in this manner.
As the accumulation of stock is previously necessary for carry-
ing on this great improvement in the productive powers of labour,
so that accumulation naturally leads to this improvement. The per-
son who employs his stock in maintaining labour, necessarily wishes
to employ it in such a manner as to produce as great a quantity of
work as possible. He endeavours, therefore, both to make amgng
his workmen the most proper distribution of employment, and to
furnish them with the best machines which he can either invent or
afford to purchase. His abilities in both these respects are generally
in proportion to the extent of his stock, or to the number of people
whom it can employ. The quantity of industry, therefore, not only
increases in every country with the increase of the stock which em-
ploys it, but, in consequence of that increase, the same quantity of
industry produces a much greater quantity of work.
Such are in general the ef ects of the increase of stock upon in-
dustry and its productive powers.
In the following book I have endeavoured to explain the nature
of stock, the effects of its accumulation into capitals of different
kinds, and the effects of the different employments of those capitals.
This book is divided into five chapters. In the first chapter, I have
endeavoured to show what are the different parts or branches into
which the stock, either of an individual, or of a great society, nat-
urally divides itself. In the second, I have endeavoured to explain
the nature and operation of money considered as a particular
branch of the general stock of the society. The stock which is ac-
^ Eds. I and 2 place the “only” here.
INTRODUCTION
261
cumulated into a capital, may either be employed by the person to
whom it belongs, or it may be lent to some other person. In the third
and fourth chapters, I have endeavoured to examine the manner in
which it operates in both these situations. The fifth and last chapter
treats of the different effects which the different employments of
capital immediately produce upon the quantity both of national
industry, and of the annual produce of land and labour.
CHAPTER I
A man
does not
think of
obtaining
revenue
from a
small
stock,
but when
he has
more than
enough
for imme-
diate con-
sumption,
he endea-
vours to
derive a
revenue
from the
rest,
using it
either as
(i) circu-
lating
capital,
OF THE DIVISION OF STOCK
When the stock which a man possesses is no more than sufficient to
maintain him for a few days or a few weeks, he seldom thinks of de-
riving any revenue from it. He consumes it as sparingly as he can,
and endeavours by his labour to acquire something which may sup-
ply its place before it be consumed altogether. His revenue is, in
this case, derived from his labour only. This is the state of the
greater part of the labouring poor in all countries.
But when he possesses stock sufficient to maintain him for
months or years, he naturally endeavours to derive a revenue from
the greater part of it; reserving only so much for his immediate
consumption as may maintain him till this revenue begins to come
in. His whole stock, therefore, is distinguished into two parts. That
part which, he expects, is to afford him this revenue, is called his
capital. The other is that which supplies his immediate consump-
tion; and which consists either, first, in that portion of his whole
stock which was originally reserved for this purpose; or, secondly,
in his revenue, from whatever source derived, as it gradually comes
in; or, thirdly, in such things as had been purchased by either of
these in former years, and which are not yet entirely consumed;
such as a stock of clothes, household furniture, and the like. In one,
or other, or all of these three articles, consists the stock which men
commonly reserve for their own immediate consumption.
There are two different ways in which a capital may be employed
so as to yield a revenue or profit to its employer.
First, it may be employed in raising, manufacturing, or purchas-
ing goods, and selling them again with a profit. The capital em-
ployed in this manner yields no revenue or profit to its employer,
while it either remains in his possession, or continues in the same
shape. The goods of the merchant yield him no revenue or profit
till he sells them for money, and the money 5delds him as little till
it is again exchanged for goods. His capital is continually going
from him in one shape, and returning to him in another, and it is
262
DIVISION OF STOCK 263
only by means of such circulation, or successive exchanges, that it
can yield him any profit. Such capitals, therefore, may very prop-
erly be called circulating capitals.
Secondly, it may be employed in the improvement of land, in the
purchase of useful machines and instruments of trade, or in such-
like things as yield a revenue or profit without changing masters,
or circulating any further. Such capitals, therefore, may very prop-
erly be called fixed capitals.
Different occupations require very different proportions between
the fixed and circulating capitals employed in them.
The capital of a merchant, for example, is altogether a circulat-
ing capital. He has occasion for no machines or instruments of
trade, unless his shop, or warehouse, be considered as such.
Some part of the capital of every master artificer or manufac-
turer must be fixed in the instruments of his trade. This part, how-
ever, is very small in some, and very great in others. A master tay-
lor requires no other instruments of trade but a parcel of needles.
Those of the master shoemaker are a little, though but a very little,
more expensive. Those of the weaver rise a good deal above those of
the shoemaker. The far greater part of the capital of all such mas-
ter artificers, however, is circulated, either in the wages of their
workmen, or in the price of their materials, and repaid with a prof-
it by the price of the work.
In other works a much greater fixed capital is required. In a
great iron-work, for example, the furnace for melting the ore, the
forge, the slitt-mill, are instruments of trade which cannot be
erected without a very great expence. In coal-works, and mines of
every kind, the machinery necessary both for drawing out the
water and for other purposes, is frequently still more expensive.
That part of the capital of the farmer which is employed in the
instruments of agriculture is a fixed; that which is employed in the
wages and maintenance of his labouring servants, is a circulating
capital. He makes a profit of the one by keeping it in his own pos-
session, and of the other by parting with it. The price or value of
his labouring cattle is a fixed capital in the same manner as that of
the instruments of husbandry: Their maintenance is a circulating
capital in the same manner as that of the labouring servants. The
farmer makes his profit by keeping the labouring cattle, and by
parting with their maintenance. Both the price and the mainte-
nance of the cattle which are bought in and fattened, not for la-
bour, but for sale, are a circulating capital. The farmer makes his
profit by parting with them. A flock of sheep or a herd of cattle
that, in a breeding country, is bought in, neither for labour, nor
or (2)
fixed capi-
tal.
Different
propor-
tions of
fixed and
circulat-
ing capita]
are re-
quired in
different
trades.
The stock
of a so-
ciety is
divided in
the same
way into
(i)the
portion
reserved
for imme-
diate con-
sumption,
264 XHE WEALTH OF NATIONS
for sale, but in order to make a profit by their wool, by their milk,
and by their increase, is a fixed capital. The profit is made by
keeping them. Their maintenance is a circulating capital. The prof-
it is made by parting with it; and it comes back with both its own
profit, and the profit upon the whole price of the cattle, in the
price of the wool, the milk, and the increase. The whole value of
the seed too is properly a fixed capital. Though it goes backwards
and forwards between the ground and the granary, it never changes
masters, and therefore does not properly circulate. The farmer
makes his profit, not by its sale, but by its increase.
The general stock of any country or society is the same with that
of all its inhabitants or members, and therefore naturally divides
itself into the same three portions, each of which has a distinct
function or office.
The First, is that portion which is reserved for immediate con-
sumption, and of which the characteristic is that it affords no rev-
enue or profit. It consists in the stock of food, clothes, household
furniture, &c., which have been purchased by their proper consum-
ers, but which are not yet entirely consumed. The whole stock of
mere dwelling houses too subsisting at any one time in the country,
make a part of this first portion. The stock that is laid out in a
house, if it is to be the dwelling-house of the proprietor, ceases from
that moment to serve in the function of a capital, or to afford any
revenue to its owner. A dwelling-house, as such, contributes noth-
ing to the revenue of its inhabitant; and though it is, no doubt, ex-
tremely useful to him, it is as his clothes and household furniture
are useful to him, which, however, make a part of his expence, and
not of his revenue. If it is to be let to a tenant for rent, as the house
itself can produce nothing,^ the tenant must always pay the rent
out of some other revenue which he derives either from labour, or
stock, or land. Though a house, therefore, may yield a revenue to
its proprietor, and thereby serve in the function of a capital to him,
it cannot yield any to the public, nor serve in the function of a cap-
ital to it, and the revenue of the whole body of the people can never
be in the smallest degree increased by it. Clothes, and household
furniture, in the same manner, sometimes yield a revenue, and
thereby serve in the function of a capital to particular persons. In
countries where masquerades are common, it is a trade to let out
^“Ce n’est pas cette maison qui produit elle-mSme ces mille francs. . . . Le
loyer d’une maison n’est point pour la societe une augmentation de revenu,
une creation de richesses nouveUes, il n’est au contraire qu’un mouvement,
qu’un changement de main.”— Mercier de la Riviere, UOrdre naturel et es-
sentiel des Sociitis poUtiques, lamo ed., 1767) vol. ii., p. 123, or in Daire’s
PhysiocrateSf p. 487.
DIVISION OF STOCK 265
masquerade dresses for a night. Upholsterers frequently let furni-
ture by the month or by the year. Undertakers let the furniture of
funerals by ihe day and by the week. Many people let furnished
houses, and get a rent, not only for the use of the house, but for
that of the furniture. The revenue, however, which is derived from
such things, must always be ultimately drawn from some other
source of revenue. Of all parts of the stock, either of an individual,
or of a society, reserved for immediate consumption, what is laid
out in houses is most slowly consumed. A stock of clothes may last
several years: a stock of furniture half a century or a century: but
a stock of houses, well built and properly taken care of, may last
many centuries. Though the period of their total consumption,
however, is more distant, they are still as really a stock reserved
for immediate consumption as either clothes or household
furniture.
The Second of the three portions into which the general stock of
the society divides itself, is the fixed capital; of which the charac-
teristic is, that it affords a revenue or profit without circulating or
changing masters. It consists chiefly of the four following articles:
First, of all useful machines and instruments of trade which fa-
cilitate and abridge labour:
Secondly, of all those profitable buildings which are the means of
procuring a revenue, not only to their proprietor who lets them for
a rent, but to the person who possesses them and pays that rent for
them; such as shops, warehouses, workhouses, farmhouses, with all
their necessary buildings; stables, granaries, &c. These are very
different from mere dwelling houses. They are a sort of instruments
of trade, and may be considered in the same light:
Thirdly, of the improvements of land, of what has been profit-
ably laid out in clearing, draining, enclosing, manuring, and reduc-
ing it into the condition most proper for tillage and culture. An im-
proved farm may very justly be regarded in the same light as those
useful machines which facilitate and abridge labour, and by
means of which, an equal circulating capital can afford a much
greater revenue to its employer. An improved farm is equally ad-
vantageous and more durable than any of those machines, fre-
quently requiring no other repairs than the most profitable appli-
cation of the farmer’s capital employed in cultivating it:
Fourthly, of the acquired and useful abilities of all the inhabi-
tants or members of the society. The acquisition of such talents,
by the maintenance of the acquirer during his education, study, or
apprenticeship, always costs a real expence, which is a capital fixed
and realized, as it were, in his person. Those talents, as they make
(2) the
feed capi-
tal, which
consists of
(a) useful
machines,
(h) pro-
fitable
buildings,
(c) im-
prove-
ments of
land,
and (d)
acquir^
and use-
ful abili-
ties,
and ( 3 )
the circu-
lating
capital,
which
consists of
(а) the
money,
(б) the
stock of
provisions
in the pos-
session of
the sellers,
(c) the
materials
of clothes,
furniture,
and build-
ings,
and (d)
completed
work in
the hands
of the
merchant
or manu-
facturer.
The last
three
parts of
the circu-
lating
capital are
regularly
with-
drawn
from it
266 the wealth of nations
a part of his fortune, so do they likewise of that of the society to
which he belongs. The improved dexterity of a workman may be
considered in the same light as a machine or instrument of trade
which facilitates and abridges labour, and which, though it costs a
certain expence, repays that expence with a profit.^
The Third and last of the three portions into which the general
stock of the society naturally divides itself, is the circulating capi-
tal; of which the characteristic is, that it affords a revenue only by
circulating or changing masters. It is composed likewise of four
parts:
First, of the money by means of which all the other three are cir-
culated and distributed to their proper consumers:®
Secondly, of the stock of provisions which are in the possession
of the butcher, the grazier, the farmer, the corn-merchant, the
brewer, &c. and from the sale of which they expect to derive a
profit:
Thirdly, of the materials, whether altogether rude, or more or
less manufactured, of clothes, furniture and building, which are not
yet made up into any of those three shapes, but which remain in
the hands of the growers, the manufacturers, the mercers, and
drapers, the timber-merchants, the carpenters and joiners, the
brick-makers, &c.
Fourthly, and lastly, of the work which is made up and com-
pleted, but which is still in the hands of the merchant or manufac-
turer, and not yet disposed of or distributed to the proper con-
sumers; such as the finished work which we frequently find ready-
made in the shops of the smith, the cabinet-maker, the goldsmith,
the jeweller, the china-merchant, &c. The circulating capital con-
sists in this manner, of the provisions, materials, and finished work
of all kinds that are in the hands of their respective dealers, and of
the money that is necessary for circulating and distributing them
to those who are finally to use, or to consume them.
Of these four parts three, provisions, materials, and finished
work, are, either annually, or in a longer or shorter period, regu-
larly withdrawn from it, and placed either in the fixed capital or
in the stock reserved for immediate consumption.
Every fixed capital is both originally derived from, and requires
to be continually supported by a circulating capital All useful ma-
chines and instruments of trade are originally derived from a cir-
culating capital, which furnishes the materials of which they are
“ But in bk i , ch x , the remuneration of improved dexterity is treated as
wages
® Ed. I reads “users and consumers” here and eleven lines lower
DIVISION or STOCK -^7
made, and the maintenance of the workmen who make them. They
require too a capital of the same kind to keep them in constant
repair.
No fixed capital can yield any revenue but by means of a circu-
lating capital. The most useful machines and instruments of trade
will produce nothing without the circulating capital which affords
the materials they are employed upon, and the maintenance of the
workmen who employ them. Land, however improved, will yield no
revenue without a circulating capital, which maintains the la-
bourers who cultivate and collect its produce.
To maintain and augment the stoi which may be reserved for
immediate consumption, is the. sole end and purpose both of the
fixed and circulating capitals. It is this stock which feeds, clothes,
and lodges the people. Their riches or poverty depends upon the
abundant or sparing supplies which those two capitals can afford to
the stock reserved for immediate consumption.
So great a part of the circulating capital being continually with-
drawn from it, in order to be placed in the other two branches of
the general stock of the society; it must in its turn require contin-
ual supplies, without which it would soon cease to exist. These sup-
plies are principally drawn from three sources, the produce of land,
of mines, and of fisheries. These afford continual supplies of pro-
visions and materials, of which part is afterwards wrought up into
finished work, and by which are replaced the provisions, materials
and finished work continually withdrawn from the circulating capi-
tal. From mines too is drawn what is necessary for maintaining and
augmenting that part of it which consists in money. For though, in
the ordinary course of business, this part is not, like the other three,
necessarily withdrawn from it, in order to be placed in the other
two branches of the general stock of the society, it must, however,
like all other things, be wasted and worn out at last, and sometimes
too be either lost or sent abroad, and must, therefore, require con-
tinual, though, no doubt, much smaller supplies.
Land, mines, and fisheries, require all both a fixed and a circu-
lating capital to cultivate them: and their produce replaces with a
profit, not only those capitals, but all the others in the society.
Thus the farmer annually replaces to the manufacturer the provi-
sions which he had consumed and the materials which he had
wrought up the year before; and the manufacturer replaces to the
farmer the finished work which he had wasted and worn out in the
same time. This is the real exchange that is annually made be-
tween those two orders of people, though it seldom happens that
the rude produce of the one and the manufactured produce of the
Evei>
fixed cap-
ital is de-
rived
from and
supported
by a cir-
culating
capital,
and can-
not yield
any reve-
nue with-
out it.
The end
of both
fixed and
circulat-
ing capi-
tal is to
maintain
and aug-
ment the
other part
of the
stock.
The cir-
culating
capital is
kept up
by the
produce
of land,
mines,
and fish-
eries,
which re-
quire
both fixefl
and circu-
lating
capitals to
cultivate
them,
and, when
their fer-
tility is
equal,
yield pro-
duce pro-
portion-
ate to the
capital
employed
Where
there is
tolerable
security
all stock
is em-
ployed in
one or
other of
the three
ways
Butin
countries
where
violence
prevails
much
stock is
buried
and con-
cealed
268 the wealth of nations
Other, are directly bartered for one another; because it seldom hap-
pens that the farmer sells his corn and his cattle, his flax and his
wool, to the very same person of whom he chuses to purchase the
clothes, furniture, and instruments of trade which he wants. He
sells, therefore, his rude produce for money, with which he can pur-
chase, wherever it is to be had, the manufactured produce he has
occasion for. Land even replaces, in part at least, the capitals with
which fisheries and mines are cultivated. It is the produce of land
which draws the fish from the waters; and it is the produce of the
surface of the earth which extracts the minerals from its bowels.
The produce of land, mines, and fisheries, when their natural
fertility is equal, is in proportion to the extent and proper applica-
tion of the capitals employed about them. When the capitals are
equal and equally well applied, it is in proportion to their natural
fertility.
In adl countries where there is tolerable security, every man of
common understanding will endeavour to employ whatever stock he
can command, in procuring either present enjoyment or future prof-
it. If it is employed in procuring present enjoyment, it is a stock
reserved for immediate consumption. If it is employed in procuring
future profit, it must procure this profit either by staying with him,
or by going from him. In the one case it is a fixed, in the other it
is a circulating capital. A man must be perfectly crazy who, where
there is tolerable security, does not employ all the stock which he
commands, whether it be his own or borrowed of other people, in
some one or other of those three ways.
In those unfortunate countries, indeed, where men are continu-
ally afraid of the violence of their superiors, they frequently bury
and conceal a great part of their stock, in order to have it always at
hand to carry with them to some place of safety, in case of their
being threatened with any of those disasters to which they con-
sider themselves as at all times exposed. This is said to be a com-
mon practice in Turkey, in Indostan, and, I believe, in most other
governments of Asia. It seems to have been a common practice
among our ancestors during the violence of the feudal government.
Treasure-trove was in those times considered as no contemptible
part of the revenue of the greatest sovereigns in Europe. It consist-
ed in such treasure as was found concealed in the earth, and to
which no particular person could prove any right. This was re-
garded in those times as so important an object, that it was always
considered as belonging to the sovereign, and neither to the finder
nor to the proprietor of the land, unless the right to it had been
conveyed to the latter by an express clause in his charter. It was
DIVISION OF STOCK 269
put upon the same footing with gold and silver mines, which, with-
out a special clause in the charter, were never supposed to be com-
prehended in the general grant of the lands, though mines of lead,
copper, tin, and coal were, as things of smaller consequence.
CHAPTER II
Prices are
divided
into three
parts,
wages,
profits,
and rent,
and the
whole an-
nual pro-
duce is di-
vided into
the same
three
parts;
but we
may dis-
tinguish
between
gross and
net reve-
nue
Gross
rent is the
whole
sum paid
by the
OF MONEY CONSIDERED AS A PARTICULAR BRANCH OF THE GENERAL
STOCK OF THE SOCIETY, OR OF THE EXPENCE OF MAINTAINING
THE NATIONAL CAPITAL
It has been shewn in the first Book, that the price of the greater
part of commodities resolves itself into three parts, of which one
pays the wages of the labour, another the profits of the stock, and
a third the rent of the land which had been employed in producing
and bringing them to market: that there are, indeed, some com-
modities of which the price is made up of two of those parts only,
the wages of labour, and the profits of stock: and a very few in
which it consists altogether in one, the wages of labour: but that
the price of every commodity necessarily resolves itself into some
one, or other, or all of these three parts ; every part of it which goes
neither to rent nor to wages, being necessarily profit to somebody.
Since this is the case, it has been observed, with regard to every
particular commodity, taken separately; it must be so with regard
to all the commodities which compose the whole annual produce of
the land and labour of every country, taken complexly. The whole
price or exchangeable value of that annual produce, must resolve
itself into the same three parts, and be parcelled out among the
different inhabitants of the country, either as the wages of their
labour, the profits of their stock, or the rent of their land.
But though the whole value of the annual produce of the land
and labour of every country is thus divided among and constitutes
a revenue to its different inhabitants; yet as in the rent of a private
estate we distinguish between the gross rent and the neat rent, so
may we likewise in the revenue of all the inhabitants of a great
country.
The gross rent of a private estate comprehends whatever is paid
by the farmer; the neat rent^what remains free to the landlord,
after deducting the expence of management, of repairs, and all
other necessary charges; or what, without hurting his estate, he can
270
MONEY 271
afford to place in his stock reserved for immediate consumption, or
to spend upon his table, equipage, the ornaments of his house and
furniture, his private enjoyments and amusements. His real wealth
is in proportion, not to his gross, but to his neat rent.
The gross revenue of all the inhabitants of a great country, com-
prehends the whole annual produce of their land and labour; the
neat revenue, what remains free to them after deducting the ex-
pence of maintaining; first, their fixed; and, secondly, their cir-
culating capital; or what, without encroaching upon their capital,
they can place in their stock reserved for immediate consumption,
or spend upon their subsistence, conveniences, and amusements.
Their real wealth too is in proportion, not to their gross, but to
their fieat revenue.
The whole expence of maintaining the fixed capital, must evi-
dently be excluded from the neat revenue of the society. Neither
the materials necessary for supporting their useful machines and
instruments of trade, their profitable buildings, &c. nor the produce
of the labour necessary for fashioning those materials into the
proper form, can ever make any part of it. The price of that labour
may indeed make a part of it; as the workmen so employed may
place the whole value of their wages in their stock reserved for im-
mediate consumption. But in other sorts of labour, both the price
and the produce go to this stock, the price to that of the workmen,
the produce to that of other people, whose subsistence, conven-
iencies, and amusements, are augmented by the labour of those
workmen.
The intention of the fixed capital is to increase the productive
powers of labour, or to enable the same number of labourers to per-
form a much greater quantity of work. In a farm where all the
necessary buildings, fences, drains, communications, &c. are in the
most perfect good order, the same number of labourers and labour-
ing cattle will raise a much greater produce, than in one of equal
extent and equally good ground, but not furnished with equal con-
veniencies. In manufactures the same number of hands, assisted
with the best machinery, will work up a much greater quantity of
goods than with more imperfect instruments of trade. The expence
which is properly laid out upon a fixed capital of any kind, is always
repaid with great profit, and increases the annual produce by a
much greater value than that of the support which such improve-
ments require. This support, however, still requires a certain por-
tion of that produce. A certain quantity of materials, and the labour
of a certain number of workmen, bodi of which might have been
immediately employed to augment the food, clothing and lodging,
farmer j
net rent
what is
left free
to the
landloid.
Gross re-
venue is
the whole
annual
produce*
net reve-
nue what
is left free
after de-
ducting
the main-
tenance
of fixed
and circu-
lating
capital.
The
whole ex-
pence of
main-
taining
the fixed
capital
must be
excluded,
since the
only ob-
ject of the
fixed cap-
ital is to
increase
the pro-
ductive
powers of
labour,
and any
cheapen-
ing or
simplifica-
tion is re-
garded as
a good.
The cost
of main-
taining
the fixed
capital is
like the
cost of
repairs on
an estate,
but the
expenceof
maintain-
ing the
last three
parts of
the circu-
lating
capital is
not to be
deducted,
272 the wealth of nations
the subsistence and conveniencies of the society, are thus diverted
to another employment, highly advantageous indeed, but still dif-
ferent from this one. It is upon this account that all such improve-
ments in mechanics, as enable the same number of workmen to
perform an equal quantity of work with cheaper and simpler ma-
chinery than had been usual before, are always regarded as advan-
tageous to every society. A certain quantity of materials, and the
labour of a certain number of workmen, which had before been
employed in supporting a more complex and expensive machinery,
can afterwards be applied to augment the quantity of work which
that or any other machinery is useful only for performing. The un-
dertaker of some great manufactory who employs a thousand
a-year in the maintenance of his machinery, if he can reduce this
expence to five hundred, will naturally ^ employ the other five hun-
dred in purchasing an additional quantity of materials to be
wrought up by an additional number of workmen. The quantity of
that work, therefore, which his machinery was useful only for per-
forming, will naturally be augmented, and with it all the advan-
tage and conveniency which the society can derive from that work.
The expence of maintaining the fixed capital in a great country,
may very properly be compared to that of repairs in a private
estate. The expence of repairs may frequently be necessary for sup-
porting the produce of the estate, and consequently both the gross
and the neat rent of the landlord. When by a more proper direction,
however, it can be diminished without occasioning any diminution
of produce, the gross rent remains at least the same as before, and
the neat rent is necessarily augmented.
But though the whole expence of maintaining the fixed capital is
thus necessarily excluded from the neat revenue of the society, it is
not the same case with that of maintaining the circulating capital.
Of the four parts of which this latter capital is composed, money,
provisions, materials, and finished work, the three last, it has al-
ready been observed, are regularly withdrawn from it, and placed
either in the fixed capital of the society, or in their stock reserved
for immediate consumption. Whatever portion of those consumable
goods is not employed in maintaining the former, goes all to the
latter, and makes a part of the neat revenue of the society. The
maintenance of those three parts of the circulating capital, there-
fore, withdraws no portion of the annual produce from the neat
revenue of the society, besides what is necessary for maintaining
the fixed capital.
There seems no reason whatever for supposing that this is necessarily the
“natural’* action.
MONEY
273
The circulating capital of a society is in this respect different
from that of an individual. That of an individual is totally exclud-
ed from making any part of his neat revenue, which must consist
altogether in his profits. But though the circulating capital of every
individual makes a part of that of the society to whidi he belongs,
it is not upon that account totally excluded from making a part
likewise of their neat revenue. Though the whole goods in a mer-
chant’s shop must by no means be placed in his own stock reserved
for immediate consumption, they may in that of other people, who,
from a revenue derived from other funds, may regularly replace
their value to him, together with its profits, without occasioning
any diminution either of his capital or of theirs.^
Money, therefore, is the only part of the circulating capital of a
society, of which the maintenance can occasion any diminution in
their neat revenue.
The fixed capital, and that part of the circulating capital which
consists in money, so far as they affect the revenue of the society,
bear a very great resemblance to one another.
First, as those machines and instruments of trade, &c. require a
certain expence, first to erect them, and afterwards to support them,
both which expences, though they make a part of the gross, are de-
ductions from the neat revenue of the society; so the stock of
money which circulates in any country must require a certain ex-
pence, first to collect it, and afterwards to support it, both which
expences, though they make a part of the gross, are, in the same
manner, deductions from the neat revenue of the society. A certain
quantity of very valuable materials, gold and silver, and of very
curious labour, instead of augmenting the stock reserved for im-
mediate consumption, the subsistence, conveniencies, and amuse-
ments of individuals, is employed in supporting that great but ex-
pensive instrument of commerce, by means of which every indi-
vidual in the society has his subsistence, conveniencies, and amuse-
ments, regularly distributed to him in their proper proportion.
Secondly, as the machines and instruments of trade, &c. which
compose the fixed capital either of an mdividual or of a society,
make no part either of the gross or of the neat revenue of either; so
money, by means of which the whole revenue of the society is regu-
larly distributed among all its different members, makes itself no
part of that revenue. The great wheel of circulation is altogether
the circu-
lating
capital of
the so-
ciety be-
ing differ-
ent in this
respect
from that
of an in-
dividual.
The
mainten-
ance of
the money
alone
must be
deducted.
The
money re-
sembles
the fixed
capital,
since
(i) the
mainten-
ance of
the stock
of money
is part of
the gross
but not of
the net
revenue.
and (2)
the
money
itself
forms no
part of
the net
revenue.
® In this paragraph the capital or stock of goods is confused with the goods
themselves. The goods of which the stock consists may become revenue, but
the stock itself cannot. The maintenance of a stock, even of perishable and
consumable goods, does form a charge on the labour of the society
274
THE WEALTH OF NATIONS
It only
appears to
do so
from the
ambiguity
of lan-
guage,
sums of
money
being
often used
to indi-
cate the
goods
purchas-
able as
well as
the coins
them-
selves.
We must
not add
both to-
gether.
If a man
has a
guinea a
week he
enjoys a
guinea’s
worth of
subast-
different from the goods which are circulated by means of it. The
revenue of the society consists altogether in those goods, and not
in the wheel which circulates them. In computing either the gross or
the neat revenue of any society, we must always, from their whole
annual circulation of money and goods, deduct the whole value of
the money, of which not a single farthing can ever make any part
of either.^
It is the ambiguity of language only which can make this propo-
sition appear either doubtful or paradoxical. When properly ex-
plained and understood, it is almost self-evident.
When we talk of any particular sum of money, we sometimes
mean nothing but the metal pieces of which it is composed; and
sometimes we include in our meaning some obscure reference to the
goods which can be had in exchange for it, or to the power of pur-
chasing which the possession of it conveys. Thus when we say, that
the circulating money of England has been computed at eighteen
millions, we mean only to express the amount of the metal pieces,
which some writers have computed, or rather have supposed to cir-
culate in that country. But when we say that a man is worth fifty or
a hundred pounds a-year, we mean commonly to express not only
the amount of the metal pieces which are annually paid to him, but
the value of the goods which he can annually purchase or consume.
We mean commonly to ascertain what is or ought to be his way of
living, or the quantity and quality of the necessaries and conven-
iencies of life in which he can with propriety indulge himself.
When, by any particular sum of money, we mean not only to ex-
press the amount of the metal pieces of which it is composed, but
to include in its signification some obscure reference to the goods
which can be had in exchange for them, the wealth or revenue which
it in this case denotes, is equal only to one of the two values which
are thus intimated somewhat ambiguously by the same word, and
to the latter more properly than to the former, to the money’s
worth more properly than to the money.
Thus if a guinea be the weekly pension of a particular person, he
can in the course of the week purchase with it a certain quantity of
subsistence, conveniencies, and amusements. In proportion as this
quantity is great or small, so are his real riches, his real weekly
revenue. His weekly revenue is certainly not equal both to the
guinea, and to what can be purchased with it, but only to one or
*If it were not for the use of the old-fashioned term “circulation” instead
of the newer “produce,” the explanation which follows would be unnecessary.
No one could be suspected of a desire to add all the money to the annual
produce.
MONEY
275
Other of those two equal values; and to the latter more properly
than to the former, to the guinea’s worth rather than to the guinea.
If the pension of such a person was paid to him, not in gold, but
in a weekly bill for a guinea, his revenue surely would not so prop-
erly consist in the piece of paper, as in what he could get for it. A
guinea may be considered as a bill for a certain quantity of neces-
saries and conveniences upon all the tradesmen in the neighbour-
hood. The revenue of the person to whom it is paid, does not so
properly consist in the piece of gold, as in what he can get for it,
or in what he can exchange it for. If it could be exchanged for noth-
ing, it would, like a bill upon a bankrupt, be of no more value than
the most useless piece of paper.
Though the weekly or yearly revenue of all the different inhab-
itants of any country, in the same manner, may be, and in reality
frequently is paid to them in money, their real riches, however, the
real weekly or yearly revenue of all of them taken together, must
always be great or small in proportion to the quantity of consum-
able goods which they can all of them purchase with this money.
The whole revenue of all of them taken together is evidently not
equal to both the money and the consumable goods; but only to
one or other of those two values, and to the latter more properly
than to the former.
Though we frequently, therefore, express a person’s revenue by
the metal pieces which are annually paid to him, it is because the
amount of those pieces regulates the extent of his power of pur-
chasing, or the value of the goods which he can annually afford to
consume. We still consider his revenue as consisting in this power
of purchasing or consuming, and not in the pieces which convey it.
But if this is sufficiently evident even with regard to an indi-
vidual, it is still more so with regard to a society. The amount of
the metal pieces which are annually paid to an individual, is often
precisely equal to his revenue, and is upon that account the shortest
and best expression of its value. But the amount of the metal pieces
which circulate in a society, can never be equal to the revenue of
all its members. As the same guinea which pays the weekly pen-
sion of one man to-day, may pay that of another to-morrow, and
that of a third the day thereafter, the amount of the metal pieces
which annually circulate in any country, must always be of much
less value than the whole money pensions annually paid with them.
But the power of purchasing, or the goods which can successively
be bought with the whole of those money pensions as they are suc-
cessively paid, must always be precisely of the same value with
ence, &c.
and his
real reve-
nue is
that sub-
sistence,
&c.
The same
is true of
all the in-
habitants
of a coun-
try.
The coins
annually
paid to an
individual
often
equal his
revenue,
but the
stock of
coin in a
society is
never
equal to
its whole
revenue.
* Ed. I does not contain “or.’
Money is
therefore
no part of
the reve-
nue of the
society.
( 3 )
Every
saving in
the cost
of main-
taining
the stock
of money
is an im-
prove-
ment.
The sub-
stitution
of paper
for gold
money is
an im-
prove-
ment.
276 the wealth of nations
those pensions; as must likewise be the revenue of the different per-
sons to whom they are paid. That revenue, therefore, cannot con-
sist in those metal pieces, of which the amount is so much inferior
to its value, but in the power of purchasing, in the goods which can
successively be bought with them as they circulate from hand to
hand.
Money, therefore, the great wheel of circulation, the great in-
strument of commerce, like all other instruments of trade, though
it makes a part and a very valuable part of the capital, makes no
part of the revenue of the society to which it belongs; and though
the metal pieces of which it is composed, in the course of their an-
nual circulation, distribute to every man the revenue which proper-
ly belongs to him, they make themselves no part of that revenue.
Thirdly, and lastly, the machines and instruments of trade, &c.
which compose the fixed capital, bear this further resemblance to
that part of the circulating capital which consists in money; that
as every saving in the expence of erecting and supporting those
machines, which does not diminish the productive powers of labour,
is an improvement of the neat revenue of the society; so every sav-
ing in the expence of collecting and supporting that part of the cir-
culating capital which consists in money, is an improvement of
exactly the same kind.
It is sufficiently obvious, and it has partly too been explained
already, in what manner every saving in the expence of supporting
the fixed capital is an improvement of the neat revenue of the so-
ciety. The whole capital of the undertaker of every work is neces-
sarily divided between his fixed and his circulating capital. While
his whole capital remains the same, the smaller the one part, the
greater must necessarily be the other. It is the circulating capital
which furnishes the materials and wages of labour, and puts in-
dustry into motion. Every saving, therefore, in the expence of
maintaining the fixed capital, which does not diminish the pro-
ductive powers of labour, must increase the fund which puts indus-
try into motion, and consequently the annual produce of land and
labour, the real revenue of every society.
The substitution of paper in the room of gold and silver money,
replaces a very expensive instrument of commerce with one much
less costly, and sometimes equally convenient. Circulation comes to
be carried on by a new wheel, which it costs less both to erect and to
maintain than the old one. But in what manner this operation is
performed, and in what manner it tends to increase either the gross
or the neat revenue of the society, is not altogether so obvious, and
may therefore require some further explication.
MONEY 277
There are several different sorts of paper money; but the cir-
culating notes of banks and bankers are the species which is best
known, and which seems best adapted for this purpose.
When the people of any particular country have such confidence
in the fortune, probity, and prudence of a particular banker, as to
believe that he is always ready to pay upon demand such of his
promissory notes as are likely to be at any time presented to him;
those notes come to have the same currency as gold and silver
money, from the confidence that such money can at any time be had
for them.
A particular banker lends among his customers his own promis-
sory notes, to the extent, we shall suppose, of a hundred thousand
pounds. As those notes serve all the purposes of money, his debtors
pay him the same interesj: as if he had lent them so much money.
This interest is the source of his gain. Though some of those notes
are continually coming back upon him for payment, part of them
continue to circulate for months and years together. Though he has
generally in circulation, therefore, notes to the extent of a hundred
thousand pounds, twenty thousand pounds in gold and silver may,
frequently, be a sufficient provision for answering occasional de-
mands. By this operation, therefore, twenty thousand pounds in
gold and silver perform all the functions which a hundred thousand
could otherwise have performed. The same exchanges may be made,
the same quantity of consumable goods may be circulated and dis-
tributed to their proper consumers, by means of his promissory
notes, to the value of a hundred thousand pounds, as by an equal
value of gold and silver money. Eighty thousand pounds of gold
and silver, therefore, can, in this manner, be spared from the cir-
culation of the country; and if different operations of the same
kind should, at the same time, be carried on by many different
banks and bankers, the whole circulation may thus be conducted
with a fifth part only of the gold and silver which would otherwise
have been requisite.
Let us suppose, for example, that the whole circulating money
of some particular country amounted, at a particular time, to one
million sterling, that sum being then sufficient for circulating the
whole annual produce of their land and labour. Let us suppose too,
that some time thereafter, different banks and bankers issued prom-
issory notes, payable to the bearer, to the extent of one million, re-
serving in their different coffers two hundred thousand pounds for
answering occasional demands. There would remain, therefore, in
circulation, eight hundred thousand pounds in gold and silver, and
a million of bank notes, or eighteen hundred thousand pounds of
Bank
notes are
the best
sort of
paper
money.
When a
banker
lends out
£100,000
in notes
and keeps
in hand
only
£20,000
in gold
and silver.
£80,000
in gold
and silver
is spared
from the
circula-
tion:
and if
many
bankers
do the
same,
four-
fifths of
the gold
and silver
previous-
ly circu-
lating
maybe
sent
abroad,
and ex-
changed
for goods,
either to
supply the
consump-
tion of
another
country,
in which
case the
profit will
be an ad-
dition to
the net re-
venue of
the coun-
try,
or to sup-
27S the wealth of nations
paper and money together. But the annual produce of the land and
labour of the country had before required only one million to cir-
culate and distribute it to its proper consumers, and that annual
produce cannot be immediately augmented by those operations of
banking. One million, therefore, will be sufficient to circulate it after
them. The goods to be bought and sold being precisely the same as
before, the same quantity of money will be sufficient for buying and
selling them. The channel of circulation, if I may be allowed such
an expression, will remain precisely the same as before. One million
we have supposed sufficient to fill that channel. Whatever, there-
fore, is poured into it beyond this sum, cannot run in it, but must
overflow. One million eight hundred thousand pounds are poured
into it. Eight hundred thousand pounds, therefore, must overflow,
that sum being over and above what can be employed in the cir-
culation of the country. But though this sum cannot be employed at
home, it is too valuable to be allowed to lie idle. It will, therefore,
be sent abroad, in order to seek that profitable employment which
it cannot find at home. But the paper cannot go abroad; because at
a distance from the banks which issue it, and from the country in
which payment of it can be exacted by law, it will not be received
in common payments. Gold and silver, therefore, to the amount of
eight hundred thousand pounds will be sent abroad, and the chan-
nel of home circulation will remain filled with a million of paper,
instead of the million of those metals which filled it before.
But though so great a quantity of gold and silver is thus sent
abroad, we must not imagine that it is sent abroad for nothing, or
that its proprietors make a present of it to foreign nations. They
will exchange it for foreign goods of some kind or another, in order
to supply the consumption either of some other foreign country, or
of their own.
If they employ it in purchasing goods in one foreign country in
order to supply the consumption of another, or in what is called the
carrying trade, whatever profit they make will be an addition to the
neat revenue of their own country. It is like a new fund, created for
carrying on a new trade; domestic business being now transacted
by paper, and the gold and silver being converted into a fund for
this new trade.
If they employ it in purchasing foreign goods for home consump-
tion, they may either, first, purchase such goods as are likely to be
consumed by idle people who produce nothing, such as foreign
wines, foreign silks, &c.; or, secondly, they may purchase an addi-
tional stock of materials, tools, and provisions, in order to main-
tain and employ an additional number of industrious people, who
HONEY 279
re-produce, with a profit, the value of their annual consumption.
So far as it is employed in the first way, it promotes prodigality,
increases expence and consumption without increasing production,
or establishing any permanent fund for supporting that expence,
and is in every respect hurtful to the society.
So far as it is employed in the second way, it promotes indus-
try; and though it increases the consumption of the society, it pro-
vides a permanent fund for supporting that consumption, the peo-
ple who consume re-producing, with a profit, the whole value of
their annual consumption. The gross revenue of the society, the
annual produce of their land and labour, is increased by the whole
value which the labour of those workmen adds to the materials
upon which they are employed; and their neat revenue by what
remains of this value, after deducting what is necessary for sup-
porting the tools and instruments of their trade.
That the greater part of the gold and silver which, being forced
abroad by those operations of banking, is employed in purchasing
foreign goods for home consumption, is and must be employed in
purchasing those of this second kind, seems not only probable but
almost unavoidable. Though some particular men may sometimes
increase their expence very considerably though their revenue does
not increase at all, we may be assured that no class or order of men
ever does so; because, though the principles of common prudence
do not always govern the conduct of every individual, they always
influence that of the majority of every class or order. But the rev-
enue of idle people, considered as a class or order, cannot, in the
smallest degree, be increased by those operations of banking. Their
expence in general, therefore, cannot be much increased by them,
though that of a few individuals among them may, and in reality
sometimes is. The demand of idle people, therefore, for foreign
goods, being the same, or very nearly the same, as before, a very
small part of the money, which being forced abroad by those opera-
tions of banking, is employed in purchasing foreign goods for home
consumption, is likely to be employed in purchasing those for their
use. The greater part of it will naturally be destined for the employ-
ment of industry, and not for the maintenance of idleness.
When we compute the quantity of industry which the circulating
capital of any society can employ, we must always have regard to
those parts of it only, which consist in provisions, materials, and
finished work: the other, which consists in money, and which serves
only to circulate those three, must always be deducted. In order to
put industry into motion, three things are requisite; materials to
work upon, tools to work with, and the wages or recompence for the
ply home
consump-
tion (i)
of lux-
uries, (2)
of materi-
als, tools
and pro-
visions
where-
with in-
dustrious
people are
main-
tained
and em-
ployed
If to sup-
ply lux-
uries, pro-
digality
and con-
sumption
are in-
creased;
if to sup-
ply mate-
rials, &c.,
a per-
manent
fund for
support-
ing con-
sumption
is pro-
vided
The great-
er part of
the gold
and silver
sent
abroad
purchases
materials,
&c.
The quan-
tity of in-
dustry
which the
circulat-
ing capital
can em-
ploy is
deter-
mined by
the provi-
sions, ma-
terials,
and fin-
ished
work, and
not at all
by the
quantity
of money.
The sub-
stitution
of paper
for gold
and silver
increases
the mate-
rials,
tools, and
mainte-
nance at
the ex-
pence of
the gold
and silver
money.
The
quantity
of money
bears a
small pro-
portion to
the whole
produce,
but a
large one
to that
part des-
tined to
maintain
industry.
280 XHE WEALTH OF NATIONS
sake of which the work is done. Money is neither a material to work
upon^ nor a tool to work with; and though the wages of the work-
man are commonly paid to him in money, his real revenue, like that
of all other men, consists, not in the money, but in the money’s
worth; not in the metal pieces, but in what can be got for them.
The quantity of industry which any capital can employ, must,
evidently, be equal to the number of workmen whom it can supply
with materials, tools, and a maintenance suitable to the nature of
the work. Money may be requisite for purchasing the materials and
tools of the work, as well as the maintenance of the workmen. But
the quantity of industry which the whole capital can employ, is
certainly not equal both to the money which purchases, and to the
materials, tools, and maintenance, which are purchased with it; but
only to one or other of those two values, and to the latter more
properly than to the former.
^en paper is substituted in the room of gold and silver money,
the quantity of the materials, tools, and maintenance, which the
whole circulating capital can supply, may be increased by the whole
value of gold and silver which used to be employed in purchasing
them. The whole value of the great wheel of circulation and dis-
tribution, is added to the goods which are circulated and distrib-
uted by means of it. The operation, in some measure, resembles that
of the undertaker of some great work, who, in consequence of some
improvement in mechanics, takes down his old machinery, and adds
the difference between its price and that of the new to his circulat-
ing capital, to the fund from which he furnishes materials and
wages to his workmen.®
What is the proportion which the circulating money of any coun-
try bears to the whole value of the annual produce circulated by
means of it, it is, perhaps, impossible to determine. It has been
computed by different authors at a fifth, at a tenth, at a twentieth,
and at a thirtieth part of that value.® But how small soever the pro-
portion which the circulating money may bear to the whole value of
the annual produce, as but a part, and frequently but a small part,
of that produce, is ever destined for the maintenance of industry, it
must always bear a very considerable proportion to that part. When,
therefore, by the substitution of paper, the gold and silver neces-
sary for circulation is reduced to, perhaps, a fifth part of the for-
mer quantity, if the value of only the greater part of the other four-
® Above, pp. 271, 272.
® Petty’s estimate in Verbum Sapienti is £40,000,000 for the income and £6,-
000,000 for the coin. Gregory King’s estimate is £43,500,000 for the income
and no less than £11,500,000 for the coin, in Geo. Chalmers, Estimate, 1802,
pp. 423, 427.
MONEY 281
fifths be added to the funds which are destined for the maintenance
of industry, it must make a very considerable addition to the quan-
tity of that industry, and, consequently, to the value of the annual
produce of land and labour.
An operation of this kind has, within these five-and-twenty or
thirty years, been performed in Scotland, by the erection of new
banking companies in almost every considerable town, and even
in some country villages.'^ The effects of it have been precisely those
above described. The business of the country is almost entirely car-
ried on by means of the paper of those different banking companies,
with which purchases and payments of all kinds are commonly
made. Silver very seldom appears except in the change of a twenty
shillings bank note, and gold still seldomer. But though the cdnduct
of all those different companies has not been unexceptionable, and
has accordingly required an act of parliament to regulate it; the
country,^ notwithstanding, has evidently derived great benefit from
their trade. I have heard it asserted, that the trade of the city of
Glasgow, doubled in about fifteen years after the first erection of
the banks there; and that the trade of Scotland has more than
quadrupled since the first erection of the two public banks at Edin-
burgh, of which the one, called The Bank of Scotland, was estab-
lished by act of parliament in 1695; the other, called The Royal
Bank, by royal charter in 1727.® Whether the trade, either of Scot-
land in general, or of the city of Glasgow in particular, has really
increased in so great a proportion, during so short a period, I do not
pretend to know. If either of them has increased in this proportion,
it seems to be an effect too great to be accounted for by the sole
operation of this cause. That the trade and industry of Scotland,
however, have increased very considerably during this period, and
that the banks have contributed a good deal to this increase, can-
not be doubted.
The value of the silver money which circulated in Scotland be-
fore the union, in 1707, and which, immediately after it, was
brought into the bank of Scotland in order to be re-coined, amount-
ed to 411,117/. los. gd. sterling. No account has been got of the
gold coin; but it appears from the ancient accounts of the mint of
Scotland, that the value of the gold annually coined somewhat ex-
ceeded that of the silver There were a good many people too upon
this occasion, who, from a diffidence of repayment, did not bring
’'Below, p. 292. ® Misprinted “contrary” in ed. 5.
"^Adam Anderson, Commerce^ a.d. 1695.
See Ruddiman’s Preface to Anderson’s Diplomata, &c. Scotiae. Pp. 84, 85
See above, p. 213, note.
An opera-
tion of
this kind
has been
carried
out in
Scotland
with ex-
cellent
effects.
There was
at the
Union at
least a
million
sterling of
gold and
silver
money,
and now
there is
not half a
million.
Notes are
ordinarily
issued by
discount-
ing bills,
but the
Scotch
banks in-
vented the
system of
cadi ac-
counts,
282 the wealth of nations
their silver into the bank of Scotland: and there was, besides, some
English coin, which was not called in.^^ The whole value of the gold
and silver, therefore, which circulated in Scotland before the union,
cannot be estimated at less than a million sterling. It seems to have
constituted almost the whole circulation of that country; for though
the circulation of the bank of Scotland, which had then no rival, was
considerable, it seems to have made but a very small part of the
whole. In the present times the whole circulation of Scotland can-
not be estimated at less than two millions, of which that part which
consists in gold and silver, most probably, does not amount to half
a million. But though the circulating gold and silver of Scotland
have suffered so great a diminution during this period, its real rich-
es and prosperity do not appear to have suffered any. Its agricul-
ture, manufactures, and trade, on the contrary, the annual produce
of its land and labour, have evidently been augmented.
It is chiefly by discounting bills of exchange, that is, by ad-
vancing money upon them before they are due, that the greater part
of banks and bankers issue their promissory notes. They deduct
always, upon whatever sum they advance, the legal interest till the
bill shall become due. The payment of the bill, when it becomes
due, replaces to the bank the value of what had been advanced, to-
gether with a clear profit of the interest. The banker who advances
to the merchant whose bill he discounts, not gold and silver, but his
own promissory notes, has the advantage of being able to discount
to a greater amount by the whole value of his promissory notes,
which he finds by experience, are commonly in circulation. He is
thereby enabled to make his clear gain of interest on so much a
larger sum.
The commerce of Scotland, which at present is not very great,
was still more inconsiderable when the two first banking companies
were established; and those companies would have had but little
trade, had they confined their business to the discounting of bills of
exchange. They invented, therefore, another method of issuing their
promissory notes; by granting, what they called, cash accounts,
that is by giving credit to the extent of a certain sum (two or three
thousand pounds, for example), to any individual who could pro-
cure two persons of undoubted credit and good landed estate to
become surety for him, that whatever money should be advanced
to him, within the sum for which the credit had been given, should
“The folly of a few misers or the fear that people might have of losing
their money, or various other dangers and accidents, prevented very many of
the old Scots coins from being brought in,” op. cit., p. 175. Ruddiman in a
note, op. cit., p. 231, says: “The English coin was also ordained to be called
in,” but does not include it in his estimate of not less than £900,000, p. 176.
MONEY 283
be repaid upon demand, together with the legal interest. Credits of
this kind are, I believe, commonly granted by banks and bankers
in all different parts of the world. But the easy terms upon which
the Scotch banking companies accept of re-pa5mient are, so far as I
know, peculiar to them, and have, perhaps, been the principal
cause, both of the great trade of those companies, and of the bene-
fit which the country has received from it.
Whoever has a credit of this kind with one of those companies,
and borrows a thousand pounds upon it, for example, may repay
this sum piece-meal, by twenty and thirty pounds at a time, the
company discounting a proportionable part of the interest of the
great sum from the day on which each of those small sums is paid
in, till the whole be in this manner repaid. All merchants, therefore,
and almost all men of business, find it convenient to keep such
cash accounts with them, and are thereby interested to promote the
trade of those companies, by readily receiving their notes in all
payments, and by encouraging all those with whom they have any
influence to do the same. The banks, when their customers apply
to them for money, generally advance it to them in their own
promissory notes. These the merchants pay away to the manufac-
turers for goods, the manufacturers to the farmers for materials and
provisions, the farmers to their landlords for rent, the landlords
repay them to the merchants for the conveniencies and luxuries
with which they supply them, and the merchants again return them
to the banks in order to balance their cash accounts, or to replace
what they may have borrowed of them; and thus almost the whole
money business of the country is transacted by means of them.
Hence the great trade of those companies.
By means of those cash accounts every merchant can, without
imprudence, carry on a greater trade than he otherwise could do.
If there are two merchants, one in London, and the other in Edin-
burgh, who employ equal stocks in the same branch of trade, the
Edinburgh merchant can, without imprudence, carry on a greater
trade, and give employment to a greater number of people than the
London merchant. The London merchant must always keep by him
a considerable sum of money, either in his own coffers, or in those
of his banker, who gives him no interest for it, in order to answer
the demands continually coming upon him for payment of the goods
which he purchases upon credit. Let the ordinary amount of this
sum be supposed five hundred pounds. The value of the goods in
his warehouse must always be less by five hundred pounds than it
would have been, had he not been obliged to keep such a sum unem-
ployed. Let us suppose that he generally disposes of his whole stock
which en-
able them
to issue
notes
readily,
and make
it posable
for every
merchant
to carry
on a
greater
trade than
he other-
wise
could.
The
Scotch
banks
can of
course
discount
bills when
required.
The whole
of the
paper
money
can never
exceed
the gold
and silver
which
would
have been
required
in its ab-
sence.
284 the wealth of nations
upon hand, or of goods to the value of his whole stock upon hand,
once in the year. By being obliged to keep so great a sum unem-
ployed, he must sell in a year five hundred pounds worth less goods
than he might otherwise have done. His annual profits must be less
by all that he could have made by the sale of five hundred pounds
worth more goods; and the number of people employed in prepar-
ing his goods for the market, must be less by all those that five
hundred pounds more stock could have employed. The merchant in
Edinburgh, on the other hand, keeps no money unemployed for
answering such occasional demands. When they actually come upon
him, h^ satisfies them from his cash account with the bank, and
gradually replaces the sum borrowed with the money or paper
which comes in from the occasional sales of his goods. With the
same stock, therefore, he can, without imprudence, have at all times
in his warehouse a larger quantity of goods than the London mer-
chant; and can thereby both make a greater profit himself, and
give constant employment to a greater number of Industrious peo-
ple who prepare those goods for the market. Hence the great benefit
which the country has derived from this trade.
The facility of discounting bills of exchange, it may be thought
indeed, gives the English merchants a conveniency equivalent to
the cash accounts of the Scotch merchants. But die Scotch mer-
chants, it must be remembered, can discount their bills of exchange
as easily as the English merchants; and have, besides, the addi-
tional conveniency of their cash accounts.
The whole paper money of every kind which can easily circulate
in any country never can exceed the value of the gold and silver, of
which it supplies the place, or which (the commerce being sup-
posed the same) would circulate there, if there was no paper money.
If twenty shilling notes, for example, are the lowest paper money
current in Scotland, the whole of that currency which can easily
circulate there cannot exceed the sum of gold and silver which
would be necessary for transacting the annual exchanges of twenty
shillings value and upwards usually transacted within that coun-
try. Should the circulating paper at any time exceed that sum, as
the excess could neither be sent abroad nor be employed in the cir-
culation of the country, it must immediately return upon the banks
to be exchanged for gold and silver. Many people would immediate-
ly perceive that they had more of this paper than was necessary
for transacting their business at home, and as they could not send it
abroad, they would immediately demand payment of it from the
banks. When this superfluous paper was converted into gold and
silver, they could easily find a use for it by sending it abroad; but
MONEY 285
they could find none while it remained in the shape of paper. There
would immediately, therefore, be a run upon the banks to the
whole extent of this superfluous paper, and, if they shewed any
difficulty or backwardness in payment, to a much greater extent;
the alarm, which this would occasion, necessarily increasing the run.
Over and above the expences which are common to every branch
of trade ; such as the expence of house-rent, the wages of servants,
clerks, accountants, &c.; the expences peculiar to a bank consist
chiefly in two articles: First, in the expence of keeping at all times
in its coffers, for answering the occasional demands of the holders
of its notes, a large sum of money, of which it loses the interest:
And, secondly, in the expence of replenishing those coffers as fast
as they are emptied by answering such occasional demands.
A banking company, which issues more paper than can be em-
ployed in the circulation of the country, and of which the excess is
continually returning upon them for payment, ought to increase
the quantity of gold and silver, which they keep at all times in
their coffers, not only in proportion to this excessive increase of
their circulation, but in a much greater proportion; their notes re-
turning upon them much faster than in proportion to the excess of
their quantity. Such a company, therefore, ought to increase the
first article of their expence, not only in proportion to this forced
increase of their business, but in a much greater proportion.
The coffers of such a company too, though they ought to be
filled much fuller, yet must empty themselves much faster than if
their business was confined within more reasonable bounds, and
must require, not only a more violent, but a more constant and un-
interrupted exertion of expence in order to replenish them. The coin
too, which is thus continually drawn in such large quantities from
their coffers, cannot be employed in the circulation of the country.
It comes in place of a paper which is over and above what can be
employed in that circulation, and is therefore over and above what
can be employed in it too. But as that coin will not be allowed to
lie idle, it must, in one shape or another, be sent abroad, in order to
find that profitable employment which it cannot find at home; and
this continual exportation of gold and silver, by enhancing the dif-
ficulty, must necessarily enhance still further the expence of the
bank, in finding new gold and silver in order to replenish those
coffers, which empty themselves so very rapidly. Such a company,
therefore, must, in proportion to this forced increase of their busi-
ness, increase the second article of their expence still more than the
first.
Let us suppose that all the paper of a particular bank, which the
The pecu-
liar ex-
penses of
a bank are
(i) the
keeping
and (2)
the re-
plenishing
of a stock
of money
with
which to
repay
notes.
A bank
which
issues too
much pa-
per will
much in-
crease
both the
first
and the
second ex-
pense,
as may be
shown by
an ex-
ample.
Banks
have
sometimes
not un-
derstood
this,
eg., the
Bank of
England,
and the
Scotch
banks.
286 XHE WEALTH OF NATIONS
circulation of the country can easily absorb and employ, amounts
exactly to forty thousand pounds; and that for answering occa-
sional demands, this bank is obliged to keep at all times in its cof-
fers ten thousand pounds in gold and silver. Should this bank at-
tempt to circulate forty-four thousand pounds, the four thousand
pounds which are over and above what the circulation can easily
absorb and employ, will return upon it almost as fast as they are
issued. For answering occasional demands, therefore, this bank
ought to keep at all times in its coffers, not ten thousand pounds
only, but fourteen thousand pounds. It will thus gain nothing by the
interest of the four thousand pounds excessive circulation; and it
will lose the whole expence of continually collecting four thousand
pounds in gold and silver, which will be continually going out of its
coffers as fast as they are brought into them.
Had every particular banking company always understood and
attended to its own particular interest, the circulation never could
have been overstocked with paper money. But every particular
banking company has not always understood or attended to its own
particular interest, and the circulation has frequently been over-
stocked with paper money.
By issuing too great a quantity of paper, of which the excess was
continually returning, in order to be exchanged for gold and silver,
the bank of England was for many years together obliged to coin
gold to the extent of between eight hundred thousand pounds and a
million a year; or at an average, about eight hundred and fifty
thousand pounds.^^ For this great coinage the bank (in conse-
quence of the worn and degraded state into which the gold coin had
fallen a few years ago) was frequently obliged to purchase gold bul-
lion at the high price of four pounds an ounce, which it soon after
issued in coin at 3/. i^s. io| d. an ounce, losing in this manner be-
tween two and a half and three per cent, upon the coinage of so very
large a sum. Though the bank therefore paid no seignorage, though
the government was properly at the expence of the coinage, this
liberality of government did not prevent altogether the expence of
the bank.
The Scotch banks, in consequence of an excess of the same kind,
were all obliged to employ constantly agents at London to collect
money for them, at an expence which was seldom below one and a
^From 1766 to 1772 inclusive the coinage averaged about £810,000 per an-
num. The amount for “ten years together” is stated below, pp 516, 521,
to have been upwards of £800,000 a year, though the average for the ten
years 1763-1772 was only £760,000. But the inclusion of the large coinage of
i 773 > ^^22, £1,317,645, would raise these averages considerably. See the figures
at the end of each year in Macpherson, Anmls of Commerce.
MONEY 287
half or two per cent. This money was sent down by the waggon, and
insured by the carriers at an additional expence of three quarters
per cent, or fifteen shillings on the hundred pounds. Those agents
were not always able to replenish the coffers of their employers so
fast as they were emptied. In this case the resource of the banks
was, to draw upon their correspondents in London bills of exchange
to the extent of the sum which they wanted. When those corres-
pondents afterwards drew upon them for the payment of this sum,
together with the interest and a commission, some of those banks,
from the distress into which their excessive circulation had thrown
them, had sometimes no other means of satisfying this draught but
by drawing a second set of bills either upon the same, or upon some
other correspondents in London; and the same sum, or rather bills
for the same sum, would in this manner make sometimes more than
two or three journies: the debtor bank, paying always the interest
and commission upon the whole accumulated sum. Even those
Scotch banks which never distinguished themselves by their ex-
treme imprudence, were sometimes obliged to employ this ruinous
resource.
The gold coin which was paid out either by the bank of England,
or by the Scotch banks, in exchange for that part of their paper
which was over and above what could be employed in the circula-
tion of the country, being likewise over and above what could be
employed in that circulation, was sometimes sent abroad in the
shape of coin, sometimes melted down and sent abroad in the shape
of bullion, and sometimes melted down and sold to the bank of
England at the high price of four pounds an ounce. It was the new-
est, the heaviest, and the best pieces only which were carefully
picked out of the whole coin, and either sent abroad or melted
down. At home, and while they remained in the shape of coin,
those heavy pieces were of no more value than the light: But they
were of more value abroad, or when melted down into bullion, at
home. The bank of England, notwithstanding their great annual
coinage, found to their astonishment, that there was every year the
same scarcity of coin as there had been the year before; and that
notwithstanding the great quantity of good and new coin which was
every year issued from the bank, the state of the coin, instead of
growing better and better, became every year worse and worse.
Every year they found themselves under the necessity of coining
nearly the same quantity of gold as they had coined the year be-
fore, and from the continual rise in the price of gold bullion, in con-
sequence of the continual wearing and clipping of the coin, the ex-
“ Misprinted “remain” in ed. 5.
The exces-
sive circu-
lation was
caused by
overtrad-
ing.
A bank
ought not
to ad-
vance
more than
the
amount
which
merchants
would
otherwise
have to
keep by
them in
cash.
This limit
is ob-
served
when only
real bills
of ex-
change
are dis-
counted.
Cash ac-
counts
should be
288 the wealth oe nations
pence of this great annual coinage became every year greater and
greater. The bank of England, it is to be observed, by supplying its
own coffers with coin, is indirectly obliged to supply the whole king-
dom, into which coin is continually flowing from those coffers in a
great variety of ways. Whatever coin therefore was wanted to sup-
port this excessive circulation both of Scotch and English papei
money, whatever vacuities this excessive circulation occasioned in
the necessary coin of the kingdom, the bank o£ England was
obliged to supply them. The Scotch banks, no doubt, paid all of
them very dearly for their own imprudence and inattention. But the
bank of England paid very dearly, not only for its own imprud-
ence, but for the much greater imprudence of almost all the Scotch
banks.
The over-trading of some bold projectors in both parts of the
united kingdom, was the original cause of this excessive circulation
of paper money.
What a bank can with propriety advance to a merchant or un-
dertaker of any kind, is not either the whole capital with which he
trades, or even any considerable part of that capital; but that part
of it only, which he would otherwise be obliged to keep by him un-
employed, and in ready money for answering occasional demands.
If the paper money which the bank advances never exceeds this
value, it can never exceed the value of the gold and silver, which
would necessarily circulate in the country if there was no paper
money; it can never exceed the quantity which the circulation of
the country can easily absorb and employ.
When a bank discounts to a merchant a real bill of exchange
drawn by a real creditor upon a real debtor, and which, as soon as it
becomes due, is really paid by that debtor; it only advances to him
a part of the value which he would otherwise be obliged to keep by
him unemployed and in ready money for answering occasional de-
mands. The payment of the bill, when it becomes due, replaces to
the bank the value of what it had advanced, together with the in-
terest. The coffers of the bank, so far as its dealings are confined to
such customers, resemble a water pond, from which, though a
stream is continually running out, yet another is continually run-
ning in, fully equal to that which runs out; so that, without any
further care or attention, the pond keeps always equally, or very
near equally full. Little or no expence can ever be necessary for re-
plenishing the coffers of such a bank.
A merchant, without over-trading, may frequently have occa-
sion for a sum of ready money, even when he has no bills to dis-
count. When a bank, besides discounting his bills, advances him
MONEY
2S9
likewise upon such occasions, such sums upon his cash account, and carefully
accepts of a piece meal repa)mient as the money comes in from the
occasional sale of his goods, upon the easy terms of the banking the same
companies of Scotland; it dispenses him entirely from the necessity ®^^d,
of keeping any part of his stock by him unemployed and in ready
money for answering occasional demands. When such demands
actually come upon him, he can answer them sufficiently from his
cash account. The bank, however, in dealing with such customers,
ought to observe with great attention, whether in the course of
some short period (of four, five, six, or eight months, for example)
the sum of the repayments which it commonly receives from them,
is, or is not, fully equal to that of the advances which it commonly
makes to them. If, within the course of such short periods, the sum
of the repayments from certain customers is, upon most occasions,
fully equal to that of the advances, it may safely continue to deal
with such customers. Though the stream which is in this case con-
tinually running out from its coffers may be very large, that which
is continually running into them must be at least equally large; so
that without any further care or attention those coffers are likely to
be always equally or very near equally full; and scarce ever to re-
quire any extraordinary expence to replenish them. If, on the con-
trary, the sum of the repayments from certain other customers falls
commonly very much short of the advances which it makes to them,
it cannot with any safety continue to deal with such customers, at
least if they continue to deal with it in this manner. The stream
which is in this case continually running out from its coffers is
necessarily much larger than that which is continually running in;
so that, unless they are replenished by some great and continual
effort of expence, those coffers must soon be exhausted altogether.
The banking companies of Scotland, accordingly, were for a long as they
time very careful to require frequent and regular repayments from
all their customers, and did not care to deal with any person, what- time by
ever might be his fortune or credit, who did not make, what they
called, frequent and regular operations with them. By this atten- Xch re-
tion, besides saving almost entirely the extraordinary expence of re- quired
plenishing their coffers, they gained two other very considerable
advantages. lar opera-
First, by this attention they were enabled to make some toler- tions,
able judgment concerning the thriving or declining circumstances
of their debtors, without being obliged to look out for any other
evidence besides what their own books afforded them; men being able to
for the most part either regular or irregular in their repa^ents, judge of
according as their circumstances are either thriving or declining. A ^ ®
turn-
stances of
their
debtors,
and (2)
were se-
cured
against
issuing
too much
paper.
290 THE WEALTH OE NATIONS
private man who lends out his money to perhaps half a dozen or a
dozen of debtors, may, either by himself or his agents, observe and
enquire both constantly and carefully into the conduct and situa-
tion of each of them. But a banking company, which lends money
to perhaps five hundred different people, and of which the atten-
tion is continually occupied by objects of a very different kind, can
have no regular information concerning the conduct and circum-
stances of the greater part of its debtors beyond what its own books
afford it.^^ In requiring frequent and regular repayments from all
their customers, the banking companies of Scotland had probably
this advantage in view.
Secondly, by this attention they secured themselves from the
possibility of issuing more paper money than what the circulation
of the country could easily absorb and employ. When they ob-
served, that within moderate periods of time the repayments of a
particular customer were upon most occasions fully equal to the
advances which they had made to him, they might be assured that
the paper money which they had advanced to him, had not at any
time exceeded the quantity of gold and silver which he would other-
wise have been obliged to keep by him for answering occasional de-
mands; and that, consequently, the paper money, which they hacP
circulated by his means, had not at any time exceeded the quantity'
of gold and silver which would have circulated in the country, had
there been no paper money. The frequency, regularity and amounts
of his repayments would sufficiently demonstrate that the amount
of their advances had at no time exceeded that part of his capital
which he would otherwise have been obliged to keep by him unem-
ployed and in ready money for answering occasional demands; that
is, for the purpose of keeping the rest of his capital in constant em-
ployment. It is this part of his capital only which, within moderate
periods of time, is continually returning to every dealer in the shape
of money, whether paper or coin, and continually going from him
in the same shape. If the advances of the bank had commonly ex-
ceeded this part of his capital, the ordinary amount of his repay-
ments could not, within moderate periods of time, have equalled the
ordinary amount of its advances. The stream which, by means of
his dealings, was continually running into the coffers of the bank,
could not have been equal to the stream which, by means of the
same dealings, was continually running out. The advances of the
bank paper, by exceeding the quantity of gold and silver which, had
^^But as Playfair (ed. of Wealth of Nations, vol. i., p. 472) points out, the
more customers a bank has the more it is likely to know the transactions of
each of them
MONEY 291
there been no such advances, he would have been obliged to keep
by him for answering occasional demands, might soon come to ex-
ceed the whole quantity of gold and silver which (the commerce
being supposed the same) would have circulated in the country had
there been no paper money; and consequently to exceed the quan-
tity which the circulation of the country could easily absorb and
employ; and the excess of this paper money would immediately
have returned upon the bank in order to be exchanged for gold and
silver. This second advantage, though equally red, was not per-
haps so well understood by all the different banking companies of
Scotland as the first.
When, partly by the conveniency of discounting bills, and partly
by that of cash accounts, the creditable traders of any country can
be dispensed from the necessity of keeping any part of their stock
by them unemployed and in ready money for answering occasional
demands, they can reasonably expect no farther assistance from
banks and bankers, who, when they have gone thus far, cannot,
consistently with their own interest and safety, go farther. A bank
cannot, consistently with its own interest, advance to a trader the
whole or even the greater part of the circulating capital with which
he trades; because, though that capital is continudly returning to
him in the shape of money, and going from him in the same shape,
yet the whole of the returns is too distant from the whole of the out-
goings, and the sum of his repa3mients could not equal the sum of
its advances within such moderate periods of time as suit the con-
veniency of a bank. Still less could a bank afford to advance him
any considerable part of his fixed capital; of the capital which the
undertaker of an iron forge, for example, employs in erecting his
forge and smelting-house, his work-houses and warehouses, the
dwelling-houses of his workmen, &c.; of the capital which the un-
dertaker of a mine employs in sinking his shafts, in erecting en-
gines for drawing out the water, in making roads and waggon-ways,
&c.; of the capital which the person who undertakes to improve
land employs in clearing, draining, enclosing, manuring and plough-
ing waste and uncultivated fields, in building farm-houses, with all
their necessary appendages of stables, granaries, &c. The returns of
the fixed capital are in almost all cases much slower than those of
the circulating capital; and such expences, even when laid out with
the greatest prudence and judgment, very seldom return to the un-
dertaker till after a period of many years, a period by far too dis-
tant to suit the conveniency of a bank. Traders and other under-
takers may, no doubt, with great propriety, carry on a very consid-
erable part of their projects with borrowed money. In justice to
Bankers’
loans
ought to
be only
for mode-
rate peri-
ods of
time.
More
than
twenty-
five years
ago the
proper
amount of
paper
money
had been
reached
in Scot-
land,
but the
traders
were not
content,
292 THE WEALTH OF NATIONS
their creditors, however, their own capital ought, in this case, to be
sufficient to ensure, if I may say so, the capital of those creditors;
or to render it extremely improbable that those creditors should in-
cur any loss, even though the success of the project should fall very
much short of the expectation of the projectors. Even with this pre-
caution too, the money which is borrowed, and which it is meant
should not be repaid till after a period of several years, ought not
to be borrowed of a bank, but ought to be borrowed upon bond or
mortgage, of such private people as propose to live upon the inter-
est of their money, without taking the trouble themselves to em-
ploy the capital; and who are upon that account willing to lend that
capital to such people of good credit as are likely to keep it for sev-
eral years. A bank, indeed, which lends its money without the ex-
pence of stampt paper, or of attornies fees for drawing bonds and
mortgages, and which accepts of repayment upon the easy terms of
the banking companies of Scotland; would, no doubt, be a very
convenient creditor to such traders and undertakers. But such trad-
ers and undertakers would, surely, be most inconvenient debtors to
such a bank.
It is now more than five-and-twenty years since the paper money
issued by the different banking companies of Scotland was fully
equal, or rather was somewhat more than fully equal, to what the
circulation of the country could easily absorb and employ.^® Those
companies, therefore, had so long ago given all the assistance to the
traders and other undertakers of Scotland which it is possible for
banks and bankers, consistently with their own interest, to give.
They had even done somewhat more. They had over-traded a little,
and had brought upon themselves that loss, or at least that diminu-
tion of profit, which in this particular business never fails to attend
the smallest degree of over-trading. Those traders and other under-
takers, having got so much assistance from banks and bankers,
wished to get still more. The banks, they seem to have thought,
could extend their credits to whatever sum might be wanted, with-
out incurring any other expence besides that of a few reams of
paper. They complained of the contracted views and dastardly
spirit of the directors of those banks, which did not, they said, ex
tend their credits in proportion to the extension of the trade of the
country; meaning, no doubt, by the extension of that trade the ex-
tension of their own projects beyond what they could carry on,
either with their own capital, or with what they had credit to bor-
row of private people m the usual way of bond or mortgage. The
banks, they seem to have thought, were in honour bound to supply
“Above, p. 281.
MONEY 293
the deficiency, and to provide them with all the capital which they
wanted to trade with. The banks, however, were of a different opin-
ion, and upon their refusing to extend their credits, some of those
traders had recourse to an expedient which, for a time, served their
purpose, though at a much greater expence, yet as effectually as the
utmost extension of bank credits could have done. This expedient
was no other than the well-known shift of drawing and re-drawing ;
the shift to which unfortunate traders have sometimes recourse
when they are upon the brink of bankruptcy. The practice of rais-
ing money in this manner had been long known in England, and
during the course of the late war, when the high profits of trade
afforded a great temptation to over-trading, is said to have been
carried on to a very great extent. From England it was brought into
Scotland, where, in proportion to the very limited commerce, and
to the very moderate capital of the country, it was soon carried on
to a much greater extent than it ever had been in England.
The practice of drawing and re-drawing is so well known to all
men of business, that it may perhaps be thought unnecessary to
give any account of it. But as this book may come into the hands of
many people who are not men of business, and as the effects of this
practice upon the banking trade are not perhaps generally under-
stood even by men of business themselves, I shall endeavour to ex-
plain it as distinctly as I can.
The customs of merchants, which were established when the bar-
barous laws of Europe did not enforce the performance of their con-
tracts, and which during the course of the two last centuries have
been adopted into the laws of all European nations, have given such
extraordinary privileges to bills of exchange, that money is more
readily advanced upon them, than upon any other species of obli-
gation; especially when they are made payable within so short a
period as two or three months after their date. If, when the bill be-
comes due, the acceptor does not pay it as soon as it is presented, he
becomes from that moment a bankrupt. The bill is protested, and
returns upon the drawer, who, if he does not immediately pay it,
becomes likewise a bankrupt. If, before it came to the person who
presents it to the acceptor for payment, it had passed through the
hands of several other persons, who had successively advanced to
one another the contents of it either in money or goods, and who to
express that each of them had in his turn received those contents,
had all of them in their order endorsed, that is, written their names
upon the back of the bill; each endorser becomes in his turn liable
to the owner of the bill for those contents, and, if he fails to pay, he
becomes too from that moment a bankrupt. Though the drawer,
and some
of them
resorted
to draw-
ing and
redraw-
ing,
which
shall be
explained
Bills of
exchange
have ex-
traordi-
nary legal
privileges.
So two
persons,
one in
London
and one
in Edin-
burgh,
would
draw bills
on each
other.
Much
money
was
raised in
this ex-
pensive
way.
294 THE WEALTH OF NATIONS
acceptor, and endorsers of the bill should, all of them, be persons of
doubtful credit; yet still the shortness of the date gives some secur-
ity to the owner of the bill Though all of them may be very likely
to become bankrupts; it is a chance if they all become so in so short
a time. The house is cra2y, says a weary traveller to himself, and
will not stand very long; but it is a chance if it falls to-night, and I
will venture, therefore, to sleep in it to-night.
The trader A in Edinburgh, we shall suppose, draws a bill upon
B in London, payable two months after date. In reality B in Lon-
don owes nothing to A in Edinburgh; but he agrees to accept of
A’s bill, upon condition that before the term of payment he shall
redraw upon A in Edinburgh for the same sum, together with the
interest and a commission, another bill payable likewise two months
after date. B accordingly, before the expiration of the first two
months, re-draws this bill upon A in Edinburgh; who again, before
the expiration of the second two months, draws a second bill upon
B in London, payable likewise two months after date; and before
the expiration of the third two months, B in London re-draws upon
A in Edinburgh another bill, payable also two months after date.
This practice has sometimes gone on, not only for several months,
but for several years together, the bill always returning upon A in
Edinburgh, with the accumulated interest and commission of all
the former bills. The interest was five per cent, in the year, and the
commission was never less than one half per cent, on each draught.
This commission being repeated more than six times in the year,
whatever money A might raise by this expedient must necessarily
have cost him something more than eight per cent, in the year, and
sometimes a great deal more; when either the price of the commis-
sion happened to rise, or when he was obliged to pay compound in-
terest upon the interest and commission of former bills. This prac-
tice was called raising money by circulation.
In a country where the ordinary profits of stock in the greater
part of mercantile projects are supposed to run between six and ten
per cent., it must have been a very fortunate speculation of which
the returns could not only repay the enormous expence at which the
money was thus borrowed for carrying it on; but afford, besides, a
good surplus profit to the projector. Many vast and extensive pro-
jects, however, were undertaken, and for several years carried on
without any other fund to support them besides what was raised at
this enormous expence. The projectors, no doubt, had in their gold-
en dreams the most distinct vision of this great profit. Upon their
awaking, however, either at the end of their projects, or when they
MONEY =95
were no longer able to carry them on, they very seldom, I believe,
had the good fortune to find it.^®
The bills which A in Edinburgh drew upon B in London, he reg- The bill
ularly discounted two months before they were due with some bank
or banker in Edinburgh; and the bills which B in London redrew would be
upon A in Edinburgh, he as regularly discounted either with the disrount-
bank of England, or with some other bankers in London. Whatever
was advanced upon such circulating bills, was, in Edinburgh, ad- burgh,
vanced in the paper of the Scotch banks, and in London, when they
were discounted at the bank of England, in the paper of that bank. Edin-
Though the bills upon which this paper had been advanced, were all hurgb
of them re-paid in their turn as soon as they became due; yet the
value which had been really advanced upon the first bill, was never London,
really returned to the banks which advanced it; because, before
each bill became due, another bill was always drawn to somewhat a and each
was al-
The method described in the text was by no means either the most com-
mon or the most expensive one in which those adventurers sometimes raised
money by circulation. It frequently happened that A in Edinburgh would en-
able B in London to pay the first bill of exchange by drawing, a few days
before it became due, a second bill at three months date upon the same B in
London. This bill, being payable to his own order, A sold in Edinburgh at
par ; and with its contents purchased bills upon London payable at sight to
the order of B, to whom he sent them by the post. Towards the end of the
late war, the exchange between Edinburg and London was frequently three
per cent, against Edinburgh, and those bfils at sight must frequently have cost
A that premium. This transaction therefore being repeated at least four times
in the year, and being loaded with a commission of at least one half per cent,
upon each repetition, must at that period have cost A at least fourteen per
cent, in the year. At other times A would enable B to discharge the first biU
of exchange by drawing, a few days before it became due, a second bill at two
months date; not upon B, but upon some third person, C, for example, in
London. This other bill was made payable to the order of B, who, upon its
being accepted by C, discounted it with some banker in London; and A en-
abled C to discharge it by drawing, a few days before it became due, a third
bill, likewise at two months date, sometimes upon his first correspondent B,
and sometimes upon some fourth or fifth person, D or E, for example. This
third bill was made payable to the order of C ; who, as soon as it was ac-
cepted, discounted it in the same manner with some banker in London. Such
operations being repeated at least six times in the year, and being loaded with
a commission of at least one-half per cent, upon each repetition, together with
the legal interest of five per cent., this method of raising money, in the same
manner as that described in the text, must have cost A something more than
eight per cent. By saving, however, the exchange between Edinburgh and
London it was less expensive than that mentioned in the foregoing part of
this note; but then it required an established credit with more houses than one
in London, an advantage which many of these adventurers could not always
find it easy to procure. This note appears first in ed. 2. Playfair observes that
the calculation of the loss of 14 per cent, by the first method is wrong, since
“if A at Edinburgh negotiated his bills on London at 3 per cent, loss, he would
gain as much in purchasing biUs on London with the money.” — Ed. of Wsaltk
of Nations, vol. i., p. 483, note.
ways re-
placed by
another.
The
amount
thus ad-
vanced by
the banks
was in ex-
cess of the
limit laid
down
above,
but this
was not
perceived
at first.
When the
banks
found it
out they
made dif-
ficulties
about dis-
counting,
296 XHE WEALTH OE NATIONS
greater amount than the bill which was soon to be paid ; and the dis-
counting of this other bill was essentially necessary towards the
payment of that which was soon to be due. This payment, there-
fore, was altogether fictitious. The stream, which, by means of those
circulating bills of exchange, had once been made to run out from
the coffers of the banks, was never replaced by any stream which
really run into them.
The paper which was issued upon those circulating bills of ex-
change, amounted, upon many occasions, to the whole fund des-
tined for carrying on some vast and extensive project of agriculture,
commerce, or manufactures; and not merely to that part of it which,
had there been no paper money, the projector would have been
obliged to keep by him, unemployed and in ready money for an-
swering occasional demands. The greater part of this paper was,
consequently, over and above the value of the gold and silver which
would have circulated in the country, had there been no paper
money. It was over and above, therefore, what the circulation of
the country could easily absorb and employ, and upon that account
immediately returned upon the banks in order to be exchanged for
gold and silver, which they were to find as they could. It was a cap-
ital which those projectors had very artfully contrived to draw from
those banks, not only without their knowledge or deliberate con-
sent, but for some time, perhaps, without their having the most dis-
tant suspicion that they had really advanced it.
When two people, who are continually drawing and re-drawing
upon one another, discount their bills always with the same banker,
he must immediately discover what they are about, and see clearly
that they are trading, not with any capital of their own, but with
the capital which he advances to them. But this discovery is not
altogether so easy when they discount their bills sometimes with
one banker, and sometimes with another, and when the same two
persons do not constantly draw and re-draw upon one another, but
occasionally run the round of a great circle of projectors, who find
it for their interest to assist one another in this method of raising
money, and to render it, upon that account, as difficult as possible
to distinguish between a real and a fictitious bill of exchange; be-
tween a bill drawn by a real creditor upon a real debtor, and a bill
for which there was properly no real creditor but the bank which
discounted it; nor any real debtor but the projector who made use
of the money. When a banker had even made this discovery, he
might sometimes make it too late, and might find that he had al-
ready discounted the bills of those projectors to so great an extent,
that, by refusing to discount any more, he would necessarily make
MONEY 297
them all bankrupts, and thus, by ruining them, might perhaps ruin
himself. For his own interest and safety, therefore, he might find it
necessary, in this very perilous situation, to go on for some time,
endeavouring, however, to withdraw gradually, and upon that ac-
count making every day greater and greater difficulties about dis-
counting, in order to force those projectors by degrees to have re-
course, either to other bankers, or to other methods of raising
money; so as that he himself might, as soon as possible, get out of
the circle. The difficulties, accordingly, which the bank of England,
which the principal bankers in London, and which even the more
prudent Scotch banks began, after a certain time, and when all of
them had already gone too far, to make about discounting, not only
alarmed, but enraged in the highest degree those projectors. Their
own distress, of which this prudent and necessary reserve of the
banks was, no doubt, the immediate occasion, they called the dis-
tress of the country; and this distress of the country, they said, was
altogether owing to the ignorance, pusillanimity, and bad conduct
of the banks, which did not give a sufficiently liberal aid to the
spiritual undertakings of those who exerted themselves in order to
beautify, improve, and enrich the country. It was the duty of the
banks, they seemed to think, to lend for as long a time, and to as
great an extent as they might wish to borrow. The banks, however,
by refusing in this manner to give more credit to those, to whom
they had already given a great deal too much, took the only method
by which it was now possible to save either their own credit, or the
public credit of the country.
In the midst of this clamour and distress, a new bank was
established in Scotland for the express purpose of relieving the dis-
The index s.v. Bank gives the name, “the Ayr bank ” Its head office was
at Ayr, but it had branches at Edinburgh and Dumfries. A detailed history of
it is to be found in The Precipitation and Fall of Messrs. Douglas, Heron and
Company, late Bankers in Air with the Cateses of their Distress and Ruin in-
vestigated and considered by a Committee of Inquiry appointed by the Pro-
prietors, Edinburgh, 1778. From this it appears that Smith’s account of the
proceedings of the bank is extremely accurate, a fact which is doubtless due to
his old pupil, the Duke of Buccleuch, having been one of the principal share-
holders. Writing to Pulteney on 5th September, 1772, Smith says, “though I
have had no concern myself in die public calamities, some of the friends in
whom I interest myself the most have been deeply concerned in them ; and
my attention has been a good deal occupied about the most proper method
of extricating them.” The extrication was effected chiefly by the sale of re-
deemable annuities. See Rae, Life of Adam Smith, 1895, pp. 253-255; David
Macpherson, Annals of Commerce, vol. iii., pp. 52S) 5535 House of Commons^
Journals, vol. xxxiv., pp. 493-495) and the Act of Parliament, 14 Geo. III., c.
21. The East India Company opposed the bill on the ground that the bonds
to be issued would compete with theirs, but thdr opposition was defeated by
a vote of 176 to 36 in the House of Commons, Journals, vol. xxxiv., p. 601.
which
alarmed
and en-
raged the
project-
ors;
then the
Ayr bank
was estab-
lished and
advanced
money
very
freely,
but soon
got into
difficul-
ties,
298 XHE WEALTH OE NATIONS
tress of the country. The design was generous; but the execution
was imprudent, and the nature and causes of the distress which it
meant to relieve, were not, perhaps, well understood. This bank
was more liberal than any other had ever been, both in granting
cash accounts, and in discounting bills of exchange. With regard to
the latter, it seems to have made scarce any distinction between
real and circulating bills, but to have discounted all equally. It was
the avowed principle of this bank to advance, upon any reasonable
security, the whole capital which was to be employed in those
improvements of which the returns are the most slow and distant,
such as the improvements of land. To promote such improvements
was even said to be the chief of the public spirited purposes for
which it was instituted. By its liberality in granting cash accounts,
and in discounting bills of exchange, it, no doubt, issued great quan-
tities of its bank notes. But those bank notes being, the greater part
of them, over and above what the circulation of the country could
easily absorb and employ, returned upon it, in order to be ex-
changed for gold and silver, as fast as they were issued. Its coffers
were never well filled. The capital which had been subscribed to this
bank at two different subscriptions, amounted to one hundred and
sixty thousand pounds, of which eighty per cent, only was paid up.
This sum ought to have been paid in at several different instal-
ments. A great part of the proprietors, when they paid in their first
instalment, opened a cash account with the bank; and the direct-
ors, thinking themselves obliged to treat their own proprietors with
the same liberality with which they treated all other men, allowed
many of them to borrow upon this cash account what they paid in
upon all their subsequent instalments. Such payments, therefore,
only put into one coffer, what had the moment before been taken
out of another. But had the coffers of this bank been filled ever so
well, its excessive circulation must have emptied them faster than
they could have been replenished by any other expedient but the
ruinous one of drawing upon London, and when the bill became
due, paying it, together with interest and commission, by another
draught upon the same place. Its coffers having been filled so very
ill, it is said to have been driven to this resource within a very few
months after it began to do business. The estates of the proprietors
of this bank were worth several millions, and by their subscription
to the original bond or contract of the bank, were really pledged
for answering all its engagements.^® By means of the great credit
^ Ed. I does not contain “those.”
“Macpherson, op. cit., p. 525, says the partners were the Dukes of Buc-
deuch and Queensberry, the Earl of Dumfries, Mr. Douglas and many other
gentlemen.
MONEY
m
which so great a pledge necessarily gave it, it was, notwithstanding
its too liberal conduct, enabled to carry on business for more than
two years. When it was obliged to stop, it had in the circulation
about two hundred thousand pounds in bank notes. In order to
support the circulation of those notes, which were continually re-
turning upon it as fast as they were issued, it had been constantly
in the practice of drawing bills of exchange upon London, of which
the number and value were continually increasing, and, when it
stopt, amounted to upwards of six hundred thousand pounds. This
bank, therefore, had, in little more than the course of two years,
advanced to different people upwards of eight hundred thousand
pounds at five per cent. Upon the two hundred thousand pounds
which it circulated in bank notes, this five per cent, might, perhaps,
be considered as clear gain, without any other deduction besides
the expence of management. But upon upwards of six hundred
thousand pounds, for which it was continually drawing bills of ex-
change upon London, it was paying, in the way of interest and com-
mission, upwards of eight per cent., and was consequently losing
more than three per cent, upon more than three-fourths of all its
dealings.
The operations of this bank seem to have produced effects quite
opposite to those which were intended by ihe particular persons
who planned and directed it. They seem to have intended to sup-
port the spirited undertakings, for as such they considered them,
which were at that time carrying on in different parts of the coun-
try; and at the same time, by drawing the whole banking business
to themselves, to supplant all the other Scotch banks; particularly
those established at Edinburgh, whose backwardness in discounting
bills of exchange had given some offence. This bank, no doubt, gave
some temporary relief to those projectors, and enabled them to
carry on their projects for about two years longer than they could
otherwise have done. But it thereby only enabled them to get so
much deeper into debt, so that when ruin came, it fell so much the
heavier both upon them and upon their creditors. The operations
of this bank, therefore, instead of relieving, in reality aggravated in
the long-run the distress which those projectors had brought both
upon themselves and upon their country. It would have been much
better for themselves, their creditors and their country, had the
greater part of them been obliged to stop two years sooner than
they actually did. The temporary relief, however, which this bank
afforded to those projectors, proved a real and permanent relief to
the other Scotch banks. All the dealers in circulating bills of ex-
change, which those other banks had become so backward in dis-
and was
obliged
to stop in
two years.
Its action
and fail-
ure in-
creased
the dis-
tress of
projectors
and the
country
generally.
but re-
lieved the
other
Scotch
banks.
Another
plan
would
have been
to raise
money on
the securi-
ties
pledged
by bor-
rowers:
this would
have been
a losing
business,
and even
if profit-
300 the wealth of nations
counting, had recourse to this new bank, where they were received
with open arms. Those other banks, therefore, were enabled to get
very easily out of that fatal circle, from which they could not other-
wise have disengaged themselves without incurring a considerable
loss, and perhaps too even some degree of discredit.
In the long-run, therefore, the operations of this bank increased
the real distress of the country which it meant to relieve; and ef-
fectually relieved from a very great distress those rivals whom it
meant to supplant.
At the first setting out of this bank, it was the opinion of some
people, that how fast soever its coffers might be emptied, it might
easily replenish them by raising money upon the securities of those
to whom it had advanced its paper. Experience, I believe, soon
convinced them that this method of raising money was by much too
slow to answer their purpose; and that coffers which originally were
so ill filled, and which emptied themselves so very fast, could be re-
plenished by no other expedient but the ruinous one of drawing bills
upon London, and when they became due, paying them by other
draughts upon the same place with accumulated interest and com-
mission, But though they had been able by this method to raise
money as fast as they wanted it; yet, instead of making a profit,
they must have suffered a loss by every such operation; so that in
the long-run they must have ruined themselves as a mercantile
company, though, perhaps, not so soon as by the more expensive
practice of drawing and re-drawing. They could still have made
nothing by the interest of the paper, which, being over and above
what the circulation of the country could absorb and employ, re-
turned upon them, in order to be exchanged for gold and silver, as
fast as they issued it; and for the payment of which they were
themselves continually obliged to borrow money. On the contrary,
the whole expence of this borrowing, of employing agents to look
out for people who had money to lend, of negociating with those
people, and of drawing the proper bond or assignment, must have
fallen upon them, and have been so much clear loss upon the bal-
ance of their accounts. The project of replenishing their coffers in
this manner may be compared to that of a man who had a water-
pond from which a stream was continually running out, and into
which no stream was continually running, but who proposed to keep
it always equally full by employing a number of people to go con-
tinually with buckets to a well at some miles distance in order to
bring water to replenish it.
But though this operation had proved, not only practicable, but
profitable to the bank as a mercantile company; yet the country
MONEY 301
could have derived no benefit from it; but, on the contrary, must
have suffered a very considerable loss by it. This operation could
not augment in the smallest degree the quantity of money to be
lent. It could only have erected this bank into a sort of general loan
office for the whole country. Those who wanted to borrow, must
have applied to this bank, instead of applying to the private per-
sons who had lent it their money. But a bank which lends money,
perhaps, to five hundred different people, the greater part of whom
its directors can know very little about, is not likely to be more
judicious in the choice of its debtors, than a private person who
lends out his money among a few people whom he knows, and in
whose sober and frugal conduct he thinks he has good reason to con-
fide. The debtors of such a bank, as that whose conduct I have been
giving some account of, were likely, the greater part of them, to be
chimerical projectors, the drawers and re-drawers of circulating
bills of exchange, who would employ the money in extravagant un-
dertakings, which, with all the assistance that could be given them,
they would probably never be able to complete, and which, if they
should be completed, would never repay the expence which they
had really cost, would never afford a fund capable of maintaining
a quantity of labour equal to that which had been employed about
them. The sober and frugal debtors of private persons, on the con-
trary, would be more likely to employ the money borrowed in sober
undertakings which were proportioned to their capitals, and which,
though they might have less of the grand and the marvellous, would
have more of the solid and the profitable, which would repay with a
large profit whatever had been laid out upon them, and whi(i would
thus af ord a fund capable of maintaining a much greater quantity
of labour than that which had been employed about them. The suc-
cess of this operation, therefore, without increasing in the smallest
degree the capital of the country, would only have transferred a
great part of it from prudent and profitable, to imprudent and un-
profitable undertakings.
That the industry of Scotland languished for want of money to
employ it, was the opinion of the famous Mr. Law. By establishing
a bank of a particular kind, which he seems to have imagined might
issue paper to the amount of the whole value of all the lands in the
country, he proposed to remedy this want of money. The parliament
of Scotland, when he first proposed his project, did not think proper
to adopt it.^^ It was afterwards adopted, with some variations, by
^Lectures, p. 211. The bookseller^s preface to the 2nd ed. of Money and
Trade (below, p. 302, note 23) says the work consists of “some heads of a
scheme which Mr. Law proposed to the Parliament of Scotland in the year
1705”
able
would
have been
hurtful
to the
country.
Law’s
scheme
has been
sufficient-
ly ex-
plained by
Du Ver-
ney and
Du Tot.
The bank
of Eng-
land was
estab-
lished in
1694,
enlarged
its stock
in 1697,
302 the wealth of nations
the duke of Orleans, at that time regent of France. The idea of the
possibility of multiplying paper money to almost any extent, was
the real foundation of what is called the Mississippi scheme, the
most extravagant project both of banking and stock-jobbing that,
perhaps, the world ever saw. The different operations of this scheme
are explained so fully, so clearly, and with so much order and dis-
tinctness, by Mr. Du Verney, in his Examination of the Political
Reflections upon Commerce and Finances of Mr. Du Tot,^^ that I
shall not give any account of them.^^ The principles upon which it
was founded are explained by Mr. Law himself, in a discourse con-
cerning money and trade, which he published in Scotland when he
first proposed his project.^^ The splendid, but visionary ideas which
are set forth in that and some other works upon the same principles,
still continue to make an impression upon many people, and have,
perhaps, in part, contributed to that excess of banking, which has
of late been complained of both in Scotland and in other places.
The bank of England is the greatest bank of circulation in Eu-
rope. It was incorporated, in pursuance of an act of parliament, by
a charter under the great seal, dated the 27th of July, 1694. It at
that time advanced to government the sum of one million two hun-
dred thousand pounds, for an annuity of one hundred thousand
pounds: or for g 6 pooL a year interest, at the rate of eight per cent.,
and 4,oooL a year for the expence of management. The credit of the
new government, established by the Revolution, we may believe,
must have been very low, when it was obliged to borrow at so high
an interest.
In 1697 the bank, was allowed to enlarge its capital stock by an
ingraftment of 1,001,171/. 105. Its whole capital stock, therefore,
amounted at this time to 2,201,171/ loj. This engraftment is said
to have been for the support of public credit. In 1696, tallies had
been at forty, and fifty, and sixty per cent, discount, and bank notes
at twenty per cent.^^ During the great recoinage of the silver, which
^ These two books are in Bonar, Catalogue of Adam SmitWs Library, pp
35, 36. Du Tot’s is Rifiexions polUiques sur les Finances et le Commerce, oil
Von examine quelles ont iti sur les revenus, les denries, le change itranger et
consequemment sur notre commerce, les influences des augmentations et des
diminutions des valeurs numiraires des monnoyes. La Haye, 1754. Ver-
ney’s is Examen du livre intituU *‘Riflexions poUtiques sur les Finances et le
Commerce,” La Haye, 1740
“In Lectures there is an account, apparently derived from Du Verney,
which extends over eight pages, 211-218.
^ Money and Trade Considered, with a Proposal for Supplying the Nation
with Money, 1705.
“ James Postlethwayt’s History of the Public Revenue, page 301 History
of the Public Revenue from 1688 to 1753, an Appendix to 1758, by James
Postlethwayt, F.R.S., 1759 ; see also below, p. 864.
MONEY 303
was going on at this time, the bank had thought proper to discon-
tinue the payment of its notes, which necessarily occasioned their
discredit.
In pursuance of the 7th Anne, c. vii. the bank advanced and paid
into the exchequer, the sum of 400, ooo^.; making in all the sum of
1,600,000/. which it had advanced upon its original annuity of 96,-
000/. interest and 4,000/. for expence of management. In 1708,
therefore, thet credit of government was as good as that of private
persons, since it could borrow at six per cent, interest, the common
legal and market rate of those times. In pursuance of the same act,
the bank cancelled exchequer bills to the amount of 1,775,027/. 17J.
lo^d. at six per cent, interest, and was at the same time allowed
to take in subscriptions for doubling its capital. In 1708, therefore,
the capital of the bank amounted to 4,402,343/.; and it had ad-
vanced to government the sum of 3,375,027/. 17^. io\d.
By a call of fifteen per cent, in 1709, there was paid in and made
stock 656,204/. u. ()d,\ and by another of ten per cent, in 1710,
501,448/. 12^. lid. In consequence of those two calls, therefore,
the bank capital amounted to S,SS9,99S/. 14 ^. 8c/.
In pursuance of the 3d George I. c, 8. the bank delivered up two
millions of exchequer bills to be cancelled. It had at this time, there-
fore, advanced to government 5,375,027/. l^s, lodP In pursu-
ance of the 8th George L c. 21. the bank purchased of the South
Sea Company, stock to the amount of 4,000,000/.: and in 1722, in
consequence of the subscriptions which it had taken in for enabling
it to make this purchase, its capital stock was increased by 3,400,-
000/. At this time, therefore, the bank had advanced to the public
9,375,027/. i^s, 10^ d,\ and its capital stock amounted only to
8,959,995/. 14s, Sd, It was upon this occasion that the sum which
the bank had advanced to the public, and for which it received in-
terest, began first to exceed its capital stock, or the sum for which
it paid a dividend to the proprietors of bank stock; or, in other
words, that the bank began to have an undivided capital, over and
above its divided one. It has continued to have an undivided capi-
tal of the same kind ever since. In 1746, the bank had, upon dif-
ferent occasions, advanced to the public 11,686,800/. and its di-
vided capital had been raised by different calls and subscriptions to
10,780,000/.^® The state of those two sums has continued to be the
same ever since. In pursuance of the 4th of George III. c. 25. the
“ These three lines are not in ed. i.
“ From, “it was incorporated,” on p. 302, to this point is an abstract of the
“Historical State of the Bank of England,” in Postlethwayt’s History of the
Public Revenue, pp. 301-3 10. The totals are taken from the bottom of Postle-
thwayt’s pages.
in 1708,
in 1709
and 1710
in 1717,
and later
The rate
of interest
received
by it from
the public
has been
reduced
from 8 to
3 per cent,
and its
dividend
has lately
been 5^4
per cent.
It acts as
a great
engine of
state.
The op-
erations
of bank-
ing turn
dead
stock into
produc-
tive capi-
tal,
304 the wealth of nations
bank agreed to pay to government for the renewal of its charter
110,000/. without interest or repayment. This sum, therefore, did
not increase either of those two other sums.
The dividend of the bank has varied according to the variations
in the rate of the interest which it has, at different times, received
for the money it had advanced to the public, as well as according to
other circumstances. This rate of interest has gradually been re-
duced from eight to three per cent. For some years past the bank
dividend has been at five and a half per cent.
The stability of the bank of England is equal to that of the Brit-
ish government. All that it has advanced to the public must be lost
before its creditors can sustain any loss. No other banking company
in England can be established by act of parliament, or can consist
of more than six members. It acts, not only as an ordinary bank,
but as a great engine of state. It receives and pays the greater part
of the annuities which are due to the creditors of the public, it cir-
culates exchequer bills, and it advances to government the annual
amount of the land and malt taxes, which are frequently not paid
up till some years thereafter. In those different operations, its duty
to the public may sometimes have obliged it, without any fault of
its directors, to overstock the circulation with paper money. It like-
wise discounts merchants bills, and has, upon several different oc-
casions, supported the credit of the principal houses, not only of
England, but of Hamburgh and Holland. Upon one occasion, in
1763, it is said to have advanced for this purpose, in one week,
about 1,6000,000/.; a great part of it in bullion. I do not, however,
pretend to warrant either the greatness of the sum, or the shortness
of the time. Upon other occasions, this great company has been re-
duced to the necessity of paying in sixpences.^’^
It is not by augmenting the capital of the country, but by ren-
dering a greater part of that capital active and productive than
would otherwise be so, that the most judicious operations of bank-
ing can increase the industry of the country. That part of* his capi-
tal which a dealer is obliged to keep by him unemployed, and in
ready money for answering occasional demands, is so much dead
stock, which, so long as it remains in this situation, produces noth-
ing either to him or to his country. The judicious operations of
banking enable him to convert this dead stock into active and pro-
ductive stock; into materials to work upon, into tools to work with,
and into provisions and subsistence to work for; into stock which
In 1743. Magens, Universal Merchant, p. 31, suggests that there may have
been suspicions that the money was being drawn out for the support of the
rebellion.
MONEY 305
produces something both to himself and to his country. The gold
and silver money which circulates in any country, and by means of
which the produce of its land and labour is annually circulated and
distributed to the proper consumers, is, in the same manner as the
ready money of the dealer, all dead stock. It is a very valuable part
of the capital of the country, which produces nothing to the coun-
try. The judicious operations of banking, by substituting paper in
the room of a great part of this gold and silver, enables the country
to convert a great part of this dead stock into active and productive
stock; into stock which produces something to the country. The
gold and silver money which circulates in any country may very
properly be compared to a highway, which, while it circulates and
carries to market all the grass and corn of the country, produces it-
self not a single pile of either. The judicious operations of banking,
by providing, if I may be allowed so violent a metaphor, a sort of
waggon-way through the air; enable the country to convert, as it
were, a great part of its highways into good pastures and cornfields,
and thereby to increase very considerably the annual produce of its
land and labour. The commerce and industry of the country, how-
ever, it must be acknowledged, though they may be somewhat aug-
mented, cannot be altogether so secure, when they are thus, as it
were, suspended upon the Daedalian wings of paper money, as when
they travel about upon the solid ground of gold and silver. Over and
above the accidents to which they are exposed from the unskilful-
ness of the conductors of this paper money, they are liable to sev-
eral others, from which no prudence or skill of those conductors can
guard them.
An unsuccessful war, for example, in which the enemy got posses-
sion of the capital, and consequently of that treasure which sup-
ported the credt of the paper money, would occasion a much great-
er confusion in a country where the whole circulation was carried on
by paper, than in one where the greater part of it was carried on by
gold and silver. The usual instrument of commerce having losUts
value, no exchanges could be made but either by barter or upon
credit. All taxes having been usually paid in paper money, the
prince would not have wherewithal either to pay his troops, or to
furnish his magazines; and the state of the country would be much
more irretrievable than if the greater part of its circulation had con-
sisted in gold and silver. A prince, anxious to maintain his domin-
ions at all times in the state in which he can most easily defend
them, ought, upon this account, to guard, not only against that ex-
cessive multiplication of paper money which ruins the very banks
“Eds. I and 2 read “him.”
but make
commerce
and in-
dustry
somewhat
less
secure.
Precau-
tions
shouldbe
taken to
prevent
the great-
er part of
the circu-
lation be-
ing jBUed
with
paper.
Circula-
tion may
be divid-
ed into
that be-
tween
dealers
and that
between
dealers
and con-
sumers
The circu-
lation of
paper
maybe
corded
to the
former by
not allow-
ing notes
for small
sums.
306 the wealth of nations
which issue it; but even against that multiplication of it, which en-
ables them to fill the greater part of the circulation of the country
with it.
The circulation of every country may be considered as divided
into two different branches; the circulation of the dealers with one
another, and the circulation between the dealers and the consumers.
Though the same pieces of money, whether paper or metal, may be
employed sometimes in the one circulation and sometimes in the
other, yet as both are constantly going on at the same time, each
requires a certain stock of money of one kind or another, to carry it
on. The value of the goods circulated between the different dealers,
never can exceed the value of those circulated between the dealers
and the consumers; whatever is bought by the dealers, being ulti-
mately destined to be sold to the consumers. The circulation be-
tween the dealers, as it is carried on by wholesale, requires general-
ly a pretty large sum for every particular transaction. That between
the dealers and the consumers, on the contrary, as it is generally
carried on by retail, frequently requires but very small ones, a
shilling, or even a halfpenny, being often sufficient. But small sums
circulate much faster than large ones. A shilling changes masters
more frequently than a guinea, and a halfpenny more frequently
than a shilling. Though the annual purchases of all the consumers,
therefore, are at least equal in value to those of all the dealers, they
can generally be transacted with a much smaller quantity of
money; the same pieces, by a more rapid circulation, serving as
the instrument of many more purchases of the one kind than of the
other.
Paper money may be so regulated, as either to confine itself very
much to the circulation between the different dealers, or to extend
itself likewise to a great part of that between the dealers and the
consumers. Where no bank notes are circulated under ten pounds
value, as in London,^^ paper money confines itself very much to the
circulation between the dealers. When a ten pound bank note comes
into the hands of a consumer, he is generally obliged to change it at
the first shop where he has occasion to purchase five shillings worth
of goods; so that it often returns into the hands of a dealer, before
the consumer has spent the fortieth part of the money. Where bank
notes are issued for so small sums as twenty shillings, as in Scot-
land, paper money extends itself to a considerable part of the cir-
culation between dealers and consumers. Before the act of parlia-
ment, which put a stop to the circulation of ten and five shilling
^ The Bank of England issued none under £20 till 1759, when £15 and £10
notes were mtroduced.— Anderson, Commerce, ad. 1739
MONEY 307
notes, it filled a still greater part of that circulation. In the cur-
rencies of North America, paper was commonly issued for so small
a sum as a shilling, and filled almost the whole of that circulation.
In some paper currencies of Yorkshire, it was issued even for so
small a sum as a sixpence.
Where the issuing of bank notes for such very small sums is al-
lowed and commonly practised, many mean people are both en-
abled and encouraged to become bankers. A person whose promis-
sory note for five pounds, or even for twenty shillings, would be re-
jected by every body, will get it to be received without scruple when
it is issued for so small a sum as a sixpence. But the frequent bank-
ruptcies to which such beggarly baiiers must be liable, may oc-
casion a very considerable inconveniency, and sometimes even a
very great calamity, to many poor people who had received their
notes in pa5mient.
It were better, perhaps, that no bank notes were issued in any
part of the kingdom for a smaller sum than five pounds. Paper mon-
ey would then, probably, confine itself, in every part of the king-
dom, to the circulation between the different dealers, as much as it
does at present in London, where no bank notes are issued under
ten pounds value; five pounds being, in most parts of the kingdom,
a sum which, though it will purchase, perhaps, little more than half
the quantity of goods, is as much considered, and is as seldom spent
all at once, as ten pounds are amidst the profuse expence of London.
Where paper money, it is to be observed, is pretty much confined
to the circulation between dealers and dealers, as at London, there
is always plenty of gold and silver. Where it extends itself to a con-
siderable part of the circulation between dealers and consumers, as
in Scotland, and still more in North America, it banishes gold and
silver almost entirely from the country; almost all the ordinary
transactions of its interior commerce being thus carried on by
paper. The suppression of ten and five shilling bank notes, some-
what relieved the scarcity of gold and silver in Scotland; and the
suppression of twenty shilling notes, would probably relieve it still
more. Those metals are said to have become more abundant in
America, since the suppression of some of their paper currencies.
They are said, likewise, to have been more abundant before the
institution of those currencies.
Though paper money should be pretty much confined to the cir-
culation between dealers and dealers, yet banks and bankers might
still be able to give nearly the same assistance to the industry and
commerce of the country, as they had done when paper money filled
^^^Geo.IIL, c. 49.
The issue
of such
notes en-
ables
mean
people to
become
bankers.
None for
less than
£5 should
be issued.
This
would se-
cure the
circula-
tion of
plenty of
gold and
silver,
and
would not
prevent
banks
from giv-
ing suffi-
cient as-
sistance to
traders.
A law
against
small
notes
would be
a viola-
tion of
natural
liberty
necessary
for the se-
curity of
the so-
ciety.
Paper
money
payable
on de-
mand is
equal to
gold and
silver,
and does
not raise
prices;
308 the wealth of nations
almost the whole circulation. The ready money which a dealer is
obliged to keep by him, for answering occasional demands, is des-
tined altogether for the circulation between himself and other deal-
ers, of whom he buys goods. He has no occasion to keep any by him
for the circulation between himself and the consumers, who are his
customers, and who bring ready money to him, instead of taking
any from him. Though no paper money, therefore, was allowed to
be issued, but for such sums as would confine it pretty much to the
circulation between dealers and dealers; yet, partly by discounting
real bills of exchange, and partly by lending upon cash accounts,
banks and bankers might still be able to relieve the greater part of
those dealers from the necessity of keeping any considerable part of
their stock by them, unemployed and in ready money, for answer-
ing occasional demands. They might still be able to give the utmost
assistance which banks and bankers can, with propriety, give to
traders of every kind.
To restrain private people, it may be said, from receiving in pay-
ment the promissory notes of a banker, for any sum whether great
or small, when they themselves are willing to receive them; or, to
restrain a banker from issuing such notes, when all his neighbours
are willing to accept of them, is a manifest violation of that natural
liberty which it is the proper business of law, not to infringe, but to
support. Such regulations may, no doubt, be considered as in some
respect a violation of natural liberty. But those exertions of the
natural liberty of a few individuals, which might endanger the se-
curity of the whole society, are, and ought to be, restrained by the
laws of all governments; of the most free, as well as of the most
despotical. The obligation of building party walls, in order to pre-
vent the communication of fire, is a violation of natural liberty, ex-
actly of the same kind with the regulations of the banking trade
which are here proposed.
A paper money consisting in bank notes, issued by people of un-
doubted credit, payable upon demand without any condition, and
in fact always readily paid as soon as presented, is, in every respect,
equal in value to gold and silver money; since gold and silver money
can at any time be had for it. Whatever is either bought or sold for
such paper, must necessarily be bought or sold as cheap as it could
have been for gold and silver.
The increase of paper money, it has been said, by augmenting the
quantity, and consequently diminishing the value of the whole cur-
rency, necessarily augments the money price of commodities. But
as the quantity of gold and silver, which is taken from the currency,
is always equal to the quantity of paper which is added to it, paper
MONEY 309
money does not necessarily increase the quantity of the whole cur-
rency. From the beginning of the last century to the present time,
provisions never were cheaper in Scotland than in 1759, though,
from the circulation of ten and five shilling bank notes, there was
then more paper money in the country than at present. The propor-
tion between the price of provisions in Scotland and that in Eng-
land, is the same now as before the great multiplication of banking
companies in Scotland. Corn is, upon most occasions, fully as cheap
in England as in France; though there is a great deal of paper
money in England, and scarce any in France. In 1751 and in 1752,
when Mr. Hume published his Political Discourses,®^ and soon
after the great multiplication of paper money in Scotland, there
was a very sensible rise in the price of provisions, owing, probably,
to the badness of the seasons, and not to the multiplication of paper
money.
It would be otherwise, indeed, with a paper money consisting in
promissory notes, of which the immediate payment depended, in
any respect, either upon the good will of those who issued them; or
upon a condition which the holder of the notes might not always
have it in his power to fulfil; or of which the payment was not exi-
gible till after a certain number of years, and which in the mean
time bore no interest. Such a paper money would, no doubt, fall
more or less below the value of gold and silver, according as the dif-
ficulty or uncertainty of obtaining immediate payment was sup-
posed to be greater or less; or according to the greater or less dis-
tance of time at which payment was exigible.
Some years ago the different banking companies of Scotland were
in the practice of inserting into their bank notes, what they called
an Optional Clause, by which they promised payment to the bearer,
either as soon as the note should be presented, or, in the option of
the directors, six months after such presentment, together with the
legal interest for the said six months. The directors of some of those
banks sometimes took advantage of this optional clause, and some-
times threatened those who demanded gold and silver in exchange
for a considerable number of their notes, that they would take ad-
vantage of it, unless such demanders would content themselves with
a part of what they demanded. The promissory notes of those bank-
ing companies constituted at that time the far greater part of the
currency of Scotland, which this uncertainty of payment neces-
^^The reference is probably to the passages in the “Discourse of Money,”
and the “Discourse of the Balance of Trade,” where Hume censures paper
money as the cause of a rise of prices.— Political Discourses, 1752, pp. 43-45 >
89-91 ; cp. Lectures, p. 197.
but paper
not repay-
able on
demand
would fall
below
gold and
silver,
as hap-
pened in
Scotland
during
the preva-
lence of
the Op-
tional
Clause,
and must
have hap-
pened in
regard to
the York-
shire cur-
rencies
when
small
sums were
repayable
in
guineas.
The
North
American
paper
currencies
consisted
of gov-
ernment
notes re-
payable
at a dis-
tant date,
310 XHE WEALTH OF NATIONS
sarily degraded below the value of gold and silver money. During
the continuance of this abuse (which prevailed chiefly in 1762,
1763, and 1764), while the exchange between London and Carlisle
was at par, that between London and Dumfries would sometimes be
four per cent, against Dumfries, though this town is not thirty miles
distant from Carlisle. But at Carlisle, bills were paid in gold and
silver; whereas at Dumfries they were paid in Scotch bank notes,
and the uncertainty of getting those bank notes exchanged for gold
and silver coin had thus degraded them four per cent, below the
value of that coin. The same act of parliament which suppressed
ten and five shilling bank notes, suppressed likewise this optional
clause,^^ and thereby restored the exchange between England and
Scotland to its natural rate, or to what the course of trade and re-
mittances might happen to make it.
In the paper currencies of Yorkshire, the payment of so small a
sum as a sixpence sometimes depended upon the condition that the
holder of the note should bring the change of a guinea to the person
who issued it; a condition, which the holders of such notes might
frequently find it very difficult to fulfil, and which must have de-
graded this currency below the value of gold and silver money. An
act of parliament, accordingly, declared all such clauses unlawful,
and suppressed, in the same manner as in Scotland, all promissory
notes, payable to the bearer, under twenty shillings value.^®
The paper currencies of North America consisted, not in bank
notes payable to the bearer on demand, but in a government paper,
of which the payment was not exigible till several years after it was
issued: And though the colony governments paid no interest to the
holders of this paper, they declared it to be, and in fact rendered it,
a legal tender of payment for the full value for which it was issued.
But allowing the colony security to be perfectly good, a hundred
pounds payable fifteen years hence, for example, in a country where
interest is at six per cent, is worth little more than forty pounds
ready money. To oblige a creditor, therefore, to accept of this as
full payment for a debt of a hundred pounds actually paid down in
ready money, was an act of such violent injustice, as has scarce,
perhaps, been attempted by the government of any other country
which pretended to be free. It bears the evident marks of having
originally been, what the honest and downright Doctor Douglas as-
sures us it was, a scheme of fraudulent debtors to cheat their cred-
itors.^^ The government of Pennsylvania, indeed, pretended, upon
5 Geo. HI., c. 49 ; referred to above, p. 306. **15 Geo. III., c. 51.
knavish device of fraudulent debtors of the loan money to pay off
their loans at a very depreciated value ” William Douglass, M.D., Summary,
MONEY 311
their first emission of paper money, in 1722, to render their paper of
equal value with, gold and silver, by enacting penalties against all
those who made any difference in the price of their goods when they
sold them for a colony paper, and when they sold them for gold and
silver; a regulation equally tyrannical, but much less effectual than
that which it was meant to support. A positive law may render a
shilling a legal tender for a guinea; because it may direct the courts
of justice to discharge the debtor who has made that tender. But no
positive law can oblige a person who sells goods, and who is at lib-
erty to sell or not to sell, as he pleases, to accept of a shilling as
equivalent to a guinea in the price of them. Notwithstanding any
regulation of this kind, it appeared by the course of exchange with
Great Britain, that a hundred pounds sterling was occasionally con-
sidered as equivalent, in some of the colonies, to a hundred and
thirty pounds, and in others to so great a sum as eleven hundred
pounds currency; this difference in the value arising from the dif-
ference in the quantity of paper emitted in the different colonies,
and in the distance and probability of the term of its final discharge
and redemption.
No law, therefore, could be more equitable than the act of parlia-
ment, so unjustly complained of in the colonies, which declared that
no paper currency to be emitted there in time coming, should be a
legal tender of payment.^®
Pennsylvania was always more moderate in its emissions of paper
money than any other of our colonies. Its paper currency accord-
ingly is said never to have sunk below the value of the gold and sil-
ver which was current in the colony before the first emission of its
paper money. Before that emission, the colony had raised the de-
nomination of its coin, and had, by act of assembly, ordered five
shillings sterling to pass in the colony for six and three-pence, and
afterwards for six and eight-pence. A pound colony currency, there-
fore, even when that currency was gold and silver, was more than
thirty per cent, below the value of a pound sterling, and when that
currency was turned into paper, it was seldom much more than
thirty per cent, below that value. The pretence for raising the de-
nomination of the coin, was to prevent the exportation of gold and
silver, by making equal quantities of those metals pass for greater
sums in the colony than they did in the mother country. It was
Historical and Political, of the First Planting, Progressive Improvements,^ and
Present State of the British Settlements in North America, vol. ii., p.
107. The author uses strong language in many places about what he calls
“this accursed affair of plantation paper currencies,” vol. ii., p. 13, note is);
cp. vol. i., pp. 310, 359; vol. ii., pp. 254-255, 334-335-
4 Geo. III., c. 34.
and de-
preciated
the cur-
rency to
a great
degree.
They were
therefore
justly
prohibit-
ed.
Pennsyl-
vania
was
moderate
in its
issues,
audits
currency
never
went be-
low the
real par.
The colo-
nial pa-
per was
somewhat
supported
by being
received
in pay-
ment of
taxes.
A require-
ment that
certain
taxes
should be
paid in
particular
paper
money
might
give that
paper a
certain
value
even if it
was irre-
deemable.
A paper
currency
depreci-
ated be-
low the
312 the wealth of nations
found, however, that the price of all goods from the mother country
rose exactly in proportion as they raised the denomination of their
coin, so that their gold and silver were exported as fast as ever.
The paper of each colony being received in the payment of the
provincial taxes, for the full value for which it had been issued, it
necessarily derived from this use some additional value, over and
above what it would have had, from the real or supposed distance
of the term of its final discharge and redemption. This additional
value was greater or less, according as the quantity of paper issued
was more or less above what could be employed in the payment of
the taxes of the particular colony which issued it. It was in all the
colonies very much above what could be employed in this manner.
A prince, who should enact that a certain proportion of his taxes
should be paid in a paper money of a certain kind, might thereby
give a certain value to this paper money; even though the term of
its final discharge and redemption should depend altogether upon
the will of the prince. If the bank which issued this paper was care-
ful to keep the quantity of it always somewhat below what could
easily be employed in this manner, the demand for it might be such
as to make it even bear a premium, or sell for somewhat more in the
market than the quantity of gold or silver currency for which it was
issued. Some people account in this manner for what is called the
Agio of the bank of Amsterdam, or for the superiority of bank
money over current money; though this bank money, as they pre-
tend, cannot be taken out of the bank at the will of the owner. The
greater part of foreign bills of exchange must be paid in bank
money, that is, by a transfer in the books of the bank; and the di-
rectors of the bank, they allege, are careful to keep the whole quan-
tity of bank money always below what this use occasions a demand
for. It is upon this account, they say, that bank money sells for a
premium, or bears an agio of four or five per cent, above the same
nominal sum of the gold and silver currency of the country. This
account of the bank of Amsterdam, however, it will appear here-
after,®^ is in a great measure chimerical.®^
A paper currency which falls below the value of gold and silver
coin, does not thereby sink the value of those metals, or occasion
equal quantities of them ®® to exchange for a smaller quantity of
goods of any other kind. The proportion between the value of gold
Below, pp. 446-455. See also the “Advertisement” or preface to the 4th
ed., above.
Ed. I reads “This account of the Bank of Amsterdam, however, I have
reason to believe, is altogether chimerical.”
Ed. I reads “sink the value of gold and silver, or occasion equal quantities
of those metals.”
MONEY 313
and silver and that of goods of any other kind, depends in all cases,
not upon the nature or quantity of any particular paper money,
which may be current in any particular country, but upon the rich-
ness or poverty of the mines, which happen at any particular time
to supply the great market of the commercial world with those met-
als. It depends upon the proportion between the quantity of labour
which is necessary in order to bring a certain quantity of gold and
silver to market, and that which is necessary in order to bring thith-
er a certain quantity of any other sort of goods.
If bankers are restrained from issuing any circulating bank notes
or notes payable to the bearer, for less than a certain sum; and if
they are subjected to the obligation of an immediate and uncondi-
tional payment of such bank notes as soon as presented, their trade
may, with safety to the public, be rendered in all other respects
perfectly free. The late multiplication of banking companies in
both parts of the united kingdom, an event by which many people
have been much alarmed, instead of diminishing, increases the se-
curity of the public. It obliges all of them to be more circumspect
in their conduct, and, by not extending their currency beyond its
due proportion to their cash, to guard themselves against those
malicious runs, which the rivalship of so many competitors is al-
ways ready to bring upon them. It restrains the circulation of each
particular company within a narrower circle, and reduces their cir-
culating notes to a smaller number. By dividing the whole circula-
tion into a greater number of parts, the failure of any one com-
pany, an accident which, in the course of things, must sometimes
happen, becomes of less consequence to the public. This free com-
petition too obliges all bankers to be more liberal in their dealings
with their customers, lest their rivals should carry them away. In
general, if any branch of trade, or any division of labour, be advan-
tageous to the public, the freer and more general the competition,
it will always be the more so.
value of
the coin
does not
sink the
value of
gold and
Slver.
The only
restric-
tions on
banking
which are
necessary
are the
prohibi-
tion of
small
bank
notes and
the re-
quirement
that all
notes shall
be repaid
on de-
mand.
t
There are
two sorts
of labour,
produc-
tive and
unpro-
ductive.
m
CHAPTER III
OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND UN-
PRODUCTIVE LABOUR
There is one sort of labour which adds to the value of the subject
upon which it is bestowed: there is another which has no such ef-
fect. The former, as it produces a value, may be called productive;
the latter, unproductive ^ labour. Thus the labour of a manufac-
turer adds, generally, to the value of the materials which he works
upon, that of his own maintenance, and of his master’s profit. The
labour of a menial servant, on the contrary, adds to the value of
nothing. Though the manufacturer has his wages advanced to him
by his master, he, in reality, costs him no expence, the value of
those wages being generally restored, together with a profit, in the
improved value of the subject upon which his labour is bestowed.
But the maintenance of a menial servant never is restored. A man
grows rich by employing a multitude of manufacturers: he grows
poor, by maintaining a multitude of menial servants.^ The labour
of the latter, however, has its value, and deserves its reward as well
as that of the former. But the labour of the manufacturer fixes and
realizes itself in some particular subject or vendible commodity,
which lasts for some time at least after that labour is past. It is, as
it were, a certain quantity of labour stocked and stored up to be
employed, if necessary, upon some other occasion. That subject, or
what is the same thing, the price of that subject, can afterwards, if
necessary, put into motion a quantity of labour equal to that which
had originally produced it. The labour of the menial servant, on the
^Some French authors of great learning and ingenuity have used those
words in a different sense. In the last chapter of the fourth book I shall en-
deavour to show that their sense is an improper one.
® In the argument which follows in the text the fact is overlooked that this
is only true when the manufacturers are employed to produce commodities
for sale and when the menial servj^nts are employed merely for the comfort
of the employer. A man may and often does grow poor by employing people
to make “particular subjects or vendible commodities” for his own consump-
tion, and an innkeeper may and often does grow rich by employing menial
servants.
314
ACCUMULATION OF CAPITAL 3^5
contrary, does not fix or realize itself in any particular subject or
vendible commodity. His services generally perish in the very in-
stant of their performance, and seldom leave any trace or value be-
hind them, for which an equal quantity of service could afterwards
be procured.
The labour of some of the most respectable orders in the society
is, like that of menial servants, unproductive of any value, and does
not fix or realize itself in any permanent subject, or vendible com-
modity, which endures after that labour is past, and for which an
equal quantity of labour could afterwards be procured. The sover-
eign, for example, with all the officers both of justice and war who
serve under him, the whole army and navy, are unproductive la-
bourers. They are the servants of the public, and are maintained
by a part of the annual produce of the industry of other people.
Their service, how honourable, how useful,® or how necessary so-
ever, produces nothing for which an equal quantity of service can
afterwards be procured. The protection, security, and defence of
the commonwealth, the effect of their labour this year, will not pur-
chase its protection, security, and defence for the year to come. In
the same class must be ranked, some both of the gravest and most
important, and some of the most frivolous professions: churchmen,
lawyers, physicians, men of letters of all kinds; players, buffoons,
musicians, opera-singers, opera-dancers, &c. The labour of the
meanest of these has a certain value, regulated by the very same
principles which regulate that of every other sort of labour; and
that of the noblest and most useful, produces nothing which could
afterwards purchase or procure an equal quantity of labour. Like
the declamation of the actor, the harangue of the orator, or the
tune of the musician, the work of all of them perishes in the very
instant of its production.
Both productive and unproductive labourers, and those who do
not labour at all, are all equally maintained by the annual produce
of the land and labour of the country. This produce, how great so-
ever, can never be infinite, but must have certain limits. According,
therefore, as a smaller or greater proportion of it is in any one year
employed in maintaining unproductive hands, the more in the one
case and the less in the other will remain for the productive, and
the next year’s produce will be greater or smaller accordingly; the
whole annual produce, if we except the spontaneous productions of
the earth, being the effect of productive labour.
Though the whole annual produce of the land and labour of ev-
® But in the “Introduction and Plan of the Work ” “useful” is coupled with
“productive,” and used as equivalent to it.
Many
kinds of
labour be-
sides
menial
service
are un-
produc-
tive.
The pro-
portion
of the
produce
employed
in main-
taining
produc-
tive hands
deter-
mines the
next
year’s
produce.
Part of
the pro-
duce re-
places
capital,
part con-
stitutes
profit and
rent.
That
which re-
places
capital
employs
none but
produc-
tive
hands,
while un-
produc-
tive hands
and those
who do
not labour
are sup-
ported
by reve-
nue.
316 the wealth of nations
ery country, is, no doubt, ultimately destined for supplying the con-
sumption of its inhabitants, and for procuring a revenue to them;
yet when it first comes either from the ground, or from the hands
of the productive labourers, it naturally divides itself into two
parts. One of them, and frequently the largest, is, in the first place,
destined for replacing a capital, or for renewing the provisions, ma-
terials, and finished work, which had been withdrawn from a capi-
tal; the other for constituting a revenue either to the owner of this
capital, as the profit of his stock; or to some other person, as the
rent of his land. Thus, of the produce of land, one part replaces the
capital of the farmer; the other pays his profit and the rent of the
landlord; and thus constitutes a revenue both to the owner of this
capital, as the profits of his stock; and to some other person, as the
rent of his land. Of the produce of a great manufactory, in the same
manner, one part, and that always the largest, replaces the capital
of the undertaker of the work; the other pays his profit, and thus
constitutes a revenue to the owner of this capital.^
That part of the annual produce of the land and labour of any
country which replaces a capital, never is immediately employed to
maintain any but productive hands. It pays the wages of produc-
tive labour only. That which is immediately destined for consti-
tuting a revenue either as profit or as rent, may maintain indiffer-
ently either productive or unproductive hands.
Whatever part of his stock a man employs as a capital, he always
expects is to be replaced to him with a profit. He employs it, there-
fore, in maintaining productive hands only; and after having
served in the function of a capital to him, it constitutes a revenue
to them. Whenever he employs any part of it in maintaining un-
productive hands of any kind, that part is, from that moment,
withdrawn from his capital, and placed in his stock reserved for
immediate consumption.
Unproductive labourers, and those who do not labour at all, are
all maintained by revenue; either, first, by that part of the annual
produce which is originally destined for constituting a revenue to
some particular persons, either as the rent of land or as the profits
of stock; or, secondly, by that part which, though originally des-
tined for replacing a capital and for maintaining productive labour-
ers only, yet when it comes into their hands, whatever part of it is
over and above their necessary subsistence, may be employed in
maintaining indifferently either productive or unproductive hands.
^ It must be observed that in this paragraph produce is not used in the or-
dinary economic sense of income or net produce, but as including all products,
e,g., lie oil used in weaving machinery as well as the cloth.
ACCUMULATION OF CAPITAL 3i7
Thus, not only the great landlord or the rich merchant, but even
the common workman, if his wages are considerable, may maintain
a menial servant; or he may sometimes go to a play or a puppet-
show, and so contribute his share towards maintaining one set of
unproductive labourers; or he may pay some taxes, and thus help
to maintain another set, more honourable and useful, indeed, but
equally unproductive. No part of the annual produce, however,
which had been originally destined to replace a capital, is ever di-
rected towards maintaining unproductive hands, till after it has put
into motion its full complement of productive labour, or all that it
could put into motion in the way in which it was employed. The
workman must have earned his wages by work done, before he can
employ any part of them in this manner. That part too is generally
but a small one. It is his spare revenue only, of which productive
labourers have seldom a great deal. They generally have some,
however; and in the payment of taxes the greatness of their num-
ber may compensate, in some measure, the smallness of their con-
tribution. The rent of land and the profits of stock are every-where,
therefore, the principal sources from which unproductive hands
derive their subsistence. These are the two sorts of revenue of
which the owners have generally most to spare. They might both
maintain indifferently either productive or unproductive hands.
They seem, however, to have some predilection for the latter. The
expence of a great lord feeds generally more idle than industrious
people. The rich merchant, though with his capital he maintains
industrious people only, yet by his expence, that is, by the employ-
ment of his revenue, he feeds commonly the very same sort as the
great lord.
The proportion, therefore, between the productive and unpro-
ductive hands, depends very much in every country upon the pro-
portion between that part of the annual produce, which, as soon as
it comes either from the ground or from the hands of the produc-
tive labourers, is destined for replacing a capital, and that which is
destined for constituting a revenue, either as rent, or as profit. This
proportion is very different in rich from what it is in poor countries.
Thus, at present, in the opulent countries of Europe, a very large,
frequently the largest portion of the produce of the land, is destined
for replacing the capital of the rich and independent farmer; the
other for paying his profits, and the rent of the landlord. But an-
ciently, during the prevalency of the feudal government, a very
small portion of the produce was sufficient to replace the capital
employed in cultivation. It consisted commonly in a few wretched
cattle, maintained altogether by the spontaneous produce of uncul-
Sothe
propor- '
tion of
produc-
tive hands
depends
on the
propor-
tion be-
tween
profit
with rent
and the
part of
produce
which re-
places
capital.
Rent an-
ciently
formed a
larger
propor-
tion of the
produce
of agri-
culture
than now
Profits
were an-
ciently a
larger
share of
the pro-
duce of
manufac-
tures,
so the
propor-
tion of
produce
the wealth of nations
tivated land, and which might, therefore, be considered as a part
of that spontaneous produce. It generally too belonged to the land-
lord, and was by him advanced to the occupiers of the land. All the
rest of the produce properly belonged to him too, either as rent for
his land, or as profit upon this paultry capital. The occupiers of
land were generally bondmen, whose persons and effects were
equally his property. Those who were not bondmen were tenants at
will, and though the rent which they paid was often nominally little
more than a quit-rent, it really amounted to the whole produce of
the land. Their lord could at all times command their labour in
peace, and their service in war. Though they lived at a distance
from his house, they were equally dependent upon him as his re-
tainers who lived in it. But the whole produce of the land undoubt-
edly belongs to him, who can dispose of the labour and service of
all those whom it maintains. In the present state of Europe, the
share of the landlord seldom exceeds a third, sometimes not a fourth
part of the whole produce of the land. The rent of land, however, in
all the improved parts of the country, has been tripled and quad-
rupled since those ancient times; and this third or fourth part of
the annual produce is, it seems, three or four times greater than the
whole had been before. In the progress of improvement, rent,
though it increases in proportion to the extent, diminishes in pro-
portion to the produce of the land.
In the opulent countries of Europe, great capitals are at present
employed in trade and manufactures. In the ancient state, the lit-
tle trade that was stirring, and the few homely and coarse manu-
factures that were carried on, required but very small capitals.
These, however, must have yielded very large profits. The rate of
interest was no-where less than ten per cent, and their profits must
have been sufficient to afford this great interest. At present the rate
of interest, in the improved parts of Europe, is no-where higher
than six per cent, and in some of the most improved it is so low as
four, three, and two per cent. Though that part of the revenue of
the inhabitants which is derived from the profits of stock is always
much greater in rich than in poor countries, it is because the stock
is much greater: in proportion to the stock the profits are generally
much less.^
That part of the annual produce, therefore, which, as soon as it
comes either from the ground, or from the hands of the productive
labourers, is destined for replacing a capital, is not only much
® The question first propounded whether profits form a larger proportion of
the produce, is wholly lost sight of. With a stock larger in proportion to the
produce, a lower rate of profit may give a larger proportion of the produce.
ACCUMULATION OF CAPITAL 3 i 9
greater in rich than in poor countries, but bears a much greater
proportion to that which is immediately destined for constituting
a revenue either as rent or as profit. The funds destined for the
maintenance of productive labour, are not only much greater in
the former than in the latter, but bear a much greater proportion
to those which, though they may be employed to maintain either
productive or unproductive hands, have generally a predilection
for the latter.
The proportion between those different funds necessarily deter-
mines in every country the general character of the inhabitants as
to industry or idleness. We are more industrious than our forefath-
ers; because in the present times the funds destined for the main-
tenance of industry, are much greater in proportion to those which
are likely to be employed in the maintenance of idleness, than they
were two or three centuries ago. Our ancestors were idle for want
of a sufficient encouragement to industry. It is better, says the
proverb, to play for nothing, than to work for nothing. In mercan-
tile and manufacturing towns, where the inferior ranks of people
are chiefly maintained by the employment of capital, they are in
general industrious, sober, and thriving; as in many English, and
in most Dutch towns. In those towns which are principally support-
ed by the constant or occasional residence of a court, and in which
the inferior ranks of people are chiefly maintained by the spending
of revenue, they are in general idle, dissolute, and poor; as at
Rome, Versailles, Compiegne, and Fontainbleau. If you except
Rouen and Bourdeaux, there is little trade or industry in any of
the parliament towns of France; ® and the inferior ranks of people,
being chiefly maintained by the expence of the members of the
courts of justice, and of those who come to plead before them, are
in general idle and poor. The great trade of Rouen and Bourdeaux
seems to be altogether the effect of their situation. Rouen is neces-
sarily the entrepot of almost all the goods which are brought either
from foreign countries, or from the maritime provinces of France,
for the consumption of the great city of Paris. Bourdeaux is in the
same manner the entrepot of the wines which grow upon the banks
of the Garonne, and of the rivers which run into it, one of the rich-
est wine countries in the world, and which seems to produce the
wine fittest for exportation, or best suited to the taste of foreign
nations. Such advantageous situations necessarily attract a great
capital by the great employment which they afford it; and the em-
^Viz., Paris, Toulouse, Grenoble, Bordeaux, Dijon, Rouen, Aix, Rennes,
Pau, Metz, Besangon and J>Q\m.--Encyclopedief tom. xii., 1765, s.v. Parle-
ment.
required
for re-
placing
capital is
greater
than it
was
The pro-
portion
between
the funds
deter-
mines
whether
the in-
habitants
of the
country
shall be
industri-
ous or
idle.
Increase
ordimi-
320 the wealth of nations
ployment of this capital is the cause of the industry of those two
cities. In the other parliament towns of France, very little more
capital seems to be employed than what is necessary for supplying
their own consumption; that is, little more than the smallest capi-
tal which can be employed in them. The same thing may be said of
Paris, Madrid, and Vienna. Of those three cities, Paris is by far the
most industrious: but Paris itself is the principal market of all the
manufactures established at Paris, and its own consumption is the
principal object of all the trade which it carries on. London, Lis-
bon, and Copenhagen, are, perhaps, the only three cities in Europe,
which are both the constant residence of a court, and can at the
same time be considered as trading cities, or as cities which trade
not only for their own consumption, but for that of other cities and
countries. The situation of all the three is extremely advantageous,
and naturally fits them to be the entrepots of a great part of the
goods destined for the consumption of distant places. In a city
where a great revenue is spent, to employ with advantage a capital
for any other purpose than for supplying the consumption of that
city, is probably more difficult than in one in which the inferior
ranks of people have no other maintenance but what they derive
from the employment of such a capital. The idleness of the greater
part of the people who are maintained by the expence of revenue,
corrupts, it is probable, the industry of those who ought to be main-
tained by the employment of capital, and renders it less advanta-
geous to employ a capital there than in other places. There was lit-
tle trade or industry in Edinburgh before the union. When the
Scotch parliament was no longer to be assembled in it, when it
ceased to be the necessary residence of the principal nobility and
gentry of Scotland, it became a city of some trade and industry. It
still continues, however, to be the residence of the principal courts
of justice in Scotland, of the boards of customs and excise, &c. A
considerable revenue, therefore, still continues to be spent in it. In
trade and industry it is much inferior to Glasgow, of which the in-
habitants are chiefly maintained by the employment of capital.'^
The inhabitants of a large village, it has sometimes been observed,
after having made considerable progress in manufactures, have be-
come idle and poor, in consequence of a great lord’s having taken
up his residence in their neighbourhood.
The proportion between capital and revenue, therefore, seems
everywhere to regulate the proportion between industry and idle-
^ In Lectures, pp. 154-156, the idleness of Edinburgh and such like places
compared with Glasgow is attributed simply to the want of independence in
the inhabitants The introduction of revenue and capital is the fruit of study
of the physiocratic doctrines
ACCUMULATION OF CAPITAL 32 i
ness. Wherever capital predominates, industry prevails: wherever
revenue, idleness. Every increase or diminution of capital, there-
fore, naturally tends to increase or diminish the real quantity of in-
dustry, the number of productive hands, and consequently the ex-
changeable value of the annual produce of the land and labour of
the country, the real wealth and revenue of all its inhabitants.
Capitals are increased by parsimony, and diminished by prodi-
gality and misconduct.
Whatever a person saves from his revenue he adds to his capi-
tal, and either employs it himself in maintaining an additional
number of productive hands, or enables some other person to do so,
by lending it to him for an interest, that is, for a share of the prof-
its. As the capital of an individual can be increased only by what he
saves from his annual revenue or his annual gains, so the capital of
a society, which is the same with tbat of all the individuals who
compose it, can be increased only in the same manner.
Parsimony, and not industry, is the immediate cause of the in-
crease of capital. Industry, indeed, provides the subject which par-
simony accumulates. But whatever industry might acquire, if par-
simony did not save and store up, the capital would never be the
greater.
Parsimony, by increasing the fund which is destined for the
maintenance of productive hands, tends to increase the number of
those hands whose labour adds to the value of the subject upon
which it is bestowed. It tends therefore to increase the exchange-
able value of the annual produce of the land and labour of the
country. It puts into motion an additional quantity of industry,
which gives an additional value to the annual produce.
What is annually saved is as regularly consumed as what is an-
nually spent, and nearly in the same time too; ^ but it is consumed
by a different set of people. That portion of his revenue which a
rich man annually spends, is in most cases consumed by idle guests,
and menial servants, who leave nothing behind them in return for
their consumption. That portion which he annually saves, as for
the sake of the profit it is immediately employed as a capital, is
consumed in the same manner, and nearly in the same time too,
but by a different set of people, by labourers, manufacturers, and
artificers, who re-produce with a profit the value of their annual
consumption. His revenue, we shall suppose, is paid him in money.
Had he spent the whole, the food, clothing, and lodging, which the
® This paradox is arrived at through a confusion between the remuneration
of the labourers who produce the additions to the capital and the additions
themselves. What is really saved is the additions to the capital, and these are
not consumed.
nution of
the capita
of a coun-
try con-
sequently
increases
or dimi-
nishes its
annual
produce.
Capitals
are in-
creased
by parsi-
mony or
saving.
What is
saved is
consumed
by pro-
ductive
hands.
The frugal
man es-
tablishes
a per-
petual
fund for
the em-
ployment
of pro-
ductive
hands.
The
prodigal
perverts
such
funds to
other
uses.
Whether
he spends
on home
or foreign
commodi-
ties makes
no differ-
ence.
322 the wealth of nations
whole could have purchased, would have been distributed among
the former set of people. By saving a part of it, as that part is for
the sake of the profit immediately employed as a capital either by
himself or by some other person, the food, clothing, and lodging,
which may be purchased with it, are necessarily reserved for the
latter. The consumption is the same, but the consumers are differ-
ent.
By what a frugal man annually saves, he not only affords main-
tenance to an additional number of productive hands, for that or
the ensuing year, but, like the founder of a public workhouse, he
establishes as it were a perpetual fund for the maintenance of an
equal number in all times to come. The perpetual allotment and
destination of this fund, indeed, is not always guarded by any pos-
itive law, by any trust-right or deed of mortmain. It is always
guarded, however, by a very powerful principle, the plain and evi-
dent interest of every individual to whom any share of it shall ever
belong. No part of it can ever afterwards be employed to maintain
any but productive hands, without an evident loss to the person
who thus perverts it from its proper destination.
The prodigal perverts it in this manner. By not confining his ex-
pence within his income, he encroaches upon his capital. Like him
who perverts the revenues of some pious foundation to profane
purposes, he pays the wages of idleness with those funds which the
frugality of his forefathers had, as it were, consecrated to the
maintenance of industry. By diminishing the funds destined for
the employment of productive labour, he necessarily diminishes, so
far as it ^ depends upon him, the quantity of that labour which
adds a value to the subject upon which it is bestowed, and, conse-
quently, the value of the annual produce of the land and labour of
the whole country, the real wealth and revenue of its inhabitants.
If the prodigality of some was not compensated by the frugality of
others, the conduct of every prodigal, by feeding the idle with the
bread of the industrious, tends not only to beggar himself, but to
impoverish his country.
Though the expence of the prodigal should be altogether in
home-made, and no part of it in foreign commodities, its effect up-
on the productive funds of the society would still be the same. Ev-
ery year there would still be a certain quantity of food and cloth-
ing, which ought to have maintained productive, employed in
maintaining unproductive hands. Every year, therefore, there
would still be some diminution in what would otherwise have been
^ Ed. I does not contain “it.’
ACCUMULATION OF CAPITAL 3^3
the value of the annual produce of the land and labour of the coun-
try.
This expence, it may be said indeed, not being in foreign goods,
and not occasioning any exportation of gold and silver, the same
quantity of money would remain in the country as before. But if
the quantity of food and clothing, which were thus consumed b^
unproductive, had been distributed among productive hands, they
would have re-produced, together with a profit, the full value of
their consumption. The same quantity of money would in this
case equally have remained in the country, and there would besides
have been a reproduction of an equal value of consumable goods.
There would have been two values instead of one.
The same quantity of money, besides, cannot long remain in any
country in which the value of the annual produce diminishes. The
sole use of money is to circulate consumable goods. By means of it,
provisions, materials, and finished work, are bought and sold, and
distributed to their proper consumers. The quantity of money,
therefore, which can be annually employed in any country, must be
determined by the value of the consumable goods annually circu-
lated within it. These must consist either in the immediate produce
of the land and labour of the country itself, or in something which
had been purchased with some part of that produce. Their value,
therefore, must diminish as the value of that produce diminishes,
and along with it the quantity of money which can be employed in
circulating them. But the money which by this annual diminution
of produce is annually thrown out of domestic circulation, will not
be allowed to lie idle. The interest of whoever possesses it, requires
that it should be employed. But having no employment at home, it
will, in spite of all laws and prohibitions, be sent abroad, and em-
ployed in purchasing consumable goods which may be of some use
at home. Its annual exportation will in this manner continue for
some time to add something to the annual consumption of the
country beyond the value of its own annual produce. What in the
days of its prosperity had been saved from that annual produce,
and employed in purchasing gold and silver, will contribute for
some little time to support its consumption in adversity. The ex-
portation of gold and silver is, in this case, not the cause, but the
effect of its declension, and may even, for some little time, alleviate
the misery of that declension.
The quantity of money, on the contrary, must in every country
naturally increase as the value of the annual produce increases.
The value of the consumable goods annually circulated within the
If he had
not spent
there
would
have been
just as
much
money in
the coun-
try and
the goods
produced
by pro-
ductive
hands as
well.
Besides,
when the
annual
produce
dimin-
ishes,
money
will go
abroad;
and on
the other
hand
money
will come
in when
the an-
nual pro-
duce in-
creases.
So even if
the real
wealth of
a country
consisted
of its
money,
the prodi-
gal would
be a pub-
lic enemy.
Injudi-
cious em-
ployment
of capital
has the
same ef-
fect as
prodigal-
ity.
Frugality
and pru-
dence pre-
dominate.
Prodigal-
ity is
more in-
termittent
than the
desire to
better our
condition.
324 THE WEALTH OF NATIONS
society being greater, will require a greater quantity of money to
circulate them. A part of the increased produce, therefore, will nat-
urally be employed in purchasing, wherever it is to be had, the ad-
ditional quantity of gold and silver necessary for circulating the
rest. The increase of those metals will in this case be the effect, not
tie cause, of the public prosperity. Gold and silver are purchased
every-where in the same manner. The food, clothing, and lodging,
the revenue and maintenance of all those whose labour or stock is
employed in bringing them from the mine to the market, is the
price paid for them in Peru as well as in England. The country
which has this price to pay, will never be long without the quantity
of those metals which it has occasion for; and no country will ever
long retain a quantity which it has no occasion for.
Whatever, therefore, we may imagine the real wealth and reve-
nue of a country to consist in, whether in the value of the annual
produce of its land and labour, as plain reason seems to dictate; or
in the quantity of the precious metals which circulate within it, as
vulgar prejudices suppose; in either view of the matter, every
prodigal appears to be a public enemy, and every frugal man a
public benefactor.
The effects of misconduct are often the same as those of prodi-
gality. Every injudicious and unsuccessful project in agriculture,
mines, fisheries, trade, or manufactures, tends in the same manner
to diminish the funds destined for the maintenance of productive
labour. In every such project, though the capital is consumed by
productive hands only, yet, as by the injudicious manner in which
they are employed, they do not reproduce the full value of their
consumption, there must always be some diminution in what would
otherwise have been the productive funds of the society.
It can seldom happen, indeed, that the circumstances of a great
nation can be much affected either by the prodigality or miscon-
duct of individuals; the profusion or imprudence of some, being
always more than compensated by the frugality and good conduct
of others.
With regard to profusion, the principle which prompts to ex-
pence, is the passion for present enjoyment; which, though some-
times violent and very difficult to be restrained, is in general only
momentary and occasional. But the principle which prompts to
save, is the desire of bettering our condition, a desire which, though
generally calm and dispassionate, comes with us from the womb,
and never leaves us till we go into the grave. In the whole interval
which separates those two moments, there is scarce perhaps a single
ACCUMULATION OF CAPITAL 325
instant in which any man is so perfectly and completely satisfied
with his situation, as to be without any wish of alteration or im-
provement of any kind. An augmentation of fortune is the means
by which the greater part of men propose and wish to better their
condition. It is the means the most vulgar and the most obvious;
and the most likely way of augmenting their fortune, is to save and
accumulate some part of what they acquire, either regularly and
annually, or upon some extraordinary occasions. Though the prin-
ciple of expence, therefore, prevails in almost all men upon some
occasions, and in some men upon almost all occasions, yet in the
greater part of men, taking the whole course of their life at an av-
erage, the principle of frugality seems not only to predominate, but
to predominate very greatly.
With regard to misconduct, the number of prudent and success-
ful undertakings is every-where much greater than that of injudi-
cious and unsuccessful ones. After all our complaints of the fre-
quency of bankruptcies, the unhappy men who fall into this mis-
fortune make but a very small part of the whole number engaged
in trade, and all other sorts of business; not much more perhaps
than one in a thousand. Bankruptcy is perhaps the greatest and
most humiliating calamity which can befal an innocent man. The
greater part of men, therefore, are sufficiently careful to avoid it.
Some, indeed, do not avoid it; as some do not avoid the gallows.
Great nations are never impoverished by private, though they
sometimes are by public prodigality and misconduct. The whole,
or almost the whole public revenue, is in most countries employed
in maintaining unproductive hands. Such are the people who com-
pose a numerous and splendid court, a great ecclesiastical estab-
lishment, great fleets and armies, who in time of peace produce
nothing, and in time of war acquire nothing which can compensate
the expence of maintaining them, even while the war lasts. Such
people, as they themselves produce nothing, are all maintained by
the produce of other men’s labour. When multiplied, therefore, to
an unnecessary number, they may m a particular year consume so
great a share of this produce, as not'to leave a sufficiency for main-
taining the productive labourers, who should reproduce it next
year. The next year’s produce, therefore, will be less than that of
the foregoing, and if the same disorder should continue, that of the
third year will be still less than that of the second. Those unpro-
ductive hands, who should be maintained by a part only of the
Misprinted “instance” in ed. 5 , and consequently in some modern editions.
^ “Impoverished” is here equivalent to “made poor,” i.e., ruined, not mere-
ly to “made poorer,”
Impru-
dent un-
dertakings
are smaK
in number
compared
to pru-
dent ones.
Public
prodigal-
ity and
impru-
dence are
more to
be feared
than pri-
vate,
but are
counter-
acted by
private
frugaHty
and pru-
dence.
To in-
crease
the pro-
duce of a
nation an
increase of
capital is
necessary.
If, there-
fore the
produce
has in-
creased,
we may
be sure
the capi-
tal has
increased.
326 XHE WEALTH OF NATIONS
spare revenue of the people, may consume so great a share of their
whole revenue, and therefore oblige so great a number to encroach
upon their capitals, upon the funds destined for the maintenance
of productive labour, that all the frugality and good conduct of in-
dividuals may not be able to compensate the waste and degradation
of produce occasioned by this violent and forced encroachment.
This frugality and good conduct, however, is upon most occa-
sions, it appears from experience, sufficient to compensate, not on-
ly the private prodigality and misconduct of individuals, but the
public extravagance of government. The uniform, constant, and un-
interrupted effort of every man to better his condition, the princi-
ple from which public and national, as well as private opulence is
originally derived, is frequently powerful enough to maintain the
natural progress of things toward improvement, in spite both of the
extravagance of government, and of the greatest errors of adminis-
tration. Like the unknown principle of animal life, it frequently
restores health and vigour to the constitution, in spite, not only of
the disease, but of the absurd prescriptions of the doctor.
The annual produce of the land and labour of any nation can be
increased in its value by no other means, but by increasing either
the number of its productive labourers, or the productive powers of
those labourers who had before been employed. The number of its
productive labourers, it is evident, can never be much increased,
but in consequence of an increase of capital, or of the funds des-
tined for maintaining them. The productive powers of the same
number of labourers cannot be increased, but in consequence either
of some addition and improvement to those machines and instru-
ments which facilitate and abridge labour; or of a more proper di-
vision and distribution of employment. In either case an additional
capital is almost always required. It is by means of an additional
capital only, that the undertaker of any work can either provide
his workmen with better machinery, or make a more proper distri-
bution of employment among them. When the work to be done con-
sists of a number of parts, to keep every man constantly employed
in one way, requires a much greater capital than where every man
is occasionally employed in every different part of the work. When
we compare, therefore, the state of a nation at two different pe-
riods, and find, that the annual produce of its land and labour is ev-
idently greater at the latter than at the former, that its lands are
better cultivated, its manufactures more numerous and more flour-
ishing, and its trade more extensive, we may be assured that its cap-
ital must have increased during the interval between those two pe-
riods, and that more must have been added to it by the good con-
ACCUMULATION OF CAPITAL 327
duct of some, than had been taken from it either by the private
misconduct of others, or by the public extravagance of government.
But we shall find this to have been the case of almost all nations,
in all tolerably quiet and peaceful times, even of those who have
not enjoyed the most prudent and parsimonious governments. To
form a right judgment of it, indeed, we must compare the state of
the country at periods somewhat distant from one another. The
progress is frequently so gradual, that, at near periods, the im-
provement is not only not sensible, but from the declension either
of certain branches of industry, or of certain districts of the coun-
try, things which sometimes happen though the country in general
be in great prosperity, there frequently arises a suspicion, that
the riches and industry of the whole are decaying.
The annual produce of the land and labour of England, for ex-
ample, is certainly much greater than it was, a little more than a
century ago, at the restoration of Charles II. Though, at present,
few people, I believe, doubt of this, yet during this period, five
years have seldom passed away in which some book or pamphlet
has not been published, written too with such abilities as to gain
some authority with the public, and pretending to demonstrate
that the wealth of the nation was fast declining, that the country
was depopulated, agriculture neglected, manufactures decaying,
and trade undone. Nor have these publications been all party
pamphlets, the wretched offspring of falsehood and venality. Many
of them have been written by very candid and very intelligent peo-
ple; who wrote nothing but what they believed, and for no other
reason but because they believed it.
The annual produce of the land and labour of England again,
was certainly much greater at the restoration, than we can suppose
it to have been about an hundred years before, at the accession of
Elizabeth. At this period too, we have all reason to believe, the
country was much more advanced in improvement, than it had
been about a century before, towards the close of the dissensions
between the houses of York and Lancaster. Even then it was, prob-
ably, in a better condition than it had been at the Norman con-
quest, and at the Norman conquest, than during the confusion of
the Saxon Heptarchy. Even at this early period, it was certainly a
more improved country than at the invasion of Julius Caesar, when
its inhabitants were nearly in the same state with the savages in
North America.
In each of those periods, however, there was, not only much pri-
vate and public profusion, many expensive and unnecessary wars.
This has
been the
case of al-
most all
nations in
peaceable
times.
England
for ex-
ample
from 1660
to 1776,
or from
1558 to
1660,
though
there was
“Ed. I reads “is.”
much
public and
private
profusion,
and many
other dis-
orders
and mis-
fortunes
occurred.
Private
frugality
and pru-
dence
have si-
lently
counter-
acted
these cir-
cum-
stances.
328 the wealth of nations
great perversion of the annual produce from maintaining produc-
tive to maintain unproductive hands; but sometimes, in the confu-
sion of civil discord, such absolute waste and destruction of stock,
as might be supposed, not only to retard, as it certainly did, the
natural accumulation of riches, but to have left the country, at the
end of the period, poorer than at the beginning. Thus, in the happi-
est and most fortunate period of them all, that which has passed
since the restoration, how many disorders and misfortunes have oc-
curred, which, could they have been foreseen, not only the impov-
erishment, but the total ruin of the country would have been ex-
pected from them? The fire and the plague of London, the two
Dutch wars, the disorders of the revolution, the war in Ireland, the
four expensive French wars of 1688, 1702,^® 1742, and 1756, to-
gether with the two rebellions of 1715 and 1745. In the course of
the four French wars, the nation has contracted more than a hun-
dred and forty-five millions of debt, over and above all the other
extraordinary annual expence which they occasioned, so that the
whole cannot be computed at less than two hundred millions. So
great a share of the annual produce of the land and labour of the
country, has, since the revolution, been employed upon different
occasions, in maintaining an extraordinary number of unproduc-
tive hands. But had not those wars given this particular direction
to so large a capital, the greater part of it would naturally have
been employed in maintaining productive hands, whose labour
would have replaced, with a profit, the whole value of their con-
sumption. The value of the annual produce of the land and labour
of the country, would have been considerably increased by it every
year, and every year’s increase would have augmented still more
that of the following year.^^ More houses would have been built,
more lands would have been improved, and those which had been
improved before would have been better cultivated, more manu-
factures would have been established, and those which had been
established before would have been more extended; and to what
height the real wealth and revenue of the country might, by this
time, have been raised, it is not perhaps very easy even to imagine.
But though the profusion of government must, undoubtedly,
have retarded the natural progress of England towards wealth and
improvement, it has not been able to stop it. The annual produce
of its land and labour is, undoubtedly, much greater at present than
it was either at the restoration or at the revolution. The capital,
therefore, annually employed in cultivating this land, and in main-
taining this labour, must likewise be much greater. In the midst of
“Ed. I reads “1701.” “Ed. i reads “the next year”
ACCUMULATION OF CAPITAL 3^9
all the exactions of government, this capital has been silently and
gradually accumulated by the private frugality and good conduct
of individuals, by their universal, continual, and uninterrupted ef-
fort to better their own condition. It is this effort, protected by law
and allowed by liberty to exert itself in the manner that is most ad-
vantageous, which has maintained the progress of England towards
opulence and improvement in almost all former times, and which,
it is to be hoped, will do so in all future times. England, however,
as it has never been blessed with a very parsimonious government,
so parsimony has at no time been the characteristical virtue of its
inhabitants. It is the highest impertinence and presumption, there-
fore, in kings and ministers, to pretend to watch over the ceconomy
of private people, and to restrain their expence, either by sumptu-
ary laws, or by prohibiting the importation of foreign luxuries.
They are themselves always, and without any exception, the great-
est spendthrifts in the society. Let them look well after their own
expence, and they may safely trust private people with theirs. If
their own extravagance does not ruin the state, that of their sub-
jects never will.
As frugality increases, and prodigality diminishes the public cap-
ital, so the conduct of those whose expence just equals their reve-
nue, without either accumulating or encroaching, neither increases
nor diminishes it. Some modes of expence, however, seem to con-
tribute more to the growth of public opulence than others.
The revenue of an individual may be spent, either in things
which are consumed immediately, and in which one day’s expence
can neither alleviate nor support that of another; or it may be
spent in things more durable, which can therefore be accumulated,
and in which every day’s expence may, as he chuses, either alleviate
or support and heighten the effect of that of the following day. A
man of fortune, for example, may either spend his revenue in a pro-
fuse and sumptuous table, and in maintaining a great number of
menial servants, and a multitude of dogs and horses; or contenting
himself with a frugal table and few attendants, he may lay out the
greater part of it in adorning his house or his country villa, in use-
ful or ornamental buildings, in useful or ornamental furniture, in
collecting books, statues, pictures; or in things more frivolous, jew-
els, baubles, ingenious trinkets of different kinds; or, what is most
trifling of all, in amassing a great wardrobe of fine clothes, like the
favourite and minister of a great prince who died a few years ago.^®
^ As suggested by Germain Garnier’s note on tMs passage (Recherches sur
la Nature et les Causes de la Richesse des Nations, 1802, tom. ii., p. 346), this
was doubtless the Count of Bruhl, Minister and Great Chamberlain to the
King of Poland, who left at his death 365 suits of clothes, all very rich. Jonas
Apart
from in-
crease or
diminu-
tion of
capital
different
kinds of
expense
maybe
distin-
guished.
An indi-
vidual
who
spends on
durable
commodi-
ties wiU
be richer
than one
who
spends on
perish-
able ones.
330 the wealth OF NATIONS
Were two men of equal fortune to spend their revenue, the one
chiefly in the one way, the other in the other, the magnificence of
the person whose expence had been chiefly in durable commodities,
would be continually increasing, every day’s expence contributing
something to support and heighten the effect of that of the follow-
ing day: that of the other, on the contrary, would be no greater at
the end of the period than at the beginning. The former too would,
at the end of the period, be the richer man of the two. He would
have a stock of goods of some kind or other, which, though it might
not be worth all that it cost, would always be worth something. No
trace or vestige of the expence of the latter would remain, and the
effects of ten or twenty years profusion would be as completely an-
nihilated as if they had never existed.
The same As the one mode of expence is more favourable than the other to
tr^oU opulence of an individual, so is it likewise to that of a nation.
nation. The houses, the furniture, the clothing of the rich, in a little time,
become useful to the inferior and middling ranks of people. They
are able to purchase then when their superiors grow weary of them,
and the general accommodation of the whole people is thus gradu-
ally improved, when this mode of expence becomes universal
among men of fortune. In countries which have long been rich, you
will frequently find the inferior ranks of people in possession both
of houses and furniture perfectly good and entire, but of which nei-
ther the one could have been built, nor the other have been made
for their use. What was formerly a seat of the family of Seymour,
is now an inn upon the Bath road.^® The marriage-bed of James
the First of Great Britain, which his Queen brought with her from
Denmark, as a present fit for a sovereign to make to a sovereign,
was, a few years ago, the ornament of an ale-house at Dunferm-
line.^^ In some ancient cities, which either have been long station-
ary, or have gone somewhat to decay, you will sometimes scarce
find a single house which could have been built for its present in-
Hanway (Historical Account of the British Trade over the Caspian Sea, with
a Journal of Travels from London through Russia into Persia, and back
through Russia, Germany and Holland, 1753, voL ii, p. 230) says this count
had 300 or 400 suits of rich clothes, and had “collected all the finest colours
of all the ^^est cloths, velvets, and silks of all the manufactures, not to men-
tion the different kinds of lace and embroideries of Europe,” and also pictures
and books, at Dresden. He died in 1764.
This was the Castle Inn at Marlborough, which ceased to be an inn and
became Marlborough College in 1843, thus undergoing another vicissitude
^ The mnkeeper, Mrs. Walker, a zealous Jacobite, refused an offer of fifty
guineas for the bed, but presented it about 1764 to the Earl of Elgin (John
Fernie, History of the Town and Parish of Dunfermline, 1815, P* 7i)) and its
f^Xe"°^ ^ mantel-piece in the dining-room at Broomhall, near Dun-
ACCUMULATION OF CAPITAL 33^
habitants. If you go into those houses too, you will frequently find
many excellent, though antiquated pieces of furniture, which are
still very fit for use, and which could as little have been made for
them. Noble palaces, magnificent villas, great collections of books,
statues, pictures, and other curiosities, are frequently both an orna-
ment and an honour, not only to the neighbourhood, but to the
whole country to which they belong. Versailles is an ornament and
an honour to France, Stowe and Wilton to England. Italy still con-
tinues to command some sort of veneration by the number of mon-
uments of this kind which it possesses, though the wealth which
produced them has decayed, and though^® the genius which
planned them seems to be extinguished, perhaps from not having
the same emplo3rment.
The expence too, which is laid out in durable commodities, is fav- The for-
ourable, not only to accumulation, but to frugality. If a person
should at any time exceed in it, he can easily reform without ex- eSSto
posing himself to the censure of the public. To reduce very much bring to
the number of his servants, to reform his table from great profusion ^
to great frugality, to lay down his equipage after he has once set it
up, are changes which cannot escape the observation of his neigh-
bours, and which are supposed to imply some acknowledgment of
preceding bad conduct. Few, therefore, of those who have once
been so unfortunate as to launch out too far into this sort of ex-
pence, have afterwards the courage to reform, till ruin and bank-
ruptcy oblige them. But if a person has, at any time, been at too
great an expence in building, in furniture, in books or pictures, no
imprudence can be inferred from his changing his conduct. These
are things in which further expence is frequently rendered unnec-
essary by former expence; and when a person stops short, he ap-
pears to do so, not because he has exceeded his fortune, but be-
cause he has satisfied his fancy.
The expence, besides, that is laid out in durable commodities, and gives
gives maintenance, commonly, to a greater number of people, than
that which is employed in the most profuse hospitality. Of two or j^ore
three hundred weight of provisions, which may some’times be served people,
up at a great festival, one-half, perhaps, is thrown to the dunghill,
and there is always a great deal wasted and abused. But if the ex-
pence of this entertainment had been employed in setting to work
masons, carpenters, upholsterers, mechanics, &c.^® a quantity of
provisions, of equal value, would have been distributed among a
still greater number of people, who would have bought them in
penny-worths and pound weights, and not have lost or thrown
^ Ed I does not contain “though.’
Ed. I does not contain “&c.’
It does
not fol-
low that
it beto-
kens a
more gen-
erous
spint
332 THE WEALTH OF NATIONS
away a single ounce of them. In the one way, besides, this expence
maintains productive, in the other unproductive hands. In the one
way, therefore, it increases, in the other, it does not increase, the
exchangeable value of the annual produce of the land and labour
of the country.
I would not, however, by all this be understood to mean, that
the one species of expence always betokens a more liberal or gener-
ous spirit than the other When a man of fortune spends his rev-
enue chiefly in hospitality, he shares the greater part of it with
his friends and companions, but when he employs it m purchasing
such durable commodities, he often spends the whole upon his own
person, and gives nothing to any body without an equivalent. The
latter species of expence, therefore, especially when directed to-
wards frivolous objects, the little ornaments of dress and furniture,
jewels, trinkets, gewgaws, frequently indicates, not only a trifling,
but a base and selfish disposition. All that I mean is, that the one
sort of expence, as it always occasions some accumulation of valu-
able commodities, as it is more favourable to private frugality,
and, consequently, to the increase of the public capital, and as it
maintains productive, rather than unproductive hands, conduces
more than the other to the grovrth of public opulence.
♦
CHAPTER IV
OF STOCK LENT AT INTEREST
The stock which is lent at interest is always considered as a cap-
ital by the lender. He expects that in due time it is to be restored
to him, and that in the mean time the borrower is to pay him a
certain annual rent for the use of it. The borrower may use it
either as a capital, or as a stock reserved for immediate consump-
tion. If he uses it as a capital, he employs it in the maintenance of
productive labourers, who reproduce the value with a profit. He
can, in this case, both restore the capital and pay the interest
without alienating or encroaching upon any other source of rev-
enue. If he uses it as a stock reserved for immediate consumption,
he acts the part of a prodigal, and dissipates in the maintenance
of the idle, what was destined for the support of the industrious.
He can, in this case, neither restore the capital nor pay the inter-
est, without either alienating or encroaching upon some other
source of revenue, such as the property or the rent of land.
The stock which is lent at interest is, no doubt, occasionally
employed in both these ways, but in the former much more fre-
quently than in the latter. The man who borrows in order to spend
will soon be ruined, and he who lends to him will generally have
occasion to repent of his folly. To borrow or to lend for such a
purpose, therefore, is in all cases, where gross usury is out of the
question, contrary to the interest of both parties; and though it
no doubt happens sometimes that people do both the one and the
other; yet, from the regard that all men have for their own inter-
est, we may be assured, that it cannot happen so very frequently
as we are sometimes apt to imagine. Ask any rich man of common
prudence, to which of the two sorts of people he has lent the
greater part of his stock, to those who, he thinks, will employ it
profitably, or to those who will spend it idly, and he will, laugh at
you for proposing the question. Even among borrowers, therefore,
not the people in the world most famous for frugality, the num-
ber of the frugal and industrious surpasses considerably that of
the prodigal and idle.
Stock lent
at interest
is a capi-
tal to the
lender,
but may
or may
not be so
to the
borrower
Generally
it is so to
the bor-
rower,
333
334
except in
case of
mortgages
effected
by coun-
try gentle-
men.
Loans are
made in
money,
but what
the bor-
rower
wants and
gets is
goods.
So the
quantity
of stock
which can
be lent is
deter-
mined by
the value
of that
part of
the pro-
duce
which re-
places
such capi-
tal as the
owner
does not
himgplf
employ.
THE WEALTH OF NATIONS
The only people to whom stdtk is commonly lent, without their
being expected to make any very profitable use of it, are country
gentlemen who borrow upon mortgage. Even they scarce ever bor-
row merely to spend. What they borrow, one may say, is com-
monly spent before they borrow it. They have generally consumed
so great a quantity of goods, advanced to them upon credit by
shopkeepers and tradesmen, that they find it necessary to borrow
at interest in order to pay the debt. The capital borrowed replaces
the capitals of those shopkeepers and tradesmen, which the coun-
try gentlemen could not have replaced from the rents of their es-
tates. It is not properly borrowed in order to be spent, but in
order to replace a capital which had been spent before.
Almost all loans at interest are made in money, either of paper,
or of gold and silver. But what the borrower really wants, and
what the lender really supplies him with, is not the money, but
the money^s worth, or the goods which it can purchase. If he wants
it as a stock for immediate consumption, it is those goods only
which he can place in that stock. If he wants it as a capital for
employing industry, it is from those goods only that the industri-
ous can be furnished with the tools, materials, and maintenance,
necessary for carrying on their work. By means of the loan, the
lender, as it were, assigns to the borrower his right to a certain
portion of the annual produce of the land and labour of the coun-
try, to be employed as the borrower pleases.^
The quantity of stock, therefore, or, as it is commonly ex-
pressed, of money which can be lent at interest in any country, is
not regulated by the value of the money, whether paper or coin,
which serves as the instrument of the different loans made in that
country, but by the value of that part of the annual produce
which, as soon as it comes either from the ground, or from the
hands of the productive labourers, is destined not only for replac-
ing a capital, but such a capital as the owner does not care to be at
the trouble of employing himself. As such capitals are commonly
lent out and paid back in money, they constitute what is called
the monied interest. It is distinct, not only from the landed, but
from the trading and manufacturing interests, as in these last the
owners themselves employ their own capitals. Even in the monied
interest, however, the money is, as it were, but the deed of assign-
ment, which conveys from one hand to another those capitals
which the owners do not care to employ themselves. Those capi-
tals may be greater in almost any proportion, than the amount of
^Lectures, p. 220.
STOCK LENT AT INTEREST
335
the money which serves as the instrument of their conveyance;
the same pieces of money successively serving for many different
loans, as well as for many different purchases. A, for example,
lends to W a thousand pounds, with which W immediately pur-
chases of B a thousand pounds worth of goods. B having no oc-
casion for the money himself, lends the identical pieces to X, with
which X immediately purchases of C another thousand pounds
worth of goods. C in the same manner, and for the same reason,
lends them to Y, who again purchases goods with them of D. In
this manner the same pieces, either of coin or of paper, may, in the
course of a few days, serve as the instrument of three different
loans, and of three different purchases, each of which is, in value,
equal to the whole amount of those pieces. What the three monied
men A, B, and C, assign to the three borrowers, W, X, Y, is the
power of making those purchases. In this power consist both the
value and the use of the loans. The stock lent by the three monied
men, is equal to the value of the goods which can be purchased
with it, and is three times greater than that of the money with
which the purchases are made. Those loans, however, may be all
perfectly well secured, the goods purchased by the different debt-
ors being so employed, as, in due time, to bring back, with a profit,
an equal value either of coin or of paper. And as the same pieces
of money can thus serve as the instrument of different loans to
three, or for the same reason, to thirty times their value, so they
may likewise successively serve as the instrument of repa)mient.
A capital lent at interest may, in this manner, be considered as
an assignment from the lender to the borrower of a certain con-
siderable portion of the annual produce; upon condition that the
borrower in return shall, during the continuance of the loan, an-
nually assign to the lender a smaller portion, called the interest ,
and at the end of it, a portion equally considerable with that
which had originally been assigned to him, called the repayment.
Though money, either coin or paper, serves generally as the deed
of assignment both to the smaller, and to the more considerable
portion, it is itself altogether different from what is assigned by it.
In proportion as that share of the annual produce which, as
soon as it comes either from the ground, or from the hands of the
productive labourers, is destined for replacing a capital, increases
in any country, what is called the monied interest naturally in-
creases with it. The increase of those particular capitals from
which the owners wish to derive a revenue, without being at the
trouble of employing them themselves, naturally accompanies the
This may
be much
greater
than the
actual
money
employed.
The
money is
altogether
different
from
what is
actually
assigned
either as
principal
or inter-
est.
The stock
to be lent
at interest
naturally
grows as
the whole
quantity
of stock
increases.
Interest
falls as
the quan-
tity of
stock to
be lent
increases
because
profits di-
minish as
it becomes
more dif-
ficult to
find a
profitable
method
of em-
ploying
new capi-
tal.
The no-
tion that
it was the
discovery
of the
West
Indies
which
lowered
interest
has been
336 the wealth oe nations
general increase of capitals; or, in other words, as stock increases,
the quantity of stock to be lent at interest grows gradually greater
and greater.
As the quantity of stock to be lent at interest increases, the in-
terest, or the price which must be paid for the use of that stock,
necessarily diminishes, not only from those general causes which
make the market price of things commonly diminish as their quan-
tity increases, but from other causes which are peculiar to this
particular case. As capitals increase in any country, the profits
which can be made by employing them necessarily diminish. It
becomes gradually more and more difficult to find within the coun-
try a profitable method of employing any new capital. There arises
in consequence a competition between different capitals, the owner
of one endeavouring to get possession of that employment which
is occupied by another. But upon most occasions he can hope to
justle that other out of this employment, by no other means but
by dealing upon more reasonable terms. He must not only sell
what he deals in somewhat cheaper, but in order to get it to sell,
he must sometimes too buy it dearer. The demand for productive
labour, by the increase of the funds which are destined for main-
taining it, grows every day greater and greater. Labourers easily
find employment, but the owners of capitals find it difficult to get
labourers to employ. Their competition raises the wages of labour,
and sinks the profits of stock. But when the profits which can be
made by the use of a capital are in this manner diminished, as it
were, at both ends, the price which can be paid for the use of it,
that is, the rate of interest, must necessarily be diminished with
them.
Mr. Locke, Mr. Law, and Mr. Montesquieu, as well as many
other writers,^ seem to have imagined that the increase of the
quantity of gold and silver, in consequence of the discovery of the
Spanish West Indies, was tie real cause of the lowering of the rate
of interest through the greater part of Europe. Those metals, they
say, having become of less value themselves, the use of any par-
ticular portion of them necessarily became of less value too, and
consequently the price which could be paid for it. This notion,
® Locke, Some ConsiderationSf ed. of 1696, pp. 6, 10, ii, 81; Law, Money
and Trade, 2nd ed., 1720, p. 17 ; Montesquieu, Esprit des Lois, liv. xxii., ch. vi
Locke and Law suppose that the rate rises and falls with the quantity of
money, and Montesquieu specifically attributes the historical fall to the dis-
covery of the American mines. Cantillon disapproves of the common and re-
ceived idea that an increase of effective money diminishes the rate of interest.
-—Essai, pp. 282-285; see Lectures, pp. 219, 220.
STOCK LENT AT INTEREST 337
which at first sight seems so plausible, has been so fully exposed
by Mr. Hume,^ that it is, perhaps, unnecessary to say anything
more about it. The following very short and plain argument, how-
ever, may serve to explain more distinctly the fallacy which seems
to have misled those gentlemen.
Before the discovery of the Spanish West Indies, ten per cent,
seems to have been the common rate of interest through the great-
er part of Europe. It has since that time in different countries
sunk to six, five, four, and three per cent. Let us suppose that in
every particular country the value of silver has sunk precisely in
the same proportion as the rate of interest; and that in those
countries, for example, where interest has been reduced from ten
to five per cent., the same quantity of silver can now purchase
just half the quantity of goods which it could have purchased
before. This supposition will not, I believe, be found any-where
agreeable to the truth; but it is the most favourable to the opinion
which we are going to examine; and even upon this supposition
it is utterly impossible that the lowering of the value of silver
could have the smallest tendency to lower the rate of interest. If
a hundred pounds are in those countries now of no more value
than fifty pounds were then, ten pounds must now be of no more
value than five pounds were then. Whatever were the causes which
lowered the value of the capital, the same must necessarily have
lowered that of the interest, and exactly in the same proportion.
The proportion between the value of the capital and that of the
interest, must have remained the same, though the rate had never
been altered. By altering the rate, on the contrary, the proportion
between those two values is necessarily altered. If a hundred
pounds now are worth no more than fifty were then, five pounds
now can be worth no more than two pounds ten shillings were
then. By reducing the rate of interest, therefore, from ten to five
per cent., we give for the use of a capital, which is supposed to
be equal to one-half of its former value, an interest which is equal
to one-fourth only of the value of the former interest.
Any increase in the quantity of silver, while that of the com-
modities circulated by means of it remained the same, could have
no other effect than to diminish the value of that metal. The
nominal value of all sorts of goods would be greater, but their
real value would be precisely the same as before. They would
be exchanged for a greater number of pieces of silver; but the
quantity of labour which they could command, the number of
people whom they could maintain and employ, would be precisely
® In his essay, “Of Interest,” in Political Discourses, 1752.
refuted
by Hume.
If iioo
are now
required
to pur-
chase
whati^o
would
have pur-
chased
then,iio
must now
be re-
quired to
purchase
what £$
would
have pur-
chased
then.
An in-
crease in
the quan-
tity of
silver
could only
diminish
its value.
Nominal
wages
would be
greater,
but real
wages the
same;
profits
would be
the same
nominally
and
really
An in-
crease in
the goods
annually
circulated
would
cause a
faUof
profits
and con-
sequently
of inter-
est
338 THE WEALTH OF NATIONS
the same. The capital of the country would be the same, though
a greater number of pieces might be requisite for conveying any
equal portion of it from one hand to another. The deeds of as-
signment, like the conveyances of a verbose attorney, would be
more cumbersome, but the thing assigned would be precisely the
same as before, and could produce only the same effects. The
funds for maintaining productive labour being the same, the de-
mand for it would be the same. Its price or wages, therefore,
though nominally greater, would really be the same. They would
be paid in a greater number of pieces of silver; but they would
purchase only the same quantity of goods. The profits of stock
would be the same both nominally and really. The wages of labour
are commonly computed by the quantity of silver which is paid
to the labourer. When that is increased, therefore, his wages appear
to be increased, though they may sometimes be no greater than be-
fore. But the profits of stock are not computed by the number of
pieces of silver with which they are paid, but by the proportion
which those pieces bear to the whole capital employed. Thus in a
particular country five shillings a week are said to be the common
wages of labour, and ten per cent, the common profits of stock. But
the whole capital of the country being the same as before, the com-
petition between the different capitals of individuals into which it
was divided would likewise be the same. They would all trade with
the same advantages and disadvantages. The common proportion
between capital and profit, therefore, would be the same, and con-
sequently the common interest of money; what can commonly be
given for the use of money being necessarily regulated by what can
commonly be made by the use of it.
Any increase in the quantity of commodities annually circulated
within the country, while that of the money which circulated them
remained the same, would, on the contrary, produce many other im-
portant effects, besides that of raising the value of the money. The
capital of the country, though it might nominally be the same,
would really be augmented. It might continue to be expressed by
the same quantity of money, but it would command a greater quan-
tity of labour. The quantity of productive labour which it could
maintain and employ would be increased, and consequently the de-
mand for that labour. Its wages would naturally rise with the de-
mand, and yet might appear to sink. They might be paid with a
smaller quantity of money, but that smaller quantity might pur-
chase a greater quantity of goods than a greater had done before.
The profits of stock would be diminished both really and in appear-
ance. The whole capital of the country being augmented, the com-
STOCK LENT AT INTEREST 339
petition between the different capitals of which it was composed,
would naturally be augmented along with it. The owners of those '*
particular capitals would be obliged to content themselves with a
smaller proportion of the produce of that labour which their respec-
tive capitals employed. The interest of money, keeping pace always
with the profits of stock, might, in this manner, be greatly diminish-
ed, though the value of money, or the quantity of goods which any
particular sum could purchase, was greatly augmented.
In some countries the interest of money has been prohibited by
law. But as something can every-where be made by the use of
money, something ought every-where to be paid for the use of it.
This regulation, instead of preventing, has been found from experi-
ence to increase the evil of usury; the debtor being obliged to pay,
not only for the use of the money, but for the risk which his creditor
runs by accepting a compensation for that use. He is obliged, if one
may say so, to insure his creditor from the penalties of usury.
In countries where interest is permitted, the law, in order to pre-
vent the extortion of usury, generally ixes the highest rate which
can be taken without incurring a pendty. This rate ought always to
be somewhat above the lowest market price, or the price which is
commonly paid for the use of money by those who can give the most
undoubted security. If this legal rate should be fixed below the low-
est market rate, the effects of this fixation must be nearly the same
as those of a total prohibition of interest. The creditor will not lend
his money for less than the use of it is worth, and the debtor must
pay him for the risk which he runs by accepting the full value of
that use. If it is fixed precisely at the lowest market price, it ruins
with honest people, who respect the laws of their country, the credit
of all those who cannot give the very best security, and obliges them
to have recourse to exorbitant usurers. In a country, such as Great
Britain, where money is lent to government at three per cent, and
to private people upon good security at four, and four and a half,
the present legal rate, five per cent., is perhaps, as proper as any.
The legal rate, it is to be observed, though it ought to be some-
what above, ought not to be much above the lowest market rate. If
the legal rate of interest in Great Britain, for example, was fixed so
high as eight or ten per cent., the greater part of the money which
was to be lent, would be lent to prodigals and projectors, who alone
would be willing to give this high interest. Sober people, who will
give for the use of money no more than a part of what they are like-
ly to make by the use of it, would not venture into the competition.
A great part of the capital of the country would thus be kept out of
the hands which were most likely to make a profitable and advan-
The pro-
hibition
of interest
is wrong,
and in-
creases the
evil of
usury.
Where k
maximum
rate is
fixed, this
should be
somewhat
above the
market
rate on
good se-
curity,
but not
much
above, or
the great-
er part of
loans
would be
to prodi-
gals and
pro-
jectors
No law
can reduce
interest
below the
market
rate.
The num-
ber of
years’
purchase
commonly
paid for
land de-
pends on
the rate of
interest.
340 the wealth of nations
tageous use of it, and thrown into those which were most likely to
waste and destroy it. Where the legal rate of interest, on the con-
trary, is fixed but a very little above the lowest market rate, sober
people are universally preferred, as borrowers, to prodigals and pro-
jectors. The person who lends money gets nearly as much interest
from the former as he dares to take from the latter, and his money
is much safer in the hands of the one set of people, than in those of
the other. A great part of the capital of the country is thus thrown
into the hands in which it is most likely to be employed with ad-
vantage.
No law can reduce the common rate of interest below the lowest
ordinary market rate at the time when that law is made. Notwith-
standing the edict of 1766, by which the French king attempted to
reduce the rate of interest from five to four per cent., money con-
tinued to be lent in France at five per cent., the law being evaded in
several different ways.^
The ordinary market price of land, it is to be observed, depends
every-where upon the ordinary market rate of interest.® The person
who has a capital from which he wishes to derive a revenue, without
taking the trouble to employ it himself, deliberates whether he
should buy land with it, or lend it out at interest. The superior se-
curity of land, together with some other advantages which almost
every-where attend upon this species of property, will generally dis-
pose him to content himself with a smaller revenue from land, than
what he might have by lending out his money at interest. These ad-
vantages are sufficient to compensate a certain difference of rev-
enue; but they will compensate a certain difference only; and if the
rent of land should fall short of the interest of money by a greater
difference, nobody would buy land, which would §oon reduce its
ordinary price. On the contrary, if the advantages should much
more than compensate the difference, every body would buy land,
which again would soon raise its ordinary price. When interest was
at ten per cent., land was commonly sold for ten and twelve years
purchase. As interest sunk to six, five, and four per cent., the price
of land rose to twenty, five and twenty, and thirty years purchase.
The market rate of interest is higher in France than in England;
and the common price of land is lower. In England it commonly
sells at thirty; in France at twenty years purchase.
^ Above, p. 91.
® This seems obvious, but it was distinctly denied by Locke, Some Consid-
erations, pp. 83, 84.
CHAPTER V
OF THE DIFFERENT EMPLOYMENT OF CAPITALS
Though all capitals are destined for the maintenance of productive
labour only, yet the quantity of that labour, which equal capitals
are capable of putting into motion, varies extremely according to
the diversity of their employment; as does likewise the value which
that employment adds to the annual produce of the land and labour
of the country.
A capital may be employed in four different ways: either, first, in
procuring the rude produce annually required for the use and con-
sumption of the society; or, secondly, in manufacturing and pre-
paring that rude produce for immediate use and consumption; or,
thirdly, in transporting either the rude or manufactured produce
from the places where they abound to those where they are wanted ;
or, lastly, in dividing particular portions of either into such small
parcels as suit the occasional demands of those who want them. In
the first way are employed the capitals of all those who undertake
the improvement or cultivation of lands, mines, or fisheries; in the
second, those of all master manufacturers; in the third, those of all
wholesale merchants; and in the fourth, those of all retailers. It is
difficult to conceive that a capital should be employed in any way
which may not be classed under some one or other of those four.
Each of those four methods of employing a capital is essentially
necessary either to the existence or extension of the other three, or
to the general conveniency of the society.
Unless a capital was employed in furnishing rude produce to a
certain degree of abundance, neither manufactures nor trade of any
kind could exist.
Unless a capital was employed in manufacturing that part of the
rude produce which requires a good deal of preparation before it
can be fit for use and consumption, it either would never be pro-
duced, because there could be no demand for it; or if it was pro-
duced spontaneously, it would be of no value in exchange, and could
add noiliing to the wealth of the society.
341
The
quantity
of labour
put in
motion
and the
value
added to
the an-
nual pro-
duce by
capitals
vary with
their em-
ployment.
There are
four dif-
ferent
ways of
employing
capital,
all of
which are
necessary;
(1) pro-
curing
rude pro-
duce,
(2) man-
ufactur-
ing,
( 3 ) trans-
portation,
and (4)
distribu-
tion
342 the wealjh of nations
Unless a capital was employed in transporting, either the rude or
manufactured produce, from the places where it abounds to those
where it is wanted, no more of either could be produced than was
necessary for the consumption of the neighbourhood. The capital of
the merchant exchanges the surplus produce of one place for that
of another, and thus encourages the industry and increases the en-
joyments of both.
Unless a capital was employed in breaking and dividing certain
portions either of the rude or manufactured produce, into such small
parcels as suit the occasional demands of those who want them,
every man would be obliged to purchase a greater quantity of the
goods he wanted, than his immediate occasions required. If there
was no such trade as a butcher, for example, every man would be
obliged to purchase a whole ox or a whole sheep at a time. This
would generally be inconvenient to the rich, and much more so to
the poor. If a poor workman was obliged to purchase a month’s or
six months provisions at a time, a great part of the stock which he
employs as a capital in the instruments of his trade, or in the furni-
ture of his shop, and which yields him a revenue, he would be forced
to place in that part of his stock which is reserved for immediate
consumption, and which yields him no revenue. Nothing can be
more convenient for such a person than to be able to purchase his
subsistence from day to day, or even from hour to hour, as he wants
it. He is thereby enabled to employ almost his whole stock as a capi-
tal. He is thus enabled to furnish work to a greater value, and the
profit, which he makes by it in this way, much more than compen-
sates the additional price which the profit of the retailer imposes
upon the goods. The prejudices of some political writers against
shopkeepers and tradesmen, are altogether without foundation. So
far is it from being necessary, either to tax them, or to restrict their
numbers, that they can never be multiplied so as to hurt the pub-
lick, though they may so as to hurt one another. The quantity of
grocery goods, for example, which can be sold in a particular town,
is limited by the demand of that town and its ^ neighbourhood. The
capital, therefore, which can be employed in the grocery trade can-
not exceed what is sufficient to purchase that quantity. If this capi-
tal is divided between two different grocers, their competition will
tend to make both of them sell cheaper, than if it were in the hands
of one only; and if it were divided among twenty, their competition
would be just so much the greater, and the chance of their combin-
ing together, in order to raise the price, just so much the less. Their
^ Ed. I does not contain “its.’
EMPLOYMENT OF CAPITALS 343
competition might perhaps ruin some of themselves; but to take
care of this is the business of the parties concerned, and it may safe-
ly be trusted to their discretion. It can never hurt either the con-
sumer, or the producer; on the contrary, it must tend to make the
retailers both sell cheaper and buy dearer, than if the whole trade
was monopolized by one or two persons. Some of them, perhaps,
may sometimes decoy a weak customer to buy what he has no occa-
sion for. This evil, however, is of too little importance to deserve the
publick attention, nor would it necessarily be prevented by restrict-
ing their numbers. It is not the multitude of de-houses, to give the
most suspicious example, that occasions a general disposition to
drunkenness among the common people; but that disposition aris-
ing from other causes necessarily gives employment to a multitude
of ale-houses.
The persons whose capitals are employed in any of those four
ways are themselves productive labourers. Their labour, when prop-
erly directed, fixes and realizes itself in the subject or vendible com-
modity upon which it is bestowed, and generally adds to its price
the value at least of their own maintenance and consumption. The
profits of the farmer, of the manufacturer, of the merchant, and re-
tailer, are all drawn from the price of the goods which the two first
produce, and the two last buy and sell. Equal capitals, however,
employed in each of those four different ways, will immediately ^
put into motion very different quantities of productive labour, and
augment too in very different proportions the value of the annual
produce of the land and labour of the society to which they belong.
The capital of the retailer replaces, together with its profits, that
of the merchant of whom he purchases goods, and thereby enables
him to continue his business. The retailer himself is the only pro-
ductive labourer whom it immediately employs. In his profits, con-
sists the whole value which its employment adds to the annual pro-
duce of the land and labour of the society.
The capital of the wholesale merchant replaces, together with
their profits, the capitals of the farmers and manufacturers of whom
he purchases the rude and manufactured produce which he deals in,
and thereby enables them to continue their respective trades. It is
by this service chiefly that he contributes indirectly to support the
productive labour of the society, and to increase the value of its
annual produce. His capital employs too the sailors and carriers
who transport his goods from one place to another, and it augments
the price of those goods by the value, not only of his profits, but of
The em-
ployers of
such capi-
tals are
produc-
tive la-
bourers:
the capital
of the re-
tailer em-
ploys only
himself ;
the capi-
tal of the
merchant
employs
sailors
and car-
riers;
- Ed. I does not contain “immediately” here or seven lines lower down.
the capital
of the
manufac-
turer em-
ploys his
workmen ;
^he capital
of the
farmer
employs
his ser-
vants and
his cattle,
and adds
a much
greater
value to
the an-
imal pro-
duce than
other
capital.
344 THE WEALTH OF NATIONS
their wages. This is all the productive labour which it immediately
puts into motion, and all the value which it immediately adds to the
annual produce. Its operation in both these respects is a good deal
superior to that of the capital of the retailer.
Part of the capital of the master manufacturer is employed as a
fixed capital in the instruments of his trade, and replaces, together
with its profits, that of some other artificer of whom he purchases
them. Part of his circulating capital is employed in purchasing ma-
terials, and replaces, with their profits, the capitals of the farmers
and miners of whom he purchases them. But a great part of it is
always, either annually, or in a much shorter period, distributed
among the different workmen whom he employs. It augments the
value of those materials by their wages, and by their masters profits
upon the whole stock of wages, materials, and instruments of trade
employed in the business. It puts immediately ^ into motion, there-
fore, a much greater quantity of productive labour, and adds a
much greater value to the annual produce of the land and labour of
the society, than an equal capital in the hands of any wholesale
merchant.
No equal capital put^into motion a greater quantity of produc-
tive labour than that of the farmer. Not only his labouring servants,
but his labouring cattle, are productive labourers. In agriculture too
nature labours along with man; and though her labour costs no ex-
pence, its produce has its value, as well as that of the most expen-
sive workmen. The most important operations of agriculture seem
intended, not so much to increase, though they do that too, as to
direct the fertility of nature towards the production of the plants
most profitable to man. A field overgrown with briars and brambles
may frequently produce as great a quantity of vegetables as the
best cultivated vineyard or corn field. Planting and tillage frequent-
ly regulate more than they animate the active fertility of nature;
and after all their labour, a great part of the work always remains
to be done by her. The labourers and labouring cattle, therefore,
employed in agriculture, not only occasion, like the workmen in
manufactures, the reproduction of a value equal to their own con-
sumption, or to the capital which employs them, together with its
owners profits; but of a much greater value. Over and above the
capital of the farmer and all its profits, they regularly occasion the
reproduction of the rent of the landlord. This rent may be consid-
ered as the produce of those powers of nature, the use of which the
landlord lends to the farmer. It is greater or smaller according to
® Ed. 1 does not contain “immediately.’
EMPLOYMENT OF CAPITALS 345
the supposed extent of those powers, or in other words, according to
the supposed natural or improved fertility of the land. It is the
work of nature which remains after deducting or compensating
every thing which can be regarded as the work of man. It is seldom
less than a fourth, and frequently more than a third of the whole
produce. No equal quantity of productive labour employed in man-
ufactures can ever occasion so great a reproduction. In them nature
does nothing; man does all; and the reproduction must always be
in proportion to the strength of the agents that occasion it. The
capital employed in agriculture, therefore, not only puts into mo-
tion a greater quantity of productive labour than any equal capital
employed in manufactures, but in proportion too to the quantity of
productive labour which it employs, it adds a much greater value
to the annual produce of the land and labour of the country, to the
real wealth and revenue of its inhabitants. Of all the ways in which
a capital can be employed, it is by far the most advantageous to the
society.
The capitals employed in the agriculture and in the retail trade
of any society, must always reside within that society. Their em-
ployment is confined almost to a precise spot, to the farm, and to
the shop of the retailer. They must generally too, though there are
some exceptions to this, belong to resident members of the society.
The capital of a wholesale merchant, on the contrary, seems to
have no fixed or necessary residence anywhere, but may wander
about from place to place, according as it can either buy cheap or
sell dear.
The capital of the manufacturer must no doubt reside where the
manufacture is carried on; but where this shall be is not always
necessarily determined. It may frequently be at a great distance
both from the place where the materials grow, and from that where
the complete manufacture is consumed. Lyons is very distant both
from the places which afford the materials of its manufactures, and
from those which consume them. The people of fashion in Sicily are
cloathed in silks made in other countries, from the materials which
their own produces. Part of the wool of Spain is manufactured in
Great Britain, and some part of that cloth is afterwards sent back
to Spain.
Whether the merchant whose capital exports the surplus produce
of any society be a native or a foreigner, is of very little importance.
If he is a foreigner, the number of their productive labourers is
necessarily less than if he had been a native by one man only; and
the value of their annual produce, by the profits of that one man.
The sailors or carriers whom he employs may still belong indiffer-
Capitals
employed
in agri-
culture
and retail
trade
must re-
side with-
in the
country;
the capital
of the
merchant
may re-
side any-
where;
the capital
of the
manufac-
turer
must be
where the
manufac-
ture is,
but that
is not
necessari-
ly deter-
mined.
Whether
the mer-
chant who
exports
belongs to
the coun-
try or not
makes
little dif-
ference.
The capi-
tal of the
manufac-
turer will
put into
motion
more na-
tive la-
bour if it
resides
within the
country,
but may
be useful
even if
outside it.
Particu-
lar coun-
tries often
have not
enough
capital for
cultiva-
tion,
manufac-
tures, and
trans-
portation.
346 the wealth of nations
ently either to his country, or to their country, or to some third
country, in the same manner as if he had been a native. The capital
of a foreigner gives a value to their surplus produce equally with
that of a native, by exchanging it for something for which there is
a demand at home. It as effectually replaces the capital of the per-
son who produces that surplus, and as effectually enables him to
continue his business ; the service by which the capital of a whole-
sale merchant chiefly contributes to support the productive labour,
and to augment the value of the annual produce of the society to
which he belongs.
It is of more consequence that the capital of the manufacturer
should reside within the country. It necessarily puts into motion a
greater quantity of productive labour, and adds a greater value to
the annual produce of the land and labour of the society. It may,
however, be very useful to the country, though it should not reside
within it. The capitals of the British manufacturers who work up
the flax and hemp annually imported from the coasts of the Baltic,
are surely very useful to the countries which produce them. Those
materials are a part of the surplus produce of those countries which,
unless it was annually exchanged for something which is in demand
there, would be of no value, and would soon cease to be produced.
The merchants who export it, replace the capitals of the people who
produce it, and thereby encourage them to continue the production ;
and the British manufacturers replace the capitals of those mer-
chants.
A particular country, in the same manner as a particular person,
may frequently not have capital sufficient both to improve and cul-
tivate all its lands, to manufacture and prepare their whole rude
produce for immediate use and consumption, and to transport the
surplus part either of the rude or manufactured produce to those
distant markets where it can be exchanged for something for which
there is a demand at home. The inhabitants of many different parts
of Great Britain have not capital sufficient to improve and cultivate
all their lands. The wool of the southern counties of Scotland is, a
great part of it, after a long land carriage through very bad roads,
manufactured in Yorkshire, for want of a capital to manufacture it
at home. There are many little manufacturing towns in Great Brit-
ain, of which the inhabitants have not capital sufficient to transport
the produce of their own industry to those distant markets where
there is demand and consumption for it. If there are any merchants
among them, they are properly only the agents of wealthier mer-
chants who reside in some of the greater commercial cities.
When the capital of any country is not sufficient for all those
EMPLOYMENT OF CAPITALS 347
three purposes, in proportion as a greater share of it is employed in
agriculture, the greater will be the quantity of productive labour
which it puts into motion within the country; as will likewise be the
value which its employment adds to the annual produce of the land
and labour of the society. After agriculture, the capital employed in
manufactures puts into motion the greatest quantity of productive
labour, and adds the greatest value to the annual produce. That
which is employed in the trade of exportation, has the least effect
of any of the three.
The country, indeed, which has not capital sufficient for all those
three purposes, has not arrived at that degree of opulence for which
it seems naturally destined. To attempt, however, prematurely and
with an insufficient capital, to do all the three, is certainly not the
shortest way for a society, no more than it would be for an individ-
ual, to acquire a sufficient one. The capital of all the individuals of
a nation, has its limits in the same manner as that of a single in-
dividual, and is capable of executing only certain purposes. The
capital of all the individuals of a nation is increased in the same
manner as that of a single individual, by their continually accumu-
lating and adding to it whatever they save out of their income. It is
likely to increase the fastest, therefore, when it is employed in the
way that affords the greatest revenue to all the inhabitants of the
country, as they will thus be enabled to make the greatest savings.
But the revenue of all the inhabitants of the country is necessarily
in proportion to the value of the annual produce of their land and
labour.
It has been the principal cause of the rapid progress of our Amer-
ican colonies towards wealth and greatness, that almost their whole
capitals have hitherto been employed in agriculture.'^ They have no
manufactures, those houshold and coarser manufactures excepted
which necessarily accompany the progress of agriculture, and which
are the work of the women and children in every private family.
The greater part both of the exportation and coasting trade of
America, is carried on by the capitals of merchants who reside in
Great Britain. Even the stores and warehouses from which goods
are retailed in some provinces, particularly in Virginia and Mary-
land, belong many of them to merchants who reside in the mother
country, and afford one of the few instances of the retail trade of a
society being carried on by the capitals of those who are not resi-
dent members of it. Were the Americans, either by combination or
by any other sort of violence, to stop the importation of European
manufactures, and, by thus giving a monopoly to such of their own
^ Below, p. 392.
In such
cases the
larger the
propor-
tion em-
ployed in
agricul-
ture, the
larger will
be the an-
nual pro-
duce.
The
quickest
way to
make the
capital
sufficient
for all
these pur-
poses is to
begin
with the
most pro-
fitable.
That they
have done
so is the
principal
cause of
the prog-
ress of the
American
colonies.
Great
countries
have
scarcely
ever ac-
quired
sufficient
capital for
all those
purposes.
Different
kinds of
wholesale
trade em-
ploy dif-
ferent
quantities
of pro-
ductive
labour
and add
different
amounts
to the an-
nual pro-
duce.
There are
three dif-
348 the wealth of nations
countrymen as could manufacture the like goods, divert any con-
siderable part of their capital into this employment, they would re-
tard instead of accelerating the further increase in the value of their
annual produce, and would obstruct instead of promoting the prog-
ress of their country towards real wealth and greatness. This would
be still more the case, were they to attempt, in the same manner, to
monopolize to themselves their whole exportation trade.
The course of human prosperity, indeed, seems scarce ever to
have been of so long continuance as to enable any great country to
acquire capital sufficient for all those three purposes; unless, per-
haps, we give credit to the wonderful accounts of the wealth and
cultivation of China, of those of antient Egypt, and of the antient
state of Indostan. Even those three countries, the wealthiest, ac-
cording to all accounts, that ever were in the world, are chiefly re-
nowned for their superiority in agriculture and manufactures. They
do not appear to have been eminent for foreign trade. The antient
Egyptians had a superstitious antipathy to the sea; ® a superstition
nearly of the same kind prevails among the Indians; and the Chi-
nese have never excelled in foreign commerce. The greater part of
the surplus produce of all those three countries seems to have been
always exported by foreigners, who gave in exchange for it some-
thing else for which they found a demand there, frequently gold
and silver.
It is thus that the same capital will in any country put into mo-
tion a greater or smaller quantity of productive labour, and add a
greater or smaller value to the annual produce of its land and la-
bour, according to the different proportions in which it is employed
in agriculture, manufactures, and wholesale trade. The difference
too is very great, according to the different sorts of wholesale trade
in which any part of it is employed.
All wholesale trade, all buying in order to sell again by wholesale,
may be reduced to three different sorts. The home trade, the foreign
trade of consumption, and the carrying trade. The home trade is
employed in purchasing in one part of the same country, and sell-
ing in another, the produce of the industry of that country. It com-
prehends both the inland and the coasting trade. The foreign trade
of consumption is employed in purchasing foreign goods for home
consumption. The carrying trade is employed in transacting the
"Possibly the supposed authority for this statement is Montesquieu, Esprit
m LoiSf liv. xxi., ch. vi.: “L’Egypte ^loignee par la religion et par les mceurs
de toute communication avec les Strangers, ne faisait guere de commerce au-
dehors. . . Les Egyptiens furent si peu jaloux du commerce du dehors qu’ils
que^port de la mer rouge a toutes les petites nations qui y eurent quel-
EMPLOYMENT OF CAPITALS 349
commerce of foreign countries, or in carr5dng the surplus produce
of one to another.
The capital which is employed in purchasing in one part of the
country in order to sell in another the produce of the industry of
that country, generally replaces by every such operation two dis-
tinct capitals that had both been employed in the agriculture or
manufactures of that country, and thereby enables them to con-
tinue that employment. When it sends out from the residence of the
merchant a certain value of commodities, it generally brings back
in return at least an equal value of other commodities. When both
are the produce of domestick industry, it necessarily replaces by
every such operation two distinct capitals, which had both been em-
ployed in supporting productive labour, and thereby enables them
to continue that support. The capital which sends Scotch manufac-
tures to London, and brings back English corn and manufactures
to Edinburgh, necessarily replaces, by every such operation, two
British capitals which had both been employed in the agriculture
or manufactures of Great Britain.
The capital employed in purchasing foreign goods for home-con-
sumption, when this purchase is made with the produce of domes-
tick industry, replaces too, by every such operation, two distinct
capitals ; but one of them only is employed in supporting domestick
industry. The capital which sends British goods to Portugal, and
brings back Portuguese goods to Great Britain, replaces by every
such operation only one British capital. The other is a Portuguese
one. Though the returns, therefore, of the foreign trade of consump-
tion should be as quick as those of the home-trade, the capital em-
ployed in it will give but one-half the encouragement to the indus-
try or productive labour of the country.
But the returns of the foreign trade of consumption are very sel-
dom so quick as those of the home-trade. The returns of the home-
trade generally come in before the end of the year, and sometimes
three or four times in the year. The returns of the foreign trade of
consumption seldom come in before the end of the year, and some-
times not till after two or three years. A capital, therefore, employed
in the home-trade will sometimes make twelve operations, or be
sent out and returned twelve times, before a capital employed in
the foreign trade of consumption has made one. If the capitals are
equal, therefore, the one will give four and twenty times more en-
couragement and support to the industry of the country than the
other.^
® If this doctrine as to the advantage of quick returns had been applied
earlier in the chapter, it would have made havoc of the argument as to the
superiorit} of agriculture
ferent
kinds of
trade
home,
foreign
and
carrying.
Capital
employed
in buying
in one
part of
the coun-
try to sell
in another
replaces
two do-
mestic
capitals
Capital
employed
in impor-
tatioji re-
places one
domestic
and one
foreign
capital.
Its returns
are not so
quick as
those of
home
trade.
Round-
about
foreign
trade has
the same
effect as
direct.
Foreign
trade car-
ried on by
means of
gold and
350 XHE WEALTH OF NATIONS
The foreign goods for home-consumption may sometimes be pur-
chased, not with the produce of domestick industry, but with some
other foreign goods. These last, however, must have been purchased
either immediately with the produce of domestick industry, or with
something else that had been purchased with it; for the case of war
and conquest excepted, foreign goods can never be acquired, but in
exchange for something that had been produced at home, either im-
mediately, or after two or more different exchanges. The effects,
therefore, of a capital employed in such a round-about foreign trade
of consumption, are, in every respect, the same as those of one em-
ployed in the most direct trade of the same kind, except that the
final returns are likely to be still more distant, as they must depend
upon the returns of two or three distinct foreign trades. If the flax
and hemp of Riga are purchased with the tobacco of Virginia, which
had been purchased with British manufactures, the merchant must
wait for the returns of two distinct foreign trades before he can em-
ploy the same capital in re-purchasing a like quantity of British
manufactures. If the tobacco of Virginia had been purchased, not
with British manufactures, but with the sugar and rum of Jamaica
which had been purchased with those manufactures, he must wait
for the returns of three. If those two or three distinct foreign trades
should happen to be carried on by two or three distinct merchants,
of whom the second buys the goods imported by the first, and the
third buys those imported by the second, in order to export them
again, each merchant indeed will in this case receive the returns of
his own capital more quickly; but the final Teturns of the whole
capital employed in the trade will be just as slow as ever. Whether
the whole capital employed in such a round-about trade belong to
one merchant or to three, can make no difference with regard to
the country, though it may with regard to the particular merchants.
Three times a greater capital must in both cases be employed, in
order to exchange a certain value of British manufactures for a cer-
tain quantity of flax and hemp, than would have been necessary,
had the manufactures and the flax and hemp been directly ex-
changed for one another. The whole capital employed, therefore,
in such a round-about foreign trade of consumption, will generally
give less encouragement and support to the productive labour of
the country, than an equal capital employed in a more direct trade
of the same kind.
Whatever be the foreign commodity with which the foreign goods
for home-consumption are purchased, it can occasion no essential
difference either in the nature of the trade, or in the encouragement
and support which it can give to the productive labour of the coun-
EMPLOYMENT OF CAPITALS 35^
try from which it is carried on. If they are purchased with the gold
of Brpii, for example, or with the silver of Peru, this gold and sil-
ver, like the tobacco of Virginia, must have been purchased with
something that either was the produce of the industiy of the coun-
try, or that had been purchased with something else that was so. So
far, therefore, as the productive labour of the country is concerned,
the foreign trade of consumption which is carried on by means of
gold and silver, has all the advantages and all the inconveniences
of any other equally round-about foreign trade of consumption, and
will replace just as fast or just as slow the capital which is immedi-
ately employed in supporting that productive labour. It seems even
to have one advantage over any other equally round-about foreign
trade. The transportation of those metals from one place to another,
on account of their small bulk and great value, is less expensive
than that of almost any other foreign goods of equal value. Their
freight is much less, and their insurance not greater; and no goods,
besides, are less liable to suffer by the carriage.'' An equal quantity
of foreign goods, therefore, may frequently be purchased with a
smaller quantity of the produce of domestick industry, by the in-
tervention of gold and silver, than by that of any other foreign
goods. The demand of the country may frequently, in this manner,
be supplied more completely and at a smaller expence than in any
other. Whether, by the continual exportation of those metals, a
trade of this kind is likely to impoverish the country from which it
is carried on, in any other way, I shall have occasion to examine at
great length hereafter.®
That part of the capital of any country which is employed in the
carr3dng trade, is altogether withdrawn from supporting the pro-
ductive labour of that particular country, to support that of some
foreign countries. Though it may replace by every operation two
distinct capitals, yet neither of them belongs ® to that particular
country. The capital of the Dutch merchant, which carries the corn
of Poland to Portugal, and brings back the fruits and wines of
Portugal to Poland, replaces by every such operation two capitals,
neither of which had been employed in supporting the productive
labour of Holland; but one of them in supporting that of Poland,
and the other that of Portugal. The profits only return regularly to
Holland, and constitute the whole addition which this trade neces-
sarily makes to the annual produce of the land and labour of that
country. When, indeed, the carrying trade of any particular coun-
try is carried on with the ships and sailors of that country, that part
^ The second part of this sentence is not in Ed i ® Bk iv
“ Ed. I reads “belong.”
silver is in
no way
different
from the
rest
Capital
employed
in the
carrying
trade re-
places
two
foreign
capitals.
It may
employ
ships and
sailors
belonging
to the
countiy,
but this is
not al-
ways the
case.
and equal
capital
employed
in impor-
tation or
coasting
trade may
employ as
many
ships and
men
Capital in
home
trade
therefore
supports
more pro-
ductive
labour
than capi-
tal em-
ployed in
foreign
trade,
which,
however,
supports
more than
capital in
352 XHE WEALTH OF NATIONS
of the capital employed in it which pays the freight, is distributed
among, and puts into motion, a certain number of productive la-
bourers of that country. Almost all nations that have had any con-
siderable share of the carrying trade have, in fact, carried it on in
this manner. The trade itself has probably derived its name from
it, the people of such countries being the carriers to other countries.
It does not, however, seem essential to the nature of the trade that
it should be so. A Dutch merchant may, for example, employ his
capital in transacting the commerce of Poland and Portugal, by
carrying part of the surplus produce of the one to the other, not in
Dutch, but in British bottoms. It may be presumed, that he ac-
tually does so upon some particular occasions. It is upon this ac-
count, however, that the carrying trade has been supposed peculiar-
ly advantageous to such a country as Great Britain, of which the
defence and security depend upon the number of its sailors and
shipping. But the same capital may employ as many sailors and
shipping, either in the foreign trade of consumption, or even in the
home-trade, when carried on by coasting vessels, as it could in the
carrying trade. The number of sailors and shipping which any par-
ticular capital can employ, does not depend upon the nature of the
trade, but partly upon the bulk of the goods in proportion to their
value, and partly upon the distance of the ports between which they
are to be carried; chiefly upon the former of those two circum-
stances. The coal-trade from Newcastle to London, for example,
employs more shipping than all the carrying trade of England,
though the ports are at no great distance. To force, therefore, by
extraordinary encouragements, a larger share of the capital of any
country into the carrying trade, than what would naturally go to it,
will not always necessarily increase the shipping of that country.
The capital, therefore, employed in the home-trade of any coun-
try will generally give encouragement and support to a greater
quantity of productive labour in that country, and increase the
value of its annual produce more than an equal capital employed
in the foreign trade of consumption: and the capital employed in
this latter trade has in both these respects a still greater advantage
over an equal capital employed in the carr5dng trade. The riches,
and so far as power depends upon riches, the power of every coun-
try, must always be in proportion to the value of its annual produce,
the fund from which all taxes must ultimately be paid. But the
great object of the political (economy of every country, is to in-
crease the riches and power of that country. It ought, therefore, to
give no preference nor superior encouragement to the foreign trade
of consumption above the home-trade, nor to the carrying trade
EMPLOYMENT OF CAPITALS 353
above either of the other two. It ought neither to force nor to allure
into either of those two channels, a greater share of the capital of
the country than what would naturally flow into them of its own
accord.
Each of those different branches of trade, however, is not only
advantageous, but necessary and unavoidable, when the course of
things, without any constraint or violence, naturally introduces it.
When the produce of any particular branch of industry exceeds
what the demand of the country requires, the surplus must be sent
abroad, and exchanged for something for which there is a demand
at home. Without such exportation, a part of the productive labour
of the country must cease,^® and the value of its annual produce
diminish. The land and labour of Great Britain produce generally
more corn, woollens, and hard ware, than the demand of the home-
market requires. The surplus part of them, therefore, must be sent
abroad, and exchanged for something for which there is a demand
at home. It is only by means of such exportation, that this surplus
can acquire a value sufficient to compensate the labour and ex-
pence of producing it. The neighbourhood of the sea coast, and the
banks of all navigable rivers are advantageous situations for indus-
try, only because they facilitate the exportation and exchange of
such surplus produce for something else which is more in demand
there.
When the foreign goods which are thus purchased with the sur-
plus produce of domestic industry exceed the demand of the home-
market, the surplus part of them must be sent abroad again, and
exchanged for something more in demand at home. About ninety-
six thousand hogsheads of tobacco are annually purchased in Vir-
ginia and Maryland, with a part of the surplus produce of British
industry. But the demand of Great Britain does not require, per-
haps, more than fourteen thousand.^^ If the remaining eighty-two
thousand, therefore, could not be sent abroad and exchanged for
something more in demand at home, the importation of them must
cease immediately, and with it the productive labour of all those in-
habitants of Great Britain, who are at present employed in prepar-
ing the goods with which these eighty-two thousand hogsheads are
annually purchased. Those goods, which are part of the produce of
“ But why may not the labour be diverted to the production of “some-
thing for which there is a demand at home”? The “corn, woollens and hard-
ware” immediately below perhaps suggest that it is supposed the country has
certain physical characteristics which compel its inhabitants to produce par-
ticular commodities
^ Below, p. 467 The figures 96,000 and 13,500 are given in the continuation
of Anderson’s Commerce, a.d 1775, ed. of 1801, vol iv., p 187
the carry-
ing trade.
Political
economy
ought
conse-
quentl>
not to al-
lure capi-
tal into
the
foreign or
the carry-
ing trade,
though
each is
advanta-
geous
when na-
turally
intro-
duced.
The sur-
plus of
the pro-
duce of
particulai
branches
of indus-
try must
be sent
abroad-
Foreign
goods ob-
tained in
exchange
must
often be
re-export
ed
When the
other em-
ployments
are full,
the sur-
plus capi-
tal dis-
gorges it-
self into
the carry-
ing trade,
which is
a symp-
tom
rather
than a
cause of
great na-
tional
wealth.
The pos-
sible ex-
tent of the
carrying
trade is
much the
greatest.
354 THE WEALTH OF NATIONS
the land and labour of Great Britain, having no market at home,
and being deprived of that which they had abroad, must cease to
be produced. The most round-about foreign trade of consumption,
therefore, may, upon some occasions, be as necessary for supporting
the productive labour of the country, and the value of its annual
produce, as the most direct.
When the capital stock of any country is increased to such a de-
gree, that it cannot be all employed in supplying the consumption,
and supporting the productive labour of that particular country,
the surplus part of it naturally disgorges itself into the carr3dng
trade, and is employed in performing the same offices to other coun-
tries. The carrying trade is the natural effect and symptom of great
national wealth; but it does not seem to be the natural cause of it.
Those statesmen who have been disposed to favour it with particu-
lar encouragements, seem to have mistaken the effect and symptom
for the cause. Holland, in proportion to the extent of the land and
the number of its inhabitants, by far the richest country in Europe,
has, accordingly, the greatest share of the carrying trade of Europe.
England, perhaps the second richest country of Europe, is likewise
supposed to have a considerable share of it; though what commonly
passes for the carr)dng trade of England, will frequently, perhaps,
be found to be no more than a round-about foreign trade of con-
sumption. Such are, in a great measure, the trades which carry the
goods of the East and West Indies, and of America, to different
European markets. Those goods are generally purchased either im-
mediately with the produce of British industry, or with something
else which had been purchased with that produce, and the final re-
turns of those trades are generally used or consumed in Great Brit-
ain. The trade which is carried on in British bottoms between the
different ports of the Mediterranean, and some trade of the same
kind carried on by British merchants between the different ports
of India, make, perhaps, the principal branches of what is properly
the carrying trade of Great Britain.
The extent of the home-trade and of the capital which can be em-
ployed in it, is necessarily limited by the value of the surplus pro-
duce of all those distant places within the country which have occa-
sion to exchange their respective productions with one another.
That of the foreign trade of consumption, by the value of the sur-
plus produce of the whole countr)^ and of what can be purchased
with it. That of the carrying trade, by the value of the surplus pro-
duce of all the different countries in the world. Its possible extent,
therefore, is in a manner infinite in comparison of that of the other
two, and is capable of absorbing the greatest capitals.
EMPLOYMENT OP CAPITALS 355
The consideration of his own private profit, is the sole motive
which determines the owner of any capital to employ it either in
agriculture, in manufactures, or in some particular branch of the
wholesale or retail trade. The different quantities of productive la-
bour which it may put into motion, and the different values which
it may add to the annual produce of the land and labour of the so-
ciety, according as it is employed in one or other of those different
ways, never enter into his thoughts. In countries, therefore, where
agriculture is the most profitable of all employments, and farming
and improving the most direct roads to a splendid fortune, the capi-
tals of individuals will naturally be employed in the manner most
advantageous to the whole society. The profits of agriculture, how-
ever, seem to have no superiority over those of other employments
in any part of Europe. Projectors, indeed, in every corner of it,
have within these few years amused the public with most magnifi-
cent accounts of the profits to be made by the cultivation and im-
provement of land. Without entering into any particular discussion
of their calculations, a very simple observation may satisfy us that
the result of them must be false. We see every day the most splen-
did fortunes that have been acquired in the course of a single life
by trade and manufactures, frequently from a very small capital,
sometimes from no capital. A single instance of such a fortune ac-
quired by agriculture in the same time, and from such a capital, has
not, perhaps, occurred in Europe during the course of the present
century. In all the great countries of Europe, however, much good
land still remains uncultivated, and the greater part of what is cul-
tivated, is far from being improved to the degree of which it is cap-
able. Agriculture, therefore, is almost every-where capable of ab-
sorbing a much greater capital than has ever yet been employed in
it. What circumstances in the policy of Europe have given the
trades which are carried on in towns so great an advantage over
that which is carried on in the country, that private persons fre-
quently find it more for their advantage to employ their capitals in
the most distant carrying trades of Asia and America, than in the
improvement and cultivation of the most fertile fields in their own
neighbourhood, I shall endeavour to explain at full length in the
two following books.
Agricul-
ture does
not yield
sufficient
profit to
attract all
the capital
which it
might ab-
sorb.
The rea-
son will
be ex-
plained in
the next
two
books.
BOOK III
Of the different Progress of Opulence in different Nations
CHAPTER I
OF THE NATURAL PROGRESS OF OPULENCE
The great
commerce
is that be-
tween
town and
country,
which IS
obviously
advanta-
geous to
both.
The great commerce of every civilized society, is that carried on
between the inhabitants of the town and those of the country. It
consists in the exchange of rude for manufactured produce, either
immediately, or by the intervention of money, or of some sort of
paper which represents money. The country supplies the town with
the means of subsistence, and the materials of manufacture. The
town repays this supply by sending back a part of the manufac-
tured produce to the inhabitants of the country. The town, in which
there neither is nor can be any reproduction of substances,^ maj^
very properly be said to gain its whole wealth and subsistence from
the country. We must not, however, upon this account, imagine
that the gain of the town is the loss of the country. The gains of
both are mutual and reciprocal, and the division of labour is in this,
as in all other cases, advantageous to all the different persons em-
ployed in the various occupations into which it is subdivided. The
inhabitants of the country purchase of the town a greater quantity
of manufactured goods, with the produce of a much smaller quan-
tity of their own labour, than they must have employed had they
attempted to prepare them themselves. The town affords a market
for the surplus produce of the country, or what is over and above
the maintenance of the cultivators, and it is there that the inhabi-
tants of the country exchange it for something else which is in de-
mand among them. The greater the number and revenue of the in-
habitants of the town, the more extensive is the market which it
affords to those of the country; and the more extensive that mar-
^ The error that agriculture produces substances and manufacture only al-
ters them IS doubtless at the bottom of much of the support gained by the
theory of productive and unproductive labour
356
NATURAL PROGRESS OF OPULENCE 357
ket, it is always the more advantageous to a great number. The
corn which grows within a mile of the town, sells there for the same
price with that which comes from twenty miles distance. But the
price of the latter must generally, not only pay the expence of rais-
ing and bringing it to market, but afford too the ordinary profits of
agriculture to the farmer. The proprietors and cultivators of the
country, therefore, which lies in the neighbourhood of the town,
over and above the ordinary profits of agriculture, gain, in the price
of what they sell, the whole value of the carriage of the like produce
that is brought from more distant parts, and they save, besides, the
whole value of this carriage in the price of what they buy. Compare
the cultivation of the lands in the neighbourhood of any consider-
able town, with that of those which lie at some distance from it,
and you will easily satisfy yourself how much the country is bene-
fited by the commerce of the town. Among all the absurd specula-
tions that have been propagated concerning the balance of trade, it
has never been pretended that either the country loses by its com-
merce with the town, or the town by that with the country which
maintains it.
As subsistence is, in the nature of things, prior to conveniency
and luxury, so the industry which procures the former, must neces-
sarily be prior to that which ministers to the latter. The cultivation
and improvement of the country, therefore, which affords subsist-
ence, must, necessarily, be prior to the increase of the town, which
furnishes only the means of conveniency and luxury. It is the sur-
plus produce of the country only, or what is over and above the
maintenance of the cultivators, that constitutes the subsistence of
the town, which can therefore increase only with the increase of
this surplus produce. The town, indeed, may not always derive its
whole subsistence from the country in its neighbourhood, or even
from the territory to which it belongs, but from very distant coun-
tries; and this, though it forms no exception from the general rule,
has occasioned considerable variations in the progress of opulence
in different ages and nations.
That order of things which necessity imposes in general, though
not in every particular country, is, in every particular country, pro-
moted by the natural inclinations of man. If human institutions had
never thwarted those natural inclinations, the towns could no-where
have increased beyond what the improvement and cultivation of
the territory in which they were situated could support; till such
time, at least, as the whole of that territory was completely culti-
vated and improved. Upon equal, or nearly equal profits, most
men will chuse to employ their capitals rather in the improvement
The culti-
vation of
the coun-
try must
be prior
to the in-
crease of
the town,
though
the town
may
sometimes
be distant
from the
country
from
which it
derives its
subsist-
ence.
This order
of things
is fa-
voured by
the natu-
ral prefer-
ence of
man for
agricul-
ture.
Cultivat-
ors re-
quire the
assistance
of artifi-
cers, who
settle to-
gether and
forma
village,
and their
employ-
ment aug-
ments
with the
improve-
ment of
the coun-
try.
35S the wealth of nations
and cultivation of land, than either in manufactures or in foreign
trade. The man who employs his capital in land, has it more under
his view and command, and his fortune is much less liable to acci-
dents, than that of the trader, who is obliged frequently to com-
mit it, not only to the winds and the waves, but to the more uncer-
tain elements of human folly and injustice, by giving great credits
in distant countries to men, with whose character and situation he
can seldom be thoroughly acquainted. The capital of the landlord,
on the contrary, which is fixed in the improvement of his land,
seems to be as well secured as the nature of human affairs can ad-
mit of. The beauty of the country besides, the pleasures of a coun-
try life, the tranquillity of mind which it promises, and wherever
the injustice of human laws does not disturb it, the independency
which it really affords, have charms that more or less attract every
body; and as to cultivate the ground was the original destination of
man, so in every stage of his existence he seems to retain a predilec-
tion for this primitive employment.
Without the assistance of some artificers, indeed, the cultivation
of land cannot be carried on, but with great inconveniency and con-
tinual interruption. Smiths, carpenters, wheel-wrights, and plough-
wrights, masons, and bricklayers, tanners, shoemakers, and taylors,
are people, whose service the farmer has frequent occasion for. Such
artificers too stand, occasionally, in need of the assistance of one
another; and as their residence is not, like that of the farmer, neces-
sarily tied down to a precise spot, they naturally settle in the neigh-
bourhood of one another, and thus form a small town or village.
The butcher, the brewer, and the baker, soon join them, together
with many other artificers and retailers, necessary or useful for sup-
plying their occasional wants, and who contribute still further to
augment the town. The inhabitants of the town and those of the
country are mutually the servants of one another. The town is a
continual fair or market, to which the inhabitants of the country
resort, in order to exchange their rude for manufactured produce.^
It is this commerce which supplies the inhabitants of the town both
with the materials of their work, and the means of their subsistence.
The quantity of the finished work which they sell to the inhabitants
of the country, necessarily regulates the quantity of the materials
and provisions which they buy. Neither their employment nor sub-
sistence, therefore, can augment, but in proportion to the augment-
ation of the demand from the country for finished work; and this
demand can augment only in proportion to the extension of im-
® This passage, from the beginnmg of the paragraph, may well have been
suggested by Cantillon, Essai, pp, 11-22.
NATURAL PROGRESS OF OPULENCE 359
provement and cultivation. Had human institutions, therefore,
never disturbed the natural course of things, the progressive wealth
and increase of the towns would, in every political society, be conse-
quential, and in proportion to the improvement and cultivation of
the territory or country.
In our North American colonies, where uncultivated land is still
to be had upon easy terms, no manufactures for distant sale have
ever yet been established in any of their towns. When an artificer
has acquired a little more stock than is necessary for carrying on
his own business in supplying the neighbouring country, he does
not, in North America, attempt to establish with it a manufacture
for more distant sale, but employs it in the purchase and improve-
ment of uncultivated land. From artificer he becomes planter, and
neither the large wages nor the easy subsistence which that country
affords to artificers, can bribe him rather to work for other people
than for himself. He feels that an artificer is the servant of his cus-
tomers, from whom he derives his subsistence; but that a planter
who cultivates his own land, and derives his necessary subsistence
from the labour of his own family, is really a master, and indepen-
dent of all the world.
In countries, on the contrary, where there is either no unculti-
vated land, or none that can be had upon easy terms, every artificer
who has acquired more stock than he can employ in the occasional
jobs of the neighbourhood, endeavours to prepare work for more
distant sale. The smith erects some sort of iron, the weaver some
sort of linen or woollen manufactory. Those different manufactures
come, in process of time, to be gradually subdivided, and thereby
improved and refined in a great variety of ways, which may easily
be conceived, and which it is therefore unnecessary to explain any
further.
In seeking for employment to a capital, manufactures are, upon
equal or nearly equal profits, naturally preferred to foreign com-
merce, for the same reason that agriculture is naturally preferred to
manufactures. As the capital of the landlord or farmer is more se-
cure than that of the manufacturer, so the capital of the manufac-
turer, being at all times more within his view and command, is more
secure than that of the foreign merchant. In every period, indeed,
of every society, the surplus part both of the rude and manufac-
tured produce, or that for which there is no demand at home, must
be sent abroad in order to be exchanged for something for which
there is some demand at home. But whether the capital, which car-
ries this surplus produce abroad, be a foreign or a domestic one, is
of very little importance. If the society has not acquired sufficient
In the
American
colonies
an arti-
ficer who
has ac-
quired
sufficient
stock be-
comes a
planter
instead of
manufac-
turing for
distant
sale,
as in
countries
where no
unculti-
vated land
can be
procured.
Manufac-
tures are
naturally
preferred
to foreign
com-
merce.
So the
natural
course of
things is
first agri-
culture,
then
manufac-
tures, and
finally
foreign
com-
merce
But this
order has
been in
many re-
spects in-
verted.
360 the wealth of nations
capital both to cultivate all its lands, and to manufacture in the
completest manner the whole of its ® rude produce, there is even a
considerable advantage that that rude produce should ^ be exported
by a foreign capital, in order that the whole stock of the society may
be employed in more useful purposes. The wealth of ancient Egypt,
that of China and Indostan, sufficiently demonstrate that a nation
may attain a very high degree of opulence, though the greater part
of its exportation trade be carried on by foreigners. The progress of
our North American and West Indian colonies would have been
much less rapid, had not capital but what belonged to themselves
been employed in exporting their surplus produce.
According to the natural course of things, therefore, the greater
part of the capital of every growing society is, first, directed to
agriculture, afterwards to manufactures, and last of all to foreign
commerce. This order of things is so very natural, that in every so-
ciety that had any territory, it has always, I believe, been in some
degree observed. Some of their lands must have been cultivated be-
fore any considerable towns could be established, and some sort of
coarse industry of the manufacturing kind must have been carried
on in those towns, before they could well think of ejnploying them-
selves in foreign commerce.
But though this natural order of things must have taken place in
some degree in every such society, it has, in all the modern states
of Europe, been, in many respects, entirely inverted. The foreign
commerce of some of their cities has introduced all their finer manu-
factures, or such as were fit for distant sale; and manufactures and
foreign commerce together, have given birth to the principal im-
provements of agriculture. The manners and customs which the na-
ture of their original government introduced, and which remained
after that government was greatly altered, necessarily forced them
into this unnatural and retrograde order.
*Ed. I reads “their ”
^Ed. I reads “considerable advantage that it should.”
i
CHAPTER II
OF THE DISCOURAGEMENT OF AGRICULTURE IN THE ANCIENT STATE
OF EUROPE AFTER THE FALL OF THE ROMAN EMPIRE
When the German and Sc5rthian nations over-ran the western prov-
inces of the Roman empire, the confusions which followed so great
a revolution lasted for several centuries. The rapine and violence
which the barbarians exercised against the ancient inhabitants, in-
terrupted the commerce between the towns and the country. The
towns were deserted, and the country was left uncultivated, and the
western provinces of Europe, which had enjoyed a considerable de-
gree of opulence under the Roman empire, sunk into the lowest
state of poverty and barbarism. During the continuance of those
confusions, the chiefs and principal leaders of those nations, ac-
quired or usurped to themselves the greater part of the lands of
those countries. A great part of them was uncultivated; but no part
of them, whether cultivated or uncultivated, was left without a pro-
prietor. All of them were engrossed, and the greater part by a few
great proprietors.
This original engrossing of uncultivated lands, though a great,
might have been but a transitory evil. They might soon have been
divided again, and broke into small parcels either by succession or
by alienation. The law of primogeniture hindered them from being
divided by succession: the introduction of entails prevented their
being broke into small parcels by alienation.^
When land, like moveables, is considered as the means only of
subsistence and enjoyment, the natural law of succession divides it,
like them, among all the children of the family; of all of whom the
subsistence and enjoyment may be supposed equally dear to the
father. This natural law of succession accordingly took place
among the Romans, who made no more distinction between elder
and younger, between male and female, in the inheritance of lands,
than we do in the distribution of moveables. But when land was
^ Primogeniture and entails are censured as inimical to agriculture in Lec-
tures, pp 120, 124, 228
After the
fall of the
Roman
Empire
all the
land of
Western
Europe
was en-
grossed,
chiefly by
large pro-
prietors.
Primo-
geniture
and en-
tails pre-
vented the
great
estates
being
divided.
Primo-
geniture
was intro-
duced be-
cause
every
great
landlord
was a
361
pettj
^>rince.
It is now
unreason-
able, but
supports
the pride
of family
distinc-
tions
Entails
have the
same
origin,
362 the wealth of nations
considered as the means, not|,of subsistence merely, but of power
and protection, it was thought better that it should descend undi-
vided to one. In those disorderly times, every great landlord was a
sort of petty prince. His tenants were ‘his subjects. He was their
judge, and in some respects their legislator in peace, and their
leader in war. He made war according to his own discretion, fre-
quently against his neighbours, and sometimes against his sove-
reign. The security of a landed estate, therefore, the protection
which its owner could afford to those who dwelt on it, depended
upon its greatness. To divide it was to ruin it, and to expose every
part of it to be oppressed and swallowed up by the incursions of
its neighbours. The law of primogeniture, therefore, came to take
place, not immediately, indeed, but in process of time, in the suc-
cession of landed estates, for the same reason that it has generally
taken place in that of monarchies, though not always at their first
institution. That the power, and consequently the security of the
monarchy, may not be weakened by division, it must descend en-
tire to one of the -children. To which of them so important a pre-
ference shall be given, must be determined by some general rule,
founded not upon the doubtful distinctions of personal merit, but
upon some plain and evident difference which can admit of no dis-
pute. Among the children of the same family, there can be no in-
disputable difference but that of sex, and that of age. The male
sex is universally preferred to the female; and when all other
things are equal, the elder every-where takes place of the younger.
Hence the origin of the right of primogeniture, and of what is
called lineal succession.^
Laws frequently continue in force long after the circumstances,
which first gave occasion to them, and which could alone render
them reasonable, are no more. In the present state of Europe, the
proprietor of a single acre of land is as perfectly secure of his pos-
session as the proprietor of a hundred thousand. The right of prim-
ogeniture, however, still continues to be respected, and as of all
institutions it is the fittest to support the pride of family distinc-
tions, it is still likely to endure for many centuries. In every other
respect, nothing can be more contrary to the real interest of a nu-
merous family, than a right which in order to enrich one, beggars
all the rest of the children.
Entails are the natural consequences of the law of primogeni-
ture. They were introduced to preserve a certain lineal succession,
of which the law of primogeniture first gave the idea, and to
hinder any part of the original estate from being carried out of the
^ Lectures, 117-118.
DISCOURAGEMENT OP AGRICULTURE 3^3
proposed line either by gift, or devise, or alienation ; either by the
folly, or by the misfortune of any of its successive owners. They
were altogether unknown to the Romans. Neither their substitu-
tions nor fideicommisses bear any resemblance to entails, though
some French lawyers have thought proper to dress the modern
institution in the language and garb ^ of those antient ones.*^
When great landed estates were a sort of principalities, entails and are
might not be unreasonable. Like what are called the fundamental
laws of some monarchies, they might frequently hinder the secur-
ity of thousands from being endangered by the caprice or extrava-
gance of one man. But in the present state of Europe, when small
as well as great estates derive their security from the laws of their
country, nothing can be more completely absurd. They are founded
upon the most absurd of all suppositions, the supposition that
every successive generation of men have not an equal right to the
earth, and to all that it possesses; but that the property of the
present generation should be restrained and regulated according
to the fancy of those who died perhaps five hundred years ago.®
Entails, however, are still respected trough the greater part of
Europe, in those countries particularly in which noble birth is a
necessary qualification for the enjoyment either of civil or military
honours. Entails are thought necessary for maintaining this ex-
clusive privilege of the nobility to the great offices and honours of
their country; and that order having usurped one unjust advant-
age over the rest of their fellow-citizens, lest their poverty should
render it ridiculous, it is thought reasonable that they should have
another. The common law of England, indeed, is said to abhor
perpetuities, and they are accordingly more restricted there than
in any other European monarchy; though even England is not al-
together without them. In Scotland more than one-fifth, perhaps
more than one-third part of the whole lands of the country, are
at present supposed to be ® under strict entail.
Great tracts of uncultivated land were, in this manner, not only Great
engrossed by particular families, but the possibility of their be-
ing divided again was as much as possible precluded for ever. It seldom^
seldom happens, however, that a great proprietor is a great im- great im-
prover. In the disorderly times which gave birth to those barbarous Plovers,
institutions, the great proprietor was sufficiently employed in de-
fending his own territories, or in extending his jurisdiction and au-
® Ed. I reads “form.”
^ In Lectures, p 123, the Roman origin of entails appears to be accepted
® This passage follows Lectures, p 124, rather closely, reproducing even the
repetition of “absurd ”
® Ed I does not contain “supposed to be ”
Ine occu-
piers were
not likely
to im-
prove, as
they were
slaves at-
tached to
the land
and in-
capable
of acquir-
ing
property
364 THE WEALTH OF NATIONS
thority over those of his neighbours. He had no leisure to attend
to the cultivation and improvement of land. When the establish-
ment of law and order afforded him this leisure, he often wanted
the inclination, and almost always the requisite abilities. If the ex-
pence of his house and person either equalled or exceeded his rev-
enue, as it did very frequently, he had no stock to employ in this
manner. If he was an ceconomist, he generally found it more profit-
able to employ his annual savings in new purchases, than in the
improvement of his old estate. To improve land with profit, like
all other commercial projects, requires an exact attention to small
savings and small gains, of which a man born to a great fortune,
even though naturally frugal, is very seldom capable. The situ-
ation of such a person naturally disposes him to attend rather to
ornament which pleases his fancy, than to profit for which he has
so little occasion. The elegance of his dress, of his equipage, of his
house, and household furniture, are objects which from his in-
fancy he has been accustomed to have some anxiety about. The
turn of mind which this habit naturally forms, follows him when
he comes to think of the improvement of land. He embellishes per-
haps four or five hundred acres in the neighbourhood of his house,
at ten times the expence which the land is worth after all his im-
provements; and finds that if he was to improve his whole estate
m the same manner, and he has little taste for any other, he would
be a bankrupt before he had finished the tenth part of it. There
still remain in both parts of the united kingdom some great estates
which have continued without interruption in the hands of the
same family since the times of feudal anarchy. Compare the pres-
ent condition of those estates with the possessions of the small
proprietors in their neighbourhood, and you will require no other
argument to convince you how unfavourable such extensive prop-
erty is to improvement.'^
If little improvement was to be expected from such great pro-
prietors, still less was to be hoped for from those who occupied the
land under them. In the ancient state of Europe, the occupiers of
land were all tenants at will. They were all or almost all slaves;
but their slavery was of a milder kind than that known among the
ancient Greeks and Romans, or even in our West Indian colonies.
They were supposed to belong more directly to the land than to
their masters. They could, therefore, be sold with it, but not
separately. They could marry, provided it was with the consent
of their master; and he could not afterwards dissolve the marriage
by selling the man and wife to different persons. If he maimed or
^This remark follows Lectures, p. 228. Cp. below, pp. 384, 385, 392.
DISCOURAGEMENT OF AGRICULTURE 3^5
murdered any of them, he was liable to some penalty, though gen-
erally but to a small one. They were not, however, capable of ac-
quiring property. Whatever they acquired was acquired to their
master, and he could take it from them at pleasure. Whatever cul-
tivation and improvement could be carried on by means of such
slaves, was properly carried on by their master. It was at his ex-
pence. The seed, the cattle, and the instruments of husbandry
were all his. It was for his benefit. Such slaves could acquire noth-
ing but their daily maintenance. It was properly the proprietor
himself, therefore, that, in this case, occupied his own lands, and
cultivated them by his own bondmen. This species of slavery still
subsists in Russia, Poland, Hungary, Bohemia, Moravia, and other
parts of Germany. It is only in the western and south-western
provinces of Europe, that it has gradually been abolished alto-
gether.®
But if great improvements are seldom to be expected from great
proprietors, they are least of all to be expected when they employ
slaves for their workmen. The experience of all ages and nations, I
believe, demonstrates that the work done by slaves, though it ap-
pears to cost only their maintenance, is in the end the dearest of
any. A person who can acquire no property, can have no other in-
terest but to eat as much, and to labour as little as possible. What-
ever work he does beyond what is sufficient to purchase his own
maintenance, can be squeezed out of him by violence only, and not
by any interest of his own. In ancient Italy, how much the culti-
vation of corn degenerated, how unprofitable it became to the
master when it fell under the management of slaves, is remarked
by both Pliny and Columella.® In the time of Aristotle it had not
been much better in ancient Greece. Speaking of the ideal republic
described in the laws of Plato, to maintain five thousand idle men
(the number of warriors supposed necessary for its defence) to-
gether with their women and servants, would require, he says, a
territory of boundless extent and fertility, like the plains of Baby-
lon.^®
The pride of man makes him love to domineer, and nothing
mortifies him so much as to be obliged to condescend to persuade
his inferiors. WTierever the law allows it, and the nature of the work
can afford it, therefore, he will generally prefer the service of slaves
to that of freemen. The planting of sugar and tobacco can afford
® “A small part of the West of Europe is the only portion of the globe that
is free from slavery,” “and is nothing in comparison with the vast continents
where it still prevails.”— p. 96.
® Pliny, H. N.j lib. xviii., cap. iv.; Columella, De re rusiica, lib. i., praefatio
Politics, 1265a.
Slave la-
bour is
the dear-
est of all
At present
sugar and
tobacco
can afford
slave cul-
tivation,
com
cannot.
The slaves
were suc-
ceeded by
metayers,
who are
' ery dif-
lerentin
that they
can ac-
quire
property.
366 the wealth of nations
the expence of slave cultivation. The raising of corn, it seems, in
the present times, cannot. In the English colonies, of which the
principal produce is corn, the far greater part of the work is done
by freemen. The late resolution of the Quakers in Pennsylvania to
set at liberty all their negro slaves, may satisfy us that their
number cannot be very great. Had they made any considerable
part of their property, such a resolution could never have been
agreed to. In our sugar colonies, on the contrary, the whole work
is done by slaves, and in our tobacco colonies a very great part of
it. The profits of a sugar-plantation in any of our West Indian
colonies are generally much greater than those of any other cul-
tivation that is known either in Europe or America: And the profits
of a tobacco plantation, though inferior to those of sugar, are su-
perior to those of corn, as has already been observed.^^ Both can
afford the expence of slave cultivation, but sugar can afford it still
better than tobacco. The number of negroes accordingly is much
greater, in proportion to that of whites, in our sugar than in our
tobacco colonies.
To the slave cultivators of ancient times, gradually succeeded a
species of farmers known at present in France by the name of
metayers. They are called in Latin, Coloni Partiarii. They have
been so long in disuse in England that at present I know no Eng-
lish name for them. The proprietor furnished them with the seed,
cattle, and instruments of husbandry, the whole stock, in short,
necessary for cultivating the farm. The produce was divided
equally between the proprietor and the farmer, after setting aside
what was judged necessary for keeping up the stock, which was
restored to the proprietor when the farmer either quitted, or was
turned out of the farm.^^
Land occupied by such tenants is properly cultivated at the ex-
pence of the proprietor, as much as that occupied by slaves. There
is, however, one very essential difference between them. Such ten-
ants, being freemen, are capable of acquiring property, and having
a certain proportion of the produce of the land, they have a plain
interest that the whole produce should be as great as possible, in
order that their own proportion may be so. A slave, on the con-
trary, who can acquire nothing but his maintenance, consults his
own ease by making the land produce as little as possible over and
above that maintenance. It is probable that it was partly upon
account of this advantage, and partly upon account of the en-
croachments which the sovereign, always jealous of the great lords,
^Raynal, Histoire philosophique (Amsterdam ed.), tom. vi., pp. 368-388.
“Above, p. 158; Lectures, p. 225. Ibid., pp. 100, loi.
DISCOURAGEMENT OF AGRICULTURE 3^7
gradually encouraged their villains to make upon their authority,
and which seem at last to have been such as rendered this species
of servitude altogether inconvenient, that tenure in villanage
gradually wore out through the greater part of Europe. The time
and manner, however, in which so important a revolution was
brought about, is one of the most obscure points in modern his-
tory. The church of Rome claims great merit in it; and it is cer-
tain that so early as the twelfth century, Alexander III.^*^ pub-
lished a bull for the general emancipation of slaves. It seems, how-
ever, to have been rather a pious exhortation, than a law to which
exact obedience was required from the faithful. Slavery continued
to take place almost universally for several centuries afterwards,
till it was gradually abolished by the joint operation of the two in-
terests above mentioned, that of the proprietor on the one hand,
and that of the sovereign on the other. A villain enfranchised, and
at the same time allowed to continue in possession of the land,
having no stock of his own, could cultivate it only by means of
what the landlord advanced to him, and must, therefore, have been
what the French call a metayer.
It could never, however, be the interest even of this last species
of cultivators to lay out, in the further improvement of the land,
any part of the little stock which they might save from their own
share of the produce, because the lord, who laid out nothing, was
to get one-half of whatever it produced. The tithe, which is but a
tenth of the produce, is found to be a very great hindrance to im-
proveiilent. A tax, therefore, which amounted to one-half, must
have been an effectual bar to it. It might be the interest of a me-
tayer to make the land produce as much as could be brought out
of it by means of the stock furnished by the proprietor; but it
-^ould never be his interest to mix any part of his own with it. In
France, where five parts out of six of the whole kingdom are said
to be still occupied by this species of cultivators,^^ the proprietors
complain that their metayers take every opportunity of employing
the master’s cattle rather in carriage than in cultivation; because
in the one case they get the whole profits to themselves, in the
other they share them with their landlord. This species of tenants
still subsists in some parts of Scotland. They are called steel-bow^®
^*Raynal, Histoire pMlosopJngtie (Amsterdam ed.), tom. i., p. 12. In Lec-
tures, pp. loi, 102, Innocent III. appears in error for Alexander III.
“Probably Quesnay’s estimate; cp. his article on “Fermiers” in the En-
cyclopidie, reprinted in his (Euvres, ed. Oncken, 1888, pp. 160, 171.
“ (iarnier is certainly wrong in suggesting in his note, “ce nom vient prob-
ablement de la maniere dont ils etaient autrefois armes en guerre.”— Rec^er-
ches, etc., tom. ii., p. 428. “Bow” is the farming stock; “steel” is said to in-
dicate the nature of the contract, and eisern vieh and bestia ferri are quoted
But they
could
have no
interest to
employ
stock in
improve-
ment.
Metayers
were fol-
lowed by
farmers,
who
sometimes
find it to
their in-
terest to
improve
when they
have a
lease, but
leases
were long
insecure.
The
forty-
shilling
free
holder
vote in
England
centri-
sts the wealth of nations
tenants. Those ancient English tenants, who are said by Chief
Baron Gilbert and Doctor Blackstone to have been rather bailiffs
of the landlord than farmers properly so called, were probably
of the same kind.^"^
To this species of tenancy succeeded, though by very slow de-
grees, farmers properly so called, who cultivated the land with
their own stock, paying a rent certain to the landlord. When such
farmers have a lease for a term of years, they may sometimes find
it for their interest to lay out part of their capital in the further
improvement of the farm; because they may sometimes expect to
recover it, with a large profit, before the expiration of the lease.
The possession even of such farmers, however, was long extremely
precarious, and still is so in many parts of Europe. They could be-
fore the expiration of their term be legally outed of their lease, by
a new purchaser; in England, even by the fictitious action of a
common recovery. If they were turned out illegally by the violence
of their master, the action by which they obtained redress was ex-
tremely imperfect. It did not always re-instate them in the posses-
sion of the land, but gave them damages which never amounted to
the real loss. Even in England, the country perhaps of Europe
where the yeomanry has always been most respected, it was not
till about the 14th of Henry the Vllth that the action of ejectment
was invented,^® by which the tenant recovers, not damages only
but possession, and in which his claim is not necessarily concluded
by the uncertain decision of a single assize. This action has been
found so effectual a remedy that, in the modern practice, when the
landlord has occasion to sue for the possession of the land, he sel-
dom makes use of the actions which properly belong to him as
landlord, the writ of right or the writ of entry, but sues in the
name of his tenant, by the writ of ejectment. In England, there-
fore, the security of the tenant is equal to that of the proprietor.
In England besides a lease for life of forty shillings a year value is
a freehold, and entitles the lessee to vote for a member of parlia-
ment; and as a great part of the yeomanry have freeholds of this
kind, the whole order becomes respectable to their landlords on ac-
count of the political consideration which this gives them.^® There
is, I believe, no-where in Europe, except in England, any instance
as parallels by Cosmo Innes, Lectures on Scotch Legal Antiquities, 1872, pp.
24 S> 266.
Gilbert, Treatise of Tenures, 3rd ed., i 757 > PP- 34 and 54; Blackstone,
Commentaries, vol, ii., pp. 141, 142. The whole paragraph follows Lectures,
p. 226, rather closely.
“M. Bacon, New Abridgment of the Law, 3rd ed., 1768, vol ii., p. 160, s.v.
Ejectment, cp Lectures, p. 227.
“ Blackstone, Commentaries, iii., 197. ^Lectures, pp. 227-228
DISCOURAGEMENT OF AGRICULTURE 3^9
of the tenant building upon the land of which he had no lease, and
trusting that the honour of his landlord would take no advantage
of so important an improvement. Those laws and customs so fa-
vourable to the yeomanry, have perhaps contributed more to the
present grandeur of England, than all their boasted regulations of
commerce taken together.
The law which secures the longest leases against successors of
every kind is, so far as I know, peculiar to Great Britain. It was
introduced into Scotland so early as 1449, a law of James the
Ild.^^ Its beneficial influence, however, has been much obstructed
by entails; the heirs of entail being generally restrained from let-
ting leases for any long term of years, frequently for more than
one year. A late act of parliament has, in this respect, somewhat
slackened their fetters, though they are still by muA too strait. In
Scotland, besides, as no leasehold gives a vote for a member of
parliament, the yeomanry are upon this account less respectable to
their landlords than in England.
In other parts of Europe, after it was found convenient to se-
cure tenants both against heirs and purchasers, the term of their
security was still limited to a very short period; in France, for
example, to nine years from the commencement of the lease. It has
in that country, indeed, been lately extended to twenty-seven, a
period still too short to encourage the tenant to make the most im-
portant improvements. The proprietors of land were anciently the
legislators of every part of Europe. The laws relating to land,
therefore, were all calculated for what they supposed the interest
of the proprietor. It was for his interest, they had imagined, that
no lease granted by any of his predecessors should hinder him from
enjoying, during a long term of years, the full value of his land.
Avarice and injustice are always shortsighted, and they did not
foresee how much this regulation must obstruct improvement, and
thereby hurt in the long-run the real interest of the landlord.^^
The farmers too, besides paying the rent, were anciently, it was
supposed, bound to perform a great number of services to the land-
lord, which were seldom either specified in the lease, or regulated
by any precise rule, but by the use and wont of the manor or
barony. These services, therefore, being almost entirely arbitrary,
subjected the tenant to many vexations. In Scotland the abolition
of all services, not precisely stipulated in the lease,^® has in the
Acts of 1449, c. 6, “ordained for the safety and favour of the poor people
that labours the ground ”
10 Geo. III., c. SI. “ Below, p. 643
^ Lectures, pp. 226, 327. “ 20 Geo. II., c. 50, § 21.
butes to
the se-
curity of
the
farmer.
The law
of Scot-
land is not
quite so
favour-
able.
In the rest
of Europe
the farmer
is less se-
cure.
Custom-
ser-
vices were
vexatious
to the
farmer,
and so
also were
compul-
sory la-
bour on
the roadsj
purvey-
ance
and tal-
lages.
Even un-
der the
best laws
370 the wealth of nations
course of a few years very much altered for the better the condi-
tion of the yeomanry of that country.
The public services to which the yeomanry were bound, were
not less arbitrary than the private ones. To make and maintain the
high roads, a servitude which still subsists, I believe, every-where,
though with different degrees of oppression in different countries,
was not the only one. When the king’s troops, when his household
or his officers of any kind passed through any part of the country,
the yeomanry were bound to provide them with horses, carriages,
and provisions, at a price regulated by the purveyor. Great Brit-
ain is, I believe, the only monarchy in Europe where the oppres-
sion of purveyance has been entirely abolished. It still subsists in
France and Germany.
The public taxes to which they were subject were as irregular
and oppressive as the services. The ancient lords, though extremely
unwilling to grant themselves any pecuniary aid to their sove-
reign, easily allowed him to tallage, as they called it, their ten-
ants,^® and had not knowledge enough to foresee how much this
must in the end affect their own revenue. The taille, as it still sub-
sists in France, may serve as an example of those ancient tallages.
It is a tax upon the supposed profits of the farmer, which they
estimate by the stock that he has upon the farm. It is his interest,
therefore, to appear to have as little as possible, and consequently
to employ as little as possible in its cultivation, and none in its
improvement. Should any stock happen to accumulate in the
hands of a French farmer, the taille is almost equal to a prohibi-
tion of its ever being employed upon the land. This tax besides is
supposed to dishonour whoever is subject to it, and to degrade
him below, not only the rank of a gentleman, but that of a burg-
her, and whoever rents the lands of another becomes subject to it.
No gentleman, nor even any burgher who has stock, will submit
to this degradation. This tax, therefore, not only hinders the stock
which accumulates upon the land from being employed in its im-
provement, but drives away all other stock from it. The ancient
tenths and fifteenths,^® so usual in England in former times, seem
so far as they af ected the land, to have been taxes of the same na-
ture with the taille.
Under all these discouragements, little improvement could be
expected from the occupiers of land. That order of people, with all
the liberty and security which law can give, must always improve
^Lectures, p. 227. «Ed. i reads “that.”
Origmally tenths and fifteenths of movable goods; subsequently fixed
^ms levied from the parishes, and raised by them like other local rates; see •
Cannan, History of Local Rates, 1896, pp. 13-14, 18-20, 22 note, 23 note.
DISCOURAGEMENT OP AGRICULTURE 37 i
under great disadvantages. The farmer compared with the pro-
prietor, is as a merchant who trades with borrowed money com-
pared with one who trades with his own. The stock of both may
improve, but that of the one, with only equal good conduct, must
always improve more slowly than that of the other, on account of
the large share of the profits which is consumed by the interest of
the loan. The lands cultivated by the farmer must, in the same
manner, with only equal good conduct, be improved more slowly
than those cultivated by the proprietor; on account of the large
share of the produce which is consumed in the rent, and which,
had the farmer been proprietor, he might have employed in the
further improvement of the land.^® The station of a farmer besides
is, from the nature of things, inferior to that of a proprietor.
Through the greater part of Europe the yeomanry are regarded as
an inferior rank of people, even to the better sort of tradesmen and
mechanics, and in all parts of Europe to the great merchants and
master manufacturers. It can seldom happen, therefore, that a
man of any considerable stock should quit the superior, in order
to place himself in an inferior station. Even in the present state
of Europe, therefore, little stock is likely to go from any other
profession to the improvement of land in the way of farming.
More does perhaps in Great Britain than in any other country,
though even there the great stocks which are, in some places, em-
ployed in farming, have generally been acquired by farming, the
trade, perhaps, in which of all others stock is commonly acquired
most slowly. After small proprietors, however, rich and great farm-
ers are, in every country, the principal improvers. There are more
such perhaps in England than in any other European monarchy.
In the republican governments of Holland and of Berne in Switzer-
land, the farmers are said to be not inferior to those of England.®^
The ancient policy of Europe was, over and above all this, un-
favourable to the improvement and cultivation of land, whether
carried on by the proprietor or by the farmer; first, by the general
prohibition of the exportation of com without a special licence,
which seems to have been a very universal regulation; and sec-
ondly, by the restraints which were laid upon the inland com-
merce, not only of corn but of almost every other part of the pro-
duce of the farm, by the absurd laws against engrossers, regraters,
and forestallers, and by the privileges of fairs and markets.^^ It
has already been observed in what manner the prohibition of the
^ Lectures f p. 226.
^Essays on Husbandry (by Walter Harte), 1764? PP* 69-80.
^ Below, pp. 490-500.
the farm-
er is at a
disad-
vantage
inim-
provinc,
but large
farmers
are the
principal
improvers
after
small pro-
prietors
The com-
mon pro-
hibition
of the ex-
port of
corn and
the re-
straints
on inter-
nal trade
372
THE WEALTH OF NATIONS
in agri-
cultural
produce
were fur-
ther dis-
courage-
mentsto
agricul-
ture.
exportation of com, together with some encouragement given to
the importation of foreign com, obstructed the cultivation of an-
cient Italy, naturally the most fertile country in Europe, and at
that time the seat of the greatest empire in the world.^^ To what
degree such restraints upon the inland commerce of this commod-
ity, joined to the general prohibition of exportation, must have
discouraged the cultivation of countries less fertile, and less fa-
vourably circumstanced, it is not perhaps very easy to imagine.
^ Above, p. 150; Lectures, p. 229,
CHAPTER III
OF THE RISE AND PROGRESS OF CITIES AND TOWNS, AFTER THE
FALL OF THE ROMAN EMPIRE
The inhabitants of cities and towns were, after the fall of the Ro-
man empire, not more favoured than those of the country. They
consisted, indeed, of a very different order of people from the first
inhabitants of the ancient republics of Greece and Italy. These
last were composed chiefly of the proprietors of lands, among
whom the public territory was originally divided, and who found
it convenient to build their houses in the neighbourhood of one
another, and to surround them with a wall, for the sake of com-
mon defence. After the fall of the Roman empire, on the contrary,
the proprietors of land seem generally to have lived in fortified
castles on their own estates, and in the midst of their own tenants
and dependants. The towns were chiefly inhabited by tradesmen
and mechanics, who seem in those days to have been of servile, or
very nearly of servile condition. The privfleges which we find
granted by ancient charters to the inhabitants of some of the prin-
cipal towns in Europe, sufficiently shew what they were before
those grants. The people to whom it is granted as a privilege, that
they might give away their own daughters in marriage without the
consent of their lord, that upon their death their own children, and
not their lord, should succeed to their goods, and that they might
dispose of their own effects by will, must, before those grants,
have been either altogether, or very nearly in the same state of
villanage with the occupiers of land in the country.
They seem, indeed, to have been a very poor, mean set of peo-
ple, who used to travel about with their goods from place to place,
and from fair to fair, like the hawkers and pedlars of the present
times.^ In all the different countries of Europe then, in the same
manner as in several of the Tartar governments of Asia at present,
taxes used to be levied upon the persons and goods of travellers.
The
towns-
men were
not at
first
favoured
more than
the coun-
trymen.
They
were ver3i
nearly of
servile
condition.
^Lectures, p. 233.
373
but ar-
rived at
liberty
much
earlier
than the
country
people,
acquiring
the farm
of their
town,
374 THE WEAL^gH OF NATIONS
when they passed through certain manors, when they went over
certain bridges, when they carried about their goods from place to
place in a fair, when they erected in it a booth or stall to sell them
in. These different taxes were known in England by the names of
passage, pontage, lastage, and stallage. Sometimes the king, some-
times a great lord, who had, it seems, upon some occasions, au-
thority to do this, would grant to particular traders, to such par-
ticularly as lived in their own demesnes, a general exemption from
such taxes. Such traders, though in other respects of servile, or
very nearly of servile condition, were upon this account called
Free-traders. They in return usually paid to their protector a sort
of annual poll-tax. In those days protection was seldom granted
without a valuable consideration, and this tax might, perhaps, be
considered as compensation for what their patrons might lose by
their exemption from other taxes. At first, both those poll-taxes
and those exemptions seem to have been altogether personal, and
to have affected only particular individuals, during either their
lives, or the pleasure of their protectors. In the very imperfect ac-
counts which have been published from Domesday-book, of sev-
eral of the towns of England, mention is frequently made some-
times of the tax which particular burghers paid, each of them,
either to the king, or to some other great lord, for this sort of pro-
tection; and sometimes of the general amount only of all those
taxes.^
But how servile soever may have been originally the condition
of the inhabitants of the ^ towns, it appears evidently, that they
arrived at liberty and independency much earlier than the occu-
piers of land in the country. That part of the king’s revenue which
arose from such poll-taxes in any particular town, used commonly
to be let in farm, during a term of years for a rent certain, some-
times to the sheriff of the county, and sometimes to other persons.
The burghers themselves frequently got credit enough to be ad-
mitted to farm the revenues of this sort which arose out of their
own town, they becoming jointly and severally answerable for the
whole rent."^ To let a farm in this manner was quite agreeable to
^See Brady’s historical treatise of Cities and Burroughs, p. 3, &c. Robert
Brady, Historical Treatise of Cities and Burghs or Boroughs, 2nd ed., 1711.
See, for the statements as to the position of townsmen and traders contained
in these two paragraphs, esp. pp. 16, 18, and Appendix, p. 8. Cp. Hume, His-
tory, ed. of 1773, vol. i., p. 205, where Domesday and Brady are both men-
tioned. The note appears first in ed. 2.
^ Ed. I does not contain “the.”
*See Madox Firma Burgi, 1726, p. 18. also Madox, History and Antiquities
of the Exchequer, chap. 10. sect. v. p. 223, first edition 1711. But the state-
ment in the text above that the farm was in place of poll taxes is not sup-
375
RISE OF TOWNS
the usual oeconomy of, I believe, the sovereigns of all the different
countries of Europe; who used frequently to let whole manors to
all the tenants of those manors, they becoming jointly and sever-
ally answerable for the whole rent; ^ but in return being allowed
to collect it in their own way, and to pay it into the king’s ex-
chequer by the hands of their own bailiff, and being thus alto-
gether freed from the insolence of the kings officers; a circum-
stance in those days regarded as of the greatest importance.
At first, the farm of the town w^as probably let to the burghers,
in the same manner as it had been to other farmers, for a term
of years only. In process of time, however, it seems to have be-
come the general practice to grant it to them in fee, that is for
ever, reserving a rent certain never afterwards to be augmented.
The payment having thus become perpetual, the exemptions, in
return for which it was made, naturally became perpetual too.
Those exemptions, therefore, ceased to be personal, and could not
afterwards be considered as belonging to individuals as individuals,
but as burghers of a particular burgh, which upon this account,
was called a Free burgh, for the same reason that they had been
called Free-burghers or Free-traders.
Along with this grant, the important privileges above men-
tioned, that they might give away their own daughters in marriage,
that their children should succeed to them, and that they might
dispose of their own effects by will, were generally bestowed upon
the burghers of the town to whom it was given. Whether such
privileges had before been usually granted along with the freedom
of trade, to particular burghers, as individuals, I know not. I
reckon it not improbable that they were, though I cannot produce
any direct evidence of it. But however this may have been, the
principal attributes of villanage and slavery being thus taken
away from them, they now, at least, became really free in our pres-
ent sense of the word Freedom.
Nor was this all. They were generally at the same time erected
into a commonalty or corporation, with the privilege of having
magistrates and a town-council of their own, of making bye-laws
for their own government, of building walls for their own defence,
and of reducing all their inhabitants under a sort of military disci-
ported by Firma Burgi, p. 251, where Madox says the “yearly ferme of towns
arose out of certain locata or demised things that yielded issues or profit,”
e.g.f assised rents, pleas, perquisites, custom of goods, fairs, markets, stallage,
aldermanries, tolls and wharfage. It was only if these fell short of the farm,
that a direct contribution from the townsmen would be levied. The note ap-
pears first in ed. 2.
® An instance is given in Firma Burgh P* 21.
first for a
term of
years and
after-
wards in
perpe-
tuity,
as well as
other
privileges
equiva-
lent to
freedom,
and a
govern-
ment of
their own.
It seems
strange
that sov-
ereigns
should
have
aban-
doned the
prospect
of in-
creased
revenue
and have
erected
indepen-
dent re-
publics,
but the
towns
were the
natural
allies of
the sover-
eign
against
the lords.
376 the wealth of nations
pline, by obliging them to watch and ward; that is, as anciently
understood, to guard and defend those walls against all attacks
and surprises by night as well as by day. In England they were
generally exempted from suit to the hundred and county courts;
and all such pleas as should arise among them, the pleas of the
crown excepted, were left to the decision of their own magistrates.
In other countries much greater and more extensive jurisdictions
were frequently granted to them.®
It might, probably, be necessary to grant to such towns as were
admitted to farm their own revenues, some sort of compulsive
jurisdiction to oblige their own citizens to make payment. In those
disorderly times it might have been extremely inconvenient to have
left them to seek this sort of justice from any other tribunal. But
it must seem extraordinary that the sovereigns of all the different
countries of Europe, should have exchanged in this manner for a
rent certain, never more to be augmented, that branch of their
revenue, which was, perhaps, of all others the most likely to be
improved by the natural course of things, without either expence
or attention of their own: and that they should, besides, have in
this manner voluntarily erected a sort of independent republics in
the heart of their own dominions.
In order to understand this, it must be remembered, that in
those days the sovereign of perhaps no country in Europe was able
to protect, through the whole extent of his dominions, the weaker
part of his subjects from the oppression of the great lords. Those
whom the law could not protect, and who were not strong enough
to defend themselves, were obliged either to have recourse to the
protection of some great lord, and in order to obtain it to become
either his slaves or vassals; or to enter into a league of mutual de-
fence for the common protection of one another. The inhabitants
of cities and burghs, considered as single individuals, had no power
to defend themselves; but by entering into a league of mutual de-
fence with their neighbours, they were capable of making no con-
temptible resistance. The lords despised the burghers, whom they
considered not only as of a different order, but as a parcel of
emancipated slaves, almost of a different species from themselves.
®See Madox Pinna Burgi: See also Pfeffel in the remarkable events under
Frederic II. and his successors of the house of Suabia. This note appears first
in ed. 2. In Pfeffel's Nouvel Abrege chronologique de Vhistom et du droit
public d^AUemagnOy “Ev&iements remarquables sous Frederic II.” is a
chapter heading, and subsequent chapters are headed in the same way. For
the references to the power of the towns, see the index, s.v, Villes at the end of
tom. i.
’^Lectures, p. 40.
RISE OF TOWNS 377
The wealth of the burghers never failed to provoke their envy and
indignation, and they plundered them upon every occasion without
mercy or remorse. The burghers naturally hated and feared the
lords. The king hated and feared them too; but though perhaps
he might despise, he had no reason either to hate or fear the
burghers. Mutual interest, therefore, disposed them to support the
king, and the king to support them against the lords. They were
the enemies of his enemies, and it was his interest to render them
as secure and independent of those enemies as he could. By grant-
ing them magistrates of their own, the privilege of making bye-
laws for their own government, that of building walls for their own
defence, and that of reducing all their inhabitants under a sort of
military discipline, he gave them all the means of security and in-
dependency of the barons w^hich it was in his power to bestow.
Without the establishment of some regular government of this
kind, without some authority to compel their inhabitants to act
according to some certain plan or system, no voluntary league of
mutual defence could either have afforded them any permanent
security, or have enabled them to give the king any considerable
support. By granting them the farm of their town in fee, he took
away from those whom he wished to have for his friends, and, if
one may say so, for his allies, all ground of jealousy and suspicion
that he was ever afterwards to oppress them, either by raising the
farm rent of their towns, or by granting it to some other farmer.
The princes who lived upon the worst terms with their barons,
seem accordingly to have been the most liberal in grants of this
kind to their burghs. King John of England, for example, appears
to have been a most munificent benefactor to his towns.® Philip
the First of France lost all authority over his barons. Towards the
end of his reign, his son Lewis, known afterwards by the name of
Lewis the Fat, consulted, according to Father Daniel, with the
bishops of the royal demesnes, concerning the most proper means
of restraining the violence of the great lords.® Their advice con-
sisted of two different proposals. One was to erect a new order of
® See Madox Firma Bufii, pp. 35, 130. The note is not in ed. i.
“L’excommunication de Philippe I. et son inapplication aux affaires avai-
ent presque mine toute son autorite en France. . . . Les plus puissants vas-
saux de France etaient devenus plus que jamais indociles a Fegard du sou-
verain. . . . Louis le Gros, a qui Philippe son pfere avait abandonnd la con-
duite de Fetat sur les dernieres annees de sa vie, delibera avec les ^veques du
domaine royal, des moyens de remedier a ces maux, et imagina avec eux une
nouvelle police pour la levee des troupes, et une nouvelle forme de justice
dans les ^les pour empecher Fimpunite des crimes.”--G. Daniel, Histoire de
France, 1755, vol. iii., pp. 512-513. A description of the new institutions fol-
lows, pp. 513-514.
The sov-
ereigns
who
quarrelled
most with
the
barons
were the
most lib-
eral to
the
towns.
The city
militia
was often
ableio
over-
power the
neigh-
bouring
lords, as
in Italy
and Swit-
zerland.
In France
and Eng-
land the
cities
could not
be taxed
without
their own
consent.
37S the wealth of nations
jurisdiction by establishing magistrates and a town council in
every considerable town of his demesnes. The other was to form a
new militia, by making the inhabitants of those towns, under the
command of their own magistrates, march out upon proper oc-
casions to the assistance of the king. It is from this period, accord-
ing to the French antiquarians,’ that we are to date the institu-
tion of the magistrates and councils of cities in France. It was
during the unprosperous reigns of the princes of the house of
Suabia that the greater part of the free towns of Germany received
the first grants of their privileges, and that the famous Hanseatic
league first became formidable.”
The militia of the cities seems, in those times, not to have been
inferior to that of the country, and as they could be more readily
assembled upon any sudden occasion, they frequently had the ad-
vantage in their disputes with the neighbouring lords. In coun-
tries, such as Italy and Switzerland, in which, on account either of
their distance from the principal seat of government, of the nat-
ural strength of the country itself, or of some other reason, the
sovereign came to lose the whole of his authority, the cities gen-
erally became independent republics, and conquered all the no-
bility in their neighbourhood; obliging them to pull down their
castles in the country, and to live, like other peaceable inhabit-
ants, in the city. This is the short history of the republic of Berne,
as well as of several other cities in Switzerland. If you except
Venice, for of that city the history is somewhat different, it is the
history of all the considerable Italian republics, of which so great
a number arose and perished, between the end of the twelfth and
the begmning of the sixteenth century.
In countries such as France or England, where the authority of
the sovereign, though frequently very low, never was destroyed
altogether, the cities had no opportunity of becoming entirely in-
dependent. They became, however, so considerable, that the sove-
reign could impose no tax upon them, besides the stated farm-
rent of the town, without their own consent. They were, therefore,
called upon to send deputies to the general assembly of the states
of the kingdom, where they might join with the clergy and the
barons in granting, upon urgent occasions, some extraordinary
aid to the king. Being generally too more favourable to his power,
their deputies seem, sometimes, to have been employed by him as
“Possibly Du Cange (who is referred to in the margin of Daniel, p 514,
and by Hume, History, ed. 1773, vol, ii., p. 118), Ghssarium, s.v. Commune,
commuma, etc., ‘ Primus vero ejus modi Communias in Francia Ludov VII
[ ? VI] rex multiplicavit et auxit.”
^See Pfeffel. Reference above, p. 376 note. The note is not in ed. i.
RISE OF TOWNS 379
a counter-balance in those assemblies to the authority of the great
lords.^" Hence the origin of the representation of burghs in the
states general of all the great monarchies in Europe.
Order and good government, and along with them the liberty
and security of individuals, were, in this manner, established in
cities, at a time when the occupiers of land in the country were ex-
posed to every sort of violence. But men in this defenceless state
naturally content themselves with their necessary subsistence; be-
cause to acquire more might only tempt the injustice of their op-
pressors. On the contrary, when they are secure of enjoying the
fruits of their industry, they naturally exert it to better their con-
dition and to acquire not only the necessaries, but the convenien-
cies and elegancies of life. That industry, therefore, which aims at
something more than necessary subsistence, was established in
cities long before it was commonly practised by the occupiers of
land in the country. If in the hands of a poor cultivator, oppressed
with the servitude of villanage, some little stock should accumu-
late, he would naturally conceal it with great care from his master,
to whom it would otherwise have belonged, and take the first op-
portunity of running away to a town. The law was at that time so
indulgent to the inhabitants of towns, and so desirous of dimin-
ishing the authority of the lords over those of the country, that if
he could conceal himself there from the pursuit of his lord for a
year, he was free for everP Whatever stock, therefore, accumu-
lated in the hands of the industrious part of the inhabitants of
the country, naturally took refuge in cities, as the only sanctu-
aries in which it could be secure to the person that acquired it.
The inhabitants of a city, it is true, must always ultimately de-
rive their subsistence, and the whole materials and means of their
industry, from the country. But those of a city, situated near
either the seacoast or the banks of a navigable river, are not neces-
sarily confined to derive them from the country in their neighbour-
hood. They have a much wider range, and may draw them from
the most remote corners of the world, either in exchange for the
manufactured produce of their own industry, or by performing the
office of carriers between distant countries, and exchanging the
produce of one for that of another. A city might in this manner
grow up to great wealth and splendor, while not only the country in
its neighbourhood, but all those to which it traded, were in poverty
and wretchedness. Each of those countries, perhaps, taken singly,
“Ed. I places “in those assemblies” here instead of in the line above; see
Lectures, p. 41.
^Lectures, p. 40.
In conse-
quence of
this great-
er security
of the
towns in-
dustry
flouri^ed
and stock
accumu-
lated
there ear-
lier than
in the
country.
Cities on
the sea-
coast or
on navig-
able rivers
are not
dependent
on the
neigh-
bouring
country.
The cities
of Italy
were the
first to
grow
opulent,
being
centrally
stuated
and bene-
fited by
the cru-
sades.
Thedties
imported
manufac-
tures and
luxuries
from rich-
er coun-
tries,
whidi
were paid
for by
rude pro-
duce.
Demand
for such
manufac-
tured ar-
tides hav-
ing be-
come con-
380 XHE WEALTH OF NATIONS
could afford it but a small part, either of its subsistence, or of its
employment; but all of them taken together could afford it both a
great subsistence and a great emplo3mient. There were, however,
within the narrow circle of the commerce of those times, some
countries that were opulent and industrious. Such was the Greek
empire as long as it subsisted, and that of the Saracens during the
reigns of the Abassides. Such too was Egypt till it was conquered
by the Turks, some part of the coast of Barbary, and all those
provinces of Spain which were under the government of the Moors.
The cities of Italy seem to have been the first in Europe which
were raised by commerce to any considerable degree of opulence.
Italy lay in the centre of what was at that time the improved and
civilized part of the world. The crusades, too, though, by the great
waste of stock and destruction of inhabitants which they occas-
ioned, they must necessarily have retarded the progress of the
greater part of Europe, were extremely favourable to that of some
Italian cities. The great armies which marched from all parts to
the conquest of the Holy Land, gave extraordinary encouragement
to the shipping of Venice, Genoa, and Pisa, sometimes in trans-
porting them thither, and always in supplying them with provis-
ions. They were the commissaries, if one may say so, of those
armies; and the most destructive frenzy that ever befel the Euro-
pean nations,^^ was a source of opulence to those republics.
The inhabitants of trading cities, by importing the improved
manufactures and expensive luxuries of richer countries, afforded
some food to the vanity of the great proprietors, who eagerly pur-
chased them with great quantities of the rude produce of their own
lands. The commerce of a great part of Europe in those times, ac-
cordingly, consisted chiefly in the exchange of their own rude, for
the manufactured produce of more civilized nations. Thus the wool
of England used to be exchanged for the wines of France, and the
fine cloths of Flanders, in the same manner as the corn of Poland
is at this day exchanged for the wines and brandies of France, and
for the silks and velvets of France and Italy.
A taste for the finer and more improved manufactures, was in
this manner introduced by foreign commerce into countries where
no such works were carried on. But when this taste became so gen-
eral as to occasion a considerable demand, the merchants, in order
to save the expence of carriage, naturally endeavoured to establish
^*‘‘The most signal and most durable monument of human folly that has
yet appeared in any age or nation,” Hume, History^ ed. of 1773, vol. i., p. 292 ,*
“this universal frenzy,” ibid., p. 298, of ed. 1770, vol. i., p. 327, but in his ist
ed. Hume wrote “universal madness.”
“ Misprinted “in” in ed. 5.
RISE OF TOWNS 3^1
some manufactures of the same kind in their own country. Hence
the origin of the first manufactures for distant sale that seem to
have been established in the western provinces of Europe, after the
fall of the Roman empire.
No large country, it must be observed, ever did or could subsist
without some sort of manufactures being carried on in it; and when
it is said of any such country that it has no manufactures, it must
always be understood of the finer and more improved, or of such as
are fit for distant sale. In every large country, both the clothing and
houshold furniture of the far greater part of the people, are the
produce of their own industry. This is even more universally the
case in those poor countries which are commonly said to have no
manufactures, than in those rich ones that are said to abound in
them. In the latter, you will generally find, both in the clothes and
houshold furniture of the lowest rank of people, a much greater pro-
portion of foreign productions than in the former.
Those manufactures which are fit for distant sale, seem to have
been introduced into different countries in two different ways.
Sometimes they have been introduced, in the manner above men-
tioned, by the violent operation, if one may say so, of the stocks of
particular merchants and undertakers, who established them in
imitation of some foreign manufactures of the same kind. Such
manufactures, therefore, are the offspring of foreign commerce, and
such seem to have been the ancient manufactures of silks, velvets,
and brocades, which flourished in Lucca, during the thirteenth
century. They were banished from thence by the tyranny of one of
MachiaveFs heroes, Castruccio Castracani. In 1310, nine hundred
families were driven out of Lucca, of whom thirty-one retired to
Venice, and offered to introduce there the silk manufacture.^^ Their
offer was accepted; many privileges were conferred upon them, and
they began the manufacture with three hundred workmen. Such too
seem to have been the manufactures of fine cloths that anciently
flourished in Flanders, and which were introduced into England in
the beginning of the reign of Elizabeth; and such are the present
silk manufactures of Lyons and Spital-fields. Manufactures intro-
duced in this manner are generally employed upon foreign mater-
ials, being imitations of foreign manufactures. When the Vene-
Ed. I reads “that were introduced into Venice in the beginning of.”
See Sandi Istoria Civile de Vinezia, Part 2 vol. i. page 247, and 256. Vet-
tor Sandi, Prmcipj di storia civile delta RepubUca di Venezia, Venice, 1755.
The pages should be 257, 258 This note and the three sentences in the text
which the reference covers, from “They were banished” to “three hundred
workmen,” appear first in ed. 2.
Ed. I reads “being in.”
siderablc,
their
manufac-
ture was
estab-
lished in
the
cities
All coun-
tries have
some
manufaC'
tures.
Some-
times
manufac
tures for
distant
sale are
intro-
duced in
imitation
of foreign
manufac-
tures.
Some-
times
they have
grown up
out of the
coarser
home
manufac-
tures.
382 the wealth of nations
tian manufacture was first established, the materials were all
brought from Sicily and the Levant. The more ancient manufacture
of Lucca was likewise carried on with foreign materials. The culti-
vation of mulberry trees, and the breeding of silkworms, seem not
to have been common in the northern parts of Italy before the six-
teenth century. Those arts were not introduced into France till the
reign of Charles IX.-^ The manufactures of Flanders were carried
on chiefly with Spanish and English wool. Spanish wool was the
material, not of the first woollen manufacture of England, but of
the first that was fit for distant sale. More than one half the ma-
terials of the Lyons manufacture is at this day foreign silk; when it
was first established, the whole or very nearly the whole was so. No
part of the materials of the Spital-fields manufacture is ever likely
to be the produce of England. The seat of such manufactures, as
they are generally introduced by the scheme and project of a few
individuals, is sometimes established in a maritime city, and some-
times in an inland town, according as their interest, judgment or
caprice happen to determine.
At other times manufactures for distant sale grow up naturally,
and as it were of their own accord, by the gradual refinement of
those houshold and coarser manufactures which must at aU times
be carried on even in the poorest and rudest countries. Such manu-
factures are generally employed upon the materials which the coun-
try produces, and they seem frequently to have been first refined
and improved in such inland countries as were, not indeed at a very
great, but at a considerable distance from the sea coast, and some-
times even from all water carriage. An inland country naturally fer-
tile and easily cultivated, produces a great surplus of provisions be-
yond what is necessary for maintaining the cultivators, and on ac-
count of the expence of land carriage, and inconveniency of river
navigation, it may frequently be difficult to send this surplus
abroad. Abundance, therefore, renders provisions cheap, and en-
courages a great number of workmen to settle in the neighbour-
hood, who find that their industry can there procure them more of
the necessaries and conveniencies of life than in other places. They
work up the materials of manufacture which the land produces, and
exchange their finished work, or what is the same thing the price of
“ Ed. I reads “seems.”
®®Ed. I (beginning six lines higher up), “When the Venetian manufacture
flourished, there was not a mulberry tree, nor consequently a silkworm, in all
Lombardy. They brought the materials from Sicily and from the Levant, the
manufacture itself being in imitation of those carried on in the Greek empire.
Mulberry trees were first planted in Lombardy in the beginning of the six-
teenth century, by the encouragement of Ludovico Sforza, Duke of Milan.”
383
RISE OF TOWNS
it, for more materials and provisions. They give a new value to the
surplus part of the rude produce, by saving the expence of carrying
it to the water side, or to some distant market; and they furnish the
cultivators with something in exchange for it that is either useful or
agreeable to them, upon easier terms than they could have obtained
it before. The cultivators get a better price for their surplus prod-
uce, and can purchase cheaper other conveniencies which they have
occasion for. They are thus both encouraged and enabled to in-
crease this surplus produce by a further improvement and better
cultivation of the land; and as the fertility of the land had given
birth to the manufacture, so the progress of the manufacture re-
acts upon the land, and increases still further its fertility. The man-
ufacturers first supply the neighbourhood, and afterwards, as their
work improves and refines, more distant markets. For though neith-
er the rude produce, nor even the coarse manufacture, could, with-
out the greatest difficulty, support the expence of a considerable
land carriage, the refined and improved manufacture easily may. In
a small bulk it frequently contains the price of a great quantity of
rude produce. A piece of fine cloth, for example, which weighs only
eighty pounds, contains in it, the price, not only of eighty pounds
weight of wool, but sometimes of several thousand weight of corn,
the maintenance of the different working people, and of their im-
mediate employers. The com, which could with difficulty have been
carried abroad in its own shape, is in this manner virtually exported
in that of the complete manufacture, and may easily be sent to the
remotest comers of the world. In this manner have grown up nat-
urally, and as it were of their own accord, the manufactures of
Leeds, Halifax, Sheffield, Birmingham, and Wolverhampton. Such
manufactures are the offspring of agriculture. In the modem his-
tory of Europe, their extension and improvement have generally
been posterior to those which were the offspring of foreign com-
merce. England was noted for the manufacture of fine cloths made
of Spanish wool, more than a century before any of those which now
flourish in the places above mentioned were fit for foreign sale. The
extension and improvement of these last could not take place but in
consequence of the extension and improvement of agriculture, the
last and greatest effect of foreign commerce, and of the manufac-
tures immediately introduced by it, and which I shall now proceed
to explain.
CHAPTER IV
The rise
of towns
benefited
the coun-
try,
because
they af-
forded
(i)a
ready
market
for its
produce,
(2) be-
cause
merchants
bought
land in
the coun-
try and
improved
it,
HOW THE COMMERCE OF THE TOWNS CONTRIBUTED TO THE IM-
provem:ent of the country
The increase and riches of commercial and manufacturing towns,
contributed to the improvement and cultivation of the countries to
which they belonged, in three different ways.
First, by affording a great and ready market for the rude produce
of the country, they gave encouragement to its cultivation and
further improvement. This benefit was not even confined to the
countries in which they were situated, but extended more or less to
all those with which they had any dealings. To all of them they af-
forded a market for some part either of their rude or manufactured
produce, and consequently gave some encouragement to the indus-
try and improvement of all. Their own country, however, on ac-
count of its neighbourhood, necessarily derived the greatest benefit
from this market. Its rude produce being charged with less carriage,
the traders could pay the growers a better price for it, and yet af-
ford it as cheap to the consumers as that of more distant countries.
Secondly, the wealth acquired by the inhabitants of cities was
frequently employed in purchasing such lands as were to be sold, of
which a great part would frequently be uncultivated. Merchants
are commonly ambitious of becoming country gentlemen, and when
they do, they are generally the best of all improvers. A merchant is
accustomed to employ his money chiefly in profitable projects;
whereas a mere country gentleman is accustomed to employ it chief-
ly in expence. The one often sees his money go from him and return
to him again with a profit: the other, when once he parts with it,
very seldom expects to see any more of it. Those different habits
naturally affect their temper and disposition in every sort of busi-
ness. A merchant is commonly a bold; a country gentleman, a timid
undertaker. The one is not afraid to lay out at once a large capital
upon the improvement of his land, when he has a probable prospect
of raising the value of it in proportion to the expence. The other, if
he has any capital, which is not always the case, seldom ventures to
384
TOWNS IMPROVED THE COUNTRY 3^5
employ it in this manner. If he improves at all, it is commonly not
with a capital, but with what he can save out of his annual revenue.
Whoever has had the fortune to live in a mercantile town situated
in an unimproved country, must have frequently observed how
much more spirited the operations of merchants were in this way,
than those of mere country gentlemen.^ The habits, besides, of or-
der, (Economy and attention, to which mercantile business naturally
forms a merchant, render him much fitter to execute, with profit
and success, any project of improvement.
Thirdly, and lastly, commerce and manufactures gradually in-
troduced order and good government, and with them, the liberty
and security of individuals, among the inhabitants of the country,
who had before lived almost in a continual state of war with their
neighbours, and of servile dependency upon their superiors. This,
though it has been the least observed, is by far the most important
of all their effects. Mr. Hume ^ is the only writer who, so far as I
know, has hitherto taken notice of it.
In a country which has neither foreign commerce, nor any of the
finer manufactures, a great proprietor, having nothing for which he
can exchange the greater part of the produce of his lands which is
over and above the maintenance of the cultivators, consumes the
whole in rustic hospitality at home. If this surplus produce is suf-
ficient to maintain a hundred or a thousand men, he can make use
of it in no other way than by maintaining a hundred or a thousand
men. He is at all times, therefore, surrounded with a multitude of
retainers and dependants, who having no equivalent to give in re-
turn for their maintenance, but being fed entirely by his bounty,
must obey him, for the same reason that soldiers must obey the
prince who pays them. Before the extension of commerce and man-
ufactures in Europe, the hospitality of the rich and the great, from
the sovereign down to the smallest baron, exceeded every thing
which in the present times we can easily form a notion of. West-
minster hall was the dining-room of William Rufus, and might fre-
quently, perhaps, not be too large for his company. It was reckoned
a piece of magnificence in Thomas Becket, that he strowed the floor
of his hall with dean hay or rushes in the season, in order that the
knights and squires, who could not get seats, might not spoil their
fine clothes when they sat down on the floor to eat their dinner.^
The great earl of Warwick is said to have entertained every day at
^ Above, p. 364.
^“Of Commerce” and “Of Luxury” in Pohtical Disccmrses, 1752, and His-
tory ^ ed. of 1773, vol. iii., p. 400.
® Evidently from Hume, History, ed. of 1773, vol. i., p. 384.
and (3)
because
order and
good gov-
ernment
were in-
troduced.
Before
foreign
commerce
and fine
manufac-
tures are
intro-
duced
great pro-
pnetors
are sur-
rounded
by bands
of retain-
ers,
and
tenants at
will were
just as de-
pendent
as retain-
ers.
The pow-
er of the
ancient
barons
3S6 THE WEALTH OF NATIONS
his different manors, thirty thousand people; and though the num-
ber here may have been exaggerated, it must, however, have been
very great to admit of such exaggeration.*^ A hospitality nearly of
the same kind was exercised not many years ago in many difiFerent
parts of the highlands of Scotland. It seems to be common in all na-
tions to whom commerce and manufactures are little known. I have
seen, says Doctor Pocock, an Arabian chief dine in the streets of a
town where he had come to sell his cattle, and invite all passengers,
even common beggars, to sit down with him and partake of his
banquet.^
The occupiers of land were in every respect as dependent upon
the great proprietor as his retainers. Even such of them as were not
in a state of villanage, were tenants at will, who paid a rent in no
respect equivalent to the subsistence which the land afforded them.
A crown, half a crown, a sheep, a lamb, was some years ago in the
highlands of Scotland a common rent for lands which maintained a
family. In some places it is so at this day; nor will money at present
purchase a greater quantity of commodities there than in other
places. In a country where the surplus produce of a large estate
must be consumed upon the estate itself, it will frequently be more
convenient for the proprietor, that part of it be consumed at a dis-
tance from his own house, provided they who consume it are as de-
pendent upon him as either his retainers or his menial servants. He
is thereby saved from the embarrassment of either too large a com-
pany or too large a family. A tenant at will, who possesses land suf-
ficient to maintain his family for little more than a quit-rent, is as
dependent upon the proprietor as any servant or retainer whatever,
and must obey him with as little reserve. Such a proprietor, as he
feeds his servants and retainers at his own house, so he feeds his ten-
ants at their houses. The subsistence of both is derived from his
bounty, and its continuance depends upon his good pleasure.
Upon the authority which the great proprietors necessarily had in
such a state of things over their tenants and retainers, was founded
the power of the ancient barons. They necessarily became the
* “No less than 30,000 persons are said to have daily lived at his board in
the different manors and castles which he possessed in England.”— Hume,
History, ed. of 1773, vol iii., p. 182. In Lectures, p. 42, it had been “40,000
people, besides tenants.”
® “An Arab prince will often dine in the street, before his door, and call to
all that pass, even beggars, in the usual expression, Bismillah, that is, In the
name of God; who come and sit down, and when they have done, give their
Hamdellilah, that is, God be praised. For the Arabs are great levellers, put
everybody on a footing with them; and it is by such generosity and hospital-
ity that they maintain their interest.”— Richard Pococke, Description of the
East, 1743, vol. i., p. 183.
TOWNS IMPROVED THE COUNTRY 387
judges in peace, and the leaders in war, of all who dwelt upon their
estates. They could maintain order and execute the law 'within their
respective demesnes, because each of them could there turn the
whole force of all the inhabitants against the injustice of any one.
No other person had sufficient authority to do this. The king in par-
ticular had not. In those ancient times he was little more than the
greatest proprietor in his dominions, to whom, for the sake of com-
mon defence against their common enemies, the other great pro-
prietors paid certain respects. To have enforced payment of a small
debt within the lands of a great proprietor, where ail the inhabitants
were armed and accustomed to stand by one another, would have
cost the king, had he attempted it by his own authority, almost the
same effort as to extinguish a civil war. He was, therefore, obliged
to abandon the administration of justice through the greater part of
the country, to those who were capable of administering it; and for
the same reason to leave the command of the country militia t‘o
those whom that militia would obey.
It is a mistake to imagine that those territorial jurisdictions took
their origin from the feudal law. Not only the highest jurisdictions
both civil and criminal, but the power of levying troops, of coining
money, and even that of making bye-laws for the government of
their o-wn people, were all rights possessed allodially by the great
proprietors'of land several centuries before even the name of the
feudal law was kno'wn in Europe. The authority and jurisdiction of
the Saxon lords in England, appear ^ to have been as great before
the conquest, as that of any of the Norman lords after it. But the
feudal law is not supposed to have become the common law of Eng-
land till after the conquest.'^ That the most extensive authority and
jurisdictions were possessed by the great lords in France allodially,
long before the feudal law was introduced into that country, is a
matter of fact that admits of no doubt. That authority and those
jurisdictions all necessarily flowed from the state of property and
manners just now described. Without remounting to the remote an-
tiquities of either the French or English monarchies, we may find in
much later times many proofs that such effects must always flow
from such causes. It is not thirty years ago since Mr. Cameron of
Lochiel, a gentleman of Lochabar in Scotland, without any legal
warrant whatever, not being what was then called a lord of regality,
nor even a tenant in chief, but a vassal of the duke of Argyle, and
without being so much as a justice of peace, used, notwithstanding,
to exercise the highest criminal jurisdiction over his own people. He
was
founded
on thi^
It was an-
terior to
and inde-
pendent
of the
feudal
law.
®Eds. I and 2 read “appears.’
"^Hume, History, ed. of i773j U 224 *
It was
moderat-
ed by the
feudal
law,
and un-
dermined
by foreign
com-
merce.
3S8 THE WEALTH OF NATIONS
is said to have done so with great equity, though without any of the
formalities of justice; and it is not improbable that the state of that
part of the country at that time made it necessary for him to assume
this authority in order to maintain the public peace. That gentle-
man, whose rent never exceeded five hundred pounds a year, car-
ried, in 1745, eight hundred of his own people into the rebellion
with him.®
The introduction of the feudal law, so far from extending, may
be regarded as an attempt to moderate the authority of the great
allodial lords.® It established a regular subordination, accompanied
with a long train of services and duties, from the king down to the
smallest proprietor. During the minority of the proprietor, the rent,
together with the management of his lands, fell into the hands of
his immediate superior, and, consequently, those of all great pro-
prietors into the hands of the king, who was charged with the main-
tenance and education of the pupil, and who, from his authority as
guardian, was supposed to have a right of disposing of him in mar-
riage, provided it was in a manner not unsuitable to his rank. But
though this institution necessarily tended to strengthen the auth-
ority of the king, and to weaken that of the great proprietors, it
could not do either sufficiently for establishing order and good gov-
ernment among the inhabitants of the country; because it could not
alter sufficiently that state of property and manners from which the
disorders arose. The authority of government still continued to be,
as before, too weak in the head and too strong in the inferior mem-
bers, and the excessive strength of the inferior members was the
cause of the weakness of the head. After the institution of feudal
subordination, the king was as incapable of restraining the violence
of the great lords as before. They still continued to make war ac-
cording to their own discretion, almost continually upon one an-
other, and very frequently upon the king; and the open country
still continued to be a scene of violence, rapine, and disorder.
But what all the violence of the feudal institutions could never
have effected, the silent and insensible operation of foreign com-
merce and manufactures gradually brought about. These gradually
furnished the great proprietors with something for which they could
exchange the whole surplus produce of their lands, and which they
could consume themselves without sharing it either with tenants or
retainers. All for ourselves, and nothing for other people, seems, in
® “The Highlands of Scotland have long been entitled by law to every priv-
ilege of British subjects; but it was not till very lately that the common
people could in fact enjoy those privileges.”— Hume, History, vol. i., p. 214,
ed. of 1773. Cp. Lectures, p. 116.
• Lectures, pp. 38, 39.
TOWNS IMPROVED THE COUNTRY 3^9
every age of the world, to have been the vile maxim of the masters
of mankind. As soon, therefore, as they could find a method of con-
suming the whole value of their rents themselves, they had no dis-
position to share them with any other persons. For a pair of dia-
mond buckles perhaps, or for something as frivolous and useless,
they exchanged the maintenance, or what is the same thing, the
price of the maintenance of a thousand men for a year, and with it
the whole weight and authority which it could give them. The
buckles, however, were to be all their own, and no other human
creature was to have any share of them; whereas in the more an-
cient method of expence they must have shared with at least a thou-
sand people. With the judges that were to determine the preference,
this difference was perfectly decisive; and thus, for the gratifica-
tion of the most childish, the meanest and the most sordid of all
vanities, they gradually bartered their whole power and authority.^®
In a country where there is no foreign commerce, nor any of the
finer manufactures, a man of ten thousand a year cannot well em-
ploy his revenue in any other way than in maintaining, perhaps, a
thousand families, who are all of them necessarily at his command.
In the present state of Europe, a man of ten thousand a year can
spend his whole revenue, and he generally does so, without directly
maintaining twenty people, or being able to command more than
ten footmen not worth the commanding. Indirectly, perhaps, he
maintains as great or even a greater number of people than he could
have done by the ancient method of expence. For though the quan-
tity of precious productions for which he exchanges his whole rev-
enue be very small, the number of workmen employed in collecting
and preparing it, must necessarily have been very great. Its great
price generally arises from the wages of their labour, and the profits
of all their immediate employers. By paying that price he indirectly
pays all those wages and profits, and thus indirectly contributes to
the maintenance of all the workmen and their employers. He gen-
erally contributes, however, but a very small proportion to that of
each, to very few perhaps a tenth, to many not a hundredth, and to
some not a thousandth, nor even a ten thousandth part of their
whole annual maintenance. Though he contributes, therefore, to the
maintenance of them all, they are all more or less independent of
him, because generally they can all be maintained without him.
When the great proprietors of land spend their rents in maintain-
ing their tenants and retainers, each of them maintains entirely all
his own tenants and all his own retainers. But when they spend
them in maintaining tradesmen and artificers, they may, all of them
“Hume, History j ed. of 1773, vol. iii, p. 400; vol. v., p. 488.
At present
a rich
man
maintains
in alias
many per-
sons as an
ancient
baron, but
he con-
tributes
only a
small por-
tion of the
main-
tenance
of each
person.
To meet
cheir new
expenses
the great
proprie-
tors dis-
missed
their re-
tainers
and their
unneces-
sary
tenants,
and gave
the re-
maining
tenants
long
leases,
thus mak-
ing them
inde-
pendent.
The ^eat
proprie-
tors thus
became
390 THE WEALTH OF NATIONS
taken together, perhaps, maintain as great, or, on account of the
waste which attends rustic hospitality, a greater number of people
than before. Each of them, however, taken singly, contributes often
but a very small share to the maintenance of any individual of this
greater number. Each tradesman or artificer derives his subsistence
from the employment, not of one, but of a hundred or a thousand
different customers. Though in some measure obliged to them all,
therefore, he is not absolutely dependent upon any one of them.
The personal expence of the great proprietors having in this man-
ner gradually increased, it was impossible that the number of their
retainers should not as gradually diminish, till they were at last dis-
missed altogether. The same cause gradually led them to dismiss
the unnecessary part of their tenants. Farms were enlarged, and the
occupiers of land, notwithstanding the complaints of depopulation,
reduced to the number necessary for cultivating it, according to the
imperfect state of cultivation and improvement in those times. By
the removal of the unnecessary mouths, and by exacting from the
farmer the full value of the farm, a greater surplus, or what is the
same thing, the price of a greater surplus, was obtained for the pro-
prietor, which the merchants and manufacturers soon furnished
him with a method of spending upon his own person in the same
manner as he had done the rest. The same cause continuing to op-
erate, he was desirous to raise his rents above what his lands, in the
actual state of their improvement, could afford. His tenants could
agree to this upon one condition only, that they should be secured in
their possession, for such a term of years as might give them time to
recover with profit whatever they should lay out in the further im-
provement of the land. The expensive vanity of the landlord made
him willing to accept of this condition; and hence the origin of long
leases.
Even a tenant at will, who pays the full value of the land, is not
altogether dependent upon the landlord. The pecuniary advantages
whidi they receive from one another, are mutual and equal, and
such a tenant will expose neither his life nor his fortune in the ser-
vice of the proprietor. But if he has a lease for a long term of years,
he is altogether independent; and his landlord must not expect from
him even the most trifling service beyond what is either expressly
stipulated in the lease, or imposed upon him by the common and
known law of the country.
The tenants having in this manner become independent, and the
retainers being dismissed, the great proprietors were no longer cap-
able of interrupting the regular execution of justice, or of disturbing
the peace of the country. Having sold their birth-right, not like
TOWNS IMPROVED THE COUNTRY 39 i
Esau for a mess of pottage in time of hunger and necessity, but in
the wantonness of plenty, for trinkets and baubles, fitter to be the
play-things of children than the serious pursuits of men, they be-
came as insignificant as any substantial burgher or tradesman in a
city. A regular government was established in the country as well as
in the city, nobody having sufficient power to disturb its operations
in the one, any more than in the other.
It does not, perhaps, relate to the present subject, but I cannot
help remarking it, that very old families, such as have possessed
some considerable estate from father to son for many successive
generations, are very rare in commercial countries. In countries
which have little commerce, on the contrary, such as Wales or the
highlands of Scotland, they are very common. The Arabian his-
tories seem to be all full of genealogies, and there is a history writ-
ten by a Tartar Khan, which has been translated into several Euro-
pean languages, and which contains scarce any thing else; a proof
that ancient families are very common among those nations. In
countries where a rich man can spend his revenue in no other way
than by maintaining as many people as it can maintain, he is not
apt to run out, and his benevolence it seems is seldom so violent as
to attempt to maintain more than he can afford. But where he can
spend the greatest revenue upon his own person, he frequently has
no bounds to his expence, because he frequently has no bounds to
his vanity, or to his affection for his own person. In commercial
countries, therefore, riches, in spite of the most violent regulations
of law to prevent their dissipation, very seldom remain long in the
same family. Among simple nations, on the contrary, they frequent-
ly do* without any regulations of law: for among nations of shep-
herds, such as the Tartars and Arabs, the consumable nature of
their property necessarily renders all such regulations impossible.
A revolution of the greatest importance to tiie public happiness,
was in this manner brought about by two different orders of people,
who had not the least intention to serve the public. To gratify the
most childish vanity was the sole motive of the great proprietors.
The merchants and artificers, much less ridiculous, acted merely
from a view to their own interest, and in pursuit of their own pedlar
principle of turning a penny wherever a penny was to be got.
Neither of them had either knowledge or foresight of that great
^Histoire genealogique des Tatars traduite du manuscript Tartar e D^Abul-
gasi-Bayadur-‘Chan et enrichie d^un grand nombre de remarques authentiques
et trh curieuses sur le viritable estat present de VAsie septentrionale avec les
cartes geographiques necessaires, par D., Leyden, 1726. *^6 preface says some
Swedish officers imprisoned in Siberia had it translated into Russian and then
retranslated it themselves into various other languages.
insignifi-
cant.
Old fami-
lies are
rare in
commer-
cial coun-
tries.
A revolu-
tion was
thus in-
sensibly
brought
about,
392
and com-
merce and
manufac-
tures be-
came the
cause of
the im-
prove-
ment of
the coun-
try.
This
order of
things is
both slow
and un-
certain
compared
with the
natural
order, as
maybe
shown by
the rapid
progress
of the
North
American
colonies,
THE WEALTH OF NATIONS
revolution which the folly of the one, and the industry of the other,
was gradually bringing about.
It is thus that through the greater part of Europe the commerce
and manufactures of cities, instead of being the effect, have been
the cause and occasion of the improvement and cultivation of the
country.
This order, however, being contrary to the natural course of
things, is necessarily both slow and uncertain. Compare the slow
progress of those European countries of which the wealth depends
very much upon their commerce and manufactures, with the rapid
advances of our North American colonies, of which the wealth is
founded altogether in agriculture. Through the greater part of Eur-
ope, the number of inhabitants is not supposed to double in less
than five hundred years. In several of our North American colonies,
it is found to double in twenty or five-and-twenty years.^^ In Eur-
ope the law of primogeniture, and perpetuities of different kinds,
prevent the division of great estates, and thereby hinder the mul-
tiplication of small proprietors. A small proprietor, however, who
knows every part of his little territory, who views it all with
the affection which property, especially small property, naturally
inspires, and who upon that account takes pleasure not only in cul-
tivating but in adorning it, is generally of all improvers the most in-
dustrious, the most intelligent, and the most successful.^^ The same
regulations, besides, keep so much land out of the market, that
there are always more capitals to buy than there is land to sell, so
that what is sold always sells at a monopoly price. The rent never
pays the interest of the purchase-money, and is besides burdened
with repairs and other occasional charges, to which the interest of
money is not liable. To purchase land is every-where in Europe a
most unprofitable employment of a small capital. For the sake of
the superior security, indeed, a man of moderate circumstances,
when he retires from business, will sometimes chuse to lay out his
little capital in land. A man of profession too, whose revenue is de-
rived from another source, often loves to secure his savings in the
same way. But a young man, who, instead of applying to trade or to
some profession, should employ a capital of two or three thousand
pounds in the purchase and cultivation of a small piece of land,
might indeed expect to live very happily, and very independently,
but must bid adieu, forever, to all hope of either great fortune or
great illustration, which by a different employment of his stock he
might have had the same chance of acquiring with other people.
“ Above, p 70, note. “ Ed 5 omits “who” by a misprint
^^Eds 2-5 read “with all,” doubtless a corruption. “Cp. above, p 364.
TOWNS IMPROVED THE COUNTRY 393
Such a person too, though he cannot aspire at being proprietor, will
often disdain to be a farmer. The small quantity of land, therefore,
which is brought to market, and the high price of what is brought
thither,^® prevents a great number of capitals from being employed
in its cultivation and improvement which would otherwise have
taken that direction. In North America, on the contrary, fifty or
sixty pounds is often found a sufficient stock to begin a plantation
with. The purchase and improvement of uncultivated land, is there
the most profitable employment of the smallest as well as of the
greatest capitals, and the most direct road to all the fortune and
illustration which can be acquired in that country. Such land, in-
deed, is in North America to be had almost for nothing, or at a price
much below the value of the natural produce; a thing impossible in
Europe, or, indeed, in any country where all lands have long been
private property. If landed estates, however, were divided equally
among all the children, upon the death of any proprietor who left
a numerous family, the estate would generally be sold. So much
land would come to market, that it could no longer sell at a monop-
oly price. The free rent of the land would go nearer to pay the in-
terest of the purchase-money, and a small capital might be em-
ployed in purchasing land as profitably as in any other way.
England, on account of the natural fertility of the soil, of the great
extent of the sea-coast in proportion to that of the whole coun-
try, and of the many navigable rivers which run through it, and af-
ford the conveniency of water carriage to some of the most inland
parts of it, is perhaps as well fitted by nature as any large country
in Europe, to be the seat of foreign commerce, and manufactures
for distant sale, and of all the improvements which these can oc-
casion. From the beginning of the reign of Elizabeth too, the Eng-
lish legislature has been peculiarly attentive to the interests of
commerce and manufactures, and in reality there is no country in
Europe, Holland itself not excepted, of which the law is, upon the
whole, more favourable to this sort of industry. Commerce and
manufactures Save accordingly been continually advancing during
all this period. The cultivation and improvement of the country has,
no doubt, been gradually advancing too: But it seems to have fol-
lowed slowly, and at a distance, the more rapid progress of com-
merce and manufactures. The greater part of the country must
probably have been cultivated before the reign of Elizabeth; and a
very great part of it still remains uncultivated, and the cultivation
of the far greater part, much inferior to what it might be. The law
of England, however, favours agriculture not only indirectly by the
Ed. I does not contain “the.”
and the
slow
progress
of Eng-
land in
agricul-
ture in
spite of
favours
accorded
to it
“ Ed. I does not contain “thither.’
and the
still slow-
er pro-
gress of
France,
394 THE WEALTH OF NATIONS
protection of commerce, but by several direct encouragements. Ex-
cept in times of scarcity, the exportation of corn is not only free, but
encouraged by a bounty. In times of moderate plenty, the importa-
tion of foreign corn is loaded with duties that amount to a prohibi-
tion. The importation of live cattle, except from Ireland, is pro-
hibited at all times,^® and it is but of late that it was permitted from
thence.^^ Those who cultivate the land, therefore, have a monopoly
against their countrymen for the two greatest and most important
articles of land produce, bread and butcher’s meat. These encour-
agements, though at bottom, perhaps, as I shall endeavour to show
hereafter,^® altogether illusory, sufficiently demonstrate at least the
good intention of the legislature to favour agriculture. But what is
of much more importance than all of them, the yeomanry of Eng-
land are rendered as secure, as independent, and as respectable as
law can make them. No country, therefore, in which the right of
primogeniture takes place, which pays tithes, and where perpet-
uities, though contrary to the spirit of the law, are admitted in
some cases, can give more encouragement to agriculture than Eng-
land. Such, however, notwithstanding, is the state of its cultivation.
What would it have been, had the law given no direct encourage-
ment to agriculture besides what arises indirectly from the progress
of commerce, and had left the yeomanry in the same condition as in
most other countries of Europe? It is now more than two hundred
years since the beginning of the reign of Elizabeth, a period as long
as the course of human prosperity usually endures.
France seems to have had a considerable share of foreign com-
merce near a century before England was distinguished as a com-
mercial country. The marine of France was considerable, according
to the notions of the times, before the expedition of Charles the
Vlllth to Naples.^^ The cultivation and improvement of France,
“i8 Car.IL, c. 2.
“32 Geo. n., c. II, § i; 5 Geo. III., c. 10, 12 Geo. III., c, 2.
^ Below, pp. 426-429, 490-510.
^ It seems likely that Charles VIII. is here (though not on the next page)
confused with Charles of Anjou, brother of St. Louis. At any rate Henault
(who is quoted below, p. 588) says “Notre marine aussitot d6truite que creee
sous Philippe Auguste, s’etait bien retablie sous S. Louis si, comme le dit un
historien, ce prince embarqua soixante-mille hommes a Aigues-mortes . . ,
quant a la premiere expedition, Joinville dit qu’au depart de Chypre pour la
conquete de Damiette, il y avait dix-huit cents vaisseaux tant grands que
petits. S. Louis avait aussi mis en mer une flotte considerable pour defendre
les cotes de Poitou contre la flotte de Henri III., et son frere Charles d’ Anjou
en avait une de quatre-vingts voiles, composee de galores et de vaisseaux, lors
de son expedition de Naples ” — Nouvel Abrege chronologique de Vhistoire de
France^ 1768, tom. i., p. 201, ad. 1299. This puts the French marine 200 years
earlier.
TOWNS IMPROVED THE COUNTRY 395
however, is, upon the whole, inferior to that of England. The law of
the country has never given the same direct encouragement to
agriculture.
The foreign commerce of Spain and Portugal to the other parts Spain and
of Europe, though chiefly carried on in foreign ships, is very consid- Portugal,
erable. That to their colonies is carried on in their own, and is much
greater, on account of the great riches and extent of those colonies.
But it has never introduced any considerable manufactures for dis-
tant sale into either of those countries, and the greater part of both
still remains uncultivated. The foreign commerce of Portugal is of
older standing than that of any great country in Europe, except
Italy,
Italy is the only great country of Europe which seems to have Italy
been cultivated and improved in every part, by means of foreign
commerce and manufactures for distant sale. Before the invasion of throu^^^-
Charles the Vlllth, Italy, according to Guicciardin,-^ was culti- out by
vated not less in the most mountainous and barren parts of the commerce
country, than in the plainest and most fertile. The advantageous and ex-
situation of the country, and the great number of independent
states which at that time subsisted in it, probably contributed not a
little to this general cultivation. It is not impossible too, notwith-
standing this general expression of one of the most judicious and re-
served of modern historians, that Italy was not at that time better
cultivated than England is at present.
The capital, however, that is acquired to any country by com- The na-
merce and manufactures, is all a very precarious and uncertain
possession, till some part of it has been secured and realised in the quired by
cultivation and improvement of its lands. A merchant, it has been commerce
said very properly, is not necessarily the citizen of any particular
country. It is in a great measure indifferent to him from what place tures is an
he carries on his trade ; and a very trifling disgust will make him re- uncert^
move his capital, and together with it all the industry which it sup-
ports, from one country to another. No part of it can be said to be- isedinthe
long to any particular country, till it has been spread as it were over “
the face of that country, either in buildings, or in the lasting im- i^nd.
provement of lands. No vestige now remains of the great wealth,
said to have been possessed by the greater part of the Hans towns,
except in the obscure histories of the thirteenth and fourteenth cen-
turies. It is even uncertain where some of them were situated, or to
“ “Perchfe ridotta tutta in somma pace e tranquillita, coltivata non meno
ne’ luoghi pin montuosi, e piu steriH, che nelle pianure, e regioni sue piu
fertili, ne sottoposta ad altro Imperio, che de^ suoi medesimi, non solo era ab-
bondantissima d’ abitatori, e di richezze.” — Guicciardini, Della htoria
Italia, Venice, 1738, vol. i., p. 2.
396 the wealth of NATIONS
what towns in Europe the Latin names given to some of them be-
long. But though the misfortunes of Italy in the end of the fifteenth
and beginning of the sixteenth centuries greatly diminished the
commerce and manufactures of the cities of Lombardy and Tus-
cany, those countries still continue to be among the most populous
and best cultivated in Europe. The civil wars of Flanders, and the
Spanish government which succeeded them, chased away the great
commerce of Antwerp, Ghent, and Bruges. But Flanders still con-
tinues to be one of the richest, best cultivated, and most populous
provinces of Europe. The ordinary revolutions of war and govern-
ment easily dry up the sources of that wealth which arises from
commerce only. That which arises from the more solid improve-
ments of agriculture, is much more durable, and cannot be de-
stroyed but by those more violent convulsions occasioned by the
depredations of hostile and barbarous nations continued for a cen-
tury or two together; such as those that happened for some time
before and after the fall of the Roman empire in the western prov-
inces of Europe.
BOOK IV
Of Systems of political (Economy
INTRODUCTION
Political oeconomy, considered as a branch of the science of a
statesman or legislator, proposes two distinct objects: first, to pro-
vide a plentiful revenue or subsistence for the people, or more prop-
erly to enable them to provide such a revenue or subsistence for
themselves ; and secondly, to supply the state or commonwealth with
a revenue sufficient for the public services. It proposes to enrich
both the people and the sovereign.^
The different progress of opulence in different ages and nations,
has given occasion to two different systems of political oeconomy,
with regard to enriching the people. The one may be called the sys-
tem of commerce, the other that of agriculture. I shall endeavour
to explain both as fully and distinctly as I can, and shall begin with
the system of commerce. It is the modern system, and is best under-
stood in our own country and in our own times.
^ For other definitions of the purpose or nature of poKtical oeconomy see the
index, s,v.
The first
object of
political
(Economy
is to pro-
vide sub-
sistence
for the
people.
Two dif-
ferent
systems
proposed
for this
end will
be ex-
plained.
397
CHAPTER I
Wealth
and
money in
common
language
are con-
sidered
synony-
mous.
Similarly
the Tar-
tars
thought
wealth
consisted
of cattle.
OF THE PRESrCIPLE OF THE COMMERCIAL OR MERCANTILE SYSTEM
That wealth consists in money, or in gold and silver, is a popular
notion which naturally arises from the double function of money,
as the instrument of commerce, and as the measure of value. In
consequence of its being the instrument of commerce, when we have
money we can more readily obtain whatever else we have occasion
for, than by means of any other commodity. The great affair, we
always find, is to get money. When that is obtained, there is no dif-
ficulty in making any subsequent purchase. In consequence of its
being the measure of value, we estimate that of all other commod-
ities by the quantity of money which they will exchange for. We say
of a rich man that he is worth a great deal, and of a poor man that
he is worth very little money. A frugal man, or a man eager to be
rich, is said to love money; and a careless, a generous, or a profuse
man, is said to be indifferent about it. To grow rich is to get money ;
and wealth and money, in short, are, in common language, consid-
ered as in every respect S3monymous.
A rich country, in the same manner as a rich man, is supposed to
be a country abounding in money; and to heap up gold and silver
in any country is supposed to be the readiest way to enrich it. For
some time after the discovery of America, the first enquiry of the
Spaniards, when they arrived upon any unknown coast, used to be,
if there was any gold or silver to be found in the neighbourhood?
By the information which they received, they judged whether it was
worth while to make a settlement there, or if the country was worth
the conquering. Plano Carpino, a monk sent ambassador from the
king of France to one of the sons of the famous Gengis Khan, says
that the Tartars used frequently to ask him, if there was plenty of
sheep and oxen in the kingdom of France?^ Their enquiry had the
^ There seems to be a confusion between Plano-Carpini, a Franciscan sent
as legate by Pope Innocent IV. in 1246, and Guillaume de Rubruquis, another
Frandscan sent as ambassador by Louis IX. in 1253. As is pointed out by
Rogers in a note on this passap, the reference appears to be to Rubruquis,
Voyage en Tartarie et d la Chine, chap, xxxiii. The great Khan’s secretaries,
398
PRINCIPLE OF THE MERCANTILE SYSTEM 399
same object with that of the Spaniards. They wanted to know if the
country was rich enough to be worth the conquering. Among the
Tartars, as among all other nations of shepherds, who are generally
ignorant of the use of money, cattle are the instruments of com-
merce and the measures of value. Wealth, therefore, according to
them, consisted in cattle, as according to the Spaniards it consisted
in gold and silver. Of the two, the Tartar notion, perhaps, was the
nearest to the truth.
Mr. Locke remarks a distinction between money and other move-
able goods. All other moveable goods, he says, are of so consumable
a nature that the wealth which consists in them cannot be much de-
pended on, and a nation which abounds in them one year may,
without any exportation, but merely by their own waste and ex-
travagance, be in great want of them the next. Money, on the con-
trary, is a steady friend, which, though it may travel about from
hand to hand, yet if it can be kept from going out of the country, is
not very liable to be wasted and consumed. Gold and silver, there-
fore, are, according to him, the most solid and substantial part of
the moveable wealth of a nation, and to multiply those metals
ought, he thinks, upon that account, to be the great object of its
political ceconomy.^
Others admit that if a nation could be separated from all the
world, it would be of no consequence how much, or how little money
circulated in it. The consumable goods which were circulated by
means of this money, would only be exchanged for a greater or a
smaller number of pieces; but the real wealth or poverty of the
country, they allow, would depend altogether upon the abundance
or scarcity of those consumable goods. But it is otherwise, they
think, with countries which have connections with foreign nations,
and which are obliged to carry on foreign wars, and to maintain
fleets and armies in distant countries. This, they say, cannot be
done, but by sending abroad money to pay them with; and a nation
cannot send much money abroad, unless it has a good deal at home.
Every such nation, therefore, must endeavour in time of peace to
accumulate gold and silver, that, when occasion requires, it may
have wherewithal to carry on foreign wars.
Rubruquis states, on one occasion displayed curiosity about France: “s’en-
querant s’il y avait force boeufs, moutons, et chevaux, comme s’ils eussent
deja et6 tons prets d’y venir et emmener tout.” Plano-Carpini and Rubruquis
are both in Bergeron’s Voyages faits principalement en Asie dans Us m, mi.t
xiv. et XV. sikUs, La Haye, 1735.
There is very little foundation for any part of this paragraph. It perhaps
originated in an inaccurate recollection of pp. 17, 18 and 77-79 of Some Con-
siderations (1696 ed.), and §§ 46-50 of CivU Government. It was probably
transferred bodily from the Lectures without verification. See Lectures, p. 198.
Locke
thought
gold and
silver the
most sub-
stantial
part of
the
wealth of
a nation.
Others
say that
it is neces-
sary to
have
much
money in
order to
maintain
fleets and
armies
abroad.
So all
European
nations
have tried
to accu-
mulate
gold and
silver.
At first
by a pro-
hibition
of expor-
tation,
but mer-
chants
found this
incon-
venient,
and
therefore
argued
that ex-
portation
did not
always
diminish
the stock
in the
country,
and that
the metals
could be
400 the wealth of nations
In consequence of these popular notions, all the different nations
of Europe have studied, though to little purpose, every possible
means of accumulating gold and silver in their respective countries.
Spain and Portugal, the proprietors of the principal mines which
supply Europe with those metals, have either prohibited their ex-
portation under the severest penalties, or subjected it to a consid-
erable duty.^ The like prohibition seems anciently to have made a
part of the policy of most other European nations. It is even to be
found, where we should least of all expect to find it, in some old
Scotch acts of parliament, which forbid under heavy penalties the
carrying gold or silver jorth of the kingdom? The like policy an-
ciently took place both in France and England.
When those countries became commercial, the merchants found
this prohibition, upon many occasions, extremely inconvenient.
They could frequently buy more advantageously with gold and sil-
ver than with any other commodity, the foreign goods which they
wanted, either to import into their own, or to carry to some other
foreign country. They remonstrated, therefore, against this prohi-
bition as hurtful to trade.
They represented, first, that the exportation of gold and silver in
order to purchase foreign goods, did not always diminish the quan-
tity of those metals in the kingdom. That, on the contrary, it might
frequently increase that quantity; ® because, if the consumption of
foreign goods was not thereby increased in the country, those goods
might be re-exported to foreign countries, and, being there sold for
a large profit, might bring back much more treasure than was orig-
inally sent out to purchase them. Mr. Mun compares this operation
of foreign trade to the seed-time and harvest of agriculture. ^Tf we
only behold,” says he, “the actions of the husbandman in the seed-
time, when he casteth away much good corn into the ground, we
shall account him rather a madman than a husbandman. But when
we consider his labours in the harvest, which is the end of his en-
deavours, we shall find the worth and plentiful increase of his
actions.” ^
They represented, secondly, that this prohibition could not hin-
der the exportation of gold and silver, which, on account of the
® See below, p. 478, note. ^ Ed i reads “expect least of all.’^
®The words “forth of the realm” occur in (January) 1487, c. ii. Other acts
are 1436, c. 13 ; 14S1, c 15; 1482, c 8.
Ed. I reads “increase it.”
England's Treasure by Forraign Trade, or the BaUance of our Forraign
Trade is the Rule of our Treasure, 1664, chap, iv., ad fin,, which reads, how-
ever, “we will rather accompt him a mad man ”
PRINCIPLE OF THE MERCANTILE SYSTEM 40 i
smallness of their bulk in proportion to their value, could easily be
smuggled abroad.^ That this exportation could only be prevented
by a proper attention to, what they called, the balance of trade.®
That when the country exported to a greater value than it imported,
a balance became due to it from foreign nations, which was neces-
sarily paid to it in gold and silver, and thereby increased the quan-
tity of those metals in the kingdom. But that when it imported to a
greater value than it exported, a contrary balance became due to
foreign nations, which was necessarily paid to them in the same
manner, and thereby diminished that quantity. That in this case to
prohibit the exportation of those metis could not prevent it, but
only by making it more dangerous, render it more expensive. That
the exchange was thereby turned more against the country which
owed the balance, than it otherwise might have been; the merchant
who purchased a bill upon the foreign country being obliged to pay
the banker who sold it, not only for the natural risk, trouble and ex-
pence of sending the money tMther, but for the extraordinary risk
arising from the prohibition. But that the more the exchange was
against any country, the more the balance of trade became neces-
sarily against it; the money of that country becoming necessarily of
so much less value, in comparison with that of the country to which
the balance was due. That if the exchange between England and
Holland, for example, was five per cent, against England, it would
require a hundred and five ounces of silver in England to purchase
a bill for a hundred ounces of silver in Holland: that a hundred and
five ounces of silver in England, therefore, would be worth only a
hundred ounces of silver in Holland, and would purchase only a
proportionable quantity of Dutch goods: but that a hundred ounces
of silver in Holland, on the contrary, would be worth a hundred and
five ounces in England, and would purchase a proportionable quan-
tity of English goods: that the English goods which were sold to
Holland would be sold so much cheaper; and the Dutch goods
which were sold to England, so much dearer, by the difference of
the exchange; that the one would draw so much less Dutch money
to England, and the other so much more English money to Holland,
as this difference amounted to: and that the balance of trade, there-
® Mun, England* s Treasure, chap. vi.
^ “Among other things relating to trade there hath been much discourse of
the balance of trade; the right understanding whereof may be of singular
use.”~Josiah Child, New Discourse of Trade, 1694, p. 152, chap, ix., introduc-
ing an explanation. The term was used before Mun’s work was written. See
Palgrave’s Dictionary of Political Economy, Balance of Trade, History of
the theory
retained
only by
attention
to the
balance of
trade.
Thdir
argu-
ments
were
partly so-
phistical^
but they
convinced
parlia-
ments and
councils.
402 XHE WEALTH OF NATIONS
fore, would necessarily be so much more against England, and
would require a greater balance of gold and silver to be exported to
Holland.
Those arguments were partly solid and partly sophistical. They
were solid so far as they asserted that the exportation of gold and
silver in trade might frequently be advantageous to the country.
They were solid too, in asserting that no prohibition could prevent
their exportation, when private people found any advantage in ex-
porting them. But they were sophistical in supposing, that either to
preserve or to augment the quantity of those metals required more
the attention of government, than to preserve or to augment the
quantity of any other useful commodities, which the freedom of
trade, without any such attention, never fails to supply in the prop-
er quantity. They were sophistical too, perhaps, in asserting that
the high price of exchange necessarily increased, what they called,
the unfavourable balance of trade, or occasioned the exportation of
a greater quantity of gold and silver. That high price, indeed, was
extremely disadvantageous to the merchants who had any money
to pay in foreign countries. They paid so much dearer for the bills
which their bankers granted them upon those countries. But though
the risk arising from the prohibition might occasion some extraor-
dinary expence to the bankers, it would not necessarily carry any
more money out of the country. This expence would generally be
all laid out in the country, in smuggling the money out of it, and
could seldom occasion the exportation of a single six-pence beyond
the precise sum drawn for. The high price of exchange too would
naturally dispose the merchants to endeavour to make their exports
nearly balance their imports, in order that they might have this
high exchange to pay upon as small a sum as possible. The high
price of exchange, besides, must necessarily have operated as a tax,
in raising the price of foreign goods, and thereby diminishing their
consumption.^® It would tend, therefore, not to increase, but to
diminish, what they called, the unfavourable balance of trade, and
consequently the exportation of gold and silver.
Such as they were, however, those arguments convinced the peo-
ple to whom they were addressed. They were addressed by mer-
chants to parliaments, and to the councils of princes, to nobles, and
to country gentlemen; by those who were supposed to understand
trade, to those who were conscious to themselves that they knew
nothing about the matter. That foreign trade enriched the country,
experience demonstrated to the nobles and country gentlemen, as
sentence appears first in ed. 2. Ed. i begins the next sentence, “The
high price of exchange therefore would tend ”
PRINCIPLE OF THE MERCANTILE SYSTEM 4^3
well as to the merchants; but how, or in what manner, none of them
well knew. The merchants knew perfectly in what manner it en-
riched themselves. It was their business to know it. But to know in
what manner it enriched the country, w^as no part of their business.
This subject never came into their consideration, but when they had
occasion to apply to their country for some change in the laws re-
lating to foreign trade. It then became necessary to say something
about the beneficial effects of foreign trade, and the manner in
which those effects were obstructed by the laws as they then stood.
To the judges who were to decide the business, it appeared a most
satisfactory account of the matter, when they were told that foreign
trade brought money into the country, but that the laws in question
hindered it from bringing so much as it otherwise would do. Those
arguments therefore produced the wished-for effect. The prohibi-
tion of exporting gold and silver was in France and England con-
fined to the coin of those respective countries. The exportation of
foreign coin and of bullion was made free. In Holland, and in some
other places, this liberty was extended even to the coin of the coun-
try. The attention of government was turned away from guarding
against the exportation of gold and silver, to watch over the balance
of trade, as the only cause which could occasion any augmentation
or diminution of those metals. From one fruitless care it was turned
away to another care much more intricate, much more embnirass-
ing, and just equally fruitless. The title of Mun’s book, Efigland^s
Treasure in Foreign Trade, became a fundamental maxim in the
political oeconomy, not of England only, but of all other commercial
countries. The inland or home trade, the most important of all, the
trade in which an equal capital affords the greatest revenue, and
creates the greatest employment to the people of the country, was
considered as subsidiary only to foreign trade. It neither brought
money into the country, it was said, nor carried any out of it. The
country therefore could never become either richer or poorer by
means of it, except so far as its prosperity or decay might indirectly
influence the state of foreign trade.
A country that has no mines of its own must undoubtedly draw
its gold and silver from foreign countries, in the same manner as
one that has no vineyards of its own must draw its wines. It does
not seem necessary, however, that the attention of government
should be more turned towards the one than towards the other ob-
ject. A country that has wherewithal to buy wine, will always get
the wine which it has occasion for; and a country that has where-
withal to buy gold and silver, will never be in want of those metals.
“In” is a mistake for “by.”
The ex-
portation
of foreign
coin and
bullion
was per-
mitted by
France
and Eng-
land, and
the ex-
portation
of Dutch
coin by
Holland.
That
treasure
was ob-
tained by
foreign
trade be-
came a
received
maxim.
Gold and
silver will
be im-
ported
without
any at-
tention of
govern-
ment.
They can
be im-
ported
more eas-
ily than
other
commodi-
ties when
there is
an effec-
tual de-
mand.
When
their
quantity
exceeds
the de-
mand it is
impos-
sible to
prevent
their ex-
portation,
and it
would be
equally
impos-
siMe to
prevent
their im-
404 THE WEALTH OF NATIONS
They are to be bought for a certain price like all other commodities,
and as they are the price of all other commodities, so all other com-
modities are the price of those metals. We trust with perfect se-
curity that the freedom of trade, without any attention of govern-
ment, will always supply us with the wine which we have occasion
for: and we may trust with equal security that it will always supply
us with all the gold and silver which we can afford to purchase or
to employ, either in circulating our commodities, or in other uses.
The quantity of every commodity which human industry can
either purchase or produce, naturally regulates itself in every coun-
try according to the effectual demand, or according to the demand
of those who are willing to pay the whole rent, labour and profits
which must be paid in order to prepare and bring it to market. But
no commodities regulate themselves more easily or more exactly
according to this effectual demand than gold and silver; because,
on account of the small bulk and great value of those metals, no
commodities can be more easily transported from one place to an-
other, from the places where they are cheap, to those where they
are dear, from the places where they exceed, to those where they fall
short of this effectual demand. If there were in England, for ex-
ample, an effectual demand for an additional quantity of gold, a
paiet-boat could bring from Lisbon, or from wherever else it was
to be had, fifty tuns of gold, which could be coined into more than
five millions of guineas. But if there were an effectual demand for
grain to the same value, to import it would require, at five guineas a
tun, a million of tuns of shipping, or a thousand ships of a thousand
tuns each. The navy of England would not be sufficient.
When the quantity of gold and silver imported into any country
exceeds the effectual demand, no vigilance of government can pre-
vent their exportation. All the sanguinary laws of Spain and Portu-
gal are not able to keep their gold and silver at home. The continual
importations from Peru and Brazil exceed the effectual demand of
those countries, and sink the price of those metals there below that
in the neighbouring countries. If, on the contrary, in any particular
country their quantity fell short of the effectual demand, so as to
raise their price above that of the neighbouring countries, the
government would have no occasion to take any pains to import
them. If it were even to take pains to prevent their importation, it
would not be able to effectuate it. Those metals, when the Spar-
tans had got wherewithal to purchase them, broke through all the
barriers which the laws of Lycurgus opposed to their entrance into
“Here and four lines higher eds. 1-3 read “if there was.”
“ Ed. I reads “in.” “ Eds. 1-3 read “if it was.”
PRINCIPLE OF THE MERCANTILE SYSTEM 4^5
Lacedemon. All the san^inary laws of the customs are not able
to prevent the importation of the teas of the Dutch and Gotten-
burgh East India companies; because somewhat cheaper than those
of the British company. A pound of tea, however, is about a hun-
dred times the bulk of one of the highest prices, sixteen shillings,
that is commonly paid for it in silver, and more than two thousand
times the bulk of the same price in gold, and consequently just so
many times more difficult to smuggle.
It is partly owing to the easy transportation of gold and silver
from the places where they abound to those where they are wanted,
that the price of those ihetals does not fluctuate continually like
that of the greater part of other commodities, which are hindered
by their bulk from shifting their situation, when the market hap-
pens to be either over or under-stocked with them. The price of
those metals, indeed, is not altogether exempted from variation, but
the changes to which it is liable are generally slow, gradual, and
uniform. In Europe, for example, it is supposed, without much
foundation, perhaps, that, during the course of the present and pre-
ceding century, they have been constantly, but gradually, sinking
in their value, on account of the continual importations from the
Spanish West Indies.^^ But to make any sudden change in the price
of gold and silver, so as to raise or lower at once, sensibly and re-
markably, the money price of all other commodities, requires such a
revolution in commerce as that occasioned by the discovery of
America.
If, notwithstanding all this, gold and silver should at any time
fall short in a country which has wherewithal to purchase them,
there are more expedients for supplying their place, than that of
almost any other commodity. If the materials of manufacture are
wanted, industry must stop. If provisions are wanted, the people
must starve. But if money is wanted, barter will supply its place,
though with a good deal of inconveniency. Buying and selling upon
credit, and the different dealers compensating their credits with one
another, once a month or once a year, will supply it with less incon-
veniency. A well-regulated paper money will supply it, not only
without any inconveniency, but, in some cases, with some advan-
tages.^® Upon every account, therefore, the attention of government
never was so unnecessarily employed, as when directed to watch
The absence of any reference to the long Digression in bk. i., chap xi.,
suggests that this passage was written before the Digression was incorpora-
ted in the work. Contrast the reference below, p 474.
^*Ed. I reads “not only without any inconveniency but with very great
advantages.”
portation
if the sup-
ply fell
short of
the effec-
tual de-
mand.
It is this
ease of
transpor-
tation
which
makes the
value of
gold and
silver so
uniform.
If they
didfaU
short,
their
place
could be
supplied
by paper
The com-
mon com-
plaint of
scarcity
of money
only
means
difficulty
in bor-
rowing.
Money
makes but
a small
part of
the na-
tional
capital.
It is easier
to buy
406 XHE WEALTH OF NATIONS
over the preservation or increase of the quantity of money in any
country.
No complaint, however, is more common than that of a scarcity
of money. j\Ioney, like wine, must always be scarce with those who
have neither wherewithal to buy it, nor credit to borrow it. Those
who have either, will seldom be in want either of the money, or of
the wine which they have occasion for. This complaint, however, of
the scarcity of money, is not always confined to improvident spend-
thrifts. It is sometimes general through a whole mercantile town,
and the country in its neighbourhood. Over-trading is the common
cause of it. Sober men, whose projects have been disproportioned to
their capitals, are as likely to have neither wherewithal to buy
money, nor credit to borrow it, as prodigals whose expence has been
disproportioned to their revenue. Before their projects can be
brought to bear, their stock is gone, and their credit with it. They
run about everywhere to borrow money, and every body tells them
that they have none to lend. Even such general complaints of the
scarcity of money do not always prove that the usual number of
gold and silver pieces are not circulating in the country, but that
many people want those pieces who have nothing to give for them.
When the profits of trade happen to be greater than ordinary, over-
trading becomes a general error both among great and small deal-
ers. They do not always send more money abroad than usual, but
they buy upon credit both at home and abroad, an unusual quan-
tity of goods, which they send to some distant market, in hopes that
the returns will come in before the demand for payment. The de-
mand comes before the returns, and they have nothing at hand,
with which they can either purdiase money, or give solid security
for borrowing. It is not any scarcity of gold and silver, but the dif-
ficulty which such people find in borrowing, and which their credi-
tors find in getting payment, that occasions the general complaint
of the scarcity of money.
It would be too ridiculous to go about seriously to prove, that
wealth does not consist in money, or in gold and silver; but in what
money purchases, and is valuable only for purchasing. Money, no
doubt, makes always a part of the national capital; but it has al-
ready been shown that it generally makes but a small part, and
always the most unprofitable part of it.
It is not because wealth consists more essentially in money than
in goods, that the merchant finds it generally more easy to buy
pis probably refers to p. 280, though the object there is rather to insist
on the largeness of the saving effected by dispensing with money, and pp.
270-276.
PRINCIPLE OF THE MERCANTILE SYSTEM 4^7
goods with money, than to buy money with goods; but because
money is the known and established instrument of commerce, for
which every thing is readily given in exchange, but which is not al-
ways with equal readiness to be got in exchange for every thing.
The greater part of goods besides are more perishable than money,
and he may frequently sustain a much greater loss by keeping
them. When his goods are upon hand too, he is more liable to such
demands for money as he may not be able to answer, than when he
has got their price in his coffers. Over and above all this, his profit
arises more directly from selling than from buying, and he is upon
all these accounts generally much more anxious to exchange his
goods for money, than his money for goods. But though a particu-
lar merchant, with abundance of goods in his warehouse, may some-
times be mined by not being able to sell them in time, a nation or
country is not liable to the same accident. The whole capital of a
merchant frequently consists in perishable goods destined for pur-
chasing money. But it is but a very small part of the annual prod-
uce of the land and labour of a country which can ever be destined
for purchasing gold and silver from their neighbours. The far great-
er part is circulated and consumed among themselves; and even of
the surplus which is sent abroad, the greater part is generally des-
tined for the purchase of other foreign goods. Though gold and sil-
ver, therefore, could not be had in exchange for the goods destined
to purchase them, the nation would not be mined. It might, indeed,
suffer some loss and inconveniency, and be forced upon some of
those expedients which are necessary for supplying the place of
money. The annual produce of its land and labour, however, would
be the same, or very nearly the same, as usual, because the same, or
very nearly the same consumable capital would be employed in
maintaining it. And though goods do not always draw money so
readily as money draws goods, in the long-run they draw it more
necessarily than even it draws them. Goods can serve many other
purposes besides purchasing money, but money can serve no other
purpose besides purchasing goods. Money, therefore, necessarily
runs after goods, but goods do not always or necessarily run after
money. The man who buys, does not always mean to sell again, but
frequently to use or to consume: whereas he who sells, always
means to buy again. The one may frequently have done the whole,
but the other can never have done more than the one-half of his
business. It is not for its own sake that men desire money, but for
the sake of what they can purchase with it.
Consumable commodities, it is said, are soon destroyed; whereas
gold and silver are of a more durable nature, and, were it not for
than to
sell simply
because
money is
the in-
strument
of com-
merce.
The dura
bilityof a
commod-
ity is no
reason for
accumu-
lating
more of it
than IS
wanted.
408 the wealth of nations
this continual exportation, might be accumulated for ages together,
to the incredible augmentation of the real wealth of the country.
Nothing, therefore, it is pretended, can be more disadvantageous to
any country, than the trade which consists m the exchange of such
lasting for such perishable commodities. We do not, however, reck-
on that trade disadvantageous which consists in the exchange of
the hard-ware of England for the wines of France; and yet hard-
ware is a very durable commodity, and were it not for this con-
tinual exportation, might too be accumulated for ages together, to
the incredible augmentation of the pots and pans of the country.
But it readily occurs that the number of such utensils is in every
country necessarily limited by the use which there is for them; that
it would be absurd to have more pots and pans than were necessary
for cooking the victuals usually consumed there; and that if the
quantity of victuals were to increase, the number of pots and pans
would readily increase along with it, a part of the increased quan-
tity of victuals being employed in purchasing them, or in maintain-
ing an additional number of workmen whose business it was to
make them. It should as readily occur that the quantity of gold and
silver is in every country limited by the use which there is for those
metals; that their use consists in circulating commodities as coin,
and in affording a species of houshold furniture as plate; that the
quantity of coin in every country is regulated by the value of the
commodities which are to be circulated by it: increase that value,
and immediately a part of it will be sent abroad to purchase, where-
ever it is to be had, the additional quantity of coin requisite for cir-
culating them: that the quantity of plate is regulated by the num-
ber and wealth of those private families who chuse to indulge them-
selves in that sort of magnificence: increase the number and wealth
of such families, and a part of this increased wealth will most prob-
ably be employed in purchasing, wherever it is to be found, an
additional quantity of plate: that to attempt to increase the wealth
of any country, either by introducing or by detaining in it an un-
necessary quantity of gold and silver, is as absurd as it would be to
attempt to increase the good cheer of private families, by obliging
them to keep an unnecessary number of kitchen utensils. As the ex-
pence of purchasing those unnecessary utensils would diminish in-
stead of increasing either the quantity or goodness of the family
provisions; so the expence of purchasing an unnecessary quantity
of gold and silver must, in every country, as necessarily diminish
the wealth which feeds, clothes, and lodges, which maintains and
employs the people. Gold and silver, whether in the shape of coin or
Eds. 1-3 read “was it not
PRINCIPLE OF THE MERCANTILE SYSTEM W
plate, are utensils, it must be remembered, as much as the furniture
of the kitchen. Increase the use for them, increase the consumable
commodities which are to be circulated, managed, and prepared by
means of them, and you will infallibly increase the quantity; but if
you attempt, by extraordinary means, to increase the quantity, you
will as infallibly diminish the use and even the quantity too, which
in those metals can never be greater than what the use requires.
Were they ever to be accumulated beyond this quantity, their
transportation is so easy, and the loss which attends their lying idle
and unemployed so great, that no law could prevent their being im-
mediately sent out of the country.
It is not always necessary to accumulate gold and silver, in order
to enable a country to carry on foreign wars, and to maintain fleets
and armies in distant countries. Fleets and armies are maintained,
not with gold and silver, but with consumable goods. The nation
which, from the annual produce of its domestic industry, from the
annual revenue arising out of its lands, labour, and consumable
stock, has wherewithal to purchase those consumable goods in dis-
tant countries, can maintain foreign wars there.
A nation may purchase the pay and provisions of an army in a
distant country three different ways; by sending abroad either,
first, some part of its accumulated gold and silver; or secondly,
some part of the annual produce of its manufactures; or last of all,
some part of its annual rude produce.
The gold and silver which can properly be considered as accumu-
lated or stored up in any country, may be distinguished into three
parts; •first, the circulating money; secondly, the plate of private
families; and last of all, the money which may have been collected
by many years parsimony, and laid up in the treasury of the prince.
It can seldom happen that much can be spared from the circu-
lating money of the country; because in that there can seldom be
much redundancy. The value of goods annually bought and sold in
any country requires a certain quantity of money to circulate and
distribute them to their proper consumers, and can give employ-
ment to no more. The channel of circulation necessarily draws to it-
self a sum sufficient to fill it, and never admits any more. Some-
thing, however, is generally withdrawn from this channel in the
case of foreign war. By the great number of people who are main-
tained abroad, fewer are maintained at home. Fewer goods are cir-
culated there, and less money becomes necessary to circulate them.
An extraordinary quantity of paper money, of some sort or other
too, such as exchequer notes, navy bills, and bank bills in England,
is generally issued upon such occasions, and by supplying the place
Accumu-
lation of
gold and
silver is
not neces-
sary for
carrying
on distant
wars,
which
ma> be
paid for
by export-
ing. (i)
gold and
silver, (2)
manufac-
tures, or
(3) rude
produce
The gold
and Slver
consists of
money in
circula-
tion,
plate, and
money in
thetreas-
ury.
Little can
be spared
from the
money in
circula-
tion;
410
plate has
never
yielded
m ich;
accumula-
tion in the
treasury
has been
aban-
doned.
The
foreign
wars of
the cen-
tury have
evidently
not been
paid for
from the
money in
circula-
tion.
THE WEALTH OF NATIONS
of circulating gold and silver, gives an opportunity of sending a
greater quantity of it abroad. All this, however, could afford but a
poor resource for maintaining a foreign war, of great expence and
several years duration.
The melting down the plate of private families, has upon every
occasion been found a still more insignificant one. The French, in
the beginning of the last war, did not derive so much advantage
from this expedient as to compensate the loss of the fashion.
The accumulated treasures of the prince have, in former times,
afforded a much greater and more lasting resource. In the present
times, if you except the king of Prussia, to accumulate treasure
seems to be no part of the policy of European princes.
The funds which maintained the foreign wars of the present cen-
tury, the most expensive perhaps which history records, seem to
have had little dependency upon the exportation either of the cir-
culating money, or of the plate of private families, or of the treas-
ure of the prince. The last French war cost Great Britain upwards
of ninety millions, including not only the seventy-five millions of
new debt that was contracted,^® but the additional two shillings in
the pound land tax, and what was annually borrowed of the sink-
ing fund. More than two-thirds of this expence were®® laid out in
distant countries; in Germany, Portugal, America, in the ports of
the Mediterranean, in the East and West Indies. The kings of Eng-
land had no accumulated treasure. We never heard of any extra-
ordinary quantity of plate being melted down. The circulating gold
and silver of the country had not been supposed to exceed eighteen
millions. Since the late recoinage of the gold, however, *it is be-
lieved to have been a good deal under-rated. Let us suppose, there-
fore, according to the most exaggerated computation which I re-
member to have either seen or heard of,®^ that, gold and silver to-
gether, it amounted to thirty millions.®® Had the war been carried
on, by means of our money, the whole of it must, even according to
this computation, have been sent out and returned again at least
twice, in a period of between six and seven years. Should this be
supposed, it would afford the most decisive argument to demon-
strate how unnecessary it is for government to watch over the pre-
servation of money, since upon this supposition the whole money of
the country must have gone from it and returned to it again, two
different times in so short a period, without any body’s knowing
any thing of the matter. The (iannel of circulation, however, never
^Present State of the Nation (see next page and note), p. 28
Eds. 1-3 read “was.” >> h o.
^Ed. I reads “according to the exaggerated computation of Mr. Horsely.”
Lectures, p, igg, ^
PRINCIPLE OF THE MERCANTILE SYSTEM 4^1
appeared more empty than usual during any part of this period.
Few people wanted money who had wherewithal to pay for it. The
profits of foreign trade, indeed, were greater than usual during the
whole war; but especially towards the end of it. This occasioned,
what it always occasions, a general over-trading in all the ports of
Great Britain; and this again occasioned the usual complaint of the
scarcity of money, which always follows over-trading. jMany people
wanted it, who had neither wherewithal to buy it, nor credit to bor-
row it; and because the debtors found it difficult to borrow, the
creditors found it difficult to get payment. Gold and silver, how-
ever, were generally to be had for their value, by those who had
that value to give for them.
The enormous expence of the late war, therefore, must have been
chiefly defrayed, not by the exportation of gold and silver, but by
that of British commodities of some kind or other. When the gov-
ernment, or those who acted under them, contracted with a mer-
chant for a remittance to some foreign country, he would naturally
endeavour to pay his foreign correspondent, upon wbom he had
granted a bill, by sending abroad rather commodities than gold and
silver. If the commodities of Great Britain were not in demand in
that country, he would endeavour to send them to some other coun-
try, in which he could purchase a bill upon that country. The trans-
portation of commodities, when properly suited to the market, is
always attended with a considerable profit; whereas that of gold
and silver is scarce ever attended with any. When those metals are
sent abroad in order to purchase foreign commodities, the mer-
chant’s profit arises, not from the purchase, but from the sale of the
returns. But when they are sent abroad merely to pay a debt, he
gets no returns, and consequently no profit. He naturally, therefore,
exerts his invention to find out a way of paying his foreign debts,
rather by the exportation of commodities than by that of gold and
silver. The great quantity of British goods exported during the
course of the late war, without bringing back any returns, is ac-
cordingly remarked by the author of The Present State of the Na-
tion.^^
Besides the three sorts of gold and silver above mentioned, there
is in all great commercial countries a good deal of bullion alternate-
ly imported and exported for the purposes of foreign trade. This
bullion, as it circulates among different commercial countries in the
same manner as the national coin circulates in every particular
^The Present State of the Nation, particularly with respect to its Trade,
Finances, etc., etc., addressed to the King and both Houses of Parliament,
1768 (written under the direction of George Grenville by William Knox), pp.
7 , 8 .
but by
commodi •
ties.
Part of
the bul-
lion
which cir-
culates
from
country to
country
may have
been em-
ployed,
but it
must have
been pur-
chased
with
commodi-
ties.
The finer
manufac-
tures are
the most
conve-
nient
commodi-
ties for
the pur-
pose.
4 ^^ THE WEALTH OF NATIONS
country, may be considered as the money of the great mercantile
republic. The national coin receives its movement and direction
from the commodities circulated within the precincts of each par-
ticular country: the money of the mercantile republic, from those
circulated between different countries. Both are employed in facili-
tating exchanges, the one between different individuals of the same,
the other between those of different nations. Part of this money of
the great mercantile republic may have been, and probably was,
employed in carrying on the late war. In time of a general war, it is
natural to suppose that a movement and direction should be im-
pressed upon it, different from what it usually follows in profound
peace; that it should circulate more about the seat of the war, and
be more employed in purchasing there, and in the neighbouring
countries, the pay and provisions of the Afferent armies. But what-
ever part of this money of the mercantile republic, Great Britain
may have annually employed in this manner, it must have been an-
nuity purchased, either with British commodities, or with some-
thing else that had been purchased with them; which still brings us
back to commodities, to the annual produce of the land and labour
of the country, as the ultimate resources which enabled us to carry
on the war. It is natural indeed to suppose, that so great an annual
expence must have been defrayed from a great annual produce. The
expence of 1761, for example, amounted to more than nineteen mil-
lions. No accumulation could have supported so great an annual
profusion. There is no annual produce even of gold and silver which
could have supported it. The whole gold and silver annually im-
ported into both Spain and Portugal, according to the best ac-
counts, does not commonly much exceed six millions sterling,
which, in some years, would scarce have paid four months expence
of the late war.
The commodities most proper for being transported to distant
countries, in order to purchase there, either the pay and provisions
of an army, or some part of the money of the mercantile republic
to be employed in purchasing them, seem to be the finer and more
improved manufactures; such as contain a great value in a small
bulk, and can, therefore, be exported to a great distance at little
expence. A country whose industry produces a great annual surplus
of such manufactures, which are usually exported to foreign coun-
tries, may carry on for many years a very expensive foreign war,
without either exporting any considerable quantity of gold and sil-
ver, or even having any such quantity to export. A considerable
Above, pp. 208, 209,
PRINCIPLE OF THE MERCANTILE SYSTEM 4^3
part of the annual surplus of its manufactures must, indeed, in this
case be exported, without bringing back any returns to the country,
though it does to the merchant; the government purchasing of the
mercjiant his bills upon foreign countries, in order to purchase
there the pay and provisions of an army. Some part of this surplus,
however, may still continue to bring back a return.^^ The manufac-
turers, during the war, will have a double demand upon them, and
be called upon, first, to work up goods to be sent abroad, for paying
the bills drawn upon foreign countries for the pay and provisions
of the army; and, secondly, to work up such as are necessary for
purchasing the common returns that had usually been consumed in
the country. In the midst of the most destructive foreign war, there-
fore, the greater part of manufactures may frequently flourish
greatly; and, on the contrary, they may decline on the return of
the peace. They may flourish amidst the ruin of their country, and
begin to decay upon the return of its prosperity. The different state
of many different branches of the British manufactures during the
late war, and for some time after the peace, may serve as an illus-
tration of what has been just now said.
No foreign war of great expence or duration could conveniently
be carried on by the exportation of the rude produce of the soil,
The expence of sending such a quantity of it to a foreign country venient.
as might purchase the pay and provisions of an army, would be too
great. Few countries too produce much more rude produce than
what is sufficient for the subsistence of their own inhabitants- To
send abroad any great quantity of it, therefore, would be to send
abroad a part of the necessary subsistence of the people. It is other-
wise with the exportation of manufactures. The maintenance of the
people employed in them is kept at home, and only the surplus part
of their work is exported. Mr. Hume frequently takes notice of the
inability of the ancient kings of England to carry on, without in-
terruption, any foreign war of long duration.-*^ The English, in
those days, had nothing wherewithal to purchase the pay and pro-
visions of their armies in foreign countries, but either the rude
produce of the soil, of which no considerable part could be spared
from the home consumption, or a few manufactures of the coarsest
kind, of which, as well as of the rude produce, the transportation
was too expensive. This inability did not arise from the want of
^ In place of these two sentences ed. i reads “A considerable part of the
annual surplus of its manufactures must indeed in this case be exported with-
out bringing back any returns. Some part of it, however, may still continue
to bring back a return.”
^History, chaps, xix. and xx., vol. iii., pp. 103, 104, 165 in ed. of 1773.
414 THE WEALTH OF NATIONS
money, but of the finer and more improved manufactures. Buying
and selling was transacted by means of money in England then, as
well as now. The quantity of circulating money must have borne
the same proportion to the number and value of purchases and.sales
usually transacted at that time, which it does to those transacted at
present; or rather it must have borne a greater proportion, because
there was then no paper, which now occupies a great part of the
employment of gold and silver. Among nations to whom commerce
and manufactures are little known, the sovereign, upon extraor-
dinary occasions, can seldom draw any considerable aid from his
subjects, for reasons which shall be explained hereafter.^'^ It is in
such countries, therefore, that he generally endeavours to accumu-
late a treasure, as the only resource against such emergencies. In-
dependent of this necessity, he is in such a situation naturally dis-
posed to the parsimony requisite for accumulation. In that simple
state, the expence even of a sovereign is not directed by the vanity
which delights in the gaudy finery of a court, but is employed in
bounty to his tenants, and hospitdity to his retainers. But bounty
and hospitality very seldom lead to extravagance; though vanity
almost always does.^^ Every Tartar chief, accordingly, has a treas-
ure. The treasures of Mazepa, chief of the Cossacks in the Ukraine,
the famous ally of Charles the Xllth, are said to have been very
great. The French kings of the Merovingian race had all treasures.
When they divided their kingdom among their different children,
they divided their treasure too. The Saxon princes, and the first
kings after the conquest, seem likewise to have accumulated treas-
ures. The first exploit of every new reign was commonly to seize the
treasure of the preceding king, as the most essential measure for
securing the succession. The sovereigns of improved and commer-
cial countries are not under the same necessity of accumulating
treasures, because they can generally draw from their subjects ex-
traordinary aids upon extraordinary occasions. They are likewise
less disposed to do so. They naturally, perhaps necessarily, follow
the mode of the times, and their expence comes to be regulated by
the same extravagant vanity which directs that of all the other
great proprietors in their dominions. The insignificant pageantry of
their court becomes every day more brilliant, and the expence of it
not only prevents accumulation, but frequently encroaches upon
the funds destined for more necessary expences. What Dercyllidas
said of the court of Persia, may be applied to that of several Euro-
^ Below, p. S63.
“ This sentence and the nine words before it are repeated below, p. 860.
PRINCIPLE OF THE MERCANTILE SYSTEM 4^5
pean princes, that he saw there much splendor but little strength,
and many servants but few soldiers.-^
The importation of gold and silver is not the principal, much less
the sole benefit which a nation derives from its foreign trade. Be-
tween whatever places foreign trade is carried on, they all of them
derive two distinct benefits from it. It carries out that surplus part
of the produce of their land and labour for which there is no de-
mand among them, and brings back in return for it something else
for which there is a demand. It gives a value to their superfluities,
by exchanging them for something else, which may satisfy a part of
their wants, and increase their enjoyments. By means of it, the
narrowness of the home market does not hinder the division of la-
bour in any particular branch of art or manufacture from being
carried to the highest perfection. By opening a more extensive mar-
ket for whatever part of the produce of their labour may exceed the
home consumption, it encourages them to improve its productive
powers, and to augment its annual produce to the utmost, and
thereby to increase the real revenue and wealth of the society.
These great and important services foreign trade is continually oc-
cupied in performing, to all the different countries between which
it is carried on. They all derive great benefit from it, though that in
which the merchant resides generally derives the greatest, as he is
generally more employed in supplying the wants, and carrying out
the superfluities of his own, than of any other particular country.
To import the gold and silver which may be wanted, into the coun-
tries which have no mines, is, no doubt, a part of the business of
foreign commerce. It is, however, a most insignificant part of it. A
country which carried on foreign trade merely upon this account,
could scarce have occasion to freight a ship in a century.
It is not by the importation of gold and silver, that the discovery
of America has enriched Europe. By the abundance of the Ameri-
can mines, those metals have become cheaper. A service of plate can
now be purchased for about a third part of the corn, or a third part
of the labour, which it would have cost in the fifteenth century.
With the same annual expence of labour and commodities, Europe
can annually purchase about three times the quantity of plate
which it could have purchased at that time. But when a commodity
comes to be sold for a third part of what had been its usual price,
not only those who purchased it before can purchase three times
their former quantity, but it is brought down to the level of a much
“Dercyllidas” appears to be a mistake for Antiochus See Xenophon, Hel-
lenica, vii., i., § 38.
^ Ed. I reads “thereby increase.”
The prin-
cipal
benefit of
foreign
trade 1
not th^
importa-
tion of
gold and
Slver, but
the carry-
ing out of
surplus
produce
for which
there is
no de-
mand and
bringing
back
something
for which
there is.
The dis-
covery of
America
has bene-
fited
Europe
not by the
cheapen-
ing of
gold and
silver,
but by
opening
up of a
new mar-
ket which
improved
the pro-
ductive
powers of
labour.
The dis-
covery of
the sea
passage to
the East
Indies
would
have been
still more
advan-
tageous if
the trade
to the
East
Indies
had been
free.
416 the wealth of nations
greater number of purchasers, perhaps to more than ten, perhaps
to more than twenty times the former number. So that there may
be in Europe at present not only more than three times, but more
than twenty or thirty times the quantity of plate which would have
been in it, even in its present state of improvement, had the discov-
ery of the American mines never been made. So far Europe has, no
doubt, gained a real conveniency, though surely a very trifling one-
The cheapness of gold and silver renders those metals rather les"^
fit for the purposes of money than they were before. In order t^
make the same purchases, we must load ourselves with a greater
quantity of them, and carry about a shilling in our pocket where a
groat would have done before. It is difficult to say which is most
trifling, this inconveniency, or the opposite conveniency. Neither
the one nor the other could have made any very essential change in
the state of Europe. The discovery of America, however, certainly
made a most essential one. By opening a new and inexhaustible
market to all the commodities of Europe, it gave occasion to new
divisions of labour and improvements of art, which, in the narrow
circle of the ancient commerce, could never have taken place for
want of a market to take off the greater part of their produce. The
productive powers of labour were improved, and its produce in-
creased in all the different countries of Europe, and together with it
the real revenue and wealth of the inhabitants. The commodities of
Europe were almost all new to America, and many of those of Am-
erica were new to Europe. A new set of exchanges, therefore, began
to take place which had never been thought of before, and which
should naturally have proved as advantageous to the new, as it
certainly did to the old continent. The savage injustice of the Euro-
peans rendered an event, which ought to have been beneficial to all,
ruinous and destructive to several of those unfortunate countries.
The discovery of a passage to the East Indies, by the Cape of
Good Hope, which happened much about the same time, opened,
perhaps, a still more extensive range to foreign commerce than even
that of America, notwithstanding the greater distance. There were
but two nations in America, in any respect superior to savages, and
these were destroyed almost as soon as discovered. The rest were
mere savages. But the empires of China, Indostan, Japan, as well as
several others in the East Indies, without having richer mines of
gold or silver, were in every other respect much richer, better culti-
vated, and more advanced in all arts and manufactures than either
Mexico or Peru, even though we should credit, what plainly de-
serves no credit, the exaggerated accounts of the Spanish writers,
concerning the ancient state of those empires. But rich and civilized
PRINCIPLE OP THE MERCANTILE SYSTEM 4i7
nations can always exchange to a much greater value with one an-
other, than with savages and barbarians. Europe, however, has
hitherto derived much less advantage from its commerce with the
East Indies, than from that with America. The Portuguese monopo-
lized the East India trade to themselves for about a century, and it
was only indirectly and through them, that the other nations of
Europe could either send out or receive any goods from that coun-
try. When the Dutch, in the beginning of the last century, began
to encroach upon them, they vested their whole East India com-
merce in an exclusive company. The English, French, Swedes, and
Danes, have all followed their example, so that no great nation in
Europe has ever yet had the benefit of a free commerce to the East
Indies. No other reason need be assigned why it has never been so
advantageous as the trade to America, which, between almost every
nation of Europe and its own colonies, is free to all its subjects.
The exclusive privileges of those East India companies, their great
riches, the great favour and protection which these have procured
them from their respective governments, have excited much envy
against them. This envy has frequently represented their trade as
altogether pernicious, on account of the great quantities of silver,
which it every year exports from the countries from which it is car-
ried on. The parties concerned have replied, that their trade, by this
continual exportation of silver, might, indeed, tend to impoverish
Europe in general, but not the particular country from which it was
carried on; because, by the exportation of a part of the returns to
other European countries, it annually brought home a much greater
quantity of that metal than it carried out. Both the objection and
the reply are founded in the popular notion which I have been just
now examining. It is, therefore, unnecessary to say any thing fur-
ther about either. By the annual exportation of silver to the East
Indies, plate is probably somewhat dearer in Europe than it other-
wise might have been; and coined silver probably purchases a
larger quantity both of labour and commodities. The former of
these two effects is a very small loss, the latter a very small advan-
tage; both too insignificant to deserve any part of the public at-
tention. The trade to the East Indies, by opening a market to the
commodities of Europe, or, what comes nearly to the same thing,
to the gold and silver which is purchased with those commodities,
must necessarily tend to increase the annual production of Euro-
pean commodities, and consequently the real wealth and revenue of
Europe. .That it has hitherto increased them so little, is probably
owing to the restraints which it every-where labours under.
I thought it necessary, though at the hazard of being tedious, to
The ex-
portation
of silver
to the
East
Indies is
not harm-
ful.
Writers
who begin
by includ-
ing lands,
houses
and con-
sumable
goods in
wealth
often for-
get them
later.
Wealth
being sup-
posed to
consist in
gold and
silver, po-
litical
economy
endeav-
oured to
diminish
imports
and en-
courage
exports,
by res-
traints
upon im-
portation
and en-
courage-
ments to
exporta-
tion,
41S the wealth of nations
examine at full length this popular notion that wealth consists in
money, or in gold and silver, iloney in common language, as I have
already observed, frequently signifies wealth; and this ambiguity
of expression has rendered this popular notion so familiar to us,
that even they, w^ho are convinced of its absurdity, are very apt to
forget their own principles, and in the course of their reasonings to
take it for granted as a certain and undeniable truth. Some of the
best English writers upon commerce set out with observing, that
the wealth of a country consists, not in its gold and silver only, but
in its lands, houses, and consumable goods of all different kinds. In
the course of their reasonings, however, the lands, houses, and con-
sumable goods seem to slip out of their memory, and the strain of
their argument frequently supposes that all wealth consists in gold
and silver, and that to multiply those metals is the great object of
national industry and commerce.
The two principles being established, however, that wealth con-
sisted in gold and silver, and that those metals could be brought
into a country which had no mines only by the balance of trade, or
by exporting to a greater value than it imported; it necessarily be-
came the great object of political (economy to diminish as much as
possible the importation of foreign goods for home consumption,
and to increase as much as possible the exportation of the produce
of domestic industry. Its two great engines for enriching the coun-
try, therefore, were restraints upon importation, and encourage-
ments to exportation.
The restraints upon importation were of two kinds.
First, Restraints upon the importation of such foreign goods for
home consumption as could be produced at home, from whatever
country they were imported.
Secondly, Restraints upon the importation of goods of almost all
kinds from those particular countries with which the balance of
trade was supposed to be disadvantageous.
Those different restraints consisted sometimes in high duties, and
sometimes in absolute prohibitions.
Exportation was encouraged sometimes by drawbacks, some-
times by bounties, sometimes by advantageous treaties of com-
merce with foreign states, and sometimes by the establishment of
colonies in distant countries.
Drawbacks were given upon two different occasions. When the
home-manufactures were subject to any duty or excise, either the
whole or a part of it was frequently drawn back upon their exporta-
tion; and when foreign goods liable to a duty were imported in
PRINCIPLE OF THE MERCANTILE SYSTEM 4^9
order to be exported again, either the whole or a part of this duty
was sometimes given back upon such exportation.
Bounties were given for the encouragement either of some be-
ginning manufactures, or of such sorts of industry of other kinds
as were supposed to deserve particular favour.
By advantageous treaties of commerce, particular privileges
were procured in some foreign state for the go^s and merchants of
the country, beyond what were granted to those of other countries.
By the establishment of colonies in distant countries, not only
particular privileges, but a monopoly was frequently procured for
the goods and merchants of the country which established them.
The two sorts of restraints upon importation above-mentioned,
together with these four encouragements to exportation, constitute
the six principal means by which the commercial system proposes
to increase the quantity of gold and silver in any country by turn-
ing the balance of trade in its favour. I ^all consider each of them
in a particular chapter, and without taking much further notice of
their supposed tendency to bring money into the country, I shall
examine chiefly what are likely to be the effects of each of them up-
on the annual produce of its industry. According as they tend either
to increase or diminish the value of this annual produce, they must
evidently tend either to increase or dimmish the real wealth and
revenue of the country.
which re-
straints
and en-
courage-
ments
will be
considered
in the
next six
chapters.
f
High
duties and
prohibi-
tions
giving a
monopoly
to a par-
ticular
home in-
dustry
are very
common.
They en-
courage
the par-
ticular in-
dustry,
CHAPTER II
OF RESTRAINTS UPON THE IMPORTATION FROM FOREIGN COUNTRIES
OF SUCH GOODS AS CAN BE PRODUCED AT HOME
By restraining, either by high duties, or by absolute prohibitions,
the importation of such goods from foreign countries as can be pro-
duced at home, the monopoly of the home market is more or less
secured to the domestic industry employed in producing them. Thus
the prohibition of importing either live cattle ^ or salt provisions
from foreign countries secures to the graziers of Great Britain the
monopoly of the home market for butcher’s meat. The high duties
upon the importation of corn,^ which in times of moderate plenty
amount to a prohibition, give a like advantage to the growers of
that commodity. The prohibition of the importation of foreign
woollens is equally favourable to the woollen manufacturers.^ The
silk manufacture, though altogether employed upon foreign mate-
rials, has lately obtained the same advantage.^ The linen manufac-
ture has not yet obtained it, but is making great strides towards it.^
Many other sorts of manufacturers ® have, in the same manner, ob-
tained in Great Britain, either altogether, or very nearly a mon-
opoly against their countrymen. The variety of goods of which the
importation into Great Britain is prohibited, either absolutely, or
under certain circumstances, greatly exceeds what can easily be
suspected by those who are not well acquainted with the laws of the
customs."^
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
^ See above, p. 394. ^ See below, pp, 502, 503.
* II and 12 Ed. III., c. 3; 4 Ed#iV., c. 7. ^6 Geo. III., c. 28.
® By the additional duties, 7 Geo. III., c. 28.
^Misprinted “manufactures” in ed. 5.
^ This sentence appears first in Additions and Corrections and ed. 3.
420
RESTRAINTS ON PARTICULAR IMPORTS 4^^
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 never can 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 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 a part of it into a direction
into which it might not otherwise have gone; and it is by no means
certam that this artificial direction is likely to be more advantage-
ous 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 com-
mand. 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.
First, every individual endeavours to employ his capital as near
home as he can, and consequently as much as he can in the support
of domestic industry; provided always that he can thereby obtain
the ordinary, or not a great deal less than the ordinary profits of
stock.
Thus, upon equal or nearly equal profits, every wholesale mer-
chant naturally prefers the home-trade to the foreign trade of con-
sumption, and the foreign trade of consumption to the carrying
trade. In the home-trade his capital is never so long out of his sight
as it frequently is in the foreign trade of consumption. He can know
better the character and situation of the persons whom he trusts,
and if he should happen to be deceived, he knows better the laws of
the country from which he must seek redress. In the carrying trade,
the capital of the merchant is, as it were, divided between two for-
eign countries, and no part of it is ever necessarily brought home, or
placed under his own immediate view and command. The capital
which an Amsterdam nierchant employs in carrying corn from
Konnigsberg to Lisbon, and fruit and wine from Lisbon to Kon-
nigsberg, must generally be the one-half of it at Konnigsberg and
the other half at Lisbon. No part of it need ever come to Amster-
dam. The natural residence of such a merchant should either be at
® Ed, I reads “certam.”
but nei-
ther in-
crease
general
industry
nor give
it the best
direction.
The num-
ber of
persons
emplo} ed
cannot
exceed a
certain
propor-
tion to the
capital of
the so-
ciety,
and every
man’s in-
terest
leads him
to seek
that em-
ployment
of capital
which is
most ad-
vanta-
geous to
the so-
ciety.
(I) He
tries to
employ it
as near
home as
posable.
422
THE WEAXTH OF NATIONS
Konnigsberg or Lisbon, and it can only be some very particular
circumstances which can make him prefer the residence of Amster-
dam, The uneasiness, however, which he feels at being separated
so far from his capital, generally determines him to bring part
both of the Konnigsberg goods which he destines for the market of
Lisbon, and of the Lisbon goods which he destines for that of Kon-
nigsberg, to Amsterdam: and though this necessarily subjects him
to a double charge of loading and unloading, as well as to the pay-
ment of some duties and customs, yet for the sake of having some
part of his capital always under his own view and command, he
willingly submits to this extraordinary charge; and it is in this
manner that every country which has any considerable share of
the carrying trade, becomes always the emporium, or general mar-
ket, for the goods of all the different countries whose trade it car-
ries on. The merchant, in order to save a second loading and un-
loading, endeavours always to sell in the home-market as much of
the goods of all those different countries as he can, and thus, so
far as he can, to convert his carrying trade into a foreign trade of
consumption. A merchant, in the same manner, who is engaged in
the foreign trade of consumption, when he collects goods for for-
eign markets, will always be glad, upon equal or nearly equal pro-
fits, to sell as great a part of them at home as he can. He saves
himself the risk and trouble of exportation, when, so far as he can,
he thus converts his foreign trade of consumption into a home-
trade. Home is in this manner the center, if I may say so, round
which the capitals of the inhabitants of every country are contin-
ually circulating, and towards which they are always tending,
though by particular causes they may sometimes be driven off and
repelled from it towards more distant employments. But a capital
employed in the home-trade, it has already been shown, ^ neces-
sarily puts into motion a greater quantity of domestic industry, and
gives revenue and employment to a greater number of the inhabit-
ants of the country, than an equal capital employed in the foreign
trade of consumption: and one employed in the foreign trade of
consumption has the same advantage over an equal capital em-
ployed in the carrying trade. Upon equal, or only nearly equal pro-
fits, therefore, every individual naturally inclines to employ his
capital in the manner in which it is likely to afford the greatest
support to domestic industry, and to give revenue and employ-
ment to the greatest number of people of his own country.
Secondly, every individual who employs his capital in the sup-
port of domestic industry, necessarily endeavours so to direct that
® Above, pp. 349-353-
Ed I reads “the” here
RESTRAINTS ON PARTICULAR IMPORTS 4-’3
industry, that its produce may be of the greatest possible value.
The produce of industry is what it adds to the subject or mater-
ials upon which it is employed. In proportion as the value of this
produce is great or small, so will likewise be the profits of the em-
ployer. But it is only for the sake of profit that any man employs
a capital in the support of industry; and he will always, therefore,
endeavour to employ it in the support of that industry of which
the produce is likely to be of the greatest value, or to exchange for
the greatest quantity either of money or of other goods.
But the annual revenue of every society is always precisely
equal to the exchangeable value of the whole annual produce of its
industry, or rather is precisely the same thing with that exchange-
able value. As every individual, therefore, endeavours as much as
he can both to employ his capital in the support of domestic indus-
try, and so to direct that industry that its produce may be of the
greatest value; every individual necessarily labours to render the
annual revenue of the society as great as he can. He generally, in-
deed, neither intends to promote the public interest, nor knows
how much he is promoting it. By preferring the support of dom-
estic to that of foreign industry, he intends only his own security;
and by directing that industry in such a manner as its produce
may be of the greatest value, he intends only his own gain, and he
is in this, as in many other cases, led by an invisible hand to pro-
mote an end which was no part of his intention. Nor is it always
the worse for the society that it was no part of it. By pursuing his
own interest he frequently promotes that of the society more
effectually than when he really intends to promote it. I have never
known much good done by those who affected to trade for the pub-
lic good. It is an affectation, indeed, not very common among mer-
chants, and very few words need be employed in dissuading them
from it.
What is the species of domestic industry which his capital can
employ, and of which the produce is likely to be of the greatest
value, every individual, it is evident, can, in his local situation,
judge much better than any statesman or lawgiver can do for
him. The statesman, who should attempt to direct private people
in what manner they ought to employ their capitals, would not
only load himself with a most unnecessary attention, but assume
an authority which could safely be trusted, not only to no single
person, but to no council or senate whatever, and which would no-
where be so dangerous as in the hands of a man who had folly and
presumption enough to fancy himself fit to exercise it.
To give the monopoly of the home-market to the produce of
voursto
produce
the great-
est pos-
sible
value.
He can
judge of
this much
better
than the
states-
man.
High
duties and
prohibi-
tions di-
rect
people to
employ
capital in
producing
at home
what they
could buy
cheaper
from
abroad.
It is as
foolish
fora
nation
as for an
individual
to make
what can
be bought
cheaper.
424 THE WEALTH OF NATIONS
domestic industry, in any particular art or manufacture, is in some
measure to direct private people in what manner they ought to em-
ploy their capitals, and must, in almost all cases, be either a use-
less or a hurtful regulation. If the produce of domestic can be
brought there as cheap as that of foreign industry, the regulation
is evidently useless. If it cannot, it must generally be hurtful. It is
the maxim of every prudent master of a family, never to attempt
to make at home what it will cost him more to make than to buy.
The taylor does not attempt to make his own shoes, but buys them
of the shoemaker. The shoemaker does not attempt to make his
own clothes, but employs a taylor. The farmer attempts to make
neither the one nor the other, but employs those different arti-
ficers. All of them find it for their interest to employ their whole
industry in a w’ay in which they have some advantage over their
neighbours, and to purchase with a part of its produce, or what
is the same thing, with the price of a part of it, whatever else they
have occasion for.
What is prudence in the conduct of every private family, can
scarce be folly in that of a great kingdom. If a foreign country can
supply us with a commodity cheaper than we ourselves can make
it, better buy it of them with some part of the produce of our own
industry, employed in a way in which we have some advantage.
The general industry of the country, being always in proportion to
the capital which employs it, will not thereby be diminished, no
more than that of the above-mentioned artificers; but only left to
find out the way in which it can be employed with the greatest ad-
vantage. It is certainly not employed to the greatest advantage,
when it is thus directed towards an object which it can buy
cheaper than it can make. The value of its annual produce is cer-
tainly more or less diminished, when it is thus turned away from
producing commodities evidently of more value than the com-
modity which it is directed to produce. According to the supposi-
tion, that commodity could be purchased from foreign countries
cheaper than it can be made at home. It could, therefore, have been
purchased with a part only of the commodities, or, what is the same
thing, with a part only of the price of the commodities, which the
industry employed by an equal capital would have produced at
home, had it been left to follow its natural course. The industry of
the country, therefore, is thus turned away from a more, to a less
advantageous employment, and the exchangeable value of its an-
nual produce, instead of being increased, according to the intention
of the lawgiver, must necessarily be diminished by every such regu-
lation.
RESTRAINTS ON PARTICULAR IMPORTS 4^5
By means of such regulations, indeed, a particular manufacture
may sometimes be acquired sooner than it could have been other-
wise, and after a certain time may be made at home as cheap or
cheaper than in the foreign country. But though the industry of the
society may be thus carried with advantage into a particular chan-
nel sooner than it could have been otherwise, it will by no means
follow that the sum total, either of its industry, or of its revenue,
can ever be augmented by any such regulation. The industry of the
society can augment only in proportion as its capital augments, and
its capital can augment only in proportion to what can be gradu-
ally saved out of its revenue. But the immediate effect of every such
regulation is to diminish its revenue, and what diminishes its rev-
enue is certainly not very likely to augment its capital faster than it
would have augmented of its own accord, had both capital and in-
dustry been left to find out their natural employments.
Though for want of such regulations the society should never ac-
quire the proposed manufacture, it would not, upon that account,
necessarily be the poorer in any one period of its duration. In every
period of its duration its whole capitd and industry might still have
been employed, though upon different objects, in the manner that
was most advantageous at the time. In every period its revenue
might have been the greatest which its capital could afford, and
both capital and revenue might have been augmented with the
greatest possible rapidity.
The natural advantages which one country has over another in
producing particular commodities are sometimes so great, that it is
acknowledged by all the world to be in vain to struggle with them.
By means of glasses, hotbeds, and hotwalls, very good grapes can
be raised in Scotland, and very good wine too can be made of them
at about thirty times the expence for which at least equally good
can be brought from foreign countries. Would it be a reasonable
law to prohibit the importation of all foreign wines, merely to en-
courage the making of claret and burgundy in Scotland? But if
there would be a manifest absurdity in turning towards any em-
ployment, thirty times more of the capital and industry of the
country, than would be necessary to purchase from foreign coun-
tries an equal quantity of the commodities wanted, th.ere must be
an absurdity, though not altogether so glaring, yet exactly of the
same kind, in turning towards any such employment a thirtieth, or
even a three hundredth part more of either. Whether the advan-
tages which one country has over another, be natural or acquired,
is in this respect of no consequence. As long as the one country has
“ Ed. I reads “augmenting,” which seems more correct.
Some-
times by
such regu-
lations a
manufac-
ture may
be estab-
lished
earlier
than it
would
otherwise
have been
but this
would
make
capital
accumu-
late slow-
er,
and the
country
might al-
ways be
just as
rich if it
never ac-
quired the
manufac-
ture.
No one
proposes
that a
country
should
strive
against
great
natural
advan-
tages, but
it is also
absurd to
strive
against
smaller
advan-
tages
whether
natural or
acquired.
Mer-
chants
and
manufac-
turers get
the most
benefit
from high
duties and
prohibi-
tions.
The free
importa-
tion of
foreign
cattle
would
make no
great dif-
ference to
British
graziers
426 the wealth of nations
those advantages, and the other wants them, it will always be more
advantageous for the latter, rather to buy of the former than to
make. It is an acquired advantage only, which one artificer has
over his neighbour, who exercises another trade; and yet they both
find it more advantageous to buy of one another, than to make
what does not belong to their particular trades.
Merchants and manufacturers are the people who derive the
greatest advantage from this monopoly of the home-market. The
prohibition of the importation of foreign cattle, and of salt provi-
sions, together with the high duties upon foreign corn, which in
times of moderate plenty amount to a prohibition,^- are not near
so advantageous to the graziers and farmers of Great Britain, as
other regulations of the same kind are to its merchants and manu-
facturers. Manufactures, those of the finer kind especially, are
more easily transported from one country to another than corn or
cattle. It is in the fetching and carrying manufactures, accord-
ingly, that foreign trade is chiefly employed. In manufactures, a
very small advantage will enable foreigners to undersell our own
workmen, even in the home market. It will require a very great one
to enable them to do so in the rude produce of the soil. If the free
importation of foreign manufactures were^® permitted, several of
the home manufactures would probably suffer, and some of them,
perhaps, go to ruin altogether, and a considerable part of the stock
and industry at present employed in them, would be forced to
find out some other employment. But the freest importation of the
rude produce of the soil could have no such effect upon the agri-
culture of the country.
If the importation of foreign cattle, for example, were made ever
so free, so few could be imported, that the grazing trade of Great
Britain could be little affected by it. Live cattle are, perhaps, the
only commodity of which the transportation is more expensive by
sea than by land. By land they carry themselves to market. By
sea, not only the cattle, but their food and their water too, must be
carried at no small expence and inconveniency. The short sea be-
tween Ireland and Great Britain, indeed, renders the importation
of Irish cattle more easy. But though the free importation of them,
which was lately permitted only for a limited time, were rendered
perpetual, it could have no considerable effect upon the interest of
the graziers of Great Britain. Those parts of Great Britain which
border upon the Irish sea are all grazing countries. Irish cattle
could never be imported for their use, but must be drove through
“ Above, p. 420, and below, pp. 502, 503.
“ Eds. 1-3 read “was” here and six lines lower down
RESTRAINTS ON PARTICULAR IMPORTS 4^7
those very extensive countries, at no small expence and inconven-
iency, before they could arrive at their proper market. Fat cattle
could not be drove so far. Lean cattle, therefore, only could be im-
ported, and such importation could interfere, not with the interest
of the feeding or fattening countries, to which, by reducing the
price of lean cattle, it would rather be advantageous, but with that
of the breeding countries only. The small number of Irish cattle
imported since their importation was permitted, together with the
good price at which lean cattle still continue to sell, seem to dem-
onstrate that even the breeding countries of Great Britain are
never likely to be much affected by the free importation of Irish
cattle. The common people of Ireland, indeed, are said to have
sometimes opposed with violence the exportation of their cattle.
But if the exporters had found any great advantage in continuing
the trade, they could easily, when the law was on their side, have
conquered this mobbish opposition.
Feeding and fattening countries, besides, must always be highly It might
improved, whereas breeding countries are generally uncultivated,
The high price of lean cattle, by augmenting the value of unculti- the culti-
vated land, is like a bounty against improvement. To any country vated
which was highly improved throughout, it would be more advan-
tageous to import its lean cattle than to breed them. The province penseof
of Holland, accordingly, is said to follow this maxim at present, therug-
The mountains of Scotland, Wales and Northumberland, indeed,
are countries not capable of much improvement, and seem destined tainous
by nature to be the breeding countries of Great Britain. The freest districts,
importation of foreign cattle could have no other effect than to
hinder those breeding countries from takmg advantage of the in-
creasing population and improvement of the rest of the kingdom,
from raising their price to an exorbitant height, and from laying
a real tax upon all the more improved and cultivated parts of the
country.
The freest importation of salt provisions, in the same manner, The free
could have as little effect upon the interest of the graziers of Great
Britain as that of live cattle. Salt provisions are not only a very saltpio-
bulky commodity, but when compared with fresh meat, they are visions
a commodity both of worse quality, and as they cost more labour
and expence, of higher price. They could never, therefore, come make
into competition with the fresh meat, though they might with the
salt provisions of the country. They might be used for victualling ^he
ships for distant voyages, and such like uses, but could never make graziers,
any considerable part of the food of the people. The small quan-
tity of salt provisions imported from Ireland since their importa-
and even
the free
importa-
tion of
corn
would not
much af-
fect the
farmers.
Country
gentlemen
and farm-
ers are
less sub-
ject to
the spirit
of mon-
opoly
than mer-
428 the wealth of nations
tion was rendered free, is an experimental proof that our graziers
have nothing to apprehend from it. It does not appear that the
price of butcher's-meat has ever been sensibly affected by it.
Even the free importation of foreign corn could very little affect
the interest of the farmers of Great Britain. Corn is a much more
bulky commodity than butcher’s-meat. A pound of wheat at a
penny is as dear as a pound of butcher’s-meat at fourpence. The
small quantity of foreign corn imported even in times of the great-
est scarcity, may satisfy our farmers that they can have nothing to
fear from the freest importation. The average quantity imported
one year with another, amounts only, according to the very well
informed author of the tracts upon the corn trade, to twenty-three
thousand seven hundred and twenty-eight quarters of all sorts of
grain, and does not exceed the five hundredth and seventy-one
part of the annual consumption.^^ But as the bounty upon corn
occasions a greater exportation in years of plenty, so it must of
consequence occasion a greater importation in years of scarcity,
than in the actual state of tillage^^ would otherwise take place. By
means of it, the plenty of one year does not compensate the scar-
city of another, and as the average quantity exported is necessarily
augmented by it, so must likewise, in the actual state of tillage, the
average quantity imported. If there were no bounty, as less corn
would be exported, so it is probable that, one year with another,
less would be imported than at present. The corn merchants, the
fetchers and carriers of corn between Great Britain and foreign
countries, would have much less employment, and might suffer
considerably; but the country gentlemen and farmers could suffer
very little. It is in the corn merchants accordingly, rather than in
the country gentlemen and farmers, that I have observed the
greatest anxiety for the renewal and continuation of the bounty.
Country gentlemen and farmers are, to their great honour, of
all people, the least subject to the wretched spirit of monopoly.
The undertaker of a great manufactory is sometimes alarmed if
another work of the same kind is established within twenty miles
of him. The Dutch undertaker of the woollen manufacture at
Abbeville^’^ stipulated, that no work of the same kind should be es-
tablished within thirty leagues of that city. Farmers and country
^‘Charles Smith, Three Tracts on the Corn-Trade and Corn-Laws^ pp. 144-
145. The same figure is quoted below, p. 501.
“ Ed. I does not contain the words “in the actual state of tillage.”
Eds. 1-3 read “was.”
Joseph Van Robais in 1669.— John Smith, Memoirs of Wool, vol. ii., pp.
426, 427, but neither John Smith nor Charles King, British Merchant, 1721,
vol. ii., pp. 93, 94, gives the particular stipulation mentioned.
RESTRAINTS ON PARTICULAR IMPORTS 429
gentlemen, on the contrary, are generally disposed rather to pro-
mote than to obstruct the cultivation and improvement of their
neighbours farms and estates. They have no secrets, such as those
of the greater part of manufacturers, but are generally rather fond
of communicating to their neighbours, and of extending as far as
possible any new practice which they have found to be advanta-
geous. Pius QuestuSj says old Cato, stabilissimusquej mmimeque
invidiosusj minimeque male cogitantes sunt, qui in eo studio oc~
cupati sunt}^ Country gentlemen and farmers, dispersed in differ-
ent parts of the country, cannot so easily combine as merchants
and manufacturers, who being collected into towns, and accus-
tomed to that exclusive corporation spirit which prevails in them,
naturally endeavour to obtain against all their countr5mien, the
same exclusive privilege which they generally possess against the
inhabitants of their respective towns. They accordingly seem to
have been the original inventors of those restraints upon the im-
portation of foreign goods, which secure to them the monopoly of
the home-market. It was probably in imitation of them, and to put
themselves upon a level with those who, they found, were disposed
to oppress them, that the country gentlemen and farmers of Great
Britain so far forgot the generosity which is natural to their sta-
tion, as to demand the exclusive privilege of supplying their
countrymen with corn and butcher’s-meat. They did not perhaps
take time to consider, how much less their interest could be af-
fected by the freedom of trade, than that of the people whose ex-
ample they followed.
To prohibit by a perpetual law the importation of foreign com
and cattle, is in reality to enact, that the population and industry
of the country shall at no time exceed what the rude produce of
its own soil can maintain.
There seem, however, to be two cases in which it will generally
be advantageous to lay some burden upon foreign, for the encour-
agement of domestic industry.
The first is, when some particular sort of industry is necessary
for the defence of the country. The defence of Great Britain, for
example, depends very much upon the number of its sailors and
shipping. The act of navigation,^® therefore, very properly endeav-
ours to give the sailors and shipping of Great Britain the mo-
nopoly of the trade of their own country, in some cases, by absolute
prohibitions, and in others by heavy burdens upon the shipping
Cato, De re rustica, ad irdt., but “Questu^^ should of course be “quBsius!*
^*^12 Car. II., c. i8, “An act for the encouraging and increasing of shipping
and navigation.’’
chants
and
manufac-
turers.
The pro-
hibition
of foreign
com and
cattle re-
strains the
popula-
tion.
There are
two cases
which are
excep-
tional,
(i) when
a particu-
lar indus-
try is nec-
essary
for the
defence
of the
country,
like
shipping,
which is
properly
encour-
aged by
the act of
naviga-
tion,
430 THE WEALTH OF NATIONS
of foreign countries. The following are the principal dispositions
of this act.
First, all ships, of which the owners, masters, and three-fourths
of the mariners are not British subjects, are prohibited, upon pain
of forfeiting ship and cargo, from trading to the British settle-
ments and plantations, or from being employed in the coasting
trade of Great Britain.^^
Secondly, a great variety of the most bulky articles of importa-
tion can be brought into Great Britain only, either in such ships as
are above described, or in ships of the country where those goods
are produced, and of which the owners, masters, and three-fourths
of the mariners, are of that particular country; and when imported
even in ships of this latter kind, they are subject to double aliens
duty. If imported in ships of any other country, the penalty is for-
feiture of ship and goods.^^ When this act was made, the Dutch
were, what they still are, the great carriers of Europe, and by this
regulation they were entirely excluded from being the carriers to
Great Britain, or from importing to us the goods of any other Eu-
ropean country.
Thirdly, a great variety of the most bulky articles of importation
are prohibited from being imported, even in British ships, from any
country but that in which they are produced; under pain of for-
feiting ship and cargo.-^ This regulation too was probably intended
against the Dutch. Holland was then, as now, the great emporium
for all European goods, and by this regulation, British ships were
hindered from loading in Holland the goods of any other European
country.
Fourthly, salt fish of all kinds, whale-fins, whale-bone, oil, and
blubber, not caught by and cured on board British vessels, when
imported into Great Britain, are subjected to double aliens duty.^^
The Dutch, as they are still the principal, were then the only fishers
in Europe that attempted to supply foreign nations with fish. By
this regulation, a very heavy burden was laid upon their supplying
Great Britain.
When the act of navigation was made, though England and Hob
® §§ I and 6.
8 and 9. Eds. i and 2 read “ship and cargo.” The alteration was prob-
ably made in order to avoid wearisome repetition of the same phrase in the
three paragraphs.
^ § 4, which, however, applies to all such goods of foreign growth and man-
ufacture as were forbidden to b& imported except in English ships, not only to
bulky goods. The words “great Variety of the most bulky articles of impor-
tation” occur at the beginning ^ the previous paragraph, and are perhaps
copied here by mistake.
RESTRAINTS ON PARTICULAR IMPORTS 43i
land were not actually at war, the most violent animosity subsisted
between the two nations. It had begun during the government of
the long parliament, which first framed this act,-^ and it broke out
soon after in the Dutch wars during that of the Protector and of
Charles the Second. It is not impossible, therefore, that some of the
regulations of this famous act may have proceeded from national
animosity. They are as wise, however, as if they had all been dic-
tated by the most deliberate wisdom. National animosity at that
particular time aimed at the very same object which the most delib-
erate wisdom would have recommended, the diminution of the na-
val power of Holland, the only naval power which could endanger
the security of England.
The act of navigation is not favourable to foreign commerce, or
to the growth of that opulence which can arise from it. The interest
of a nation in its commercial relations to foreign nations is, like
that of a merchant with regard to the different people with whom
he deals, to buy as cheap and to sell as dear as possible. But it will
be most likely to buy cheap, when by the most perfect freedom of
trade it encourages all nations to bring to it the goods which it has
occasion to purchase; and, for the same reason, it will be most like-
ly to sell dear, when its markets are thus filled with the greatest
number of buyers. The act of navigation, it is true, lays no burden
upon foreign ships that come to export the produce of British in-
dustry. Even the ancient aliens duty, which used to be paid upon
all goods exported as well as imported, has, by several subsequent
acts, been t^en off from the greater part of the articles of exporta-
tion.^^ But if foreigners, either by prohibitions or high duties, are
hindered from coming to sell, they cannot always afford to come to
buy; because coming without a cargo, they must lose the freight
from their own country to Great Britain. By diminishing the num-
ber of sellers, therefore, we necessarily diminish that of buyers, and
are thus likely not only to buy foreign goods dearer, but to sell our
own cheaper, than if there was a more perfect freedom of trade. As
defence, however, is of much more importance than opulence, the
act of navigation is, perhaps, the wisest of all the commercial regu-
lations of England.
The second case, in which it will generally be advantageous to
lay some burden upon foreign for the encouragement of domestic
industry, is, when some tax is imposed at home upon the produce
“ In 1651, by “An act for the increase of shipping and encouragement of the
navigation of this nation,” p. 1,449 in the collection of Commonwealth Acts.
“ By 25 Car. II., c. 6, § i, except on coal. The plural “acts” may refer to
renewing acts. Anderson, Commerce, a.d. 1672.
a wise act,
though
dictated
by ani-
mosity,
and un-
favour-
able to
foreign
com-
merce;
and (2)
when
there is a
tax on the
produce
of the like
home
manufac-
ture.
Some
people say
that this
principle
justifies a
general
imposi-
tion of
duties on
imports
to coun-
terbalance
taxes
levied at
home on
neces-
saries,
but there
is a dif-
ference,
432 the wealth of nations
of the latter. In this case, it seems reasonable that an equal tax
should be imposed upon the like produce of the former. This would
not give the monopoly of the home market to domestic industry,
nor turn towards a particular employment a greater share of the
stock and labour of the country, than what would naturally go to
it. It would only hinder any part of what would naturally go to it
from being turned away by the tax, into a less natural direction,
and would leave the competition between foreign and domestic in-
dustry, after the tax, as nearly as possible upon the same footing as
before it. In Great Britain, when any such tax is laid upon the
produce of domestic industry, it is usual at the same time, in order
to stop the clamorous complaints of our merchants and manufac-
turers, that they will be undersold at home, to lay a much heavier
duty upon the importation of all foreign goods of the same kind.
This second limitation of the freedom of trade according to some
people should, upon some occasions, be extended much farther than
to the precise foreign commodities which could come into competi-
tion with those which had been taxed at home. When the neces-
saries of life have been taxed in any country, it becomes proper,
they pretend, to tax not only the like necessaries of life imported
from other countries, but all sorts of foreign goods which can come '
into competition with any thing that is the produce of domestic in-
dustry. Subsistence, they say, becomes necessarily dearer in con-
sequence of such taxes; and the price of labour must always rise
with the price of the labourers subsistence. Every commodity,
therefore, which is the produce of domestic industry, though not
immediately taxed itself, becomes dearer in consequence of such
taxes, because the labour which produces it becomes so. Such taxes,
therefore, are really equivalent, they say, to a tax upon every par-
ticular commodity produced at home. In order to put domestic
upon the same footing with foreign industry, therefore, it becomes
necessary, they think, to lay some duty upon every foreign com-
modity, equal to this enhancement of the price of the home com-
modities with which it can come into competition.
Whether taxes upon the necessaries of life, such as those i|i Great
Britain upon^® soap, salt, leather, candles, &c. necessarily raise the
price of labour, and consequently that of all other commodities, I
shall consider hereafter,^^ when I come to treat of taxes. Sup-
posing, however, in the mean time, that they have this effect, and
they have it undoubtedly, this general enhancement of the price
of all commodities, in consequence of that of labour, is a case which
® Ed I contains the words “malt, beer” here.
^ Below, pp 821-826
RESTRAINTS ON PARTICULAR IMPORTS 433
differs in the two following respects from that of a particular com-
modity, of which the price was enhanced by a particular tax im-
mediately imposed upon it.
First, it might always be known with great exactness how far the
price of such a commodity could be enhanced by such a tax: but
how far the general enhancement of the price of labour might affect
that of every different commodity about which labour was em-
ployed, could never be known with any tolerable exactness. It
would be impossible, therefore, to proportion with any tolerable
exactness the tax upon every foreign, to this enhancement of the
price of every home commodity.
Secondly, taxes upon the necessaries of life have nearly the same
effect upon the circumstances of the people as a poor soil and a bad
climate. Provisions are thereby rendered dearer in the same manner
as if it required extraordinary labour and expence to raise them. As
in the natural scarcity arising from soil and climate, it would be
absurd to direct the people in what manner they ought to employ
their capitals and industry, so is it^^ likewise in the artificial scar-
city arising from such taxes. To be left to accommodate, as well as
they could, their industry to their situation, and to find out those
employments m which, notwithstanding their unfavourable circum-
stances, they might have some advantage either in the home or in
the foreign market, is what in both cases would evidently be most
for their advantage. To lay a new tax upon them, because they are
already overburdened with taxes, and because they already pay too
dear for the necessaries of life, to make them likewise pay too dear
for the greater part of other commodities, is certainly a most absurd
way of making amends.
Such taxes, when they have grown up to a certain height, are a
curse equal to the barrenness of the eardi and the inclemency of the
heavens; and yet it is in the richest and most industrious countries
that they have been most generally imposed. No other countries
could support so great a disorder. As the strongest bodies only can
live and enjoy health, under an unwholesome regimen; so the na-
tions only, that in every sort of industry have the greatest natural
and acquired advantages, can subsist and prosper under such taxes.
Holland is the country in Europe in whidi they abound most, and
which from peculiar circumstances continues to prosper, not by
means of them, as has been most absurdly supposed, but in spite of
them.
As there are two cases in which it will generally be advantageous
to lay some burden upon foreign, for the encouragement of domes-
^ Ed. 1 reads “it is.”
since (a)
the effect
of taxes
on neces-
saries
cannot be
exactly
known,
and (b)
taxes on
neces-
saries are
like poor
soil or bad
climate:
they can-
not justi-
fy an at-
tempt to
give capi-
tal an un-
natural
direction
Taxes on
neces-
saries are
common-
est in the
richest
countries
because
no others
could sup-
port them.
There are
two other
434
THE WEALTH OF NATIONS
possible tic industry; so there are two others in which it may sometimes be
to a matter of deliberation; in the one, how far it is proper to continue
general the free importation of certain foreign goods; and in the other, how
principle: far, or in what manner, it may be proper to restore that free im-
portation after it has been for some time interrupted*
(i) Re- The case in which it may sometimes be a matter of deliberation
taxation how far it is proper to continue the free importation of certain for-
eign goods, is, when some foreign nation restrains by high duties or
prohibitions the importation of some of our manufactures into their
country. Revenge in this case naturally dictates retaliation, and
that we should impose the like duties and prohibitions upon the
importation of some or all of their manufactures into ours. Nations
accordingly seldom fail to retaliate in this manner. The French
have been particularly forward to favour their own manufactures
by restraining the importation of such foreign goods as could come
into competition with them. In this consisted a great part of the
policy of Mr. Colbert, who, notwithstanding his great abilities,
seems in this case to have been imposed upon by the sophistry of
merchants and manufacturers, who are always demanding a mo-
nopoly against their countrymen. It is at present the opinion of the
most intelligent men in France that his operations of this kind
have not been beneficial to his country. That minister, by the tariff
of 1667, imposed very high duties upon a great number of foreign
manufactures. Upon his refusing to moderate them in favour of the
Dutch, they in 1671 prohibited the importation of the wines,
brandies and manufactures of France. Thfe w'ar of 1672 seems to
have been in part occasioned by this commercial dispute. The
peace of Nimeguen put an end to it in 1678, by moderating some
of those duties in favour of the Dutch, who in consequence took off
their prohibition. It was about the same time that the French and
English began mutually to oppress each other’s industry, by the
like duties and prohibitions, of which the French, however, seem to
have set the first example. The spirit of hostility which has sub-
sisted between the two nations ever since, has hitherto hindered
them from being moderated on either side. In 1697 the English pro-
hibited the importation of bonelace, the manufacture of Flanders.
The government of that country, at that time under the dominion
of Spain, prohibited in return the importation of English woollens.
In 1700, the prohibition of importing bonelace into England, was
taken off upon condition that the importation of English woollens
into Flanders should be put on the same footing as before.^^
®®The importation of bone lace was prohibited by 13 and 14 Car. II , c. 13,
and 9, and 10 W. Ill, c. 9, was passed to make the prohibition more eifectual.
RESTRAINTS ON PARTICULAR IMPORTS 435
There may be good policy in retaliations of this kind, when there
is a probability that they will procure the repeal of the high duties
or prohibitions complained of. The recovery of a great foreign mar-
ket will generally more than compensate the transitory inconven-
iency of paying dearer during a short time for some sorts of goods.
To judge whether such retaliations are likely to produce such an ef-
fect, does not, perhaps, belong so much to the science of a legisla-
tor, whose deliberations ought to be governed by general principles
which are always the same, as to the skill of that insidious and
crafty animal, vulgarly called a statesman or politician, whose
councils are directed by the momentary fluctuations of affairs.
When there is no probability that any such repeal can be procured,
it seems a bad method of compensating the injury done to certain
classes of our people, to do another injury ourselves, not only to
those classes, but to almost all the other classes of them. When
our neighbours prohibit some manufacture of ours, we generally
prohibit, not only the same, for that alone would seldom affect them
considerably, but some other manufacture of theirs. This may no
doubt give encouragement to some particular class of workmen
among ourselves, and by excluding some of their rivals, may enable
them to raise their price in the home-market. Those workmen, how-
ever, who suffered by our neighbours’ prohibition will not be bene-
fited by ours. On the contrary, they and almost all the other classes
of our citizens will thereby be obliged to pay dearer than before
for certain goods. Every such law, therefore, imposes a real tax up-
on the whole country, not in favour of that particular class of work-
men who were injured by our neighbours’ prohibition, but of some
other class.
The case in which it may sometimes be a matter of deliberation,
how far, or in what manner, it is proper to restore the free importa-
tion of foreign goods, after it has been for some time interrupted,
is, when particular manufactures, by means of high duties or pro-
hibitions upon all foreign goods which can come into competition
with them, have been so far extended as to employ a great multi-
tude of hands. Humanity may in this case require that the freedom
of trade should be restored only by slow gradations, and with a
good deal of reserve and circumspection. Were those high duties
and prohibitions taken away all at once, cheaper foreign goods of
the same kind might be poured so fast into the home market, as to
deprive all at once many thousands of our people of their ordinary
By II and 12 W. III., c. ii, it was provided that the prohibition should cease
three months after English woollen manufactures were readmitted to Flanders.
^ Ed. I reads ‘injury ourselves, both to those classes and to.”
maybe
good
policy
where it
is likely
to secure
the aboli-
tion of
foreign
restraints.
(2) It
may be
desirable
to intro-
duce free-
dom of
trade by
slow
grada-
tions.
But the
disorder
occa-
sioned by
its sudden
introduc-
tion
would be
less than
is sup-
posed
since
(a) no
manufac-
ture
which is
now ex-
ported
would be
affected;
ih) the
people
thrown
out of
one em-
ployment
would
easily
hnd
another,
436 the wealth of nations
employment and means of subsistence. The disorder which this
would occasion might no doubt be very considerable. It would in
all probability, however, be much less than is commonly imagined,
for the two following reasons:
First, all those manufactures, of which any part is commonly
exported to other European countries without a bounty, could be
very little affected by the freest importation of foreign goods. Such
manufactures must be sold as cheap abroad as any other foreign
goods of the same quality and kind, and consequently must be sold
cheaper at home. They would still, therefore, keep possession of the
home market, and though a capricious man of fashion might some-
times prefer foreign wares, merely because they were foreign, to
cheaper and better goods of the same kind that were made at home,
this folly could, from the nature of things, extend to so few, that it
could make no sensible impression upon the general employment of
the people. But a great part of all the different branches of our
woollen manufacture, of our tanned leather, and of our hard-ware,
are annually exported to other European countries without any
bounty, and these are the manufactures which employ the greatest
number of hands. The silk, perhaps, is the manufacture which
would suffer the most by this freedom of trade, and after it the
linen, though the latter much less than the former.
Secondly, though a great number of people should, by thus re-
storing the freedom of trade, be thrown all at once out of their or-
dinary employment and common method of subsistence, it would
by no means follow that they would thereby be deprived either of
employment or subsistence. By the reduction of the army and navy
at the end of the late war, more than a hundred thousand soldiers
and seamen, a number equal to what is employed in the greatest
manufactures, were all at once thrown out of their ordinary em-
ployment; but, though they no doubt suffered some inconveniency,
they were not thereby deprived of all employment' and subsistence.
The greater part of the seamen, it is probable, gradually betook
themselves to the merchant-service as they could find occasion, and
in the meantime both they and the soldiers were absorbed in the
great mass of the people, and employed in a great variety of occu-
pations. Not only no great convulsion, but no sensible disorder
arose from so great a change in the situation of more than a hun-
dred thousand men, all accustomed to the use of arms, and many of
them to rapine and plunder. The number of vagrants was scarce
any-where sensibly increased by it, even the wages of labour were
not reduced by it in any occupation, so far as I have been able to
learn, except in that of seamen in the merchant-service. But if we
RESTRAINTS ON PARTICULAR IMPORTS 437
compare together the habits of a soldier and of any sort of manu-
facturer, we shall find that those of the latter do not tend so much
to disqualify him from being employed in a new trade, as those of
the former from being employed in any. The manufacturer has al-
ways been accustomed to look for his subsistence from his labour
only: the soldier to expect it from his pay. Application and indus-
try have been familiar to the one; idleness and dissipation to the
other. But it is surely much easier to change the direction of indus-
try from one sort of labour to another, than to turn idleness and
dissipation to any. To the greater part of manufactures besides, it
has already been observed, there are other collateral manufac-
tures of so similar a nature, that a workman can easily transfer his
industry from one of them to another. The greater part of such
workmen too are occasionally employed in country labour. The
stock which employed them in a particular manufacture before, will
still remain in the country to employ an equal number of people in
some other way. The capital of the country remaining Ihe same,
the demand for labour will likewise be the same, or very nearly the
same, though it may be exerted in different places and for different
occupations. Soldiers and seamen, indeed, when discharged from
the king^s service, are at liberty to exercise any trade, within any
town or place of Great Britain or Ireland. Let the same natural
liberty of exercising what species of industry they please, be re-
stored to all his majesty^s subjects, in the same manner as to sol-
diers and seamen; that is, break down the exclusive privileges of
corporations, and repeal the statute of apprenticeship, both which
are real encroachments upon natural liberty, and add to these the
repeal of the law of settlements, so that a poor workman, when
thrown out of employment either in one trade or in one place, may
seek for it in another trade or in another place, without the fear
either of a prosecution or of a removal, and neither the public nor
the individuals will suffer much more from the occasional disband-
ing some particular classes of manufacturers, than from that of sol-
diers. Our manufacturers have no doubt great merit with their
country, but they cannot have more than those who defend it with
their blood, nor deserve to be treated with more delicacy.
To expect, indeed, that the freedom of trade should ever be en-
tirely restored in Great Britain, is as absurd as to expect that an
Oceana or Utopia^^ should ever be established in it. Not only the
^ Above, p. 134, i3S-
12 Car. n., c. 16; 12 Ann., st. i, § 13; 3 Geo. Ill, c. 8, gave this liberty
after particular wars.
“ Ed. I reads “Utopea.”
especially
if the
privileges
of corpo-
rations
and the
law of
settle-
ment were
abolished.
Private
interests
are too
strong to
allow of
the resto-
ration of
freedom
of trade
in Great
Britain.
The fact
that
equitable
regard is
due to the
manufac-
turer who
has fixed
capital in
his busi-
ness is an
argument
against
the estab-
lishment
of new
monopo-
lies.
43S the wealth of nations
prejudices of the public, but what is much more unconquerable,
the private interests of many individuals, irresistibly oppose it.
Were the officers of the army to oppose with the same zeal and un-
animity any reduction in the number of forces, with which master
manufacturers set themselves against every law that is likely to
increase the number of their rivals in the home market; were the
former to animate their soldiers, in the same manner as the latter
enflame their workmen, to attack with violence and outrage the
proposers of any such regulation; to attempt to reduce the army
would be as dangerous as it has now become to attempt to dimin-
ish in any respect the monopoly which our manufacturers have ob-
tained against us. This monopoly has so much increased the num-
ber of some particular tribes of them, that, like an overgrown
standing army, they have become formidable to the government,
and upon many occasions intimidate the legislature. The member
of parliament who supports every proposal for strengthening this
monopoly, is sure to acquire not only the reputation of understand-
ing trade, but great popularity and influence with an order of men
whose numbers and wealth render them of great importance. If he
opposes them, on the contrary, and still more if he has authority
enough to be able to thwart them, neither the most acknowledged
probity, nor the highest rank, nor the greatest public services, can
protect him from the most infamous abuse and detraction, from
personal insults, nor sometimes from real danger, arising from the
insolent outrage of furious and disappointed monopolists.
The undertaker of a great manufacture, who, by the home mar-
kets being suddenly laid open to the competition of foreigners,
should be obliged to abandon his trade, would no doubt suffer very
considerably. That part of his capital which had usually been em-
ployed in purchasing materials and in paying his workmen, might,
without much difficulty, perhaps, find another employment. But
that part of it which was fixed in workhouses, and in the instru-
ments of trade, could scarce be disposed of without considerable
loss. The equitable regard, therefore, to his interest requires that
changes of this kind should never be introduced suddenly, but slow-
ly, gradually, and after a very long warning. The legislature, were
it possible that its deliberations could be always directed, not by
the clamorous importunity of partial interests, but by an extensive
view of the general good, ought upon this very account, perhaps, to
be particularly careful neither to establish any new monopolies of
this kind, nor to extend further those which are already established.
Every such regulation introduces some degree of real disorder into
RESTRAINTS ON PARTICULAR IMPORTS 439
the constitution of the state, which it will be difficult afterwards to
cure without occasioning another disorder.
How far it may be proper to impose taxes upon the importation
of foreign goods, in order, not to prevent their importation, but to
raise a revenue for government, I shall consider hereafter when I
come to treat of taxes.^^ Taxes imposed with a view to prevent, or
even to diminish importation, are evidently as destructive of the
revenue of the customs as of the freedom of trade.
Below, pp. 845-850,
Customs
duties im-
posed for
revenue
remain to
be con-
sidered
hereafter.
British
restraints
on im-
ports
from
France
are an
example.
«
CHAPTER III
OF THE EXTRAORDINARY RESTRAINTS UPON THE IMPORTATION OF
GOODS OF ALMOST ALL KINDS, FROM THOSE COUNTRIES WITH
WHICH THE BALANCE IS SUPPOSED TO BE DISADVANTAGEOUS
Part I
Of the Unreasonableness of those Restraints even upon the Prin-
ciples of the Commercial System}
To lay extraordinary restraints upon the importation of goods of
almost all kinds, from those particular countries with which the
balance of trade is supposed to be disadvantageous, is the second
expedient by which the commercial system proposes to increase the
quantity of gold and silver. Thus in Great Britain, Silesia lawns
may be imported for home consumption, upon paying certain du-
ties. But French cambrics and lawns are prohibited to be imported
except into the port of London, there to be warehoused for exporta-
tion.^ Higher duties are imposed upon the wines of France than
upon those of Portugal, or indeed of any other country. By what is
called the impost 1692,^ a duty of five and twenty per cent., of the
rate or value, was laid upon all French goods; while the goods of
other nations were, the greater part of them, subjected to much
lighter duties, seldom exceeding five per cent. The wine, brandy,
salt and vinegar of France were indeed excepted; these commodi-
ties being subjected to other heavy duties, either by other laws, or
by particular clauses of the same law. In 1696, a second duty of
twenty-five per cent., the first not having been thought a sufficient
discouragement, was imposed upon all French goods, except bran-
dy; together with a new duty of five and twenty pounds upon the
ton of French wine, and another of fifteen pounds upon the ton of
French vinegar.^ French goods have never been omitted in any of
^ Ed. I contains no part headings and does not divide the chapter into parts.
^ 18 Geo. IL, c. 36; 7 Geo. III., c. 43. ® 4 W. and M., c. 5, § 2.
* 7 and 8 W. III., c. 20 ; but<«dne and vinegar were excepted from the gen-
eral increase of 25 per cent, as well as brandy, upon which the additional duty
was £30 per ton of single proof and £60 per ton of double proof.
440
RESTRAINTS ON PARTICULAR IMPORTS 44 i
those general subsidies, or duties of five per cent, which have been
imposed upon all, or the greater part of the goods enumerated in the
book of rates. If we count the one third and two third subsidies as
making a complete subsidy between them, there have been five of
these general subsidies; ® so that before the commencement of the
present war seventy-five per cent, may be considered as the lowest
duty, to which the greater part of the goods of the growth, prod-
uce, or manufacture of France were liable. But upon the greater
part of goods, those duties are equivalent to a prohibition. The
French in their turn have, I believe, treated our goods and manu-
factures just as hardly; though I am not so well acquainted with
the particular hardships which they have imposed upon them.
Those mutual restraints have put an end to almost all fair com-
merce between the two nations, and smugglers are now the princi-
pal importers, either of British goods into France, or of French
goods into Great Britain. The principles which I have been exam-
ining in the foregoing chapter took their origin from private inter-
est and the spirit of monopoly; those which I am going to examine
in this, from national prejudice and animosity.® They are, accord-
ingly, as might well be expected, still more unreasonable. They are
so, even upon the principles of the commercial system.
First, though it were certain that in the case of a free trade be-
tween France and England, for example, the balance would be in
favour of France, it would by no means follow that such a trade
would be disadvantageous to England, or that the general balance
of its whole trade would thereby be turned more against it. If the
wines of France are better and cheaper than those of Portugal, or
its linens than those of Germany, it would be more advantageous
for Great Britain to purchase both the wine and the foreign linen
which it had occasion for of France, than of Portugal and Germany.
Though the value of the annual importations from France would
thereby be greatly augmented, the value of the whole annual im-
portations would be diminished, in proportion as the French goods
of the same quality were cheaper than those of the other two coun-
tries. This would be the case, even upon the supposition that the
” See below, pp. 830, 831.
® Nearly all the matter from the beginning of the chapter to this point ap-
pears first in Additions and Corrections and ed. 3. Eds. i and 2 contain only
the first sentence of the chapter and then proceed, “Thus in Great Britain
higher duties are laid upon the wines of France than upon those of Portugal.
German linen may be imported upon paying certain duties; but French linen
is altogether prohibited. The principles which I have been examining took
their origin from private interest and the spirit of monopoly; those which I
am going to examine from national prejudice and animosity.”
Such re-
straints
are un-
reasonable
on the
principles
of the
mercan-
tile sys-
tem, since
(i) if free
trade with
France
did lead
to an un-
favour-
able bal-
ance with
France, it
might yet
not do so
with the
world in
general,
(a) apart
of French
imports
might be
re-export-
ed and
bring
back gold
and silver,
and (3)
thebd-
ance can-
not be
certainly
known:
custom-
house
books are
useless,
and the
course of
exchange
is little
better.
442 the wealth of nations
whole French goods imported were to be consumed in Great Brit-
ain.
But, secondly, a great part of them might be re-exported to other
countries, where, being sold with profit, they might bring back a
return equal in value, perhaps, to the prime cost of the whole
French goods imported. What has frequently been said of the East
India trade might possibly be true of the French; that though the
greater part of East India goods were bought with gold and silver,
the re-exportation of a part of them to other countries, brought
back more gold and silver to that which carried on the trade than
the prime cost of the whole amounted to. One of the most impor*-
tant branches of the Dutch trade, at present, consists in the car-
riage of French goods to other European countries. Some part ^
even of the French wine drank in Great Britain is clandestinely im-
ported from Holland and Zealand. If there was either a free trade
between France and England, or if French goods could be imported
upon paying only the same duties as those of other European na-
tions, to be drawn back upon exportation, England might have
some share of a trade which is found so advantageous to Holland.
Thirdly, and lastly, there is no certain criterion by which we can
determine on which side what is called the balance between any
two countries lies, or which of them exports to the greatest value.
National prejudice and animosity, prompted always by the private
interest of particular traders, are the principles which generally di-
rect our judgment upon all questions concerning it. There are two
criterions, however, which have frequently been appealed to upon
such occasions, the custom-house books and the course of exchange.
The custom-house books, I think, it is now generally acknowledged,
are a very uncertain criterion, on account of the inaccuracy of the
valuation at which the greater part of goods are rated in them. The
course of exchange ^ is, perhaps, almost equally so.
When the exchange between two places, such as London and Pa-
ris, is at par, it is said to be a sign that the debts due from London
to Paris are compensated by those due from Paris to London. On
the contrary, when a premium is paid at London for a bill upon Pa-
ris, it is said to be a sign that the debts due from London to Paris
are not compensated by those due from Paris to London, but that a
balance in money must be sent out from the latter place; for the
risk, trouble, and expence of exporting which, the premium is both
demanded and given. But the ordinary state of debt and credit be-
^ See Anderson, Commerce, a . d . 1601, and see above, pp. 400, 401.
® Ed. I reads “a great part.”
®Ed. I reads “The course of exchange, at least as it has hitherto been esti-
mated, is, perhaps, almost equally so.”
RESTRAINTS ON PARTICULAR IMPORTS 443
tween those two cities must necessarily be regulated, it is said, by
the ordinary course of their dealings with one another. When nei-
ther of them imports from the other to a greater amount than it ex-
ports to that other, the debts and credits of each may compensate
one another. But when one of them imports from the other to a
greater value than it exports to that other,^^ the former necessarily
becomes indebted to the latter in a greater sum than the latter be-
comes indebted to it: the debts and credits of each do not compen-
sate one another, and money must be sent out from that place of
which the debts over-balance the credits. The ordinary course of
exchange, therefore, being an indication of the ordinary state of
debt and credit between two places, must likewise be an indication
of the ordinary course of their exports and imports, as these neces-
sarily regulate that state.
But though the ordinary course of exchange should be allowed to
be a sufficient indication of the ordinary state of debt and credit be-
tween any two places, it would not from thence follow, that the bal-
ance of trade was in favour of that place which had the ordinary
state of debt and credit in its favour. The ordinary state of debt and
credit between any two places is not always entirely regulated by
the ordinary course of their dealings with one another; but is often
influenced by that of the dealings of either with many other places.
If it is usual, for example, for the merchants of England to pay for
the goods which they buy of Hamburgh, Dantzic, Riga, &c. by bills
upon Holland, the ordinary state of debt and credit between Eng-
land and Holland will not be regulated entirely by the ordinary
course of the dealings of those two- countries with one another, but
will be influenced by that of the dealings of England with those
other places. England may be obliged to send out every year money
to Holland, though its annual exports to that country may exceed
very much the annual value of its imports from thence; and though
what is called the balance of trade may be very much in favour of
England.^^
In the way, besides, in which the par of exchange has hitherto
been computed, the ordinary course of exchange can afford no suf-
ficient indication that the ordinary state of debt and credit is in fa-
vour of that country which seems to have, or which is supposed to
have, the ordinary course of exchange in its favour: or, in other
words, the real exchange may be, and, in fact, often is so very dif-
ferent from the computed one, that from the course of the latter.
Here and three lines above eds. i and 2 read “it” instead of “that other.”
Ed. I reads “common.”
This paragraph is absent in ed. i, but the substance of it occurs in a para-
graph lower down, omitted in ed. 2 and later eds. See below, p. 455, note 28.
A favour-
able ex-
change
with a
particu-
lar coun-
try does
not prove
a favour-
able bal-
ance with
that
country.
Besides,
the ordi-
nary
computa-
tion of
exchange
is often
mislead-
ing, since
444 THE WEALTH OF NATIONS
no certain conclusion can, upon many occasions, be drawn con-
cerning that of the forrner.^^
When for a sum of money paid in England, containing, according
to the standard of the English mint, a certain number of ounces of
pure silver, you receive a bill for a sum of money to be paid in
France, containing, according to the standard of the French mint,
an equal number of ounces of pure silver, exchange is said to be at
par between England and France. When you pay more, you are
supposed to give a premium, and exchange is said to be against
England, and in favour of France. When you pay less, you are sup-
posed to get a premium, and exchange is said to be against France,
and in favour of England.
(i)money But, first, we cannot always judge of the value of the current
below hs different countries by the standard of their respective
nominal^ mints. In some it is more, in others it is less worn, dipt, and other-
standard. wise degenerated from that standard. But the value of the current
coin of every country, compared with that of any other country, is
in proportion not to the quantity of pure silver which it ought to
contain, but to that which it actually does contain. Before the ref-
ormation of the silver coin in king William’s time, exchange be-
tween England and Holland, computed, in the usual manner, ac-
cording to the standard of their respective mints, was five and
twenty per cent, against England. But the value of the current coin
of England, as we learn from Mr. Lowndes, was at that time rather
more than five and twenty per cent, below its standard value.^® The
real exchange, therefore, may even at that time have been in favour
of England, notwithstanding the computed exchange was so much
against it; a smaller number of ounces of pure silver, actually paid
in England, may have purchased a bill for a greater number of
ounces of pure silver to be paid in Holland, and the man who was
supposed to give, may in reality have got the premium. The French
coin was, before the late reformation of the English gold coin, much
less worn than the English, and was, perhaps, two or three per cent,
nearer its standard. If the computed exchange with France, there-
fore, was not more than two or three per cent, against England, the
real exchange might have been in its favour. Since the reformation
of the gold coin, the exchange has been constantly in favour of
England, and against France.
^ In place of this paragraph ed. i reads, “But though this doctrine, of which
some part is, perhaps, not a little doubtful, were supposed ever so certain, the
manne'r in which the par of exchange has hitherto been computed renders un-
certain every conclusion that has ever yet been drawn from it.”
Ed. I reads “standards” here and eight lines lower.
“ See above p. 194 .
RESTRAINTS ON PARTICULAR IMPORTS 445
Secondly, in some countries, the expence of coinage is defrayed
by the government; in others, it is defrayed by the private people
who carry their bullion to the mint, and the government even de-
rives some revenue from the coinage. In England, it is defrayed by
the government, and if you carry a pound weight of standard silver
to the mint, you get back sixty-two shillings, containing a pound
weight of the like standard silver. In France, a duty of eight per
cent, is deducted for the coinage, which not only defrays the ex-
pence of it, but affords a small revenue to the government.^® In
England, as the coinage costs nothing, the current coin can never
be much more valuable than the quantity of bullion which it actu-
ally contains. In France, the workmanship, as you pay for it, adds
to the value, in the same manner as to that of wrought plate. A sum
of French money, therefore, containing a certain weight of pure
silver, is more valuable than a sum of English money containing an
equal weight of pure silver, and must require more bullion, or other
commodities, to purchase it. Though the current coin of the two
countries, therefore, were equally near the standards of their re-
spective mints, a sum of English money could not well purchase a
sum of French money, containing an equal number of ounces of
pure silver, nor consequently a bill upon France for such a sum. If
for such a bill no more additional money was paid than what was
sufficient to compensate the expence of the French coinage, the real
exchange might be at par between the two countries, their debts
and credits might mutually compensate one another, while the
computed exchange was considerably in favour of France. If less
than this was paid, the real exchange might be in favour of Eng-
land, while the computed was in favour of France.
Thirdly, and lastly, in some places, as at Amsterdam, Hamburgh,
Venice, &c. foreign bills of exchange are paid in what they call bank
money; while in others, as at London, Lisbon, Antwerp, Leghorn,
&c. they are paid in the common currency of the country. What is
called bank money is always Of more value than the same nominal
sum of common currency. A thousand guilders in the bank of Am-
sterdam, for example, are of more value than a thousand guilders
of Amsterdam currency. The difference between them is called the
agio of the bank,^^ which, at Amsterdam, is generally about five per
cent. Supposing the current money of two countries equally near
to the standard of their respective mints, and that the one pays for-
This erroneous statement has already been made, p. 45 ; see below, p. 518,
for details.
Already mentioned above, p. 312.
Ed. 2 and later eds. read erroneously “of the two.”
(2) coin
is some-
times
raised by
seignor-
age above
the value
of the
bullion
contained
in it,
and (3)
bank
money
bears an
agio.
446 the wealth OF NATIONS
eign bills in this common currency, while the other pays them in
bank money, it is evident that the computed exchange may be in
favour of that which pays in bank money, though the real ex-
change should be in favour of that which pays in current money;
for the same reason that the computed exchange may be in favour
of that which pays in better money, or in money nearer to its own
standard, though the real exchange should be in favour of that
which pays in worse. The computed exchange, before the late ref-
ormation of the gold coin, was generally against London with Am-
sterdam, Hamburgh, Venice, and, I believe, with all other places
which pay in what is called bank money. It will by no means fol-
low, however, that the real exchange was against it. Since the ref-
ormation of the gold coin, it has been in favour of London even
with those places. The computed exchange has generally been in
favour of London with Lisbon, Antwerp, Leghorn, and, if you ex-
cept France, I believe, with most other parts of Europe that pay in
common currency; and it is not improbable that the real exchange
was so too.
Digression concerning Banks of Deposit, particularly concerning
that of Amsterdam
Small
states
must ad-
mit
foreign
coin,
which is
of uncer-
tain
value.
Banks are
then
estab-
lished to
pay in
standard
The currency of a great state, such as France or England, gener-
ally consists almost entirely of its own coin. Should this currency,
therefore, be at any time worn, dipt, or otherwise degraded below
its standard value, the state by a reformation of its coin can effec-
tually re-establish its currency. But the currency of a small state,
such as Genoa or Hamburgh, can seldom consist altogether in its
own coin, but must be made up, in a great measure, of the coins of
all the neighbouring states with which its inhabitants have a con-
tinual intercourse. Such a state, therefore, by reforming its coin,
will not always be able to reform its currency. If foreign bills of
exchange are paid in this currency, the uncertain value of any sum,
of what is in its own nature so uncertain, must render the exchange
always very much against such a state, its currency being, in all
foreign states, necessarily valued even below what it is worth.
In order to remedy the inconvenience to which this disadvanta-
geous exchange must have subjected their merchants, such small
states, when they began to attend to the interest of trade, have fre-
quently enacted, that foreign bills of exchange of a certain value
should be paid, not in common currency, but by an order upon, or
“ See the preface to the 4 th ed., above.
DIGRESSION ON THE BANK OF AMSTERDAM 447
by a transfer in the books of a certain bank, established upon the
credit, and under the protection of the state; this bank being al-
ways obliged to pay, in good and true money, exactly according to
the standard of the state. The banks of Venice, Genoa, Amsterdam,
Hamburgh, and Nuremberg, seem to have been all originally es-
tablished with this view, though some of them may have afterwards
been made subservient to other purposes. The money of such banks
being better than the common currency of the country, necessarily
bore an agio, which was greater or smaller, according as the cur-
rency was supposed to be more or less degraded below the standard
of the state. The agio of the bank of Hamburgh, for example,
which is said to be commonly about fourteen per cent, is the sup-
posed difference between the good standard money of the state, and
the dipt, worn, and diminished currency poured into it from all the
neighbouring states.
Before 1609 the great quantity of dipt and worn foreign coin,
which the extensive trade of Amsterdam brought from all parts of
Europe, reduced the value of its currency about nine per cent, be-
low that of good money fresh from the mint. Such money no sooner
appeared than it was melted down or carried away, as it always is
in such circumstances. The merchants, with plenty of currency,
could not always find a sufficient quantity of good money to pay
their bills of exchange; and the value of those bills, in spite of sev-
eral regulations which were made to prevent it, became in a great
measure uncertain.
In order to remedy these inconveniencies, a bank was established
in 1609 under the guarantee of the city. This bank received both
foreign coin, and the light and worn coin of the country at its real
intrinsic value in the good standard money of the country, deduct-
ing only so much as was necessary for defraying the expence of
coinage, and the other necessary expence of management. For the
value which remained, after this small deduction was made, it gave
a credit in its books. This credit was called bank money, which, as
it represented money exactly according to the standard of the mint,
was always of the same real value, and intrinsically worth more
than current money. It was at the same time enacted, that all bills
drawn upon or negotiated at Amsterdam of the value of six hundred
guilders and upwards should be paid in bank money, which at once
took away all uncertainty in the value of those bills. Every mer-
chant, in consequence of this regulation, was obliged to keep an ac-
count with the bank in order to pay his foreign bills of exchange,
which necessarily occasioned a certain demand for bank money.
Bank money, over and above both its intrinsic superiority to cur-
money
regard-
less of the
condition
of the
coin, and
this
money
bears an
agio.
Before
1609 the
common
currenc>
of Am-
sterdam
was 9 per
cent, be-
low the
standard
The bank
was then
estab-
lished to
receive
and pay
coin at its
intrinsic
value in
good
standard
money.
Money
in the
bank was
not only
up to the
standard,
but also
secure
and easily
trans-
ferred, so
that it
bore an
agio.
The bank
receives
bullion
as wen as
coin, giv-
ing in ex-
change a
credit in
bank
money to
95 per
cent, of
the
value.
It also
gives a re-
ceipt
which en-
titles the
bearer to
recover
448 XHE WEALTH OF NATIONS
rency, and the additional value which this demand necessarily gives
itj has likewise some other advantages. It is secure from fire, rob-
bery, and other accidents; the city of Amsterdam is bound for it;
it can be paid away by a simple transfer, without the trouble of
counting, or the risk of transporting it from one place to another.
In consequence of those different advantages, it seems from the be-
ginning to have borne an agio, and it is generally believed that all
the money originally deposited in the bank was allowed to remain
there, nobody caring to demand payment of a debt which he could
sell for a premium in the market. By demanding payment of the
bank, the owner of a bank credit would lose this premium. As a
shilling fresh from the mint will buy no more goods in the market
than one of our common worn shillings, so the good and true money
which might be brought from the coffers of the bank into those of
a private person, being mixed and confounded with the common
currency of the country, would be of no more value than that cur-
rency, from which it could no longer be readily distinguished.
While it remained in the coffers of the bank, its superiority was
known and ascertained. When it had come into those of a private
person, its superiority could not well be ascertained without more
trouble than perhaps the difference was worth. By being brought
from the coffers of the bank, besides, it lost all the other advan-
tages of bank money; its security, its easy and safe transferability,
its use in paying foreign bills of exchange. Over and above all this,
it could not be brought from those coffers, as it will appear by and
by, without previously paying for the keeping.
Those deposits of coin, or those deposits which the bank was
bound to restore in coin, constituted the original capital of the
bank, or the whole value of what was represented by what is called
bank money. At present they are supposed to constitute but a very
small part of it. In order to facilitate the trade in bullion, the bank
has been for these many years in the practice of giving credit in its
books upon deposits of gold and silver bullion. This credit is gen-
erally about five per cent, below the mint price of such bullion. The
bank grants at the same time what is called a recipice or receipt,
intitling the person who makes the deposit, or the bearer, to take
out the bullion again at any time within six months, upon retrans-
ferring to the bank a quantity of bank money equal to that for
which credit had been given in its books when the deposit was
made, and upon paying one-fourth per cent, for the keeping, if the
deposit was in silver; and one-half per cent, if it was in gold; but
at the same time declaring, that in default of such payment, and
^Ed. I reads “Those deposits of coin, or which.”
DIGRESSION ON THE BANK OF AMSTERDAM 449
upon the expiration of this term, the deposit should belong to the
bank at the price at which it had been received, or for which credit
had been given in the transfer books. What is thus paid for the
keeping of the deposit may be considered as a sort of warehouse
rent; and why this warehouse rent should be so much dearer for
gold than for silver, several different reasons have been assigned.
The fineness of gold, it has been said, is more difficult to be ascer-
tained than that of silver. Frauds are more easily practised, and oc-
casion a greater loss in the more precious metal. Silver, besides, be-
ing the standard metal, the state, it has been said, wishes to en-
courage more the making of deposits of silver than those of gold.^^
Deposits of bullion are most commonly made when the price is
somewhat lower than ordinary; and they are taken out again when
it happens to rise. In Holland the market price of bullion is gener-
ally above the mint price, for the same reason that it was so in Eng-
land before the late reformation of the gold coin. The difference is
said to be commonly from about six to sixteen stivers upon the
mark, or eight ounces of silver of eleven parts fine, and one part al-
loy. The bank price, or the credit which the bank gives for deposits
of such silver (when made in foreign coin, of which the fineness is
well known and ascertained, such as Mexico dollars), is twenty-two
guilders the mark; the mint price is about twenty-three guilders,
and the market price is from twenty-three guilders six, to twenty-
three guilders sixteen stivers, or from two to three per cent, above
the mint price.^^ The proportions between the bank price, the mint
Eds. 1-3 have the more correct but awkward reading “than of those of
gold.”
The following are the prices at which the bank of Amsterdam at present
(September 1775) receives bullion and coin of different kinds:
SILVER.
Mexico dollars
French crowns
English silver coin
Guilders.
B — 22 per mark.
Mexico dollars new coin
21
10
Ducatoons 3
Rix dollars 2 8
Bar silver containing ^^fine silver 21 per mark, and in this proportion down
to i fine, on which 5 guilders are given.
Fine bars, 23 per mark.
GOLD.
Portugal coin |
Guineas \ B— 310 per mark.
Louis d’ors new J
Ditto old . . . • 300
New ducats . . 4 19 8 per ducat.
Bar or ingot gold is received in proportion to its fineness compared with
the above foreign gold coin. Upon fine bars the bank gives 340 mark. In
general, however, something more is given upon coin of a known fineness,
than upon gold and silver bars, of which the fineness cannot be ascertained
but by a process of melting and assaying.
the bul-
lion on
repaying
the sum
advanced
and pay-
ing! per
cent, for
silver and
! per cent,
for gold.
The re-
ceipts are
generally
worth
some-
thing, and
are re-
newed at
the end of
each six
months.
The de-
positor
usually
parts with
his re-
<.eipt.
The bank
money
and the
recdpt
together
equal in
value the
bullion
deposited.
450 THE WEALTH OF NATIONS
price, and the market price of gold bullion, are nearly the same. A
person can generally sell his receipt for the difference between the
mint price of bullion and the market price. A receipt for bullion is
almost always worth something, and it very seldom happens, there-
fore, that any body suffers his receipt to expire, or allows his bul-
lion to fall to the bank at the price at which it had been received,
either by not taking it out before the end of the six months, or by
neglecting to pay the one-fourth or one-half per cent, in order to
obtain a new receipt for another six months. This, however, though
it happens seldom, is said to happen sometimes, and more frequent-
ly with regard to gold, than with regard to silver, on account of the
higher warehouse-rent which is paid for the keeping of the more
precious metal.
The person who by making a deposit of bullion obtains both a
bank credit and a receipt, pays his bills of exchange as they become
due with his bank credit; and either sells or keeps his receipt ac-
cording as he judges that the price of bullion is likely to rise or to
fall. The receipt and the bank credit seldom keep long together,
and there is no occasion that they should. The person who has a re-
ceipt, and who wants to take out bullion, finds always plenty of
bank credits, or bank money to buy at the ordinary price; and the
person who has bank money, and wants to take out bullion, finds
receipts always in equal abundance.
The owners of bank credits, and the holders of receipts, consti-
tute two different sorts of creditors against the bank. The holder of
a receipt cannot draw out the bullion for which it is granted, with-
out re-assigning to the bank a sum of bank money equal to the price
at which the bullion had been received. If he has no bank money of
his own, he must purchase it of those who have it. The owner of
bank money cannot draw out bullion without producing to the
bank receipts for the quantity which he wants. If he has none of his
own, he must buy them of ftose who have them. The holder of a
receipt, when he purchases bank money, purchases the power of
taking out a quantity of bullion, of which the mint price is five per
cent, above the bank price. The agio of five per cent, therefore,
which he commonly pays for it, is paid, not for an imaginary, but
for a real value. The owner of bank money, when he purchases a
receipt, purchases the power of taking out a quantity of bullion of
which the market price is commonly from two to three per cent,
above the mint price. The price which he pays for it, therefore, is
paid likewise for a real value. The price of the receipt, and the
price of the bank money, compound or make up between them the
full value or price of the bullion.
DIGRESSION ON THE BANK OF AMSTERDAM 45^
Upon deposits of the coin current in the country, the bank grants
receipts likewise as well as bank credits; but those receipts are fre-
quently of no value, and will bring no price in the market. Upon
ducatoons, for example, which in the currency pass for three guild-
ers three stivers each, the bank gives a credit of three guilders only,
or five per cent, below their current value. It grants a receipt like-
wise intitling the bearer to take out the number of ducatoons de-
posited at any time within six months, upon paying one-fourth per
cent, for the keeping. This receipt will frequently bring no price in
the market. Three guilders bank money generally sell in the market
for three guilders three stivers, the full value of the ducatoons, if
they were taken out of the bank; and before they can be taken out,
one-fourth per cent, must be paid for the keeping, which would be
mere loss to the holder of the receipt. If the agio of the bank, how-
ever, should at any time fall to three per cent, such receipts might
bring some price in the market, and might sell for one and three-
fourths per cent. But the agio of the bank being now generally
about five per cent, such receipts are frequently allowed to expire,
or, as they express it, to fall to the bank. The receipts which are
given for deposits of gold ducats fall to it yet more frequently, be-
cause a higher warehouse-rent, or one-half per cent, must be paid
for the keeping of them before they can be taken out again. The
five per cent, which the bank gains, when deposits either of coin or
bullion are allowed to fall to it, may be considered as the ware-
house-rent for the perpetual keeping of such deposits.
The sum of bank money for which the receipts are expired must
be very considerable. It must comprehend the whole original capi-
tal of the bank, which, it is generally supposed, has been allowed to
remain there from the time it was first deposited, nobody caring
either to renew his receipt or to take out his deposit, as, for the rea-
sons already assigned, neither the one nor the other could be done
without loss. But whatever may be the amount of this sum, the
proportion which it bears to the whole mass of bank money is sup-
posed to be very small. The bank of Amsterdam has for these many
years past been the great warehouse of Europe for bullion, for
which the receipts are very seldom allowed to expire, or, as they
express it, to fall to the bank. The far greater part of the bank
money, or of the credits upon the books of the bank, is supposed to
have been created, for these many years past, by such deposits
which the dealers in bullion are continually both making and with-
drawing.
No demand can be made upon the bank but by means of a reci-
pice or receipt. The smaller mass of bank money, for which the re-
Receipts
for cur-
rent coin
are also
given, but
these are
often of
no value
and are
allowed to
expire.
So there
is a con-
siderable
sum of
bank
money for
which the
receipts
have ex-
pired, but
it IS not
a large
propor-
tion of
the whole
This can-
not be
drawn out
of the
bank.
So that if
all the
holders of
bank
money de-
sired to
exchange
it for coin
and bul-
lion re-
ceipts
might
command
an ex-
orbitant
price,
but it is
supposed
in an
emer-
gency the
bank
would
pay out
money or
bullion
without
receipts
being of-
fered.
Of late
years the
bank has
always
sold
bank
money at
5 per cent,
agio and
bought at
4 per cent.
452 XHE WEALTH OF NATIONS
ceipts are expired, is mixed and confounded with the much greater
mass for which they are still in force; so that, though there may be
a considerable sum of bank money, for which there are no receipts,
there is no specific sum or portion of it, which may not at any time
be demanded by one. The haxik cannot be debtor to two persons for
the same thing; and the owner of bank money who has no receipt,
cannot demand pa3mient of the bank till he buys one. In ordinary
and quiet times, he can find no difficulty in getting one to buy at
the market price, which generally corresponds with the price at
which he can sell the coin or bullion it intitles him to take out of
the bank.
It might be otherwise during a public calamity; an invasion, for
example, such as that of the French in 1672. The owners of bank
money being then all eager to draw it out of the bank, in order to
have it in their own keeping, the demand for receipts might raise
their price to an exorbitant height. The holders of them might form
extravagant expectations, and, instead of two or three per cent, de-
mand half the bank money for which credit had been given upon
the deposits that the receipts had respectively been granted for.
The enemy, informed of the constitution of the bank, might even
buy them up, in order to prevent the carrying away of the treasure.
In such emergencies, the bank, it is supposed, would break through
its ordinary rule of making payment only to the holders of receipts.
The holders of receipts, who had no bank money, must have re-
ceived within two or three per cent, of the value of the deposit for
which their respective receipts had been granted. The bank, there-
fore, it is said, would in this case make no scruple of paying, either
with money or bullion, the full value of what the owners of bank
money who could get no receipts were credited for in its books;
paying at the same time two or three per cent, to such holders of
receipts as had no bank money, that being the whole value which in
this state of things could justly be supposed due to them.
Even in ordinary and quiet times it is the interest of the holders
of receipts to depress the agio, in order either to buy bank money
(and consequently the bullion, which their receipts would then en-
able them to take out of the bank) so much cheaper, or to sell their
receipts to those who have bank money, and who want to take out
bullion, so much dearer; the price of a receipt being generally equal
to the difference between the market price of bank money, and that
of the coin or bullion for which the receipt had been granted. It is
the interest of the owners of bank money, on the contrary, to raise
the agio, in order either to sell their bank money so much dearer,
or to buy a receipt so much cheaper. To prevent the stock-jobbing
DIGRESSION ON THE BANK OE AMSTERDAM 453
tricks which those opposite interests might sometimes occasion, the
bank has of late years come to the resolution to sell at all times
bank money for currency, at five per cent, agio, and to buy it in
again at four per cent. agio. In consequence of this resolution, the
agio can never either rise above five, or sink below four per cent,
and the proportion between the market price of bank and that of
current money, is kept at all times very near to the proportion be-
tween their intrinsic values. Before this resolution was taken, the
market price of bank money used sometimes to rise so high as nine
per cent, agio, and sometimes to sink so low as par, according as
opposite interests happened to influence the market.
The bank of Amsterdam professes to lend out no part of what is
deposited with it, but, for every guilder for which it gives credit in
its books, to keep in its repositories the value of a guilder either in
money or bullion. That it keeps in its repositories all the money or
bullion for which there are receipts in force, for which it is at all
times liable to be called upon, and which, in reality, is continually
going from it and returning to it again, cannot well be doubted. But
whether it does so likewise with regard to that part of its capital,
for which the receipts are long ago expired, for which in ordinary
and quiet times it cannot be called upon, and which in reality is
very likely to remain with it for ever, or as long as the States of the
United Provinces subsist, may perhaps appear more uncertain. At
Amsterdam, however, no point of faith is better established than
that for every guilder, circulated as bank money, there is a corre-
spondent guilder in gold or silver to be found in the treasure of the
bank. The city is guarantee that it should be so. The bank is under
the direction of the four reigning burgomasters, who are changed
every year. Each new set of burgomasters visits the treasure, com-
pares it with the books, receives it upon oath, and delivers it over,
with the same awful solemnity, to the set which succeeds and in
that sober and religious country oaths are not yet disregarded. A
rotation of this kind seems alone a sufficient security against any
practices which cannot be avowed. Amidst all the revolutions which
faction has ever occasioned in the government of Amsterdam, the
prevailing party has at no time accused their predecessors of in-
fidelity in the administration of the bank. No accusation could have
affected more deeply the reputation and fortune of the disgraced
party, and if such an accusation could have been supported, we may
be assured that it would have been brought. In 1672, when the
French king was at Utrecht, the bank of Amsterdam paid so readily
as left no doubt of the fidelity with which it had observed its en-
®Ed. I reads “it” here.
It pro-
fesses to
lend out
no part 0 ^
the de-
posits.
The
amount of
treasure
in the
bank is a
subject of
conjec-
ture.
The city
derives a
consider-
able rev-
enue
from the
various
profits of
the bank.
454 THE WEALTH OF NATIONS
gagements. Some of the pieces which were then brought from its
repositories appeared to have been scorched with the fire which hap-
pened in the town-house soon after the bank was established.^^
Those pieces, therefore, must have lain there from that time.
What may be the amount of the treasure in the bank, is a ques-
tion which has long employed the speculations of the curious. Noth-
ing but conjecture can be offered concerning it. It is generally reck-
oned that there are about two thousand people who keep accounts
with the bank, and allowing them to have, one with another, the
value of fifteen hundred pounds sterling lying upon their respective
accounts (a very large allowance), the whole quantity of bank
money, and consequently of treasure in the bank, will amount to
about three millions sterling, or, at eleven guilders the pound sterl-
ing, thirty-three millions of guilders; a great sum, and sufficient
to carry on a very extensive circulation; but vastly below the ex-
travagant ideas which some people have formed of this treasure.
The city of Amsterdam derives a considerable revenue from the
bank. Besides what may be called the warehouse-rent above men-
tioned, each person, upon first opening an account with the bank,
pays a fee of ten guilders; and for every new account three guilders
three stivers; for every transfer two stivers; and if the transfer is
for less than three hundred guilders, six stivers, in order to discour-
age the multiplicity of small transactions. The person who neglects
to balance his account twice in the year forfeits twenty-five guild-
ers. The person who orders a transfer for more than is upon his ac-
count, is obliged to pay three per cent, for the sum overdrawn, and
his order is set aside into the bargain. The bank is supposed too to
make a considerable profit by the sale of the foreign coin or bullion
which sometimes falls to it by the expiring of receipts, and which
is always kept till it can be sold with advantage. It makes a profit
likewise by selling bank money at five per cent, agio, and buying it
in at four. These different emoluments amount to a good deal more
than what is necessary for paying the salaries of officers, and de-
fraying the expence of management. What is paid for the keeping
of bullion upon receipts, is alone supposed to amount to a neat an-
nual revenue of between one hundred and fifty thousand and two
hundred thousand guilders. Public utility, however, and not rev-
enue, was the original object of this institution. Its object was to
^Lectures, pp. 193, 194. The story is doubtless in Voltaire, Sihcle de Louis
XIV. f chap. X., and is quoted thence by Anderson, Commerce, a.d. 1672.
Magens, Universal Merchant, ed. Horsley, pp. 32, 33, who also pro-
tests against the common exaggeration, gives 3,000 as a maximum estimate
for the number of accounts, and 60,000,000 guilders as the utmost amount of
the treasure.
RESTRAINTS ON PARTICULAR IMPORTS 455
relieve the merchants from the inconvenience of a disadvantageous
exchange. The revenue which has arisen from it was unforeseen,
and may be considered as accidental. But it is now time to return
from this long digression, into which I have been insensibly led in
endeavouring to explain the reasons why the exchange between the
countries which pay in what is called bank money, and those which
pay in common currency, should generally appear to be in favour
of the former, and against the latter. The former pay in a species
of money of which the intrinsic value is always the same, and ex-
actly agreeable to the standard of their respective mints; the latter
in a species of money of which the intrinsic value is continually
varying, and is almost always more or less below that standard.^®
Part II
Of the Unreasonableness of those extraordinary Restraints upon
other Principles
In the foregoing Part of this Chapter I have endeavoured to shew,^®
even upon the principles of the commercial system, how unneces-
sary it is to lay extraordinary restraints upon the importation of
goods from those countries with which the balance of trade is sup-
posed to be disadvantageous.
Ed. I runs on here as follows, “But though the computed exchange must
generally be in favour of the former, the real exchange may frequently be in
favour of the latter.”
^ In place of this part heading (see above, p. 440, note i) ed. i reads, in
square-bracketed italics, “End of the Digression concerning Banks of Deposit.”
® In place of this first line ed. i reads, “Though the computed exchange be-
tween any two places were in every respect the same with the real, it would
not always follow that what is called the balance of trade was in favour of
that place which had the ordinary course of exchange in its favour. The or-
dinary course of exchange might, indeed, in this case, be a tolerable indica-
tion of the ordinary state of debt and credit between them, and show which
of the two countries usually had occasion to send out money to the other.
But the ordinary state of debt and credit between any two places is not al-
ways entirely regulated by the ordinary course of their dealings with one an-
other, but is influenced by that of the dealings of both with many other coun-
tries. If it was usual, for example, for the merchants of England to pay the
goods which they buy from Hamburgh, Dantzick, Riga, &c., by bills upon
Holland, the ordinary state of debt and credit between England and Holland
would not be entirely regulated by the ordinary course of the dealings of those
two countries with one another, but would be influenced by that of England
with those other places. England might, in this case, be annually obliged to
send out money to Holland, though its annual exports to that country ex-
ceeded the annual value of its imports from it, and though what is called the
balance of trade was very much in favour of England.”
“Hitherto I have been endeavouring to shew.” See above, p. 443> note 12.
The
whole
doctrine
of the
balance of
trade is
absurd
Where
there is an
even bal-
ance and
the ex-
change
consists
wholly of
native
commodi-
ties two
countries
trading
will gain
nearly
equafly.
456 the wealth of nations
Nothing, however, can be more absurd than this whole doctrine
of the balance of trade, upon which, not only these restraints, but
almost all the other regulations of commerce are founded. When
two places trade with one another, this doctrine supposes that, if the
balance be even, neither of them either loses or gains; but if it leans
in any degree to one side, that one of them loses, and the other gains
in proportion to its declension from the exact equilibrium. Both
suppositions are false. A trade which is forced by means of boun-
ties and monopolies, may be, and commonly is disadvantageous to
the country in whose favour it is meant to be established, as I shall
endeavour to shew hereafter.^^ But that trade which, without force
or constraint, is naturally and regularly carried on between any
two places, is always advantageous, though not always equally so,
to both.
By advantage or gain, I understand, not the increase of the quan-
tity of gold and silver, but that of the exchangeable value of the
annual produce of the land and labour of the country, or the in-
crease of the annual revenue of its inhabitants.
If the balance be even, and if the trade between the two places
consist altogether in the exchange of their native commodities, they
will, upon most occasions, not only both gain, but they will gain
equally, or very near equally: each will in this case afford a market
for a part of the surplus produce of the other: each will replace a
capital which had been employed in raising and preparing for the
market this part of the surplus produce of the other, and which
had been distributed among, and given revenue and maintenance to
a certain number of its inhabitants. Some part of the inhabitants
of each, therefore, will indirectly derive their revenue and mainte-
nance from the other. As the commodities exchanged too are sup-
posed to be of equal value, so the two capitals employed in the
trade will, upon most occasions, be equal, or very nearly equal ; and
both being employed in raising the native commodities of the two
countries, the revenue and maintenance which their distribution
will afford to the inhabitants of each will be equal, or very nearly
equal. This revenue and maintenance, thus mutually afforded, will
be greater or smaller in proportion to the extent of their dealings. If
these should annually amount to an hundred thousand pounds, for
example, or to a million on each side, each of them would afford an
annual revenue in the one case of an hundred thousand pounds, in
the other, of a million, to the inhabitants of the other.
If their trade should be of such a nature that one of them export-
^ Below, pp. 472,473.
Ed I does not contain “and preparing for the market.”
RESTRAINTS ON PARTICULAR IMPORTS 457
ed to the other nothing but native commodities, while the returns
of that other consisted altogether in foreign goods; the balance, in
this case, would still be supposed even, commodities being paid for
with commodities. They would, in this case too, both gain, but they
would not gain equally; and the inhabitants of the country w'hich
exported nothing but native commodities would derive the greatest
revenue from the trade. If England, for example, should import
from France nothing but the native commodities of that country,
and, not having such commodities of its own as were in demand
there, should annually repay them by sending thither a large quan-
tity of foreign goods, tobacco, we shall suppose, and East India
goods; this trade, though it would give some revenue to the inhabi-
tants of both countries, would give more to those of France than to
those of England. The whole French capital annually employed in
it would annually be distributed among the people of France. But
that part of the English capital only which was employed in pro-
ducing the English commodities with which those foreign goods
were purchased, would be annually distributed among the people of
England. The greater part of it would replace the capitals which
had been employed in Virginia, Indostan, and China, and which
had given revenue and maintenance to the inhabitants of those dis-
tant countries. If the capitals were equal, or nearly equal, there-
fore, this employment of the French capital would augment much
more the revenue of the people of France, than that of the English
capital would the revenue of the people of England. France would
in this case carry on a direct foreign trade of consumption with Eng-
land; whereas England would carry on a round-about trade of the
same kind with France. The different effects of a capital employed
in the direct, and of one employed in the round-about foreign trade
of consumption, have already been fully explained.^^
There is not, probably, between any two countries, a trade which
consists altogether in the exchange either of native commodities on
both sides, or of native commodities on one side and of foreign
goods on the other. Almost all countries exchange with one another
partly native and partly foreign goods. That country, however, in
whose cargoes there is the greatest proportion of native, and the
least of foreign goods, will always be the principal gainer.
If it was not with tobacco and East India goods, but with gold
and silver, that England paid for the commodities annually im-
ported from France, the balance, in this case, would be supposed
uneven, commodities not being paid for with commodities, but with
gold and silver. The trade, however, would, in this case, as in the
Above, p. 350 .
If one ex-
ported
nothing
but native
commodi
ties, and
the other
nothing
but
foreign,
both
would
gain, but
the first
would
gain most
Mixed
cases con-
form to
the prin-
ciple.
It would
be no
worse for
England
to pay in
gold and
458 the wealth OF NATIONS
silver foregoing, give some revenue to the inhabitants of both countries,
tobacco France than to those of England. It would give
° some revenue to those of England. The capital which had been em-
ployed in producing the English goods that purchased this gold and
silver, the capital which had been distributed among, and given
revenue to, certain inhabitants of England, would thereby be re-
placed, and enabled to continue that employment. The whole capi-
tal of England would no more be diminished by this exportation of
gold and silver, than by the exportation of an equal value of any
other goods. On the contrary, it would, in most cases, be augmented.
No goods are sent abroad but those for which the demand is sup-
posed to be greater abroad than at home, and of which the returns
consequently, it is expected, will be of more value at home than the
commodities exported. If the tobacco which, in England, is worth
only a hundred thousand pounds, when sent to France will purchase
wine which is, in England, worth a hundred and ten thousand
pounds, the exchange will augment the capital of England by ten
thousand pounds. If a hundred thousand pounds of English gold, in
the same manner, purchase French wine, which, in England, is
worth a hundred and ten thousand, this exchange will equally aug-
ment the capital of England by ten thousand pounds. As a mer-
chant who has a hundred and ten thousand pounds worth of wine
in his cellar, is a richer man than he who has only a hundred thou-
sand pounds worth of tobacco in his warehouse, so is he likewise a
richer man than he who has only a hundred thousand pounds worth
of gold in his coffers. He can put into motion a greater quantity of
industry, and give revenue, maintenance, and employment, to a
greater number of people than either of the other two. But the capi-
tal of the country is equal to the capitals of all its different inhabi-
tants, and the quantity of industry which can be annually main-
tained in it, is equal to what all those different capitals can main-
tain. Both the capital of the country, therefore, and the quantity of
industry which can be annually maintained in it, must generally be
augmented by this exchange. It would, indeed, be more advantage-
ous for England that it could purchase the wines of France with its
own hard-ware and broad-cloth, than with either the tobacco of
Virginia, or the gold and silver of Brazil and Peru. A direct foreign
trade of consumption is always more advantageous than a round-
about one. But a round-about foreign trade of consumption, which
is carried on with gold and silver, does not seem to be less advan-
tageous than any other equally round-about one. Neither is a coun-
try which has no mines, more likely to be exhausted of gold and
silver by this annual exportation of those metals, than one which
RESTRAINTS ON PARTICULAR IMPORTS 459
does not grow tobacco by the like annual exportation of that plant.
As a country which has wherewithal to buy tobacco will never be
long in want of it, so neither will one be long in want of gold and
silver which has wherewithal to purchase those metals.
It is a losing trade, it is said, which a workman carries on with
the alehouse; and the trade which a manufacturing nation would
naturally carry on with a wine country, may be considered as a
trade of the same nature. I answer, that the trade with the alehouse
is not necessarily a losing trade. In its own nature it is just as ad-
vantageous as any other, though, perhaps, somewhat more liable to
be abused. The employment of a brewer, and even that of a retailer
of fermented liquors, are as necessary divisions of labour as any
other. It will generally be more advantageous for a workman to buy
of the brewer the quantity he has occasion for, than to brew it
himself, and if he is a poor workman, it will generally be more ad-
vantageous for him to buy it, by little and little, of the retailer, than
a large quantity of the brewer. He may no doubt buy too much of
either, as he may of any other dealers in his neighbourhood, of the
butcher, if he is a glutton, or of the draper, if he af ects to be a beau
among his companions. It is advantageous to the great body of
workmen, notwithstanding, that all these trades should be free,
though this freedom may be abused in all of them, and is more lilce-
ly to be so, perhaps, in some than in others. Though individuals, be-
sides, may sometimes ruin their fortunes by an excessive consump-
tion of fermented liquors, there seems to be no risk that a nation
should do so. Though in every country there are many people who
spend upon such liquors more than they can afford, there are always
many more who spend less. It deserves to be remarked too, that, if
we consult experience, the cheapness of wine seems to be a cause,
not of drunkenness, but of sobriety. The inhabitants of the wine
countries are in general the soberest people in Europe; witness the
Spaniards, the Italians, and the inhabitants of the southern prov-
inces of France. People are seldom guilty of excess in what is their
daily fare. Nobody affects the character of liberality and good fel-
lowship, by being profuse of a liquor which is as cheap as small
beer. On the contrary, in the countries which, either from exces-
sive heat or cold, produce no grapes, and where wine consequently
is dear and a rarity, drunkenness is a common vice, as among the
northern nations, and all those who live between the tropics, the
negroes, for example, on the coast of Guinea. When a French regi-
ment comes from some of the northern provinces of France, where
wine is somewhat dear, to be quartered in the southern, where it is
^^Eds. I and 2 read “make ” ®®Ed. i reads “from either ”
The argu-
ments
against
the
French
wine
trade are
faUadous.
The
sneaking
arts of
underling
tradesmen
have been
erected
into poli-
tical
maxims
and com-
merce has
become a
source of
discord
instead of
unity.
460 XHE WEALTH OF NATIONS
very cheap, the soldiers, I have frequently heard it observed, are at
first debauched by the cheapness and novelty of good wine; but
after a few months residence, the greater part of them become as
sober as the rest of the inhabitants. Were the duties upon foreign
wines, and the excises upon malt, beer, and ale, to be taken away
all at once, it might, in the same manner, occasion in Great Britain
a pretty general and temporary drunkenness among the middling
and inferior ranks of people, which would probably be soon follow-
ed by a permanent and almost universal sobriety. At present drunk-
enness is by no means the vice of people of fashion, or of those who
can easily afford the most expensive liquors. A gentleman drunk
with ale, has scarce ever been seen among us.®^ The restraints upon
the wine trade in Great Britain, besides, do not so much seem cal-
culated to hinder the people from going, if I may say so, to the ale-
house, as from going where they can buy the best and cheapest
liquor. They favour the wine trade of Portugal, and discourage that
of France. The Portuguese, it is said, indeed, are better customers
for our manufactures than the French, and should therefore be en-
couraged in preference to them. As they give us their custom, it is
pretended, we should give them ours. The sneaking arts of under-
ling tradesmen are thus erected into political maxims for the con-
duct of a great empire; for it is the most underling tradesmen only
who make it a rule to employ chiefly their own customers. A great
trader purchases his goods always where they are cheapest and best,
without regard to any little interest of this kind.
By such maxims as these, however, nations have been taught that
their interest consisted in beggaring all their neighbours. Each na-
tion has been made to look with an invidious eye upon the pros-
perity of all the nations with which it trades, and to consider their
gain as its own loss. Commerce, which ought naturally to be, among
nations, as among individuals, a bond of union and friendship, has
become the most fertile source of discord and animosity. The capri-
cious ambition of kings and ministers has not, during the present
and the preceding century, been more fatal to the repose of Europe,
than the impertinent jealousy of merchants and manufacturers. The
violence and injustice of the rulers of mankind is an ancient evil,
for which, I am afraid, the nature of human affairs can scarce ad-
mit of a remedy. But the mean rapacity, the monopolizing spirit of
merchants and manufacturers, who neither are, nor ought to be,
the rulers of mankind, though it cannot perhaps be corrected, may
very easily be prevented from disturbing the tranquillity of any
body but themselves.
Lectures f p. 179.
RESTRAINTS ON PARTICULAR IMPORTS 4^1
That it was the spirit of monopoly which originally both invent-
ed and propagated this doctrine, cannot be doubted; and they who
first taught it were by no means such fools as they who believed it.
In every country it always is and must be the interest of the great
body of the people to buy whatever they want of those who sell it
cheapest. The proposition is so very manifest, that it seems ridicu-
lous to take any pains to prove it; nor could it ever have been called
in question, had not the interested sophistry of merchants and
manufacturers confounded the common sense of mankind. Their
interest is, in this respect, directly opposite to that of the great body
of the people. As it is the interest of the freemen of a corporation
to hinder the rest of the inhabitants from employing any workmen
but themselves, so it is the interest of the merchants and manufac-
turers of every country to secure to themselves the monopoly of the
home market. Hence in Great Britain, and in most other European
countries, the extraordinary duties upon almost all goods imported
by alien merchants. Hence the high duties and prohibitions upon all
those foreign manufactures which can come into competition with
our own. Hence too the extraordinary restraints upon the importa-
tion of almost all sorts of goods from those countries with which
the balance of trade is supposed to be disadvantageous; that is,
from those against whom national animosity happens to be most
violently inflamed.
The wealth of a neighbouring nation, however, though dangerous
in war and politics, is certainly advantageous in trade. In a state of
hostility it may enable our enemies to maintain fleets and armies
superior to our own; but in a state of peace and commerce it must
likewise enable them to exchange with us to a greater value, and
to afford a better market, either for the immediate produce of our
own industry, or for whatever is purchased with that produce. As
a rich man is likely to be a better customer to the industrious peo-
ple in his neighbourhood, than a poor, so is likewise a rich nation.
A rich man, indeed, who is himself a manufacturer, is a very, dan-
gerous neighbour to all those who deal in the same way. All the
rest of the neighbourhood, however, by far the greatesti number,
profit by the good market which his expence affords them. They
even profit by his underselling the poorer workmen who deal in the
same way with him. The manufacturers of a rich nation, in the
same manner, may no doubt be very dangerous rivals to those of
their neighbours. This very competition, however, is advantageous
to the great body of the people, who profit greatly besides by the
good market which the great expence of such a nation affords them
in every other way. Private people who want to make a fortune,
The so-
phistry of
merchants
inspired
by the
spirit of
monopoly
has con-
founded
the com-
mon-sense
of man-
kind.
Wealthy
neigh-
bours are
an ad-
vantage to
a nation
as well as
an indi-
vidual.
The
French
tradeoff
not re-
strained,
would be
much
more ad-
vanta-
geous to
Great
Britain
than the
American.
462 XHE WEALTH OF NATIONS
never think of retiring to the remote and poor provinces of the
country, but resort either to the capital, or to some of the great
commercial towns. They know, that, where little wealth circulates,
there is little to be got, but that where a great deal is in motion,
some share of it may f^ to them. The same maxims which would
in this manner direct the common sense of one, or ten, or twenty
individuals, should regulate the judgment of one, or ten, or twenty
millions, and should make a whole nation regard the riches of its
neighbours, as a probable cause and occasion for itself to acquire
riches. A nation that would enrich itself by foreign trade, is cer-
tainly most likely to do so when its neighbours are all rich, indus-
trious, and commercial nations. A great nation surrounded on all
sides by wandering savages and poor barbarians might, no doubt,
acquire riches by the cultivation of its own lands, and by its own in-
terior commerce, but not by foreign trade. It seems to have been in
this manner that the ancient Egyptians and the modern Chinese
acquired their great wealth. The ancient Egyptians, it is said, neg-
lected foreign commerce,®® and the modern Chinese, it is known,
hold it in the utmost contempt,®® and scarce deign to afford it the
decent protection of the laws. The modern maxims of foreign com-
merce, by aiming at the impoverishment of all our neighbours, so
far as they are capable of producing their intended effect, tend to
render that very commerce insignificant and contemptible.
It is in consequence of these maxims that the commerce between
France and England has in both countries been subjected to so
many discouragements and restraints. If those two countries, how-
ever, were to consider their real interest, without either mercantile
jealousy or national animosity, the commerce of France might be
more advantageous to Great Britain than that of any other coun-
try, and for the same reason that of Great Britain to France. France
is die nearest neighbour to Great Britain. In the trade between the
southern coast of England and the northern and north-western
coasts of France, the returns might be expected, in the same man-
ner as in the inland trade, four, five, or six times in the year. The
capital, therefore, employed in this trade, could in each of the two
countries keep in motion four, five, or six times the quantity of in-
dustry, and afford employment and subsistence to four, five, or six
times the number of people, which an equal capital could do in the
greater part of the other branches of foreign trade. Between the
parts of France and Great Britain most remote from one another,
the returns might be expected, at least, once in the year, and even
this trade would so far be at least equally advantageous as the
Above, p 348 Below, p. 644
RESTRAINTS ON PARTICULAR IMPORTS 4^3
greater part of the other branches of our foreign European trade.
It would be, at least, three times more advantageous, than the
boasted trade with our North American colonies, in which the re-
turns were seldom made in less than three years, frequently not in
less than four or five years. France, besides, is supposed to contain
twenty-four millions of inhabitants.^'^ Our North American colonies
were never supposed to contain more than three millions: And
France is a much richer country than North America; though, on
account of the more unequal distribution of riches, there is much
more poverty and beggary in the one country, than in the other.
France therefore could afford a market at least eight times more
extensive, and, on account of the superior frequency of the returns,
four and twenty times more advantageous, than that which our
North American colonies ever afforded. The trade of Great Britain
would be just as advantageous to France, and, in proportion to the
wealth, population and proximity of the respective countries, would
have the same superiority over that which France carries on with
her own colonies. Such is the very great difference between that
trade which the wisdom of both nations has thought proper to dis-
courage, and that which it has favoured the most.
But the very same circumstances which would have rendered an
open and free commerce between the two countries so advantage-
ous to both, have occasioned the principal obstructions to that com-
merce. Being neighbours, they are necessarily enemies, and the
wealth and power of each becomes, upon that account, more for-
midable to the other; and what would increase the advantage of
national friendship, serves only to inflame the violence of national
animosity. They are both rich and industrious nations; and the
merchants and manufacturers of each, dread the competition of the
skill and activity of those of the other. Mercantile jealousy is ex-
cited, and both inflames, and is itself inflamed, by the violence of
national animosity: And the traders of both countries have an-
nounced, with all the passionate confidence of interested falsehood,
the certain ruin of each, in consequence of that unfavourable bal-
ance of trade, which, they pretend, would be the infallible effect of
an unrestrained commerce with the other
There is no commercial country in Europe of which the ap-
proaching ruin has not frequently been foretold by the pretended
doctors of this system, from an unfavourable balance of trade.
After all the anxiety, however, which they have excited about this,
^ See below, p 856 See below, p 889.
^ This and the preceding paragraph appear first in Additions and Correc-
tions and ed. 3.
But the
traders of
France
and Eng-
land are
jealous of
each
other.
No coun-
try has
ever been
impov-
erished by
an unfa-
vourable
balance,
and those
which
have the
freest
trade
have been
the most
enriched
by foreign
trade.
Prosperity
and decay
depend on
the bal-
ance of
produce
and con-
sumption,
which is
quite dif-
ferent
from the
balance
of trade,
and may
be con-
stantly in
favour of
a nation
464 the wealth of nations
after all the vain attempts of almost all trading nations to turn that
balance in their own favour and against their neighbours, it does not
appear that any one nation in Europe has been in any respect im-
poverished by this cause. Every town and country, on the contrary,
in proportion as they have opened their ports to all nations, instead
of being ruined by this free trade, as the principles of the com-
mercial system would lead us to expect, have been enriched by it.
Though there are in Europe, indeed, a few towns which in some
respects deserve the name of free ports, there is no country which
does so. Holland, perhaps, approaches the nearest to this character
of any, though still very remote from it; and Holland, it is ac-
knowledged, not only derives its whole wealth, but a great part of
its necessary subsistence, from foreign trade.
There is another balance, indeed, which has already been ex-
plained,^® very different from the balance of trade, and which, ac-
cording as it happens to be either favourable or unfavourable,
necessarily occasions the prosperity or decay of every nation. This
is the balance of the annual produce and consumption. If the ex-
changeable value of the annual produce, it has already been ob-
served, exceeds that of the annual consumption, the capital of the
society must annually increase in proportion to this excess. The
society in this case lives within its revenue, and what is annually
saved out of its revenue, is naturally added to its capital, and em-
ployed so as to increase still further the annual produce. If the ex-
changeable value of the annual produce, on the contrary, fall short
of the annual consumption, the capital of the society must annual-
ly decay in proportion to this deficiency. The expence of the so-
ciety in this case exceeds its revenue, and necessarily encroaches
upon its capital. Its capital, therefore, must necessarily decay, and,
together with it, the exchangeable value of the annual produce of
its industry.
This balance of produce and consumption is entirely different
from, what is called, the balance of trade. It might take place in a
nation which had no foreign trade, but which was entirely separated
from all the world. It may take place in the whole globe of the
earth, of which the wealth, population, and improvement may be
either gradually increasing or gradually decaying.
The balance of produce and consumption may be constantly in
favour of a nation, though what is called the balance of trade be
generally against it. A nation may import to a greater value than it
exports for half a century, perhaps, together; the gold and silver
which comes into it during all this time may be all immediately sent
"Above, p. 321; Lectures, p. 207.
RESTRAINTS ON PARTICULAR IMPORTS 4^5
out of it; its circulating coin may gradually decay, different sorts
of paper money being substituted in its place, and even the debts
too which it contracts in the principal nations with whom it deals,
may be gradually increasing; and yet its real wealth, the ex-
changeable value of the annual produce of its lands and labour,
may, during the same period, have been increasing in a much great-
er proportion. The state of our North American colonies, and of
the trade which they carried on with Great Britain, before the
commencement of the present disturbances,^^ may serve as a proof
that this is by no means an impossible supposition.
^This paragraph was written in the year 1775. But not exactly as it stands,
since ed. i reads “the late disturbances” instead of “the present disturbances ”
We can only conjecture that Smith thought that the disturbances were past
either when he was writing or when he returned the proof to the printers, or
that they would be past by the time his book was published. The alteration of
“late” to “present” was made in ed. 2, and the footnote added in ed. 3. All eds.
read “present disturbances” on pp. 540, 552 and 580 and “late disturbances”
on p. 544- The two expressions could scarcdy have been used at the same time,
so we must suppose that “late” was corrected into “present” on pp. 540, 552
and 580, or that “present” was corrected into “late” on p, 544, but we cannot
tell for certain which of the two things happened.
when the
balance of
trade is
against it
BOOK IV
Mer-
chants
demand
encour-
agements
to expor-
tation.
Draw-
backs of
duty paid
on domes-
tic pro-
duce are
reason-
able, as
they pre-
serve the
natural
distribu-
tion of
labour.
So are
also draw-
backs of
duty paid
on goods
imported.
CHAPTER IV
OF DRAWBACKS
Merchants and manufacturers are not contented with the monop-
oly of the home market, but desire likewise the most extensive for-
eign sale for their goods. Their country has np jurisdiction in for-
eign nations, and therefore can seldom procure them any monopoly
there. They are generally obliged, therefore, to content themselves
with petitioning for certain encouragements to exportation.
Of these encouragements what are called Drawbacks seem to be
the most reasonable. To allow the merchant to draw back upon ex-
portation, either the whole or a part of whatever excise or inland
duty is imposed upon domestic industry, can never occasion the
exportation of a greater quantity of goods than what would have
been exported had no duty been imposed. Such encouragements do
not tend to turn towards any particular employment a greater share
of the capital of the country, than what would go to that employ-
ment ^ of its own accord, but only to hinder the duty from driving
away any part of that share to other employments. They tend not
to overturn that balance which naturally establishes itself among
all the various employments of the society; but to hinder it from
being overturned by the duty. They tend not to destroy, but to
preserve, what it is in most cases advantageous to preserve, the nat-
ural division and distribution of labour in the society.
The same thing may be said of the drawbacks upon the re-
exportation of foreign goods imported; which in Great Britain gen-
erally amount to by much the largest part of the duty upon impor-
tation.^ By the second of the rules, annexed to the act of parlia-
ment,^ which imposed, what is now called, the old subsidy, every
merchant, whether English or alien, was allowed to draw back half
^ Eds. I and 2 read ‘‘go to it.’'
* The next three pages are not in eds. i and 2 ; see below, p. 470, note.
® 12 Car. IL, c. 4.
466
DRAWBACKS 467
that duty upon exportation; the English merchant, provided the
exportation took place within twelve months; the alien, provided it
took place within nine months. Wines, currants, and wrought silks
were the only goods which did not fall within this rule, having
other and more advantageous allowances. The duties imposed by
this act of parliament were, at that time, the only duties upon the
importation of foreign goods. The term within which this, and all
other drawbacks, could be claimed, was afterwards (by 7 Geo. 1 .
chap. 21. sect. 10.) extended to three years.^
The duties which have been imposed since the old subsidy, are,
the greater part of them, wholly drawn back upon exportation.
This general rule, however, is liable to a great number of excep-
tions, and the doctrine of drawbacks has become a much less sim-
ple matter, than it was at their first institution.
Upon the exportation of some foreign goods, of which it was
expected that the importation would greatly exceed what was
necessary for the home consumption, the whole duties are drawn
back, without retaining even half the old subsidy. Before the re-
volt of our North American colonies, we had the monopoly of the
tobacco of Maryland and Virginia. We imported about ninety-six
thousand hogsheads, and the home consumption was not supposed
to exceed fourteen thousand.® To facilitate the great exportation
which was necessary, in order to rid us of the rest, the whole duties
were drawn back, provide^ the exportation took place within three
years.^
We still have, though not altogether, yet very nearly, the monop-
oly of the sugars of our West Indian islands. If sugars are exported
within a year, therefore, all the duties upon importation are drawn
back*^ and if exported within three years, all the duties, except
half the old subsidy, which still continues to be retained upon the
exportation of the greater part of goods. Though the importation
of sugar exceeds, a good deal, what is necessary for the home con-
sumption, the excess is inconsiderable, in comparison of what it
used to be in tobacco.*
Some goods, the particular objects of the jealousy of our own
manufacturers, are prohibited to be imported for home consump-
tion. They may, however, upon paying certain duties, be imported
and warehoused for exportation. But upon such exportation, no
part of these duties are drawn back. Our manufacturers are unwill-
^ Henry Saxby, The British Customs, containing an Historical and Prac-
tical Account of each branch of that part of the Revenue, 1757, pp. 10, 308.
® These figures are also quoted above, p. 353, and below, pp. 568, 5^9.
® Saxby, British Customs, p. 12. Ibid., p. ii.
Under the
old sub-
sidy a
drawback
of one-
half is al-
lowed.
Of more
recent
duties the
whole is
generally
allowed,
and in
some cases
the whole
even of
the old
subsidy is
allowed.
In the
case of
some pro-
hibited
goods
there is
no draw-
back.
French
imports
generally
are al-
lowed a
smaller
drawback
on re-ex-
portation.
Wines
have been
peculiar-
ly fa-
voured,
468 XHE WEALTH OF NATIONS
ing, it seems, that even this restricted importation should be en-
couraged, and are afraid lest some part of these goods should be
stolen out of the warehouse, and thus come into competition with
their own. It is under these regulations only that we can import
wrought silks,® French cambrics and lawns,® callicoes painted,
printed, stained, or dyed, &c.
We are unwilling even to be the carriers of French goods, and
choose rather to forego a profit to ourselves, than to suffer those,
whom we consider as our enemies, to make any profit by our means.
Not only half the old subsidy, but the second twenty-five per cent,
is retained upon the exportation of all French goods.^®
By the fourth of the rules annexed to the old subsidy, the draw-
back allowed upon the exportation of all wines amounted to a great
deal more than half the duties which were, at that time, paid upon
their importation; and it seems, at that time, to have been the ob-
ject of the legislature to give somewhat more than ordinary en-
couragement to the carrying trade in wine. Several of the other
duties too, which were imposed, either at the same time, or subse-
quent to the old subsidy; what is called the additional duty, the
new subsidy, the one-third and two-thirds subsidies, the impost
1692, the coinage on wine, were allowed to be wholly drawn back
upon exportation.^^ All those duties, however, except the additional
duty and impost 1692,^^ being paid down in ready money, upon
importation, the interest of so large a sum occasioned an expence,
which made it unreasonable to expect any profitable carrying trade
in this article. Only a part, therefore, of the duty called the impost
on wine,^® and no part of the twenty-five pounds the tun upon
French wines,^^ or of the duties Imposed in 1745,^® in 1763,^® and
in 1778,^^ were allowed to be drawn back upon exportation. The
two imposts of five per cent., imposed in 1779 and 1781, upon all
®6 Geo. III., c. 28; II Geo. III., c. 49. ** Above, p. 440.
7 and 8 W. HI., c. 20; i Geo. I., c. 12, § 3 ; Saxby, British Customs, p. 45 ;
above p. 440. The first 25 per cent, was imposed in 11592, the second in i6g6.
^ Saxby, British Customs, pp. 13, 22, 39> 46. “The additional duty” was
imposed in 1703. For the “impost 1692” and the subsidies see above, pp. 440,
441, and below, pp. 830, 831. “The coinage on wine” was the duty levied
under 18 Car. II., c. $, for defraying the expenses of the mint.
“ Saxby, British Customs, pp. 13, 38.
“ I Jac. II,, c. 3, and continuing Acts: £8 a tun on French and £12 on
other wine.
^^7 and 8 W. HI., c. 20, § 3; I Geo. L, st. 2, c. 12, § 3.
“ 18 Geo. H., c. 9; Saxby, British Customs, p. 64: £8 a tun on French and
£4 on other wine.
“ ? 1762. 3 Geo. III., c. 12: £8 a tun on French and £4 on other wine.
18 Geo. III., c. 27: £8 8s. on French and £4 4s. on other wine.
DRAWBACKS 4^9
the former duties of customs, being allowed to be wholly drawn
back upon the exportation of all other goods, were likewise allowed
to be drawn back upon that of wine. The last duty that has been
particularly imposed upon wine, that of 1780,1® is allowed to be
wholly drawn back, an indulgence, which, when so many heavy
duties are retained, most probably could never occasion the expor-
tation of a single tun of wine. These rules take place with regard to
all places of lawful exportation, except the British colonies in
America.
The isth Charles II. chap. 7. called an act for the encourage- especially
ment of trade,^® had given Great Britain the monopoly of supply-
ing the colonies with all the commodities of the growth or manu- the Amer-
facture of Europe; and consequently with wines. In a country of icancolo-
so extensive a coast as our North American and West Indian colo-
nies, where our authority was always so very slender, and where the
inhabitants were allowed to carry out, in their own ships, their non-
enumerated commodities, at first, to all parts of Europe, and after-
wards, to all parts of Europe South of Cape Finisterre,^^ it is not
very probable that this monopoly could ever be much respected;
and they probably, at all times, found means of bringing back some
cargo from the countries to which they were allowed to carry out
one. They seem, however, to have found some difficulty in import-
ing European wines from the places of their growth, and they could
not well import them from Great Britain, where they were loaded
with many heavy duties, of which a considerable part was not
drawn back upon exportation. Madeira wine, not being a Euro-
pean commodity could be imported directly into America and
the West Indies, countries which, in all their non-enumerated
commodities, enjoyed a free trade to the island of Madeira. These
circumstances had probably introduced that general taste for Ma-
deira wine, which our officers found established in all our colonies
at the commencement of the war which began in 1755, and which
they brought back with them to the mother-country, where that
wine had not been much in fashion before. Upon the conclusion of
5 per cent., not on the value of the goods, but on the amount of the
previously existing duties; 19 Geo. Ill,, c. 25, and 22 Geo. III., c. 66.
20 Geo. Ill,, c. 30: £8 a tun on French and £4 on other wine.
"‘The colonial part of the Act is said in its particular preamble (§ 5) to be
for the purpose of “maintaining a greater correspondence and kindness be-
tween” the colonies and mother country, and for keeping the colonies “in a
firmer dependence.”
^ All this is dealt with in greater detail below, pp. 543-546.
“The framers of the Act were not so sure about Madeira being non-
European. They excepted wine of the Madeiras and Azores by special pro-
vision, § 7 of IS Car. II., c. 7, § 13.
though
the export
of other
foreign
commodi-
ties to
those col-
onies was
discour-
aged.
Draw-
backs
were
originally
granted to
encourage
the carry-
ing trade,
which was
absurd,
but they
are rea-
sonable
enough.
The reve-
nue gains
by their
470 the wealth of nations
that war, in 1763 (by the 4th Geo. Ill, Chap. 15. Sect. 12.), all the
duties, except 3L lo^. were allowed to be drawn back, upon the ex-
portation to the colonies of all wines, except French wines, to the
commerce and consumption of which national prejudice would al-
low no sort of encouragement. The period between the granting
of this indulgence and the revolt of our North American colonies
was probably too short to admit of any considerable change in the
customs of those countries.
The same act, which, in the drawback upon all wines, except
French wines, thus favoured the colonies so much more than other
countries; in those, upon the greater part of other commodities,
favoured them much less. Upon the exportation of the greater part
of commodities to other countries, half the old subsidy was drawn
back. But this law enacted, that no part of that duty should be
drawn back upon the exportation to the colonies of any commodi-
ties, of the growth or manufacture either of Europe or the East
Indies, except wines, white callicoes and muslins.^^
Drawbacks were, perhaps, originally granted for the encourage-
ment of the carrying trade, which, as the freight of the ships is fre-
quently paid by foreigners in money, was supposed to be peculiarly
fitted for bringing gold and silver into the country. But though the
carrying trade certainly deserves no peculiar encouragement,
though the motive of the institution was, perhaps, abundantly fool-
ish, the institution itself seems reasonable enough. Such drawbacks
cannot force into this trade a greater share of the capital of the
country than what would have gone to it of its own accord, had
there been no duties upon importation. They only prevent its being
excluded altogether by those duties. The carrying trade, though it
deserves no preference, ought not to be precluded, but to be left
free like all other trades. It is a necessary resource for those capi-
tals which cannot find Employment either in the agriculture or in
the manufactures of the country, either in its home trade or in its
foreign trade of consumption.
The revenue of the customs, instead of suffering, profits from
such drawbacks, by that part of the duty which is retained. If the
whole duties had been retained, the foreign goods upon which they
®®From the words “duty upon importation” at the end of the first sentence
of the third paragraph of the chapter to this point is new matter, which ap-
pears first in Additions and Corrections and ed. 3. Eds. i and 2 read in place
of it simply, “Half the duties imposed by what is called the old subsidy, arc
drawn back universally, except upon goods exported to the British planta-
tions; and frequently the whole, almost always a part of those imposed by
later subsidies and imposts.” The provision of 4 Geo. III., c. 15, taking away
drawbacks, is quoted below, p. 550.
DRAWBACKS 47i
are paid, could seldom have been exported, nor consequently im-
ported, for want of a market. The duties, therefore, of which a part
is retained, would never have been paid.
These reasons seem sufi&ciently to justify drawbacks, and would
justify them, though the whole duties, whether upon the produce of
domestic industry, or upon foreign goods, were dways drawn back
upon exportation. The revenue of excise would in this case, indeed,
suffer a little, and that of the customs a good deal more; but the
natural balance of industry, the natural division and distribution
of labour, which is always more or less disturbed by such duties,
would be more nearly re-established by such a regulation.
These reasons, however, will justify drawbacks only upon ex-
porting goods to those countries which are altogether foreign and
independent, not to those in which our merchants and manufac-
turers enjoy a monopoly. A drawback, for example, upon the ex-
portation of European goods to our American colonies, will not al-
ways occasion a greater exportation than what would have taken
place without it. By means of the monopoly which our merchants
and manufacturers enjoy there, the same quantity might frequent-
ly, perhaps, be sent thither, though the whole duties were retained.
The drawbackj therefore, may frequently be pure loss to the reve-
nue of excise and customs, without altering the state of the trade,
or rendering it in any respect more extensive. How far such draw-
backs can be justified, as a proper encouragement to the industry
of our colonies, or how far it is advantageous to the mother-country,
that they should be exempted from taxes which are paid by all the
rest of their fellow-subjects, will appear hereafter when I come to
treat of colonies.
Drawbacks, however, it must always be understood, are useful
only in those cases in which the goods for the exportation of which
they are given, are really exported to some foreign country; and not
clandestinely re-imported into our own. That some drawbacks, par-
ticularly those upon tobacco, have frequently been abused in this
manner, and have given occasion to many frauds equally hurtful
both to the revenue and to the fair trader, is well known.
existence
when they
do not
amount to
the whole
of the
duty paid.
They
would be
justified
even if
they al-
ways did
amount to
the whole
duty paid,
but only
to inde-
pendent
countries,
not to
those in
respect of
which
there is a
monopoV
of trade.
They give
rise to
frauds.
Below, pp. 549-SSi-
CHAPTER V
Foreign-
ers cannot
be forced
to buy
our goods,
so it is
proposed
to pay
them to
do so.
Bounties
are not
demanded
for any
but losing
trades,
OF BOUNTIES
Bounties upon exportation are, in Great Britain, frequently peti-
tioned for, and sometimes granted to tlie produce of particular
branches of domestic industry. By means of them our merchants
and manufacturers, it is pretended, will be enabled to sell their
goods as cheap or cheaper than their rivals in the foreign market.
A greater quantity, it is said, will thus be exported, and the bal-
ance of trade consequently turned more in favour of our own coun-
try. We cannot give our workmen a monopoly in the foreign, as we
have done in the home market. We cannot force foreigners to buy
their goods, as we have done our own countrymen. The next best
expedient, it has been thought, therefore, is to pay them for buy-
ing. It is in this manner that the mercantile system proposes to en-
rich the whole country, and to put money into all our pockets by
means of the balance of trade.
Bounties, it is allowed, ought to be given to those branches of
trade only which cannot be carried on without them. But every
branch of trade in which the merchant can sell his goods for a price
which replaces to him, with the ordinary profits of stock, the
whole capital employed in preparing and sending them to market,
can be carried on without a bounty. Every such branch is evidently
upon a level with all the other branches of trade which are carried
on without bounties, and cannot therefore require one more than
they. Those trades only require bounties in which the merchant is
obliged to sell his goods for a price which does not replace to him
his capital, together with the ordinary profit; or in which he is
obliged to sell them for less than it really costs him to send them to
market. The bounty is given in order to make up this loss, and to
encourage him to continue, or perhaps to begin, a trade of which the
expence is supposed to be greater than the returns, of which every
operation eats up a part of the capital employed in it, and which is
of such a nature, that, if all other trades resembled it, there would
soon be no capital left in the country.
472
BOUNTIES 473
The trades, it is to be observed, which are carried on by means of
bounties, are the only ones which can be carried on between two
nations for any considerable time together, in such a manner as
that one of them shall always and regularly lose, or sell its goods
for less than it really costs to send them to market. But if the
bounty did not repay to the merchant what he would otherwise
lose upon the price of his goods, his own interest would soon oblige
him to employ his stock in another way, or to find out a trade in
which the price of the goods would replace to him, with the ordin-
ary profit, the capital employed in sending them to market. The
effect of bounties, like that of all the other expedients of the mer-
cantile system, can only be to force the trade of a country into a
channel much less advantageous than that in which it would natur-
ally run of its own accord.
The ingenious and well-informed author of the tracts upon the
corn-trade ^ has shown very clearly, that since the bounty upon the
exportation of corn was first established, the price of the corn ex-
ported, valued moderately enough, has exceeded that of the corn
imported, valued very high, by a much greater sum than the
amount of the whole bounties which have been paid during that
period. This, he imagines, upon the true principles of the mercan-
tile system, is a clear proof that this forced corn trade is beneficial
to the nation; the value of the exportation exceeding that of the im-
portation by a much greater sum than the whole extraordinary ex-
pence which the public has been at in order to get it exported. He
does not consider that this extraordinary expence, or the bounty, is
the smallest part of the expence which the exportation of corn real-
ly costs the society. The capital which the farmer employed in
raising it, must likewise be taken into the account. Unless the price
of the corn when sold in the foreign markets replaces, not only the
bounty, but this capital, together with the ordinary profits of stock,
the society is a loser by the difference, or the national stock is so
much diminished. But the very reason for which it has been thought
necessary to grant a bounty, is the supposed insufficiency of the
price to do this.
The average price of corn, it has been said, has fallen consider-
ably since the establishment of the bounty. That the average price
of corn began to fall somewhat towards the end of the last century,
and has continued to do so during the course of the sixty-four first
years of the present, I have already endeavoured to show. But this
and their
effect is to
force
trade into
disadvan-
tageous
channels
Charles
Smith
forgets
the cost
of raising
the corn
upon
which the
bounty is
paid
The fall in
the price
of corn
since the
establish-
ment of
^ Charles Smith (already described as “very well-informed” above, p. 428),
Thne Tracts on the Corn Trade and Corn Laws, and ed , 1766, pp. 132-138.
the
bounty is
due to
other
causes.
The
bounty
keeps up
the price
both in
years of
plenty
and of
scarcity
It has
been sup-
posed to
encourage
cultiva-
tion ard
so to
lower
pnce.
474 THE WEALTH OF NATIONS
event, supposing it to be as real as I believe it to be, must have
happened in spite of the bounty, and cannot possibly have hap-
pened in consequence of it. It has happened in France, as well as in
England, though in France there was, not only no bounty, but, till
1764, the exportation of corn was subjected to a general prohibi-
tion .2 This gradual fall in the average price of grain, it is prob-
able, therefore, is ultimately owing neither to the one regulation
nor to the other, but to that gradual and insensible rise in the real
value of silver, which, in the first book of this discourse, I have
endeavoured to show has taken place in the general market of Eu-
rope, during the course of the present century.^ It seems to be
altogether impossible that the bounty could ever contribute to
lower the price of grain.^
In years of plenty, it has already been observed,® the bounty, by
occasioning an extraordinary exportation, necessarily keeps up the
price of corn in the home market above what it would naturally
fall to. To do so was the avowed purpose of the institution. In years
of scarcity, though the bounty is frequently suspended, yet the
great exportation which it occasions in years of plenty, must fre-
quently hinder more or less the plenty of one year from relieving
lie scarcity of another. Both in years of plenty, and in years of
scarcity, therefore, the bounty necessarily tends to raise the money
price of corn somewhat higher than it otherwise would be in the
home market.
That, in the actual state of tillage, the bounty must necessarily
have this tendency, will not, I apprehend, be disputed by any rea-
sonable person. But it has been thought by many people that it
tends to encourage tillage, and that in two different ways; first, by
opening a more extensive foreign market to the corn of the farmer,
it tends, they imagine, to increase the demand for, and consequently
the production of that commodity; and secondly, by securing to
him a better price than he could otherwise expect in the actual state
of tillage, it tends, they suppose, to encourage tillage. This double
encouragement must, they imagine, in a long period of years, occa-
sion such an increase in the production of corn, as may lower its
price in the home market, much more than the bounty can raise it,
in the actual state which tillage may, at the end of that period, hap-
pen to be in.®
® Above, vol. i., pp. 195-198.
“ Above, vol. i., pp. 197-210, and cp. p. 405.
^ These three sentences beginning with “It has happened in France,” appear
first in Additions and Corrections and ed. 3.
" Above, vol. i., p. 197.
®Eds. I and 2 read (beginning at the third line of the paragraph) “But it
BOUNTIES 475
I answer, that whatever extension of the foreign market can be Theaddi-
occasioned by the bounty, must, in every particular year, be alto- ^ ^ce
gether at the expence of the home market; as every bushel of corn corn at
which is exported by means of the bounty, and which would not
have been exported without the bounty, would have remained in
the home market to increase the consumption, and to lower the bounty is
price of that commodity. The corn bounty, it is to be observed, as ^ heavy
well as every other bounty upon exportation, imposes two different people,^ ^
taxes upon the people; first, the tax which they are obliged to con- which re-
tribute, in order to pay the bounty; and secondly, the tax which
arises from the advanced price of the commodity in the home mar- tion and
ket, and which, as the whole body of the people are purchasers of industry
corn, must, in this particular commodity, be paid by the whole thelSig
body of the people. In this particular commodity, therefore, this run tends
second tax is by much the heaviest of the two. Let us suppose that,
taking one year with another, the bounty of five shillings upon the consump-
exportation of the quarter of wheat, raises the price of that com- tion of
modity in the home market only sixpence the bushel, or four shill-
ings the quarter, higher than it otherways would have been in the
actual state of the crop. Even upon this very moderate supposition,^
the great body of the people, over and above contributing the tax
which pays the bounty of five shillings upon every quarter of wheat
exported, must pay another of four shillings upon every quarter
which they themselves consume. But, according to the very well
informed author of the tracts upon the corn-trade, the average
proportion of the corn exported to that consumed at home, is not
more than that of one to thirty-one.® For every five shillings, there-
fore, which they contribute to the payment of the first tax, they
must contribute six pounds four shillings to the payment of the
second. So very heavy a tax upon the first necessary of life, must
either reduce the subsistence of the labouring poor, or it must occa-
sion some augmentation in their pecuniary wages, proportionable
to that in the pecuniary price of their subsistence. So far as it oper-
ates in the one way, it must reduce the ability of the labouring poor
has been thought by many people, that by securing to the farmer a better
price than he could otherwise expect in the actual state of tillage, it tends to
encourage tillage; and that the consequent increase of corn may, in a long
period of years, lower its price more than the bounty can raise it in the actual
state which tillage may at the end of that period happen to be in.” The alter-
ation is given in Additions and Corrections. The next two paragraphs appear
first in Additions and Corrections and ed. 3.
’ It is really anything but a moderate supposition. It is not at all Hkely that
the increase of demand caused by the offer of a bounty on exportation would
raise the price of a commodity to the extent of four-fifths of the bounty.
® C. Smith, Three Tracts on the Corn Trade^ 2nd ed., p. 144.
The en-
hance-
ment of
price
would en-
courage
produc-
tion if it
was an
enhance-
ment of
real price,
but it is
not;
it is only
a degra-
dation of
the value
of silver,
for corn
regulates
the money
price of
labour,
476 THE WEALTH OF NATIONS
to educate and bring up their children, and must, so far, tend to
restrain the population of the country. So far as it operates in the
other, it must reduce the ability of the employers of the poor, to
employ so great a number as they otherwise might do, and must, so
far, tend to restrain the industry of the country. The extraordinary
exportation of corn, therefore, occasioned by the bounty, not only,
in every particular year, diminishes the home, just as much as it
extends the foreign market and consumption, but, by restraining
the population and industry of the country, its final tendency is to
stunt and restrain the gradual extension of the home market; and
thereby, in the long run, rather to diminish, than to augment, the
whole market and consumption of corn.
This enhancement of the money price of corn, however, it has
been thought, by rendering that commodity more profitable to the
farmer, must necessarily encourage its production.®
I answer, that this might be the case if the effect of the bounty
was to raise the real price of corn, or to enable the farmer, with an
equal quantity of it, to maintain a greater number of labourers in
the same manner, whether liberal, moderate, or scanty, that other
labourers are commonly maintained in his neighbourhood. But
neither the bounty, it is evident, nor any other human institution,
can have any such effect. It is not the real, but the nominal price
of corn, which can in any considerable degree be affected by the
bounty.^® And though the tax which that institution imposes upon
the whole body of the people, may be very burdensome to those
who pay it, it is of very little advantage to those who receive it.^^
The real effect of the bounty is not so much to raise the real value
of corn, as to degrade the real value of silver; or to make an equal
quantity of it exchange for a smaller quantity, not only of corn, but
of all other home-made commodities: for the money price of corn
regulates that of all other home-made commodities.
It regulates the money price of labour, which must always be
such as to enable the labourer to purchase a quantity of corn suf-
ficient to maintain him and his family either in the liberal, mod-
erate, or scanty manner in which the advancing, stationary or de-
®This and the preceding paragraph are not in eds. i and 2. See above, p.
474, note 6.
See above, pp. 30-38. [ft does not occur to Smith that the additional corn
might require greater labour to produce it than an equal quantity of the old.
In place of this and the preceding sentence eds. i and 2 read only “It is
not the real but the nominal price of corn only which can be at all affected by
the bounty.” The alteration is given in Additions and Corrections.
“ “Home-made” here and in the line above is not in eds. i and 2.
BOUNTIES 477
dining circumstances of the society oblige his employers to main-
tain him.
It regulates the money price of all the other parts of the rude
produce of land, which, in every period of improvement, must bear
a certain proportion to that of corn, though this proportion is dif-
ferent in different periods. It regulates, for example, the money
price of grass and hay, of butcher’s meat, of horses, and the main-
tenance ot horses, of land carriage consequently, or of the greater
part of the inland commerce of the country.
By regulating the money price of all the other parts of the rude
produce of land, it regulates that of the materials of almost all
manufactures. By regulating the money price of labour, it regulates
that of manufacturing art and industry. And by regulating both, it
regulates that of the complete manufacture. The money price of
labour, and of every thing that is the produce either of land or
labour, must necessarily either rise or fall in proportion to the
money price of corn.
Though in consequence of the bounty, therefore, the farmer
should be enabled to sell his corn for four shillings the bushel in-
stead of three and sixpence, and to pay his landlord a money rent
proportionable to this rise in the money price of his produce; yet if,
in consequence of this rise in the price of corn, four shillings will
purchase no more home-made goods of any other kind than
three and sixpence would have done before, neither the circum-
stances of the farmer, nor those of the landlord, will be much
mended by this change.
