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Vol 10: The Classics - Part 2
Any increase in the quantity of commodities annually cir-
culated within the country, while that of the money which
circulated them remained the same, would, on the contrary,
produce many other important 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 quantity 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 demand, and yet might appear to sink. They might be
paid with a smaller quantity of money, but that smaller quan-
tity might purchase a greater quantity of goods than a greater
had done before. The profits of stock would be diminished
both really and in appearance. The whole capital of the
country being augmented, the competition between the dif-
ferent 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 diminished, though the value of money, or the quan-
298 WEALTH OF NATIONS
tity of goods which any particular sum could purchase, was
greatly augmented.
In some countries the interest of money has been pro-
hibited 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 prevent-
ing, has been found from experience 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 prevent the extortion of usury, generally fixes the highest
rate which can be taken without incurring a penalty. 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 lowest 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 ac-
cepting 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
somewhat above, ought not to be much above the lowest mar-
ket 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 they are likely
STOCK LENT AT INTEREST 299
to make by the use of it, would not venture into the competi-
tion. A great part of the capital of ihe country would thus be
kept out of the hands which were most likely to make a profit-
able and advantageous use of it, and thrown into those which
were most likely to waste and destroy it. Where the legal
rate of interest, on the contrary, is fixed but a very little
above the lowest market rate, sober people are universally
preferred, as borrowers, to prodigals and projectors. 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 advantage.
No law can reduce the common rate of interest below thi
lowest ordinary market rate at the time when that law is
made. Notwithstanding the edict of 1766, by which the
French king attempted to reduce the rate of interest from
five to four per cent., money continued 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 in-
terest. 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 security of land, to-
gether with some other advantages which almost every-where
attend upon this species of property, will generally dispose
him to content himself with a smaller revenue from land,
than what he might have by lending out his money at in-
terest. These advantages are sufficient to compensate a cer-
tain difference of revenue ; 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 soon reduce its ordinary price. On
the contrary, if the advantages should much more than com-
pensate 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
300 WEALTH OF NATIONS
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 in-
terest 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.
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 consumption of the society ; or, secondly, in
manufacturing and preparing that rude produce for immedi-
ate 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
301
302 WEALTH OF NATIONS
of the rude produce which requires a good deal of prepara-
tion before it can be fit for use and consumption, it either
would never be produced, because there could be no demand
for it ; or if it was produced spontaneously, it would be of
no value in exchange, and could add nothing to the wealth
of the society.
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 enjoyments 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 pur-
chase 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 pur-
chase 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 furniture 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 con-
venient 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 capital. 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 compensates 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
EMPLOYMENT OF CAPITALS 303
. numbers, that they can never be multiplied so as to hurt the
publick, 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 cannot exceed what is suf-
ficient to purchase that quantity. If this capital 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 com-
petition would be just so much the greater, and the chance
of their combining together, in order to raise the price,
just so much the less. Their competition might perhaps
ruin some of themselves ; but to take care of this is the busi-
ness of the parties concerned, and it may safely be trusted
to their discretion. It can never hurt either the consumer,
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 occasion for. This evil, however, is of too
little importance to deserve the publick attention, nor would
it necessarily be prevented by restricting their numbers. It
is not the multitude of ale-houses, to give the most suspicious
example, that occasions a general disposition to drunkenness
among the common people; but that disposition arising 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 properly directed, fixes and realizes itself in
the subject or vendible commodity upon which it is be-
stowed, 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 retailer,
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 these four different ways, will
immediately put into mdtio-n very different quantities of pro-
ductive labour, and augment too in very different proportions
304 WEALTH OF NATIONS
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 re-
tailer himself is the only productive labourer whom it im-
mediately employs. In his profits, consists the whole value
which its employment adds to the annual produce 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 manufac-
turers of whom he purchases the rude and manufactured
produce which he deals in, and thereby enables them to con-
tinue 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 prod-
uce. His capital employs too the sailors and carriers who
transport his goods from one place to another, and it aug-
ments the price of those goods by the value, not only of his
profits, but of 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 opera-
tion 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 re-
places, together with its profits, that of some other artificer
of whom he purchases them. Part of his circulating capital
is employed in purchasing materials, 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 instru-
ments of trade employed in the business. It puts immediately
into motion, therefore, a much greater quantity of produc-
tive 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.
EMPLOYMENT OF CAPITALS 305
No equal capital puts into motion a greater quantity of
productive 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 expence, its produce
has its value, as well as that of the most expensive work-
men. 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 quan-
tity of vegetables as the best cultivated vineyard or corn
field. Planting and tillage frequently 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, em-
ployed in agriculture, not only occasion, like the workmen
in manufactures, the reproduction of a value equal to their
own consumption, or to the capital which employs them, to-
gether 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 considered 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 the sup-
posed 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 com-
pensating 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 manufactures can ever occa-
sion so great a reproduction. In them nature does nothing;
man does all; and the reproduction must always be in pro-
portion to the strength of the agents that occasion it. The
capital employed in agriculture, therefore, not only puts into
motion 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
306 WEALTH OF NATIONS
labour of the country, to the real wealth and revenue of its
inhabitants. Of all the ways in which a capital can be em-
ployed, 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 employment 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 alway necessarily determined. It may frequently
be at a great distance both from the place where the ma-
terials 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 of Sicily
are cloathed in silks made in other countries, from the ma-
terials 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 car-
riers whom he employs may still belong indifferently 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 person who produces that surplus, and as
effectually enables him to continue his business ; the service
by which the capital of a wholesale merchant chiefly con-
EMPLOYMENT OF CAPITALS 307
tributes 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 manufac-
turer 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 coun-
tries 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 merchants.
A particular country, in the same manner as a particular
person, may frequently not have capital sufficient both to
improve and cultivate all its lands, to manufacture and pre-
pare their whole rude produce for immediate use and con-
sumption, 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 de-
mand at home. The inhabitants of many different parts of
Great Britain have not capital sufficient to improve and cul-
tivate 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 Britain, of which the inhabit-
ants 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
merchants who reside in some of the greater commercial
cities.
When the capital of any country is not sufficient for all
308 WEALTH OF NATIONS
those 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 so-
ciety. After agriculture, the capital employed in manufac-
tures 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 individual, 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 indi-
vidual, 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 accumulating and adding to it whatever they save
out of their revenue. 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 neces-
sarily 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 American 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 accom-
pany 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 re-
side in Great Britain. Even the stores and warehouses from
which goods are retailed in some provinces, particularly in
EMPLOYMENT OF CAPITALS 309
Virginia and Maryland, 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 resident members of it.
Were the Americans, either by combination or by any other
sort of violence, to stop the importation of European manu-
factures, and, by thus giving a monopoly to such of their
own countrymen as could manufacture the like goods, divert
any considerable part of their capital into this employment,
they would retard instead of accelerating the further in-
crease in the value of their annual produce, and would ob-
struct instead of promoting the progress of their country
towards real wealth and greatness. This would be still more
the case, were they to attempt, in the same manner, to mo-
nopolize 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, perhaps, 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, according to all ac-
counts, that ever were in the world, are chiefly renowned
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 Chinese 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 something 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
motion a greater or smaller quantity of productive labour,
and add a greater or smaller value to the annual produce of
its land and labour, 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.
310 WEALTH OF NATIONS
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 carry-
ing trade. The home trade is employed in purchasing in
one part of the same country, and selling in another, the
produce of the industry of that country. It comprehends
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 trans-
acting the commerce of foreign countries, or in carrying 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 distinct capitals that had both been employed
in the agriculture or manufactures of that country, and
thereby enables them to continue 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 employed in supporting productive labour, and thereby
enables them to continue that support. The capital which
sends Scotch manufactures to London, and brings back
EngHsh 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-consumption, when this purchase is made with the
produce of domestick industry, replaces too, by every such
operation, two distinct capitals; but one of them only is em-
ployed 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
consumption should be as quick as those of the home-
trade, the capital employed in it will give but one-half the
EMPLOYMENT OE CAPITALS 311
encouragement to the industry or productive labour of the
country.
But the returns of the foreign trade of consumption are
very seldom so quick as those of the home-trade. The re-
turns 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 sometimes 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 encouragement and support to the indus-
try of the country than the other.
The foreign goods for home-consumption may sometimes
be purchased, not with the produce of domestick industry,
but with some other foreign goods. These last, howei'^er,
must have been purchased either immediately with the prod-
uce 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 ex-
change for something that had been produced at home, either
immediately, 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 employed 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 be-
fore he can employ the same capital in re-purchasing a like
quantity of British manufactures. If the tobacco of Vir-
ginia had been purchased, not with British manufactures, but
with the sugar and rum of Jamaica which had been pur-
chased with those manufactures, he must wait for the re-
turns of three. If those two or three distinct foreign trades
should happen to be carried on by two or three distinct mer-
312 WEALTH OF NATIONS
chants, 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 returns of the whole capital employed in the
trade will be just as slow as ever. Whether the whole capi-
tal employed in such a round-about trade belong to one mer-
chant or to three, can make no difference with regard to the
country, though it may with regard to the particular mer-
chants. Three times a greater capital must in both cases
be employed, in order to exchange a certain value of British
manufactures for a certain quantity of flax and hemp, than
would have been necessary, had the manufactures and the
flax and hemp been directly exchanged 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 for-
eign goods for home-consumption are purchased, it can oc-
casion 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 country from which it is
carried on. If they are purchased with the gold of Brazil,
for example, or with the silver of Peru, this gold and silver,
like the tobacco of Virginia, must have been purchased witli
something that either was the produce of the industry of the
country, 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 inconveniencies of any other equally
round-about foreign trade of consumption, and will replace
just as fast or just as slow the capital which is immediately
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
EMPLOYMENT OF CAPITALS 313
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 indus-
try, by the intervention 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 wrhich it is carried
on, in any other w^ay, I shall have occasion to examine at
great length hereafter.
That part of the capital of any country which is employed
in the carrying trade, is altogether withdrawn from support-
ing the productive labour of that particular country, to sup-
port that of some foreign countries. Though it may replace
by every operation tv/o distinct capitals, yet neither of
them belongs to that particular country. The capital of the
Dutch merchant, which carries the corn of Poland to Portu-
gal, 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 re-
turn regularly to Holland, and constitute the whole addition
which this trade necessarily makes to the annual produce of
the land and labour of that country. When, indeed, the
carrying trade of any particular country is carried on with
the ships and sailors of that country, that part of the capital
employed in it which pays the freight, is distributed among,
and puts into motion, a certain number of productive labour-
ers of that country. Almost all nations that have had any
considerable share of the carrying trade have, in fact, car-
ried it on in this manner. The trade itself has probably de-
rived 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, foe example, employ his capital in
transacting the commerce of Poland and Portugal, by carry-
314 WEALTH OF NATIONS
ing part of the surplus produce of the one to the other, not
in Dutch, but in British bottoms. It may be pi'esumed, that
he actually does so upon some particular occasions. It is
upon this account, however, that the carrying trade has been
supposed peculiarly 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 for-
eign 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 pro-
portion 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 circumstances. 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
country 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 re-
spects a still greater advantage over an equal capital em-
ployed in the carrying trade. The riches, and so far as
power depends upon riches, the power of every country, 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 increase the riches and power of that country. It
ought, therefore, to give no preference nor superior encour-
agement to the foreign trade of consumption above the
home-trade, nor to the carrying trade above either of the
other two. It ouaht neither to force nor to allure into
EMPLOYMENT OF CAPITALS 315
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, natu-
rally 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 exporta-
tion, 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 ex-
portation, that this surplus can acquire a value sufficient to
compensate the labour and expence of producing it. The
neighbourhood of the sea coast, and the banks of all navi-
gable rivers are advantageous situations for industry, only
because they facilitate the exportation and exchange of such
surplus produce for something else which is more in de-
mand there.
When the foreign goods which are thus purchased with
the surplus 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 Virginia and Maryland, with a
part of the surplus produce of British industry. But the de^
mand of Great Britain does not require, perhaps, more than
fourteen thousand. If the remaining eighty-two thousand,
therefore, could not be sent abroad and exchanged for some-
thing more in demand at home, the importation of them
must cease immediately, and with it the productive labour of
all those inhabitants of Great Britain, who are at present
employed in preparing the goods with which these eighty-
two thousand hogsheads are annually purchased. Those
316 WEALTH OF NATIONS
goods, which are part of the produce of the land and labour
of Great Britain, having no market at home, and being de-
prived of that vi^hich they had abroad, must cease to be
produced. The most round-about foreign trade of consump-
tion, 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 degree, that it cannot be all employed in supplying the con-
sumption, and supporting the productive labour of that par-
ticular country, the surplus part of it naturally disgorges
itself into the carrying trade, and is employed in performing
the same offices to other countries. 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 carrying trade of England, will frequently,
perhaps, be found to be no more than a round-about foreign
trade of consumption. 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 immediately with the
produce of British industry, or with something else which
had been purchased with that produce, and the final returns
of those trades are generally used or consumed in Great
Britain. 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 be-
tween the different ports of India, make, perhaps, the prin-
cipal branches of what is properly the carrying trade of'
Great Britain.
The extent of the home-trade and of the capital which can
be employed in it, is necessarily limited by the value of the
EMPLOYMENT OF CAPITALS 317
surplus produce of all those distant places within the country
which have occasion to exchange their respective produc-
tions with one another. That of the foreign trade of con-
sumption, by the value of the surplus produce of the whole
country and of what can be purchased with it. That of the
carrying trade, by the value of the surplus produce of all the
different countries in the world. Its possible extent, there-
fore, is in a manner infinite in comparison of that of the
other two, and is capable of absorbing the greatest capitals.
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 quan-
tities of productive labour 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 society, according as
it is employed in one or other of those different ways, never
enter into his thoughts. In countries, therefore, where agri-
culture is the most profitable of all employments, and farm-
ing and improving the most direct roads to a splendid for-
tune, the capitals of individuals will naturally be employed
in the manner most advantageous to the whole society. The
profits of agriculture, however, 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 magnificent accounts
of the profits to be made by the cultivation and improvement
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 splendid 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 acquired by agriculture in
the same time, and from such a capital, has not, perhaps,
occurred in Europe during the course of the present cen-
tury. In all the great countries of Europe, however, much
good land still remains uncultivated, and the greater part of
what is cultivated, is far from being improved to the degree
of which it is capable. Agriculture, therefore, is almost
318 EMPLOYMENT OF CAPITALS
every-where capable of absorbing 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 frequently
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.
BOOK III
Of the Different Progress of Opulence in Different Nations
CHAPTER I
Of the Natural Progress of Opulence
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
manufactured produce to the inhabitants of the country.
The town, in which there neither is nor can be any reproduc-
tion of substances, may 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 per-
sons employed 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 quantity of their own labour,
than they must have employed had they attempted to pre-
pare 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
inhabitants of the country exchange it for something else
which is in demand among them. The greater the number
and revenue of the inhabitants of the town, the more ex-
319
320 WEALTH OF NATIONS
tensive is the market which it affords to those of the coun-
try; and the more extensive that market, 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 raising and bringing it to market, but afford too
the ordinary profits of agriculture to the farmer. The pro-
prietors 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, be-
sides, the whole value of this carriage in the price of what
they buy. Compare the cultivation of the lands in the neigh-
bourhood of any considerable town, with that of those which
lie at some distance from it, and you will easily satisfy your-
self how much the country is benefited by the commerce of
the town. Among all the absurd speculations 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 con-
veniency and luxury, so the industry which procures the
former, must necessarily be prior to that which ministers to
the latter. The cultivation and improvement of the country,
therefore, which affords subsistence, must, necessarily, be
prior to the increase of the town, which furnishes only the
means of conveniency and luxury. It is the surplus produce
of the country only, or what is over and above the mainte-
nance 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 neigh-
bourhood, or even from the territory to which it belongs,
but from very distant countries ; 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.
NATURAL PROGRESS OF OPULENCE 321
That order of things which necessity imposes in general,
though not in every particular country, is, in every particu-
lar country, promoted by the natural inclinations of man. If
human institutions had never thw^arted those natural incli-
nations, 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 cviltivated
and improved. Upon equal, or nearly equal profits, most
men will chuse to employ their capitals rather in the im-
provement and cultivation of land, than either in manufac-
tures 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 accident, than that of the
trader, who is obliged frequently to commit it, not only to
the winds and the waves, but to the more uncertain elements
of human folly and injustice, by giving great credits in dis-
tant 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 admit of. The beauty of the country be-
sides, the pleasure of a country 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 cul-
tivation of land cannot be carried on, but with great incon-
veniency and continual 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 neighbourhood of one another, and thus form a small
town or village. The butcher, the brewer, and the baker,
K — HC X
322 WEALTH OF NATIONS
soon join them, together with many other artificers and re-
tailers, necessary or useful for supplying 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 con-
tinual fair or market, to which the inhabitants of the coun-
try 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, nec-
essarily regulates the quantity of the materials and pro-
visions which they buy. Neither their employment nor
subsistence, therefore, can augment, but in proportion to the
augmentation of the demand from the country for finished
work; and this demand can augment only in proportion to
the extension of improvement 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 consequential, and in
proportion to the improvement and cultivation of the terri-
tory or country.
In our North American colonies, where uncultivated land
is still to be had upon easy terms, no manufactures for dis-
tant 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 sup-
plying 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 im-
provement 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 customers, from whom he de-
rives 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 independent
of all the world.
In countries, on tlie contrary, where there is either no un-
NATURAL PROGRESS OF OPULENCE 323
cultivated 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, endeav-
ours 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 commerce, for the same reason that agriculture is
naturally preferred to manufactures. As the capital of the
landlord or farmer is more secure than that of the manufac-
turer, so the capital of the manufacturer, 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 manufactured
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 capi-
tal, which carries this surplus produce abroad, be a foreign
or a domestic one, is of very little importance. If the society
has not acquired sufificient 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 ad-
vantage that that rude produce should be exported by a for-
eign 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 no capital but what belonged to themselves been em-
ployed 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
324 WEALTH OF NATIONS
of all to foreign commerce. This order of things is so very
natural, that in every society that had any territory, it has
always, I believe, been in some degree observed. Some of
their lands must have been cultivated before any consider-
able towns could be established, and some sort of coarse in-
dustry of the manufacturing kind must have been carried on
in those towns, before they could well think of employing
themselves 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 manufactures, or such as were fit
for distant sale ; and manufactures and foreign commerce
together, have given birth to the principal improvements of
agriculture. The manners and customs which the nature of
their original government introduced, and which remained
after that government was greatly altered, necessarily forced
them into this unnatural and retrograde order.
BOOK IV
Of Systems of Political CEconomy
INTRODUCTION
POLITICAL oeconomy, considered as a branch of the
science of a statesman or legislator, proposes two
distinct objects : first, to provide a plentiful revenue or
subsistence for the people, or more properly to enable them
to provide such a revenue or subsistence for themselves ; and
secondly, to supply the state or commonwealth with a rev-
enue 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 po-
litical oeconomy, with regard to enriching the people. The
one may be called the system 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 com-
merce. It is the modern system, and is best understood in
our own country and in our own times.
325
CHAPTER I
Of the Principle 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 com-
merce, 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 difficulty in making any subsequent purchase. In
consequence of its being the measure of value, we estimate
that of all other commodities 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, considered as in every respect synonymous.
A rich country, in the same manner as a rich man, is sup-
posed 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 ar-
rived 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 coun-
try was worth the conquering. Piano 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 fre-
326
PRINCIPLE OF THE MERCANTILE SYSTEM 327
quently to ask him, if there was plenty of sheep and oxen
in the kingdom of France? Their enquiry had the 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 arc
the instruments of commerce 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
moveable goods. All other moveable goods, he says, are of
so consumable a nature that the wealth which consists in
them cannot be much depended on, and a nation which
abounds in them one year may, without any exportation, but
merely by their own waste and extravagance, be in great
want of them the next. Money, on the contrary, 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, therefore, 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 oeconomy.
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 main-
tain 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
328 WEALTH OF NATIONS
silver, that, when occasion requires, it may have where-
withal to carry on foreign wars.
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 exportation under the severest
penalties, or subjected it to a considerable 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 penal-
ties the carrying gold or silver forth of the kingdom. The
like policy anciently took place both in France and England.
When those countries became commercial, the merchants
found this prohibition, upon many occasions, extremely in-
convenient. They could frequently buy more advantageously
with gold and silver 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 re-
monstrated, therefore, against this prohibition 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 quantity 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 originally
sent out to purchase them. Mr. Mun compares this opera-
tion of foreign trade to the seed-time and harvest of agricul-
ture. "If we only behold," says he, "the actions of the hus-
bandman in the seed-time, when he casteth away much good
corn into the ground, we shall account him rather a mad-
man than a hu.sbandman. But when we consider his labours
in the harvest, which is the end of his endeavours, we shall
find the worth and plentiful increase of his actions."
They represented, secondly, that this prohibition could not
PRINCIPLE OF THE MERCANTILE SYSTEM 329
hinder the exportation of gold and silver, which, on account
of the 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, v^hat they
called, the balance of trade. That v^^hen the country ex-
ported to a greater value than it imported, a balance became
due to it from foreign nations, which M^as necessarily paid
to it in gold and silver, and thereby increased the quantity
of those metals in the kingdom. But that when it imported
to a greater value than it exported, a contrary balance be-
came due to foreign nations, which was necessarily paid to
them in the same manner, and thereby diminished that quan-
tity. That in this case to prohibit the exportation of those
metals 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 expence of sending the money thither, 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 necessarily 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 Eng-
land and Holland, for example, was five per cent. aEgainst
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 proportion-
able quantity of Dutch goods: but that a hundred ounces
of silver in Holland, on the contrary, would be worth a hun-
dred and five ounces in England, and would purchase a
proportionable quantity 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
330 WEAI.TII OF NATIONS
the other so much more English money to Holland, as this
difference amounted to: and that the balance of trade, there-
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 exporting them. But they
were sophistical in supposing, that either to preserve or to
augment the quantity of those metals required more the at-
tention 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 proper quantity. They were sophistical too, perhaps,
in asserting that the high price of exchange necessarily in-
creased, 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 disad-
vantageous 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 extraordinary 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, there-
fore, not to increase, but to diminish, what they called, the
unfavourable balance of trade, and consequently the expor-
tation of gold and silver.
PRINCIPLE OF THE MERCANTILE SYSTEM 331
Such as they were, however, those arguments ccnvinced
the people to whom they were addressed. They were ad^
dressed by merchants 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 con-
scious to themselves that they knew nothing about the mat-
ter. That foreign trade enriched the country, experience
demonstrated to the nobles and country gentlemen, as well
as to the merchants ; but how, or in what manner, none of
them well knew. The merchants knew perfectly in what
manner it enriched themselves. It was their business to
know it. But to know in what manner it enriched the coun-
try, was 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 relating to for-
eign 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 bring-
ing so much as it otherwise would do. Those arguments
therefore produced the wished-for effect. The prohibition
of exporting gold and silver was in France and England
confined to the coin of those respective countries. The ex-
portation 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 country. The attention of govern-
ment was turned away from guarding against the exporta-
tion 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 embarrassing, and just equally fruitless. The title of
Mun's book, England's Treasure in Foreign Trade, became
a fundamental maxim in the political ceconomy, not of Eng-
land 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
332 WEALTH OF NATIONS
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 object. A country that has
wherewithal to buy wine, will always get the wine which it
has occasion for ; and a country that has wherewithal to buy
gold and silver, will never be in want of those metals. They
are to be bought for a certain price like all other commodi-
ties, and as they are the price of all other commodities, so all
other commodities are the price of those metals. We trust
with perfect security that the freedom of trade, without any
attention of government, will always supply «s 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 country according to the effectual demand, or accord-
ing to the demand of those who are willing to pay the whole
rent, labour and profits which must be paid in order to pre-
pare 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 com-
modities can be more easily transported from one place to
another, 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 example, an eft'ectual demand for an
additional quantity of gold, a packet-boat could bring from
PRINXIPLE OF THE MERCANTILE SYSTEM 333
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 gov-
ernment can prevent their exportation. All the sanguinary
laws of Spain and Portugal 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 particu-
lar country their quantity fell short of the effectual demand,
so as to raise their price above that of neighbouring coun-
tries, the government would have no occasion to take any
pains to import them. If it were even to take pains to pie-
vent their importation, it would not be able to effectuate it.
Those metals, when the Spartans had got wherewithal to
purchase them, broke through all the barriers which the laws
of Lycurgus opposed to their entrance into Lacedemon.
All the sanguinary laws of the customs are not able to pre-
vent 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. how-
ever, is about a hundred 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 metals 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 happens to be either over or
under-stocked with them.- The price of those metals, indeed,
is not altogether exempted from variation, but the changes
334 WEALTH OF NATIONS
to which it is liable are generally slow, gradual, and uni-
form. In Europe, for example, it is supposed, without much
foundation, perhaps, that, during the course of the present
and preceding century, they have been constantly, but gradu-
ally, sinking in their value, on account of the continual im-
portations 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 remarkably, the money price
of all other commodities, requires such a revolution in com-
merce 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 pur-
chase them, there are more expedients for supplying their
place, than that of almost any other commodity. If the ma-
terials 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
inconveniency. A well-regulated paper money will supply
it, not only without any inconveniency, but, in some cases,
with some advantages. Upon every account, therefore, the
attention of government never was so unnecessarily em-
ployed, as when directed to watch 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. Money, 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 spendthrifts.
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 prodi-
gals whose expence has been disproportioned to their rev-
enue. Before their projects can be brought to bear, their
PRTXCIPLE OF THE MERCANTILE SYSTEM 335
slock is gone, and their credit v/ith it. They run about every-
where 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 dealers. They do not always
send more money abroad than usual, but they buy upon
credit both at home and abroad, an unusual quantity of
goods, which they send to some distant market, in hopes that
the returns will come in before the demand for payment.
The demand comes before the returns, and they have nothing
at hand, with which they can either purchase money, or give
solid security for borrowing. It is not any scarcity of gold
and silver, but the difficulty which such people find in bor-
rowing, and which their creditors 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 pur-
chasing. Money, no doubt, makes always a part of the na-
tional capital ; but it has already 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 goods with money, than to buy money with
goods ; but because money is the known and established in-
strument of commerce, for which every thing is readily
given in exchange, but which is not always with equal readi-
ness 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
336 WEALTH OF NATIONS
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 particular merchant, with
abundance of goods in his warehouse, may sometimes be
ruined by not being able to sell them in time, a nation or
country is not liable to the same accident. The whole capi-
tal of a merchant frequently consists in perishable goods
destined for purchasing money. But it is but a very small
part of the annual produce of the land and labour of a coun-
try which can ever be destined for purchasing gold and silver
from their neighbours. The far greater part is circulated
and consumed among themselves ; and even of the surplus
which is sent abroad, the greater part is generally destined
for the purchase of other foreign goods. Though gold and
silver, therefore, could not be had in exchange for the goods
destined to purchase them, the nation would not be ruined.
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 al-
ways 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 this continual exportation, might be accumu-
lated for ages together, to the incredible augmentation of the
real wealth of the country. Nothing, therefore, it is pre-
PRINCIPLE OF THE MERCANTILE SYSTEM 337
tended, can be more disadvantageous to any country, than
the trade which consists in the exchange of such lasting for
such perishable commodities. We do not, however, reckon
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 continual 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 : 'hat 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
quantity of victuals being employed in purchasing them, or
in maintaining an additional number of workmen whose busi-
ness 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 household furniture as plate ; that the quantity
of coin in every country is regulated by the value of the com-
modities which are to be circulated by it: increase that value,
and immediately a part of it will be sent abroad to purchase
wherever it is to be had, the additional quantity of coin
requisite for circulating them : that the quantity of plate is
regulated by the number and wealth of those private families
who chuse lo indulge themselves in that sort of magnifi-
cence : increase the number and wealth of such families, and
a part of this increased wealth will most probably be em-
ployed in purchasing, wherever it is to be found, an addi-
tional quantity of plate : that to attempt to increase the wealth
of any country, either by introducing or by detaining in it
an unnecessary 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 expence of purchasing those
unnecessary utensils weuld diminish instead of increasing
either the quantity or goodness of the family provisions ; so
338 WEALTH OF NATIONS
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 of 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 immediately' sent out of the country.
It is not always necessary to accumulate gold and silver,
in order to enable a coimtry 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 distant
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 manufac-
tures; or last of all, some part of its annual rude produce.
The gold and silver which can properly be considered as
accumulated or stored up in any country, may be distin-
guished into three parts ; first, the circulating money ; sec-
ondly, 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
circulating 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
PRINCIPLE OF THE MERCANTILE SYSTEIM 339
of money to circulate and distribute them to their proper
consumers, and can give employment to no more. The chan-
nel of circulation necessarily draws to itself a sum sufficient
to fill it, and never admits any more. Something, 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 circulated 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 of circulating gold and
silver, gives an opportunity of sending a greater quantity of
it abroad. All this, however, could afford but a poor re-
source 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 pres-
ent century, the most expensive perhaps which history re-
cords, seem to have had little dependency upon the exporta-
tion either of the circulating money, or of the plate of private
families, or of the treasure 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 corv
tracted, but the additional two shillings in the pound la-nd
tax, and what was annually borrowed of the sinking f'tmd.
More than two-thirds of this expence were laid out in dis-
tant countries ; in Germany, Portugal, America, in the ports
of the Mediterranean, in the East and West Indies. The
kings of England had no accumulated treasure. We lever
heard of any extraordinary quantity of plate being melted
340 WEALTH OF NATIONS
down. The circulating gold and silver of tlie country had
not been supposed to exceed eighteen millions. Since the
late recoinage of the gold, however, it is believed to have
been a good deal under-rated. Let us suppose, therefore,
according to the most exaggerated computation which I re-
member to have either seen or heard of, that, gold and silver
together, 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 demonstrate how unnecessary it
is for government to watch over the preservation of money,
since upon this supposition the whole money of the country
must have gone from it and returned to it again, two differ-
ent times in so short a period, without any body's knowing
any thing of the matter. The channel of circulation, how-
ever, never appeared more empty than usual during any part
of this period. Few people wanted money who had where-
withal 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.
Many people wanted it, who had neither wherewithal to buy
it, nor credit to borrow it; and because the debtors found it
difficult to borrow, the creditors found it difficult to get pay-
ment. Gold and silver, however, were generally to be had
for their value, by those who had that value to give for them.
The enormous expense 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 government, or those who acted under
them, contracted with a merchant for a remittance to some
foreign country, he would naturally endeavour to pay his
foreign correspondent, upon whom 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
PRINCIPLE OF THE MERCANTILE SYSTEM 341
other country, in which he could purchase a bill upon that
country. The transportation of commodities, when properly
suited to the market, is always attended with a considerable
profit ; whereas that of gold and silver is scarce ever at-
tended with any. When those metals are sent abroad in
order to purchase foreign commodities, the merchant's profit
arises, not from the purchase, but from the sale of the re-
turns. But when they are sent abroad merely to pay a debt,
he gets no returns, and consequently no profit. He nat-
urally, therefore, exerts his invention to find out a way of
paying his foreign debts, rather by the exportation of com-
modities than by that of gold and silver. The great quan-
tity of British goods exported during the course of the late
war, without bringing back any returns, is accordingly re-
marked by the author of The Present State of the Nation.
Besides the three sorts of gold and silver above mentioned,
there is in all great commercial countries a good deal of bul-
lion alternately 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 country, may be consid-
ered 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 particu-
lar country : the money of the mercantile republic, from those
circulated between different countries. Both are employed
in facilitating exchanges, the one between different indi-
viduals 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 sup-
pose that a movement and direction should be impressed 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 neighbour-
ing countries, the pay and provisions of the different armies.
But whatever part of this money of the mercantile republic.
Great Britain may have annually employed in this manner,
it must have been annually purchased, either with British
commodities, or with something else that had been purchased
342 WEALTH OF NATIONS
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 ex-
pence must have been defrayed from a great annual produce.
The expence of 1761, for example, amounted to more than
nineteen millions. 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 imported into both Spain and Por-
tugal, according to the best accounts, does not commonly
much exceed six millions sterling, which, in some years,
would scarce have paid four months expence of the late war.
********
The importation of gold and silver is not the principal,
much less the sole benefit which a nation derives from its
foreign trade. Between whatever places foreign trade is
^arried on, they all of them derive two distinct benefits from
i. It carries out that surplus part of the produce of their
^nd and labour for which there is no demand 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 labour in any particular branch of art
or manufacture from being carried to the highest perfection.
By opening a more extensive market for whatever part of
the produce of their labour may exceed the home consump-
tion, 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
occupied 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 countries which
PRINCIPLE OF THE MERCANTILE SYSTEM 343
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 abun-
dance of the American 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 an-
nually 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 greater number ol
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 discovery of the American mines never been made.
So far Europe has, no doubt, gained a real conveniency,
though surely a very triding one. The cheapness of gold and
silver renders those metals rather less fit for the purposes of
money than they were before. In order to 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 essen-
tial 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 im-
provements 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 pro-
344 WEALTH OF NATIONS
ductive powers of labour were improved, and its produce
increased in all the different countries of Europe, and to-
gether 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 America 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 Europeans
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 sev-
eral others in the East Indies, without having richer mines
of gold or silver, were in every other respect much richer,
better cultivated, and more advanced in all arts and manu-
factures than either Mexico or Peru, even though we should
credit, what plainly deserves no credit, the exaggerated ac-
counts of the Spanish writers, concerning the ancient state
of those empires. But rich and civilized nations can always
exchange to a much greater value with one another, 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
monopolized 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 country. When the Dutch, in the be-
ginning of the last century, began to encroach upon them,
they vested their whole East India commerce 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
PRINCIPLE OF THE MERCANTILE SYSTEM 345
Indies. No other reason need be assigned why it has never
been so advantageous as the trade to America, which, be-
tween 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 carried 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 further about either. By the annual exporta-
tion of silver to the East Indies, plate is probably somewhat
dearer in Europe than it otherwise might have been ; and
coined silver probably purchases a larger quantity both of
labour and commodities. The former of these two effect's is
a very small loss, the latter a very small advantage ; both too
insignificant to deserve any part of the public attention. The
trade to the East Indies, by opening a market to the com-
modities of Europe, or, what comes nearly to the same thing*,
to the gold and silver which is purchased with those com-
modities, must necessarily tend to increase the annual pro-
duction of European commodities, and consequently the real
wealth and revenue of Europe. That it has hitherto in-
creased 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 tedi-
ous, to examine at full length this popular notion that wealth
consists in money, or in gold and silver. Money 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, who are
346 WEALTH OF NATIONS
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 consumable 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 na-
tional industry and commerce.
The two principles being established, however, that wealth
consisted 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 became the great object of political
ceconomy 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 country,
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 du-
ties, and sometimes in absolute prohibitions.
Exportation was encouraged sometimes by drawbacks,
sometimes by bounties, sometimes by advantageous treaties
of commerce with foreign states, and sometimes by the es-
tablishment of colonies in distant countries.
Drawbacks were given upon two different occasions. When
the home manufacturers were subject to any duty or excise
either the whole or a part of it was frequently drawn back
upon their exportation; and when foreign goods liable to a
PRINCIPLE OF THE MERCANTILE SYSTEM 347
duty were imported in 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
beginning manufactures, or of such sorts of industry of
othei kinds as were supposed to deserve particular favour.
By advantageous treaties of commerce, particular privi-
leges were procured in some foreign state for the goods 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-men-
tioned, together with these four encouragements to exporta-
tion, constitute the six principal means by which the com-
mercial system proposes to increase the quantity of gold
and silver in. any country by turning the balance of trade in
its favour-. I shall 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 upon 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 dnninish the real wealth and revenue of the country.
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 pro-
hibitions, the importation of such goods from foreign
countries as can be produced 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 mod-
erate 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 alto-
gether employed upon foreign materials, has lately obtained
the same advantage. The linen manufacture has not yet ob-
tained it, but is making great strides towards it. Many other
sorts of manufacturers have, in the same manner, obtained
in Great Britain, either altogether, or very nearly a mo-
nopoly 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 ac-
quainted 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 employ-
ment 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 increase the general
348
RESTRAINTS OF PARTICULAR IMPORTS 349
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
U'orkmen 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 pro-
portion to the whole capital of that society, and never can
exceed that proportion. No regulation of commerce can in-
crease 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 certain that this artificial direction is
likely to be more advantageous 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 command. 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
merchant naturally prefers the home-trade to the foreign
trade of consumption, 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 person whom he- trusts, and if he should
happen to be deceived, he knows better the laws of the coun-
try from which he must seek redress. In the carrying trade,
the capital of the merchant is, as it were, divided between
two foreign countries, and no part of it is ever necessarily
brought home, or placed under his own immediate view and
350 WEALTH OF NATIONS
command. The capital which an Amsterdam merchant em-
ploys in carrying corn from Konnigsbcrg to Lisbon, and
fruit and wine from Lisbon to Konnigsberg, must generally
be the one-half of it at Konnigsberg and the other half at
Lisbon. iVo part of it need ever come to Amsterdam. The
natural residence of such a merchant should either be at
Konnigsberg or Lisbon, and it can only be some very par-
ticular circumstances which can make him prefer the resi-
dence of Amsterdam. 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 Konnigsberg, to
Amsterdam; and though this necessarily subjects him to a
double charge of loading and unloading, as well as to the
payment 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 market, for the goods of
all the different countries whose trade it carries on. The
merchant, in order to save a second loading and unloading,
endeavors 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 foreign markets, will always be glad, upon
equal or nearly equal profits, 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 continually
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, necessarily puts into motion a greater quantity of do-
RESTRAINTS OF PARTICULAR IMPORTS 351
mestic industry, and gives revenue and employment to a
greater immber of the inhabitants 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 employed in the
^ carrying trade. Upon equal, or only nearly equal profits,
therefore, every individual naturally inclines to employ his
capital in the manner in which it is likely to afford the great-
est support to domestic industry, and to give revenue and
employment to the greatest number of people of his ow^n
country.
Secondly, every individual who employs his capital in the
support of domestic industry, necessarily endeavours so to
direct that industry, that its produce may be of the greatest
possible value.
The produce of industry is what it adds to the subject or
materials 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 employer. But it is only for the sake of
profit that any man employs a capital in the support of in-
dustry; and he will always, therefore, endeavour to employ
it in the support oi 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 rathci is precisely the same thing with
that exchangeable value. As every individual, therefore, en-
deavours as much as he can both to employ his capital in the
support of domestic industry, and so to direct that industry
that its produce may be of the greatest value ; every indi-
vidual necessarily labours to render the annual revenue of
the society as great as he can. He generally, indeed, neither
intends to promote the public interest, nor knows how much
he is promoting it By preferring the support of domestic
to that of foreign industry, he intends only his own security;
and by directing that industry in such a manner as its prod-
uce 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 promote an end which was no part of his
352 WEALTH OF NATIONS
intention. Nor is it always the worse for the society that
it was no part of it By pursuing his own interest he fre*-
quently 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
public good. It is an affectation, indeed, not very common
among merchants, 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 law-
giver can do for him. The statesman, who should attempt
to direct private people in what manner they ought to em-
ploy 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 domestic industry, in any particular art or manufacture,
is in some measure to direct private people in what manner
they ought to employ their capitals, and must, in almost all
cases, be either a useless 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 I'f
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 artificers. All of them find it for their in-
terest to employ their whole industry in a way in which they
have some advantage over their neighbours, and to pur-
chase 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.
RESTRAINTS OF PARTICULAR IMPORTS 353
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 ad-
vantage, when it is thus directed towards an object which
it can buy cheaper than it can make. The value of its annual
produce is certainly more or less diminished, when it is thus
turned away from producing commodities evidently of more
value than the commodity which it is directed to produce.
According to the supposition, that commodity could be pur-
chased 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 ex-
changeable value of its annual produce, instead of being in-
creased, according to the intention of the lawgiver, must
necessarily be diminished by every such regulation.
By means of such regulations, indeed, a particular manu-
facture may sometimes be acquired sooner than it could
have been otherwise, 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 channel 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 aug-
ments, and its capital can augment only in proportion to
what can be gradually saved out of its revenue. But the im-
L — HC X
354 WEALTH OF NATIONS
mediate effect of every such regulation is to diminish its rev-
enue, and what diminishes its revenue is certainly not very
likely to augment its capital faster than it would have aug-
mented of its own accord, had both capital and industry been
left to find out their natural employments.
Though for want of such regulations the society should
never acquire 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
capital and industry might still have been employed, though
upon different objects, in the manner that was most advan-
tageous 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 an-
other 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 encourage the making of claret and burgundy in Scotland?
But if there would be a manifest absurdity in turning towards
any employment, thirty times more of the capital and in-
dustry of the country, than would be necessary to purchase
from foreign countries an equal quantity of the commodi-
ties wanted, there 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 advantages which one
country has over another, be natural or acquired, is in this
respect of no consequence. As long as the one country has
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
RESTRAINTS OF PARTICULAR IMPORTS 355
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 provisions, 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 gra-
ziers and farmers of Great Britain, as other regulations of
the same kind are to its merchants and manufacturers. Man-
ufactures, 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, accordingly,
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 alto-
gether, and a considerable part of the stock and industry at
present employed ni 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 trans-
portation is more expensive by sea than b)'^ land. By land
they carry themselves to market. By sea, not only the cattle,
but their food and water too, must be carried at no small
expence and inconveniency. The short sea between 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 ren-
dered 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
356 WEALTH OF NATIONS
use, but must be drove through those very extensive coun,
tries, at no small expence and inconveniency, 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 advan-
tageous, but with that of the breeding countries only. The
small number of Irish cattle imported since their importa-
tion was permitted, together with the good price at which
lean cattle still continue to sell, seem to demonstrate 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 improved, whereas breeding countries are generally
uncultivated. The high price of lean cattle, by augmenting
the value of uncultivated land, is like a bounty against im-
provement. To any country which was highly improved
throughout, it would be more advantageous to import its
lean cattle than to breed them. The province of Holland,
accordingly, is said to follow this maxim at present. The
mountains of Scotland, Wales and Northumberland, indeed,
are countries not capable of much improvement, and seem
destined by nature to be the breeding countries of Great
Britain. The freest importation of foreign cattle could
have no other effect than to hinder those breeding coun-
tries from taking advantage of the increasing 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, could have as little effect upon the interest of the
graziers of Great Britain as that of live cattle. Salt pro-
visions are not only a very bulky commodity, but when com-
RESTRAINTS OF PARTICULAR IMPORTS 357
pared with fresh meat, they are a commodity both of worse
quality, and as they cost more labour and expence, of higher
price. They could never, therefore, come into competition
with the fresh meat, though they might with the salt pro-
visions of the country. They might be used for victualling
ships for distant voyages, and such like uses, but could never
make any considerable part of the food of the people. The
small quantity of salt provisions imported from Ireland since
their importation 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 greatest scarcity, may satisfy our farm-
ers that they can have nothing to fear from the freest im-
portation. The average quantity imported one year with an-
other, 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 im-
portation 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 scarcity 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
vs'ould 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 em-
ployment, 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 gen-
358 WEALTH OF NATIONS
tlemen and farmers, that I have observed the greatest anx-
iety 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 mo-
nopoly. The undertaker of a great manufactory is some-
times alarmed if another work of the same kind is estab-
lished within twenty miles of him. The Dutch undertaker
of the woollen manufacture at Abbeville stipulated, that no
work of the same kind should be established within thirty
leagues of that city. Farmers and country gentlemen, on
the contrary, are generally disposed rather to promote than
to obstruct the cultivation and improvement of their neigh-
bours' 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 advantageous. Pins Questus, says old Cato,
stabilissiniusque, minimeque invidiosus ; niinimeqite male cog-
itantes sunt, qui in eo studio occupati sunt. Country gentle-
men and farmers, dispersed in dififerent parts of the country,
cannot so easily combine as merchants and manufacturers,
who being collected into towns, and accustomed to that ex-
clusive corporation spirit which prevails in them, naturally
endeavour to obtain against all their countrymen, 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 importation of foreign goods, which secure to them the
monopoly of the home-market. It was probably in imita-
tion 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 for-
got the generosity which is natural to their station, as to
demand the exclusive privilege of supplying their country-
men with corn and butcher's-meat. They did not perhaps
take time to consider, how much less their interest could be
affected by the freedom of trade, than that of the people
whose example they followed.
To prohibit by a perpetual law the importation of foreign
corn and cattle, is in reality to enact, that the population and
RESTRAINTS OF PARTICULAR IMPORTS 359
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 gen-
erally be advantageous to lay some burden upon foreign, for
the encouragement of domestic industry.
The first, is, when some particular sort of industry is neces-
sary 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, there-
fore, very properly endeavours to give the sailors and ship-
ping of Great Britain the monopoly of the trade of their
own country, in some cases, by absolute prohibitions, and
in others by heavy burdens upon the shipping 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 pro-
hibited, upon pain of forfeiting ship and cargo, from trad-
ing to the British settlements and plantations, or from being
employed in the coasting trade of Great Britain.
Secondly, a great variety of the most bulky articles of
importation can be brought into Great Britain only, either
in such ships as are above described, or in ships of the coun-
try where those goods are produced, and of which the own-
ers, 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 im-
ported in ships of any other country, the penalty is forfeit-
ure 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 European country.
Thirdly, a great variety of the most bulky articles of im-
portation are prohibited from being imported, even in British
ships, from any country but that in which they are pro-
duced; under pain of forfeiting 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
360 WEALTH OF NATIONS
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 ves-
sels, when imported into Great Britain, are subjected to
double aliens duty. The Dutch, as they are still the princi-
pal, 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
Holland 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 dictated
by the most deliberate wisdom. National animosity at that
particular time aimed at the very same object which the
most deliberate wisdom could have recommended, the diminu-
tion of the naval power of Holland, the only naval power
which could endanger the security of England.
The act of navigation is not favourable to foreign com-
merce, or to the growth of that opulence which can arise
from it. The interest of a nation in its commercial rela-
tions to foreign nations is, like that of a merchant with re-
gard 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 likely 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 industry. Even the ancient
aliens duty, which used to be paid on all goods exported as
well as imported, has, by several subsequent acts, been taken
off from the greater part of the articles of exportation. But
if foreigners, either by prohibitions or high duties, are hin-
RESTRAINTS OF PARTICULAR IMPORTS 361
dered 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 dimin-
ishing the number of sellers, therefore, we necessarily dimin-
ish 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 regulations 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 of the latter. In this case, it seems rea-
sonable 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 industry, 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 manufacturers, 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 competition with those which had been
taxed at home. When the necessaries 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 do-
mestic industry. Subsistence, they say, becomes necessarily
dearer in consequence of such taxes ; and the price of labour
362 WEALTH OF NATIONS
must always rise with the price of the labourers subsistence.
Every commodity, therefore, which is the produce of do-
mestic 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 particular
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 commodity, equal to this enhancement of the price
of the home commodities with which it can come into com-
petition.
Whether taxes upon the necessaries of life, such as those
in Great Britain upon soap, salt, leather, candles, &c. neces-
sarily raise the price of labour, and consequently that of all
other commodities, I shall consider hereafter, when I come
to treat of taxes. Supposing, 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 con-
sequence of that of labour, is a case which differs in the two
following respects from that of a particular commodity, of
which the price was enhanced by a particular tax immediately
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 employed, 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 cap-
itals and industry, so is it likewise in the artificial scarcity
RESTRAINTS OF PARTICULAR IMPORTS 363
arising from such taxes. To be left to accommodate, as
well as ihey could, their industry to their situation, and to
find out those employments in which, notwithstanding their
unfavourable circumstances, they might have some advan-
tage 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 overbur-
dened 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 earth and the
inclemency of the heavens; and yet it is in the richest and
most industrious countries that they have been most gen-
erally 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 nations 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 which they
abound most, and which from peculiar circumstances con-
tinues 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 ad-
vantageous to lay some burden upon foreign, for the en-
couragement of domestic industry ; so there are two others
in which it may sometimes be a matter of deliberation ; in
the one, how far it is proper to continue the free importa-
tion of certain foreign goods; and in the other, how far, or
in what manner, it may be proper to restore that free impor-
tation after it has been for some time interrupted.
The case in which it may sometimes be a matter of delib-
eration how far it is proper to continue the free importation
of certain foreign goods, is, when some foreign nation re-
strains 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 01 all of their manufactures into ours. Nations ac-
364 WEALTH OF NATIONS
cordingly seldom fail to retaliate in this manner. The French
have been particularly forward to favour their own manu-
factures 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, notwith-
standing his great abilities, seems in this case to have been
imposed upon by the sophistry of merchants and manufac-
turers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelli-
gent men in France that his operations of this kind have not
been beneficial to his country. That minister, by the tarif
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 impor-
tation of the wines, brandies and manufactures of France.
The war 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 pro-
hibition. 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, how-
ever, seem to have set the first example. The spirit of hos-
tility which has subsisted between the two nations ever since,
has hitherto hindered them from being moderated on either
side. In 1697 the English prohibited the importation of bone-
lace, 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.
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 market will generally more than compensate
the transitory inconveniency of paying dearer during a short
time for some sorts of goods. To judge whether such re-
taliations are likely to produce such an effect, does not, per-
RESTRAINTS OF PARTICULAR IMPORTS 365
haps, belong so much to the science of a legislator, 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 consider-
ably, but some other manufacture of theirs. This may no
doubt give encouragement to some particular class of work-
men among ourselves, and by excluding some of their rivals,
may enable them to raise their price in the home-market.
Those workmen, however, who suffered by our neighbours
prohibition will not be benefited 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 upon
the whole country, not in favour of that particular class of
workmen who were injured by our neighbours prohibition,
but of some other class.
The case in which it may sometimes be a matter of de-
liberation, how far, or in what manner, it is proper to re-
store the free importation of foreign goods, after it has
been for some time interrupted, is, when particular manu-
factures, by means of high duties or prohibitions upon all
foreign goods which can come into competition with them,
have been so far extended as to employ a great multitude
of hands. Humanity may in this case require that the free-
dom 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 employment and
means of subsistence. The disorder which this would occa-
sion might no doubt be very considerable. It would in all
366 WEALTH OF NATIONS
probability, however, be much less than is commonly imag-
ined, for the two following reasons :
First, all those manufactures, of which any part is com-
monly exports to other European countries without a bounty,
could be very little affected by the freest importation of for-
eign 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 sometimes 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 dif-
ferent 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
restoring the freedom of trade, be thrown all at once out of
their ordinary employment and common method of subsis-
tence, 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 num-
ber equal to what is employed in the greatest manufactures,
were all at once thrown out of their ordinary employment;
but, though they no doubt suffered some inconveniency, they
were not thereby deprived of all employment and subsis-
tence. The greater part of the seamen, it is probable, gradu-
ally 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 em-
ployed in a great variety of occupations. Not only no great
convulsion, but no sensible disorder arose from so great a
change in the situation of more than a hundred thousand
RESTRAINTS OF PARTICULAR IMPORTS 367
men, all accustomed to the use of arms, and many of them
to rapine and plunder. The number of vagrants was scarce
anywhere 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 compare together the habits of a soldier
and of any sort of manufacturer, 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 always been accus-
tomed to look for his subsistence from his labour only : the
soldier to expect it from his pay. Application and industry
have been familiar to the one; idleness and dissipation to the
other. But it is surely much easier to change the direction
of industry from one sort of labour to another, than to turn
idleness and dissipation to any. To the greater part of manu-
factures besides, it has already been observed, there are
other collateral manufactures 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
the same, the demand for labour will likewise be the same,
or very nearly the same, though it may be exerted in dif-
ferent 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 restored to all his majesty's subjects, in the same man-
ner as to soldiers and seamen ; that is, break down the ex-
clusive 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 set-
tlements, so that a poor workman, when thrown out of em-
ployment 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
368 WEALTH OF NATIONS
public nor the individuals will suffer much more from the
occasional disbanding some particular classes of manufac-
turers, than from that of soldiers. 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 entirely restored in Great Britain, is as absurd as to ex-
pect that an Oceana or Utopia should ever be established in
it. Not only the prejudices of the public, but what is much
more unconquerable, the private interests of many individ-
uals, irresistibly oppose it. Were the officers of the army to
oppose with the same zeal and unanimity 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 at-
tempt to diminish in any respect the monopoly which our
manufacturers have obtained against us. This monopoly has
so much increased the number of some particular tribes of
them, that, like an overgrown standing army, they have be-
come formidable to the government, and upon many occa-
sions intimidate the legislature. The member of parliament
who supports every proposal for strengthening this monop-
oly, 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 im-
portance. 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
markets being suddenly laid open to the competition of for-
eigners, should be obliged to abandon his trade, would no
RESTRAINTS OF PARTICULAR IMPORTS 369
doubt suffer very considerably. That part of his capital
which had usually been employed 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 instruments 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 slowly, 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 dis-
order into the constitution of the state, which it will be diffi-
cult afterwards to cure without occasioning another disorder.
How far it may be proper to impose taxes upon the im-
portation 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 importa-
tion, are evidently as destructive of the revenue of the cus-
toms as of the freedom of trade.
CHAPTER III
Of the Extraordinary Restraints upon the Importation
OF Goods of Almost All Kinds, from Those Coun-
tries WITH Which the Balance Is Supposed
to Be Disadvantageous.
PART I
Of the Unreasonableness of those Restraints even upon thb
Principles of the Commercial System
TO lay extraordinary restraints upon the importation of
goods of almost all kinds, from those particular coun-
tries with which the balance of trade is supposed to be
disadvantageous, is the second expedient by which the com-
mercial system proposes to increase the quantity of gold and
silver. Thus in Great Britain, Silesia lawns may be im-
ported for home consumption, upon paying certain duties.
But French cambrics and lawns are prohibited to be im-
ported, except into the port of London, there to be ware-
housed for exportation. 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 na-
tions 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 commodities 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 brandy ; together
with a new duty of five and twenty pounds upon the ton of
370
ON IMPORTS FROM PARTICULAR COUNTRIES 371
French wine, and another of fifteen pounds upon the ton of
French vinegar. French goods have never been omitted in
any of 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 sub-
sidy 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,
produce, 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 manufactures 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 commerce between the two na-
tions, and smugglers are now the principal importers, either
of British goods into France, or of French goods into Great
Britain. The principles which I have been examining in the
foregoing chapter took their origin from private interest
and the spirit of monopoly; those which I am going to ex-
amine in this, from national prejudice and animosity. They
are, accordingly, as might well be expected, still more un-
reasonable. They are so, even upon the principles of the
commercial system.
First, though it were certain that in the case of a free
trade between France and England, for example, the balance
would be in favour of France, it wor.ld 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 importations would be diminished, in
proportion as the French goods of the same quality were
372 WEALTH OF NATIONS
cheaper than those of the other two countries. This would
be the case, even upon the supposition that the whole French
goods imported were to be consumed in Great Britain.
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 fre-
quently 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-expor-
tation 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
important branches of the Dutch trade, at present, consists
in the carriage of French goods to other European countries.
Some part even of the French wine drank in Great Britain
is clandestinely imported 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 nations, 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 direct our judgment upon
all questions concerning it. There are two criterions, how-
ever, which have frequently been appealed to upon such
occasions, the custom-house books and the course of ex-
change. The custom-house books, I think, it is now gener-
ally 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, per-
haps, almost equally so.
When the exchange between two places, such as London
and Paris, 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
ON IMPORTS FROM PARTICULAR COUNTRIES 373
at London for a bill upon Paris, 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 between those two cities must necessarily be regu-
lated, it is said, by the ordinary course of their dealings with
one another. When neither of them imports from the other
to a greater amount than it exports 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 in-
debted to the latter in a greater sum than the latter becomes
indebted to it : the debts and credits of each do not com-
pensate one another, and money must be sent out from that
place of which the debts over-balance the credits. The or-
dinary 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 necessarily 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 between any two places, it would not from
thence follow, that the balance of trade was in favour 0|fi
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 or-
dinary 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 Ham-
burgh, Dantzic, Riga, &c. by bills upon Holland, the ordinary
state of debt and credit between England and Holland will'
not be regulated entirely by the ordinary course of the deal-
ings 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
374 WEALTH OF NATIONS
country may exceed very much the annual value of its im-
ports 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 sufficient indication that the ordinary state of
debt and credit is in favour 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 different from the com-
puted one, that from the course of the latter, no certain
conclusion can, upon many occasions, be drawn concerning
that of the former.
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 supposed
to get a premium, and exchange is said to be against France,
and in favour of England.
But, first, we cannot always judge of the value of the cur-
rent money of different countries by the standard of their
respective mints. In some it is more, in others it is less
worn, dipt, and otherwise degenerated from that standard.
But the value of the current coin of every country, com-
pared 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 reforma-
tion of the silver coin in King William's time, exchange be-
tween England and Holland, computed, in the usual manner,
according 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, notwith-
ON IMPORTS FROM PARTICULAR COUNTRIES 375
standing 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, therefore, was not more
than two or three per cent, against England, the real ex-
change might have been in its favour. Since the reforma-
tion of the gold coin, the exchange has been constantly in
favour of England, and against France.
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 derives 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 bul-
lion which it actually contains. In France, the workman-
ship, as you pay for it, adds to the value, in the same man-
ner 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 stand-
ards of their respective 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 ex-
change might be at par between the two countries, their
376 WEALTH OF NATIONS
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 England, while the computed was in favour
of France.
Thirdly, and lastly, in some places, as at Amsterdam, Ham-
burg, 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 cur-
rency of the country. What is called bank money is always
of more value than the same nominal sum of common cur-
rency. A thousand guilders in the bank of Amsterdam, 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 foreign bills in this common
currency, while the other pays them in bank money, it is evi-
dent that the computed exchange may be in favour of that
which pays in bank money, though the real exchange 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 ex-
change, before the late reformation of the gold coin, was
generally against London, with Amsterdam, Hamburgh,
Venice, and, I believe, with all other places which pay in
what is called bank money. It will by no means follow, how-
ever, that the real exchange was against it. Since the re-
formation of the gold coin, it has been in favour of London
even with those places. The computed exchange has gener-
ally been in favour of London with Lisbon, Antwerp, Leg-
horn, and, if you except 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.
ON IMPORTS FROM PARTICULAR COUNTRIES 377
PART II
Ok the Unreasonableness of those Extraordinary Restraints
Upon Other Principles
In the foregoing Part of this Chapter I have en-
deavoured to shew, even upon the principles of the com-
mercial system, how unnecessary it is to lay extraordinary
restraints upon the importation of goods from those coun-
tries with which the balance of trade is supposed to be dis-
advantageous.
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 pro-
portion to its declension from the exact equilibrium. Both
suppositions are false. A trade which is forced by means of
bounties and monopolies, may be, and commonly is disad-
vantageous to the country in whose favour it is meant to be
established, as I shall endeavour to show 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 quantity of gold and silver, but that of the exchangeable
value of the annual produce of the land and labour of the
country, or the increase of the annual revenue of its in-
habitants.
If the balance be even, and if the trade between the two
places consist altogether in the exchange of their native com-
modities, 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 em-
ployed in raising and preparing for the market this part of
the surplus produce of the other, and which had been dis-
tributed among, and given revenue and maintenance to a
378 WEALTH OF NATIONS
certain number of its inhabitants. Some part of the in-
habitants of each, therefore, will indirectly derive their
revenue and maintenance from the other. As the commodi-
ties exchanged too are supposed to be of equal value, so the
tw^o 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
exported 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 which 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 send-
ing thither a large quantity of foreign goods, tobacco, we
shall suppose, and East India goods ; this trade, though it
would give some revenue to the inhabitants of both coun-
tries, 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 producing the English commodities with which those
foreign goods were purchased, would be annually distrib-
uted among the people of England. The greater part of it
would replace the capitals which had been employed in Vir-
ginia, Indostan, and China, and which had given revenue
ON IMPORTS FROM PARTICULAR COUNTRIES 379
and maintenance to the inhabitants of those distant countries.
If the capitals were equal, or nearly equal, therefore, 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 England; 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 consump-
tion, 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 an-
nually imported 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 foregoing, give some revenue
to the inhabitants of both countries, but more to those of
France than to those of England. It would give some reve-
nue 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 Eng-
land, would thereby be replaced, and enabled to continue
that employment. The whole capital 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
supposed 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 to-
380 WEALTH OF NATIONS
bacco 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 thou-
sand 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 augment the capital of England by ten thousand
pounds. As a merchant who has a hundred and ten thou-
sand pounds worth of wine in his cellar, is a richer man
than he who has only a hundred thousand 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 quan-
tity of industry, and give revenue, maintenance, and employ-
ment, to a greater number of people than either of the other
two. But the capital of the country is equal to the capitals
of all its different inhabitants, and the quantity of industry
which can be annually maintained in it, is equal to what all
those different capitals can maintain. Both the capital of
the country, therefore, and the quantity of industry which
can be annually maintained in it, must generally be aug-
mented by this exchange. It would, indeed, be more advan-
tageous 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 country which has no mines, more likely to be exhausted
of gold and silver by this annual exportation of those metals,
than one which does not grow tobacco by the like annual
exportation of that plant. As a country which has where-
withal 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
ON IMPORTS FROM PARTICULAR COUNTRIES 381
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 advantageous as any other,
though, perhaps, somewhat more liable to be abused. The
employment of a brewer, and even that of a retailer of fer-
mented liquors, are as necessary divisions of labour as any
other. It will generally be more advantageous for a work-
man 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 advantageous 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 affects 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 likely to be so, perhaps, in some than in others.
Though individuals, besides, may sometimes ruin their for-
tunes by an excessive consumption 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 inhabit-
ants of the wine countries are in general the soberest people
in Europe ; witness the Spaniards, the Italians, and the in-
habitants of the southern provinces of France. People are
seldom guilty of excess in what is their daily fare. Nobody
affects the character of liberality and good fellowship, 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 con-
sequently 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 regiment comes from some of
the northern provinces of France, where wine is somewhat
382 WEALTH OF NATIONS
dear, to be quartered in the southern, where it is 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 be-
come as sober as the rest of the inhabitants. Were the
duties upon foreign wines, and the excises upon malt, beer,
nnd ale, to be taken away all at once, it might, in the same
nanner, occasion in Great Britain a pretty general and tem-
^lorary drunkenness among the middling and inferior ranks
of people, which would probably be soon followed by a per-
manent and almost universal sobriety. At present drunken-
ness is by no means the vice of people of fashion, or of those
who can easily afford the most expensive liquors. A gen-
tleman drunk with ale, has scarce ever been seen among us.
The restraints upon the wine trade in Great Britain, be-
sides, do not so much seem calculated to hinder the people
from going, if I may say so, to the alehouse, 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 cus-
tomers for our manufactures than the French, and should
therefore be encouraged in preference to them. As they
give us their custom, it is pretended, we should give them
ours. The sneaking arts of underling tradesmen are thus
erected into political maxims for the conduct 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 nation has been made to look with an
invidious eye upon the prosperity 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 be-
come the most fertile source of discord and animosity. The
capricious ambition of kings and ministers has not, during
the present and the preceding century, been more fatal to
ON IMPORTS FROM PARTICULAR COUNTRIES 383
the repose of Europe, than the impertinent jealousy of mer-
chants 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 admit 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.
That it was the spirit of monopoly which originally both
invented 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 ridiculous 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 man-
kind. 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 in-
habitants from employing any workmen but themselves, so
it is the interest of the merchants and manufacturers 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 importation of almost
all sorts of goods from those countries with which the bal-
ance 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
384 WEALTH OF NATIONS
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 indus-
trious people in his neighbourhood, than a poor, so is like-
wise a rich nation. A rich man, indeed, who is himself a
manufacturer, is a very dangerous neighbour to all those
who deal in the same way. All the rest of the neighbour-
hood, however, by far the greatest 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, 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 shares of it may fall 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 certainly most likely to do so when its neighbours
are all rich, industrious, and commercial nations. A great
nation surrounded on all sides by wandering savages and
poor barbarians might, no doubt, acquire riches by the cul-
tivation of its own lands, and by its own interior 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, neglected 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
ON IMPORTS FROM PARTICULAR COUNTRIES 385
maxims of foreign commerce, by aiming at the impoverish-
ment 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 tw^o countries, hov^ever, were to consider their real
interest, without either mercantile jealousy or national ani-
mosity, the commerce of France might be more advan-
tageous to Great Britain than that of any other country, and
for the same reason that of Great Britain to France. France
is the nearest neighbour to Great Britain. In the trade be-
tween the southern coast of England and the northern and
north-western coasts of France, the returns might be ex-
pected, in the same manner 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 industry, 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 ad-
vantageous as the 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 returns 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 aft'ord
a market at least eight times more extensive, and, on ac-
count of the superior frequency of the returns, four and
twenty times more advantageous, than that which our North
M — HC X
386 WEALTH OF NATIONS
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 discourage,
and that which it has favoured the most.
But the very same circumstances which would have ren-
dered an open and free commerce between the two countries
so advantageous to both, have occasioned the principal ob-
structions to that commerce. Being neighbours, they are
necessarily enemies, and the wealth and power of each be-
comes, upon that account, more formidable to the other ;
and what would increase the advantage of national friend-
ship, serves only to inflame the violence of national ani-
mosity. They are both rich and industrious nations ; and
the merchants and manufacturers of each, dread the com-
petition of the skill and activity of those of the other. Mer-
cantile jealousy is excited, and both inflames, and is itself
inflamed, by the violence of national animosity: And the
traders of both countries have announced, with all the pas-
sionate confidence of interested falsehood, the certain ruin
of each, in consequence of that unfavourable balance 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
approaching 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, 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 impoverished
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 commercial 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.
ON IMPORTS FROM PARTICULAR COUNTRIES 387
there is no country which does so. Holland, perhaps, ap-
proaches the nearest to this character of any, though still
very remote from it ; and Holland, it is acknowledged, not
only derives its whole wealth, but a great part of its neces-
sary subsistence, from foreign trade.
There is another balance, indeed, which has already been
explained, very different from the balance of trade, and
which, according 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 exchangeable value of the annual
produce, it has already been observed, 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 exchangeable value of the annual produce, on the con-
trary, fall short of the annual consumption, the capital of the
society must annually decay in proportion to this deficiency.
The expence of the society 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 dif-
ferent 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 in-
creasing or gradually decaying.
The balance of produce and consumption may be con-
stantly in favour of a nation, though what is called the bal-
ance 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 out of it ; its circulat-
ing 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
388 WEALTH OF NATIONS
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 greater 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.
CHAPTER IV
Of Drawbacks
MERCHANTS and manufacturers are not contented
with the monopoly of the home market, but desire
likewise the most extensive foreign sale for their
goods. Their country has no jurisdiction in foreign 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 exportation, either the whole or a part of what-
ever 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 employment 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 advan-
tageous to preserve, the natural 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 generally amount to by much the largest part of the
duty upon importation.
Drawbacks were, perhaps, originally granted for the en-
couragement of the carrying trade, which, as the freight of
the ships is frequently paid by foreigners in money, was sup-
389
390 WEALTH OF NATIONS
posed to be peculiarly fitted for bringing gold and silver into
the country. But though the carrying trade certainly de-
serves no peculiar encouragement, though the motive of the
institution was, perhaps, abundantly foolish, 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 pre-
vent 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 capitals 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 re-
tained. If the whole duties had been retained, the foreign
goods upon which they are paid, could seldom have been
exported, nor consequently imported, for want of a market.
The duties, therefore, of which a part is retained, would
never have been paid.
These reasons seem sufficiently to justify drawbacks, and
would justify them, though the whole duties, whether upon
the produce of domestic industry, or upon foreign goods, were
always drawn back upon exportation. The revenue of excise
would in this case, indeed, suffer a little, and that of the cus-
toms a good deal more; but the natural balance of industry,
the natural division and distribution of labour, which is al-
ways 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
exporting goods to those countries which are altogether for-
eign and independent, not to those in which our merchants
and manufacturers enjoy a monopoly. A drawback, for ex-
ample, ujjon the exportation of European goods to our Ameri-
can colonies, will not always 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 frequently, perhaps, be sent
DRAWBACKS 391
thither, though the whole duties were retained. The draw-
back, therefore, may frequently be pure loss to the revenue
of excise and customs, without altering the state of the trade,
or rendering it in any respect more extensive. How far such
drawbacks 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 exporta-
tion of which they are given, are really exported to some
foreign country; and not clandestinely re-imported into our
own. That some drawbacks, particularly 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.
CHAPTER V
Of Bounties
BOUNTIES upon exportation are, in Great Britain, fre-
quently petitioned for, and sometimes granted to the
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 balance of
trade consequently turned more m 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 for-
eigners to buy their goods, as we have done our own country-
men. The next best expedient, it has been thought, therefore,
is to pay them for buying. It is in this manner that the mer-
cantile system proposes to enrich 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
392
BOUNTIES 393
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.
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 regu-
larly 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 mer-
chant 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 ordinary 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 naturally 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 exported, 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 mercantile system, is a clear proof
that this forced corn trade is beneficial to the nation; the
value of the exportation exceeding that of the importation by
a much greater sum than the whole extraordinary expence
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 exporta-
tion of corn really 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
394 WEALTH OF NATIONS
diminished. But the very reason for which it has been
thought necessary to grant a bounty, is the supposed insuffi-
ciency of the price to do this.
The average price of corn, it has been said, has fallen con-
siderably since the establishment of the bounty. Thai 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 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 happened in conse-
quence of it. It has happened in France, as well as in Eng-
land, though in France there was, not only no bounty, but,
till 1764, the exportation of corn was subjected to a general
prohibition. This gradual fall in the average price of grain,
it is probable, therefore, is ultimately owing neither to the
one regulation nor to the other, but to that gradual and in-
sensible 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 France, 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 fre-
quently suspended, yet the great exportation which it occa-
sions in years of plenty, must frequently hinder more or less
the plenty of one year from relieving the 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 neces-
sarily have this tendency, will not, I apprehend, be disputed
by any reasonable person. But it has been thought by many
people that it tends to encourage tillage, and that in two
dififerent ways; first, by opening a more extensive foreign
market to the corn of the farmer, it tends, they imagine, to
BOUNTIES 395
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, occasion 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, happen to be in.
I answer, that whatever extension of the foreign market
can be occasioned by the bounty, must, in every particular
year, be altogether at the expence of the home market; as
every bushel of corn 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 in-
crease the consumption, and to lower the price of that com-
modity. The corn bounty, it is to be observed, as well as
every other bounty upon exportation, imposes two different
taxes upon the people ; first, the tax which they are obliged
to contribute, in order to pay the bounty; and secondly, the
tax which arises from the advanced price of the commodity
in the home market, and which, as the whole body of the
people are purchasers of corn, must, in this particular com-
modity, be paid by the whole body of the people. In this par-
ticular commodity, therefore, this 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 exporta-
tion of the quarter of wheat, raises the price of that com-
modity in the home market only sixpence the bushel, or four
shillings 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, therefore, which they contribute to
396 WEALTH OF NATIONS
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
occasion some augmentation in their pecuniary wages,
proportionable to that in the pecuniary price of their sub-
sistence. So far as it operates in the one way, it must
reduce the ability of the labouring poor 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 coun-
try. The extraordinary exportation of corn, therefore, oc-
casioned 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 profit-
able 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 quan-
BOUNTIES 397
tity, not only of corn, but of all other home-made commodi-
ties: 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 sufficient to maintain him and his family either in the
liberal, moderate, or scanty manner in which the advancing,
stationary or declining circumstances of the society oblige
his employers to maintain him.
It regulates the money price of all the other parts of the
rude produce of land, which, in every period of improve-
ment, must bear a certain proportion to that of corn, though
this proportion is different in different periods. It regulates,
for example, the money price of grass and hay, of butcher's
meat, of horses, and the maintenance of horses, of land car-
riage consequently, or of the greater part of the inland com-
merce 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 indus-
try. And by regulating both, it regulates that of the com-
plete manufacture. The money price of labour, and of every
thing that is the produce either of land or labour, must neces-
sarily 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 instead 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 circumstances
of the farmer, nor those of the landlord, will be much
mended by this change. The farmer will not be able to cul-
tivate much better : the landlord will not be able to live much
better. In the purchase of foreign commodities this en-
hancement in the price of corn may give them some little ad-
vantage. In that of home-made commodities it can give
398 WEALTH OF NATIONS
them none at all. And almost the whole expence of the
farmer, and the far greater part even of that of the land-
lord, is in home-made commodities.
That degradation in the value of silver which is the effect
of the fertility of the mines, and which operates equally, or
very near equally, through the greater part of the commer-
cial world, is a matter of very little consequence to any par-
ticular country. The consequent rise of all money prices,
though it does not make those who receive them really
richer, does not make them really poorer. A service of plate
becomes really cheaper, and every thing else remains pre-
cisely of the same real value as before.
But that degradation in the value of silver which, being
the effect either of the peculiar situation, or of the political
institutions of a particular country, takes place only in that
country, is a matter of very great consequence, which, far
from tending to make any body really richer, tends to make
every body really poorer. The rise in the money price of all
commodities, which is in this case peculiar to that country,
tends to discourage more or less every sort of industry which
is carried on within it, and to enable foreign nations, by fur-
nishing almost all sorts of goods for a smaller quantity of
silver than its own workmen can afford to do, to under-
sell them, not only in the foreign, but even in the home
market.
It is the peculiar situation of Spain and Portugal as pro-
prietors of the mines, to be the distributors of gold and silver
to all the other countries of Europe. Those metals ought
naturally, therefore, to be somewhat cheaper in Spain and
Portugal than in any other part of Europe. The difference,
however, should be no more than the amount of the freight
and insurance; and, on account of the great value and small
bulk of those metals, their freight is no great matter, and
their insurance is the same as that of any other goods of
equal value. Spain and Portugal, therefore, could suffer very
little from their peculiar situation, if they did not aggravate
its disadvantages by their political institutions.
Spain by taxing, and Portugal by prohibiting the exporta-
tion of gold and silver, load that exportation with the ex-
pence of smuggling, and raise the value of those metals in
BOUNTIES 399
other countries so much more above what it is in their own,
by the whole amount of this expence. When you dam up a
stream of water, as soon as the dam is full, as mUch water
must run over the dam-head as if there was no dam at all.
The prohibition of exportation cannot detain a greater quan-
tity of gold and silver in Spain and Portugal than what they
can afiford to employ, than what the annual produce of their
land and labour will allow them to employ, in coin, plate,
gilding, and other ornaments of gold and silver. When they
have got this quantity the dam is full, and the whole stream
which flows in afterwards must run over. The annual ex-
portation of gold and silver from Spain and Portugal accord-
ingly is, by all accounts, notwithstanding these restraints,
very near equal to the whole annual importation. As the
water, however, must always be deeper behind the dam-head
than before it, so the quantity of gold and silver which these
restraints detain in Spain and Portugal must, in proportion to
the annual produce of their land and labour, be greater than
what is to be found in other countries. The higher and
stronger the dam-head, the greater must be the difference in
the depth of water behind and before it. The higher the tax,
the higher the penalties with which the prohibition is
guarded, the more vigilant and severe the police which looks
after the execution of the law, the greater must be the dif-
ference in the proportion of gold and silver to the annual
produce of the land and labour of Spain and Portugal, and
to that of other countries. It is said accordingly to be very
considerable, and that you frequently find there a profusion
of plate in houses, where there is nothing else which would,
in other countries, be thought suitable or correspondent to
this sort of magnificence. The cheapness of gold and silver,
or what is the same thing, the dearness of all commodities,
which is the necessary effect of this redundancy of the
precious metals, discourages both the agriculture and manu-
factures of Spain and Portugal, and enables foreign nations
to supply them with many sorts of rude, and with almost all
sorts of manufactured produce, for a smaller quantity of gold
and silver than what they themselves can either raise or
make them for at home. The tax and prohibition operate in
two different ways. They not only lower very much the
400 WEALTH OF NATIONS
value of the precious metals in Spain and Portugal, but by
detaining there a certain quantity of those metals which
would otherwise flow over other countries, they keep up their
value in those other countries somewhat above what it other-
wise would be, and thereby give those countries a double ad-
vantage in their commerce with Spain and Portugal. Open
the flood-gates, and there will presently be less water above,
and more below, the dam-head, and it will soon come to a
level in both places. Remove the tax and the prohibition,
and as the quantity of gold and silver will diminish consid-
erably in Spain and Portugal, so it will increase somewhat
in other countries, and the value of those metals, their pro-
portion to the annual produce of land and labour, will soon
come to a level, or very near to a level, in all. The loss
which Spain and Portugal could sustain by this exportation
of their gold and silver would be altogether nominal and im-
aginary. The nominal value of their goods, and of the an-
nual produce of their land and labour, would fall, and would
be expressed or represented by a smaller quantity of silver
than before : but their real value would be the same as be-
fore, and would be sufficient to maintain, command, and em-
ploy, the same quantity of labour. As the nominal value of
their goods would fall, the real value of what remained of
their gold and silver would rise, and a smaller quantity of
those metals would answer all the same purposes of com-
merce and circulation which had employed a greater quan-
tity before. The gold and silver which would go abroad
would not go abroad for nothing, but would bring back an
equal value of goods of some kind or another. Those goods
too would not be all matters of mere luxury and expence, to
be consumed by idle people who produce nothing in return
for their consumption. As the real wealth and revenue of
idle people would not be augmented by this extraordinary
exportation of gold and silver, so neither would their con-
sumption be much augmented by it. Those goods would,
probably, the greater part of them, and certainly some part
cf them, consist in materials, tools, and provisions, for the
employment and maintenance of industrious people, who
would reproduce, with a profit, the full value of their con-
sumption. A part of the dead stock of the society would
BOUNTIES 401
thus be turned into active stock, and would put into motion
a greater quantity of industry than had been employed be-
fore. The annual produce of their land and labour would
immediately be augment-ed a little, and in a few years would,
probably, be augmented a great deal ; their industry being
thus relieved from one of the most oppressive burdens which
it at present labours under.
The bounty upon the exportation of corn necessarily oper-
ates exactly in the same way as this absurd policy of Spain
and Portugal. Whatever be the actual state of tillage, it
renders our corn somewhat dearer in the home market than
it otherwise would be in that state, and somewhat cheaper in
the foreign ; and as the average money price of corn regu-
lates more or less that of all other commodities, it lowers the
value of silver considerably in the one, and tends to raise it
a little in the other. It enables foreigners, the Dutch in par-
ticular, not only to eat our corn cheaper than they otherwise
could do, but sometimes to eat it cheaper than even our own
people can do upon the same occasions ; as we are assured by
an excellent authority, that of Sir Matthew Decker. It
hinders our own workmen from furnishing their goods for
so small a quantity of silver as they otherwise might do ; and
enables the Dutch to furnish their's for a smaller. It tends
to render our manufactures somewhat dearer in every mar-
ket, and their's somewhat cheaper than they otherwise would
be, and consequently to give their industry a double advan-
tage over our own.
The bounty, as it raises in the home market, not so much
the real, as the nominal price of our corn, as it augments,
sot the quantity of labour which a certain quantity of corn
can maintain and employ, but only the quantity of silver
which it will exchange for, it discourages our manufactures,
without rendering any considerable service either to our
farmers or country gentlemen. It puts, indeed, a little more
money into the pockets of both, and it will perhaps be some-
what difficult to persuade the greater part of them that this
is not rendering them a very considerable service. But if
this money sinks in its value, in the quantity of labour, pro-
visions, and home-made commodities of all different kinds
which it is capable of purchasing, as much as it rises in its
402 WEALTH OF NATIONS
quantity, the service will be little more than nominal and
imaginary.
There is, perhaps, but one set of men in the whole com-
monwealth to whom the bounty either was or could be es-
sentially serviceable. These were the corn merchants, the
exporters and importers of corn. In years of plenty the
bounty necessarily occasioned a greater exportation than
would otherwise have taken place; and by hindering the
plenty of one year from relieving the scarcity of another, it
Occasioned in years of scarcity a greater importation than
would otherwise have been necessary. It increased the busi-
ness of the corn merchant in both; and in years of scarcity,
it not only enabled him, to import a greater quantity, but to
sell it for a better price, and consequently with a greater
profit than he could otherwise have made, if the plenty of
one year had not been more or less hindered from relieving
the scarcity of another. It is in this set of men, accordingly,
that I have observed the greatest zeal for the continuance or
renewal of the bounty.
Our country gentlemen, when they imposed the high duties
upon the importation of foreign corn, which in times of mod-
erate plenty amount to a prohibition, and when they estab-
lished the bounty, seem to have imitated the conduct of our
manufacturers. By the one institution, they secured to them-
selves the monopoly of the home market, and by the othei
they endeavoured to pi'event that market from ever being
overstocked with their commodity. By both they endeav-
oured to raise its real value, in the same manner as our
manufacturers had, by the like institutions, raised the real
value of many different sorts of manufactured goods. They
did not perhaps attend to the great and essential difference
which nature has established between corn and almost every
other sort of goods. When, either by the monoply of the
home market, or by a bounty upon exportation, you enable
our woollen or linen manufacturers to sell their goods for
somewhat a better price than they otherwise could get for
them, you raise, not only the nominal, but the real price of
those goods. You render them equivalent to a greater quan-
tity of labour and subsistence, you encrease not only the
nominal, but the real profit, the real wealth and revenue of
BOUNTIES 403
those manufacturers, and you enable them either to live
better themselves, or to employ a greater quantity of labour
in those particular manufactures. You really encourage
those manufactures, and direct towards them a greater quan-
tity of the industry of the country, than what would probably
go to them of its own accord. But when by the like institu-
tions you raise the nominal or money-price of corn, you do
not raise its real value. You do not increase the real wealth,
the real revenue either of our farmers or country gentle-
men. You do not encourage the growth of corn, because
you do not enable them to maintain and employ more labour-
ers in raising it. The nature of things has stamped upon
corn a real value which cannot be altered by merely altering
its money price. No bounty upon exportation, no monopoly
of the home market, can raise that value. The freest com-
petition cannot lower it. Through the world in general that
value is equal to the quantity of labour which it can main-
tain, and in every particular place it is equal to the quantity
of labour which it can maintain in the way, whether liberal,
moderate, or scanty, in which labour is commonly maintained
in that place. Woollen or linen cloth are not the regulating
commodities by which the real value of all other commodi-
ties must be finally measured and determined; corn is. The
real value of every other commodity is finally measured and
determined by the proportion which its average money price
bears to the average money price of corn. The real value
of corn does not vary with those variations in its average
money price, which sometimes occur from one century to
another. It is the real value of silver which varies with
them.
Bounties upon the exportation of any home-made com-
modity are liable, first, to that general objection which may
be made to all the different expedients of the mercantile sys-
tem; the objection of forcing some part of the industry of
the country into a channel less advantageous than that in
which it would run of its own accord : and, secondly, to the
particular objection of forcing it, not only into a channel
that is less advantageous, but into one that is actually disad-
vantageous ; the trade which cannot be carried on but by
means of a bounty being necessarily a losing trade. The
404 WEALTH OF NATIONS
bounty npon the exportation of corn is liable to this further
objection, that it can in no respect promote the raising of
that particular commodity of which it was meant to encour-
age the production. When our country gentlemen, therefore,
demanded the establishment of the bounty, though they acted
in imitation of our merchants and manufacturers, they did
not act with that complete comprehension of their own in-
terest which commonly directs the conduct of those two
other orders of people. They loaded the public revenue with
a very considerable expence ; they imposed a very heavy tax
upon the whole body of the people; but they did not, in any
sensible degree, increase the real value of their own com-
modity ; and by lowering somewhat the real value of silver,
they discouraged, in some degree, the general industry of
the country, and, instead of advancing, retarded more or less
the improvement of their own lands, which necessarily de-
pends Hpon the general industry of the country.
To encourage the production of any commodity, a bounty
upon production, one should imagine, would have a more di-
rect operation, than one upon exportation. It would, besides,
impose only one tax upon the people, that which they must
contribute in order to pay the bounty. Instead of raising, it
would tend to lower the price of the commodity in the home
market; and thereby, instead of imposing a second tax upon
the people, it might at least in part, repay them for what
they had contributed to the first. Bounties upon production,
however, have been very rarely granted. The prejudices es-
tablished by the commercial system have taught us to believe,
that nominal wealth arises more immediately from exporta-
tion than from production. It has been more favoured ac-
cordingly, as the more immediate means of bringing money
into the country. Bounties upon production, it has been
said too, have been found by experience more liable to
frauds than those upon exportation. How far this is true,
I know not. That bounties upon exportation have been
abused to many fraudulent purposes, is very well known^
But it is not the interest of merchants and manufacturers,
the great inventors of all these expedients, that the home
market should be overstocked with their goods, an event
which a bounty upon production might sometimes occasion.
BOUNTIES 405
A bounty upon exportation, by enabling them to send abroad
the surplus part, and to keep up the price of what remains in
the home market, effectually prevents this. Of all the ex-
pedients of the mercantile system, accordingly, it is the one of
which they are the fondest. I have known the different
undertakers of some particular works agree privately among
themselves to give a bounty out of their own pockets upon
the exportation of a certain proportion of the goods which
they dealt in. This expedient succeeded so well, that it more
than doubled the price of their goods in the home market,
notwithstanding a very considerable increase in the produce.
The operation of the bounty upon corn must have been
wonderfully different, if it has lowered the money price of
that commodity.
Something like a bounty upon production, however, has
been granted upon some particular occasions. The tonnage
bounties given to the white-herring and whale-fisheries may,
perhaps, be considered as somewhat of this nature. They
tend directly, it may be supposed, to render the goods cheaper
in the home market than they otherwise would be. In other
respects their effects, it must be acknowledged, are the same
as those of bounties upon exportation. By means of them
a part of the capital of the country is employed in bringing
goods to market, of which the price does not repay the cost,
together with the ordinary profits of stock.
If any particular manufacture was necessary, indeed, for
the defence of the societ}^ it might not always be prudent to
depend upon our neighbours for the supply ; and if such
manufacture could not otherwise be supported at home, it
might not be unreasonable that all the other branches of in-
dustry should be taxed in order to support it. The bounties
upon the exportation of British-made sail-cloth, and British-
made gun-powder, may, perhaps, both be vindicated upon
this principle.
But though it can very seldom be reasonable to tax the
industry of the great body of the people, in order to support
that of some particular class of manufacturers; yet in the
wantonness of great prosperity, when the public enjoys a
greater revenue than it knows well what to do with, to give
such bounties to favourite manufacturers, may, perhaps, be
406 WEALTH OF NATIONS
as natural, as to incur any other idle expence. In public, as
well as in private expences, great wealth may, perhaps, fre-
quently be admitted as an apology for great folly. But there
must surely be something more than ordinary absurdity, in
continuing such profusion in times of general difficulty and
distress.
What is called a bounty is sometimes no more than a
drawback, and consequently is not liable to the same objec-
tions as what is properly a bounty. The bounty, for example,
upon refined sugar exported, may be considered as a draw-
back of the duties upon the brown and muscovado sugars
from which it is made. The bounty upon wrought silk ex-
ported, a drawback of the duties upon raw and thrown silk
imported. The bounty upon gunpowder exported, a draw-
back of the duties upon brimstone and saltpetre imported.
In the language of the customs those allowances only are
called drawbacks, which are given upon goods exported in
the same form in which they are imported. When that form
has been so altered by manufacture of any kind, as to come
under a new denomination, they are called bounties.
Premiums given by the public to artists and manufacturers
who excel in their particular occupations, are not liable to
the same objections as bounties. By encouraging extraordi-
nary dexterity and ingenuity, they serve to keep up the emu-
lation of the workmen actually employed in those respective
occupations, and are not considerable enough to turn towards
any one of them a greater share of the capital of the country
than what would go to it of its own accord. Their tendency
is not to overturn the natural balance of employments, but to
render the work which is done in each as perfect and com-
plete as possible. The expence of'premiums, besides, is very
trifling: that of bounties very great. The bounty upon corn
alone has sometimes cost the public in one year more than
three hundred thousand pounds.
Bounties are sometimes called premiums, as drawbacks
are sometimes called bounties. But we must in all cases at-
tend to the nature of the thing, without paying any regard
to the word.
CHAPTER VI
Of Treaties of Commerce
WHEN a nation binds itself by treaty either to permit
the entry of certain goods from one foreign coun-
try which it prohibits from all others, or to exempt
the goods of one country from duties to which it subjects those
of all others, the country, or at least the merchants and manu-
facturers of the country, whose commerce is so favoured,
must necessarily derive great advantage from the treaty.
Those merchants and manufacturers enjoy a sort of mO'-
nopoly in the country which is so indulgent to them. That
country becomes a market both more extensive and more
advantageous for their goods; more extensive, because the
goods of other nations being either excluded or subjected to
heavier duties, it takes off a greater quantity of theirs : more
advantageous, because the merchants of the favoured coun-
try, enjoying a sort of monopoly there, will often sell their
goods for a better price than if exposed to the free competi-
tion of all other nations.
Such treaties, however, though they may be advantageous
to the merchants and manufacturers of the favoured, are
necessarily disadvantageous to those of the favouring coun-
try. A monopoly is thus granted against them to a foreign
nation ; and they must frequently buy the foreign goods they
have occasion for, dearer than if the free competition of
other nations was admitted. That part of its own produce
with which such a nation purchases foreign goods, must con-
sequently be sold cheaper, because when two things are ex-
changed for one another, the cheapness of the one is a neces-
sary consequence, or rather is the same thing with the
dearness of the other. The exchangeable value of its annual
produce, therefore, is likely to be diminished by every such
treaty. This diminution, however, can scarce amount to any
407
408 WEALTH OF NATIONS
positive loss, but only to a lessening of the gain which it
might otherwise make. Though it sells its goods cheaper
than it otherwise might do, it will not probably sell them
for less than they cost; nor, as in the case of bounties, for
a price which will not replace the capital employed in bring-
ing them to market, together with the ordinary profits of
stock. The trade could not go on long if it did. Even the
favouring country, therefore, may still gain by the trade,
though less than if there was a free competition.
Some treaties of commerce, however, have been supposed
advantageous upon principles very different from these; and
a commercial country has sometimes granted a monopoly of
this kind against itself to certain goods of a foreign nation,
because it expected that in the whole commerce between
them, it would annually sell more than it would buy, and that
a balance in gold and silver would be annually returned to
it. It is upon this principle that the treaty of commerce be-
tween England and Portugal, concluded in 1703, by Mr.
Methuen, has been so much commended. The following is
a literal translation of that treaty, which consists of three
articles only.
ART. I
His sacred royal majesty of Portugal promises, both in his
own name, and that of his successors, to admit, for ever
hereafter, into Portugal, the woollen cloths, and the rest of
the woollen manufactures of the British, as was accustomed,
till they were prohibited by the law; nevertheless upon this
condition :
ART. II
That is to say, that her sacred royal majesty of Great
Britain shall, in her own name, and that of her successors,
be obliged, for ever hereafter, to admit the wines of the
growth of Portugal into Britain: so that at no time, whether
there shall be peace or war between the kingdoms of Britain
and France, any thing more shall be demanded for thcr.e
wines by the name of custom or duty, or by whatsoever other
title, directly or indirectly, whether they shall be imported
into Great Britain in pipes or hogsheads, or other casks, tlian
TREATIES OF COMMERCE 469
what shall be demanded for the like quantity or measure of
French wine, deducting or abating a third part of the custom
or duty. But if at any time this deduction or abatement of
customs, which is to be made as aforesaid, shall in any man-
ner be attempted and prejudiced, it shall be just and lawful
for his sacred royal majesty of Portugal, again to prohibit
the woollen cloths, and the rest of the British woollen
manufactures.
ART. Ill
The most excellent lords the plenipotentiaries promise and
take upon themselves that their above-named masters shall
ratify this treaty; and within the space of two months the
ratifications shall be exchanged.
By this treaty the crown of Portugal becomes bound to
admit the English woollens upon the same footing as before
the prohibition ; that is, not to raise the duties which had
been paid before that time. But it does not become bound
to admit them upon any better terms than those of any other
nation, of France or Holland for example. The crown of
Great Britain, on the contrary, becomes bound to admit the
wines of Portugal, upon paying only two-thirds of the duty,
which is paid for those of France, the wines most likely to
come into competition with them. So far this treaty, there-
fore, is evidently advantageous to Portugal, and disadvan-
tageous to Great Britain.
It has been celebrated, however, as a masterpiece of the
commercial policy of England. Portugal receives annually
from the Brazils a greater quantity of gold than can be em-
ployed in its domestic commerce, whether in the shape of
coin or of plate. The surplus is too valuable to be allowed
to He idle and locked up in coffers, and as it can find no ad-
vantageous market at home, it must, notwithstanding any
prohibition, be sent abroad, and exchanged for something
for which there is a more advantageous market at home. A
large share of it comes annually to England, in return either
for English goods, or for those of other European nations
that receive their returns through England. Mr. Baretti
was informed that the weekly packet-boat from Lisbon
410 WEALTH OF NATIONS
brings, one week with another, more than fifty thousand
pounds in- gold to England. The sum had probably been
exaggerated. It would amount to more than two millions six
hundred thousand pounds a year, which is more than the
Brazils are supposed to afford.
Our merchants were some years ago out of humour with
the crown of Portugal. Some privileges which had been
granted them, not by treaty, but by the free grace of that
crown, at the solicitation, indeed, it is probable, and in return
for much greater favours, defence and protection, from the
crown of Great Britain, had been either infringed or re-
voked. The people, therefore, usually most interested in
celebrating the Portugal trade, were then rather disposed to
represent it as less advantageous than it had commonly been
imagined. The far greater part, almost the whole, they pre-
tended, of this annual importation of gold, was not on ac-
count of Great Britain, but of other European nations; the
fruits and wines of Portugal annually imported into Great
Britain nearly compensating the value of the British goods
sent thither.
Let us suppose, however, that the whole was on account
of Great Britain, and that it amounted to a still greater sum
than Mr. Baretti seems to imagine: this trade would not,
upon that account, be more advantageous than any other in
which, for the same value sent out, we received an equal
value of consumable goods in return.
It is but a very small part of this importation which, it
can be supposed, is employed as an annual addition either to
the plate or to the coin of the kingdom. The rest must all
be sent abroad and exchanged for consumable goods of some
kind or other. But if those consumable goods were pur-
chased directly with the produce of English industry, it
would be more for the advantage of England, than first to
purchase with that produce the gold of Portugal, and after-
wards to purchase with that gold those consumable goods. A
direct foreign trade of consumption is always more advan-
tageous than a round-about one ; and to bring the same value
of foreign goods to the home market, requires a much smaller
capital in the one way than in the other. If a smaller share
of its industry, therefore, had been employed in producing
TREATIES OF COMMERCE 411
goods fit for the Portugal market, and a greater in producing
those fit for the other markets, where those consumable
goods for which there is a demand in Great Britain are to
be had, it would have been more for the advantage of Eng-
land. To procure both the gold, which it wants for its own
use, and the consumable goods, would, in this way, employ
a much smaller capital than at present. There would be a
spare capital, therefore, to be employed for other purposes,
in exciting an additional quantity of industry, and in raising
a greater annual produce.
Though Britain were entirely excluded from the Portugal
trade, it could find very little difficulty in procuring all the
annual supplies of gold which it wants, either for the pur-
poses of plate, or of coin, or of foreign trade. Gold, like
every other commodity, is always somewhere or another to
be got for its value by those who have that value to give
for it.
The annual surplus of gold in Portugal, besides, would
still be sent abroad, and though not carried away by
Great Britain, would be carried away by some other nation,
which would be glad to sell it again for its price, in the same
manner as Great Britain does at present. In buying gold of
Portugal, indeed, we buy it at the first hand ; whereas, in
buying it of any other nation, except Spain, we should buy
it at the second, and might pay somewhat dearer. This dif-
ference, however, would surely be too insignificant to de-
serve the public attention.
Almost all our gold, it is said, comes from Portugal. With
other nations the balance of trade is either against us, or not
much in our favour. But we should remember, that the more
gold we import from one country, the less we must neces-
sarily import from all others. The effectual demand for
gold, like that for every other commodity, is in every country
limited to a certain quantity. If nine-tenths of this quantity
are imported from one country, there remains a tenth only
to be imported from all others. The more gold besides that
is annually imported from some particular countries, over and
above what is requisite for plate and for coin, the more must
necessarily be exported to some others ; and the more that
most insignificant object of modern policy, the balance of
412 WEALTH OF NATIONS
trade, appears to be in our favour with some particular coun-
tries, the more it must necessarily appear to be against us
with many others.
It was upon this silly notion, however, that England could
not subsist without the Portugal trade, that, towards the
end of the late war, France and Spain, without pretending
either offence or provocation, required the king of Portugal
to exclude all British ships from his ports, and for the se-
curity of this exclusion, to receive into them French or
Spanish garrisons. Had the king of Portgual submitted to
those ignominious terms which his brother-in-law the king
of Spain proposed to him, Britain would have been freed
from a much greater inconveniency than the loss of the
Portugal trade, the burden of supporting a very weak ally,
so unprovided of every thing for his own defence, that the
whole power of England, had it been directed to that single
purpose, could scarce perhaps have defended him for another
campaign.
The loss of the Portugal trade would, no doubt, have
occasioned a considerable embarrassment to the mer-
chants at that time engaged in it, who might not, perhaps,
have found out, for a year or two, any other equally advan-
tageous method of employing their capitals ; and in this
would probably have consisted all the inconveniency which
England could have suffered from this notable piece of com-
mercial policy.
The great annual importation of gold and silver is neither
for the purpose of plate nor of coin, but of foreign trade.
A round-about foreign trade of consumption can be carried
on more advantageously by means of these metals than of
almost any other goods. As they are the universal instru-
ments of commerce, they are more readily received in re-
turn for all commodities than any other goods ; and on ac-
count of their small bulk and great value, it costs less to
transport them backward and forward from one place to an-
other than almost any other sort of merchandize, and they
lose less of their value by being so transported. Of all the
commodities, therefore, which are bought in one foreign
country, for no other purpose but to be sold or exchanged
again for some other goods in another, there are none so
TREATIES OF COMMERCE 413
convenient as gold and silver. In facilitating all the different
round-about foreign trades of consumption which are car-
ried on in Great Britain, consists the principal advantage of
the Portugal trade; and though it is not a capital advantage,
it is, no doubt, a considerable one.
CHAPTER VII
Of Colonies
PART I
Of the Motives for Establishing new Colonies
THE interest which occasioned the first settlement of
the different European colonies in America and the
West Indies, was not altogether so plain and distinct
as that which directed the establishment of those of ancient
Greece and Rome.
All the different states of ancient Greece possessed, each
of them, but a very small territory, and when the people in
any one of them multiplied beyond what that territory could
easily maintain, a part of them were sent in quest of a new
habitation in some remote and distant part of the world;
the warlike neighbours who surrounded them on all sides,
rendering it difficult for any of them to enlarge very much
its territory at home. The colonies of the Dorians resorted
chiefly to Italy and Sicily, which, in the times preceding the
foundation of Rome, were inhabited by barbarous and un-
civilized nations: those of the lonians and Eolians, the two
other great tribes of the Greeks, to Asia Minor and the
islands of the Egean Sea, of which the inhabitants seem at
that time to have been pretty much in the same state as those
of Sicily and Italy. The mother city, though she consid-
ered the colony as a child, at all times entitled to great
favour and assistance, and owing in return much gratitude
and respect, yet considered it as an emancipated child, over
whom she pretended to claim no direct authority or juris-
diction. The colony settled its own form of government,
enacted its own laws, elected its own magistrates, and made
peace or war with its neighbours as an independent state,
414
MOTIVES FOR ESTABLISHING COLONIES 415
which had no occasion to wait for the approbation or con-
sent of the mother city. Nothing can be more plain and
distinct than the interest which directed every such estab-
lishment.
Rome, Hke most of the other ancient republics, was orig-
inally founded upon an Agrarian law, which divided the
public territory in a certain proportion among the different
citizens who composed the state. The course of human
affairs, by marriage, by succession, and by alienation, neces-
sarily deranged this original division, and frequently threw
the lands, which had been allotted for the maintenance of
many different families into the possession of a single per-
son. To remedy this disorder, for such it was supposed to
be, a law was made, restricting the quantity of land which
any citizen could possess to five hundred jugera, about three
hundred and fifty English acres. This law, however, though
we read of its having been executed upon one or two occa-
sions, was either neglected or evaded, and the inequality of
fortunes went on continually increasing. The greater part
of the citizens had no land, and without it the manners and
customs of those times rendered it difficult for a freeman to
maintain his independency. In the present times, though a
poor man has no land of his own, if he has a little stock, he
may either farm the lands of another, or he may carry on
some little retail trade ; and if he has no stock, he may find
employment either as a country labourer, or as an artificer.
But, among the ancient Romans, the lands of the rich were
all cultivated by slaves, who wrought under an overseer, who
was likewise a slave ; so that a poor freeman had little chance
of being employed either as a farmer or as a labourer. All
trades and manufactures too, even the retail trade, were
carried on by the slaves of the rich for the benefit of their
masters, whose wealth, authority, and protection made it
difficult for a poor freeman to maintain the competition
against them. The citizens, therefore, who had no land,
had scarce any other means of subsistence but the bounties
of the candidates at the annual elections. The tribunes,
when they had a mind to animate the people against the
rich and the great, put them in mind of the ancient division
of lands, and represented that law which restricted this sort
416 WEALTH OF NATIONS
of private property as the fundaiiieiual law of the republic.
The people became clamorous to get land, and the rich and
the great, we may believe, were perfectly determined not to
give them any part of theirs. To satisfy them in some meas-
ure, therefore, they frequently proposed to send out a new
colony. But conquering Rome was, even upon such occa-
sions, under no necessity of turning out her citizens to seek
their fortune, if one may say so, through the wide world,
without knowing where they were to settle. She assigned
them lands generally in the conquered provinces of Italy,
where, being within the dominions of the republic, they
could never form any independent state ; but were at best
but a sort of corporation, which, though it had the power of
enacting bye-laws for its own government, was at all times
subject to the correction, jurisdiction, and legislative
authority of the mother city. The sending out a colony of
this kind, not only gave some satisfaction to the people, but
often established a sort of garrison too in a newly conquered
province, of which the obedience might otherwise have been
doubtful. A Roman colony, therefore, whether we consider
the nature of the establishment itself, or the motives for mak-
ing it, was altogether different from a Greek one. The
words accordingly, which in the original languages denote
those different establishments, have very different meanings.
The Latin word (Colonia) signifies simply a plantation,
The Greek word (d.r.oix.id) on the contrary, signifies a sep-
aration of dwelling, a departure from home, a going out of
the house. But, though the Roman colonies were in many
respects different from the Greek ones, the interest which
prompted to establish them was equally plain and distinct.
Both institutions derived their origin either from irresistible
necessity, or from clear and evident utility.
The establishment of the European colonies in America
and the West Indies arose from no necessity : and though
the utility which has resulted from them has been very great,
it is not altogether so clear and evident. It was not under-
stood at their first establishment, and was not the motive
either of that establishment or of the discoveries which gave
occasion to it ; and the nature, extent, and limits of that
utility are not, perhaps, well understood at this day.
MOTIVES FOR ESTABLISHING COLONIES 417
The Venetians, during the fourteenth and fifteenth cen-
turies, carried on a very advantageous commerce in spiceries,
and other East India goods, which they distributed among the
other nations of Europe. They purchased them chiefly in
Egypt, at that time under the dominion of the Mammeluks,
the enemies of the Turks, of whom the Venetians were the
enemies; and this union of interest, assisted by the money of
Venice, formed such a connection as gave the Venetians
almost a monopoly of the trade.
The great profits of the Venetians tempted the avidity of
the Portuguese. They had been endeavouring, during the
course of the fifteenth century, to find out by sea a way to the
countries from which the Moors brought them ivory and gold
dust across the Desart. They discovered the Madeiras, the
Canaries, the Azores, the Cape de Verd islands, the coast of
Guinea, that of Loango, Congo, Angola, and Benguela, and
finally, the Cape of Good Hope. They had long wished to
share in the profitable traffic of the Venetians, and this last
discovery opened to them a probable prospect of doing so.
In 1497, Vasco de Gama sailed from the port of Lisbon with
a fleet of four ships, and, after a navigation of eleven months,
arrived upon the coast of Indostan, and thus completed a
course of discoveries which had been pursued with great
steadiness, and with very little interruption, for near a cen-
tury together
Some years before this, while the expectations of Europe
were in suspense about the projects of the Portuguese, of
which the success appeared yet to be doubtful, a Genoese
pilot formed the yet more daring project of sailing to the
East Indies by the West. The situation of those countries
was at that time very imperfectly known in Europe. The
few European travellers who had been there had magnified
the distance ; perhaps through simplicity and ignorance, what
was really very great, appearing almost infinite to those who
could not measure it ; or, perhaps, in order to increase some-
what more the marvellous of their own adventures in visiting
regions so immensely remote from Europe. The longer the
way was by the East, Columbus very justly concluded, the
shorter it would be by the West. He proposed, therefore, to
take that way, as both the shortest and the surest, and he
N — HC X
418 WEALTH OF NATIONS
liad the good fortune to convince Isabella of Castile of the
probability of his project. He sailed from the port of Palos
in August, 1492, near five years before the expedition of
Vasco de Gama set out from Portugal, and, after a voyage of
between two and three months, discovered first some of the
small Bahama or Lucayan islands, and afterwards the great
island of St. Domingo.
But the countries which Columbus discovered, either in
this or in any of his subsequent voyages, had no resemblance
to those which he had gone in quest of. Instead of the
wealth, cultivation and populousness of China and Indostan,
he found, in St. Domingo, and in all the other parts of the
new world which he ever visited, nothing but a country quite
covered with wood, uncultivated, and inhabited only by some
tribes of naked and miserable savages. He was not very
willing, however, to believe that they were not the same with
some of the countries described by Marco Polo, the first
European who had visited, or at least had left behind him
any description of China or the East Indies ; and a very slight
resemblance, such as that which he found between the name
of Cibao, a mountain in St. Domingo, and that of Cipango,
mentioned by Marco Polo, was frequently sufficient to make
him return to this favourite prepossession, though contrary
to the clearest evidence. In his letters to Ferdinand and
Isabella he called the countries which he had discovered, the
Indies. He entertained no doubt but that they were the ex-
tremity of those which had been described by Marco Polo,
and that they were not very distant from the Ganges, or
from the countries which had been conquered by Alexander,
Even when at last convinced that they were different, he
still flattered himself that those rich countries were at no
great distance, and in a subsequent voyage, accordingly, went
in quest of them along the coast of Terra Firma, and towards
the isthmus of Darien.
In consequence of this mistake of Columbus, the name of
the Indies has stuck to those unfortunate countries ever
since ; and when it was at last clearly discovered that the
new were altogether different from the old Indies, the former
were called the West, in contradistinction to the latter, which
were called the East Indies.
MOTIVES FOR ESTABLISHING COLONIES 419
It was of importance to Columbus, however, that the coun-
tries which he had discovered, whatever they were, should be
represented to the court of Spain as of very great conse-
quence ; and, in what constitutes the real riches of every
country, the animal and vegetable productions of the soil,
there was at that time nothing which could well justify such
a representation of them.
The Cori, something between a rat and a rabbit, and sup-
posed by Mr. Buffon to be the same with the Aperea of
Brazil, was the largest viviparous quadruped in St. Domingo,
This species seems never to have been very numerous, and
the dogs and cats of the Spaniards are said to have long ago
almost entirely extirpated it, as well as some other tribes of
a still smaller size. These, however, together with a pretty
large lizard, called the Ivana or Iguana, constituted the prin-
cipal part of the animal food which the land afforded.
The vegetable food of the inhabitants, though from their
want of industry not very abundant, was not altogether so
scanty. It consisted in Indian corn, yams, potatoes, bananas,
&c. plants which were then altogether unknown in Europe,
and which have never since been very much esteemed in it,
or supposed to yield a sustenance equal to what is drawn
from the common sorts of grain and pulse, which have been
cultivated in this part of the world time out of mind.
The cotton plant indeed afforded the material of a very
important manufacture, and was at that time to Europeans
undoubtedly the most valuable of all the vegetable produc-
tions of those islands. But though in the end of the fifteenth
century the muslins and other cotton goods of the East Indies
were much esteemed in every part of Europe, the cotton
manufacture itself was not cultivated in any part of it. Even
this production, therefore, could not at that time appear in
the eyes of Europeans to be of very great consequence.
Finding nothing either in the animals or vegetables of the
newly discovered countries, which could justify a very advan-
tageous representation of them, Columbus turned his view
towards their minerals; and in the richness of the production
of this third kingdom, he flattered himself, he had found a
full compensation for the insignificancy of those of the other
two. The little bits of gold with which the inhabitants orna-
420 WEALTH OF NATIONS
merited their dress, and which, he was informed, they fre-
quently found in the rivulets and torrents that fell from the
mountains, were sufficient to satisfy him that those mountains
abounded with the richest gold mines. St. Domingo, there-
fore, was represented as a country abounding with gold, and,
upon that account (according to the prejudices not only of
the present times, but of those times), an inexhaustible source
of real wealth to the crown and kindom of Spain. When
Columbus, upon his return from his first voyage, was intro-
duced with a sort of triumphal honours to the sovereigns of
Castile and Arragon, the principal productions of the coun-
tries which he had discovered were carried in solemn pro-
cession before him. The only valuable part of them con-
sisted in some little fillets, bracelets, and other ornaments of
gold, and in some bales of cotton. The rest were mere ob-
jects of vulgar wonder and curiosity ; some reeds of an ex-
traordinary size, some birds of a very beautiful plumage,
and some stuffed skins of the huge alligator and manati ; all
of which were preceded by six or seven of the wretched na-
tives, whose singular colour and appearance added greatly to
the novelty of the shew.
In consequence of the representations of Columbus, the
council of Castile determined to take possession of countries
of which the inhabitants were plainly incapable of defending
themselves. The pious purpose of converting them to Chris-
tianity sanctified the injustice of the project. But the hope
of finding treasures of gold there, was the sole motive which
prompted to undertake it ; and to give this motive the greater
weight, it was proposed by Columbus that the half of all the
gold and silver that should be found there should belong to
the crown. This proposal was approved of by the council.
As long as the whole or the far greater part of the gold,
which the first adventurers imported into Europe, was got
by so very easy a method as the plundering of the defenceless
natives, it was not perhaps very difficult to pay even this
heavy tax. But when the natives were once fairly stript of
all that they had, which, in St. Domingo, and in all the other
countries discovered by Columbus, was done completely in
six or eight years, and when in order to find more it had be-
come necessary to dig for it in the mines, there was no longer
MOTIVES FOR ESTABLISHING COLONIES 421
any possibility of paying this tax. The rigorous exaction of
it, accordingly, first occasioned, it is said, the total abandon-
ing of the mines of St. Domingo, which have never been
wrought since. It was soon reduced therefore to a third;
then to a fifth ; afterwards to a tenth ; and at last to a twen-
tieth part of the gross produce of the gold mines. The tax
upon silver continued for a long time to be a fifth of the
gross produce. It was reduced to a tenth only in the course
of the present century. But the first adventurers do not
appear to have been much interested about silver. Nothing
less precious than gold seemed worthy of their attention.
All the other enterprises of the Spaniards in the new
world, subsequent to those of Columbus, seem to have been
prompted by the same motive. It was the sacred thirst of
gold that carried Oieda, Nicuessa, and Vasco Nugnes de
Balboa, to the isthmus of Darien, that carried Cortez to
Mexico, and Almagro and Pizzarro to Chili and Peru. When
those adventurers arrived upon any unknown coast, their
first enquiry was always if there was any gold to be found
there ; and according to the information which they received
concerning this particular, they determined either to quit the
country or to settle in it.
Of all those expensive and uncertain projects, however,
which bring bankruptcy upon the greater part of the people
who engage in them, there is none perhaps more perfectly
ruinous than the search after new silver and gold mines. It
is perhaps the most disadvantageous lottery in the world, or
the one in which the gain of those who draw the prizes bears
the least proportion to the loss of those who draw the blanks ;
for though the prizes are few and the blanks many, the com-
mon price of a ticket is the whole fortune of a very rich man.
Projects of mining, instead of replacing the capital employed
in them, together with the ordinary profits of stock, com-
monly absorb both capital and profit. They are the projects,
therefore, to which of all others a prudent law-giver, who
desired to increase the capital of his nation, would least chuse
to give any extraordinary encouragement, or to turn towards
them a greater share of that capital than what would go to
them of its own accord. Such in reality is the absurd con-
fidence which almost all men have in their own good fortune.
422 WEALTH OF NATIONS
that v.'herever there is the least probability of success, too
great a share of it is apt to go to them of its own accord.
But though the judginent of sober reason and experience
concerning such projects has always been extremely un-
favourable, that of human avidity has commonly been quite
otherwise. The same passion which has suggested to so
many people the absurd idea of the philosopher's stone, has
suggested to others the equally absurd one of immense rich
mines of gold and silver. They did not consider that the
value of those metals has, in all ages and nations, arisen
chiefly from their scarcity, and that their scarcity has arisen
from the very small quantities of them which nature has any
where deposited in one place, from the hard and intractable
substances with which she has almost every where sur-
rounded those small quantities, and consequently from the
labour and expence which are every where necessary in order
to penetrate to and get at them. They flattered themselves
that veins of those metals might in many places be found as
large and as abundant as those which are commonly found of
lead, or copper, or tin, or iron. The dream of Sir Walter
Raleigh concerning the golden city and country of Eldorado,
may satisfy us, that even wise men are not always exempt
from such strange delusions. More than a hundred years
after the death of that great man, the Jesuit Gumila was still
convinced of the reality of that wonderful country, and ex-
pressed with great warmth, and I dare to say, with great sin-
cerity, how happy he should be to carry the light of the gospel
to a people who could so well reward the pious labours of
their missionary.
In the countries first discovered by the Spaniards, no gold
or silver mines are at present known which are supposed to
be worth the working. The quantities of those metals which
the first adventurers are said to have found there, had prob-
ably been very much magnified, as well as the fertility of the
mines which were wrought immediately after the first dis-
covery. What those adventurers were reported to have
found, however, was sufficient to inflame the avidity of all
their countrymen. Every Spaniard who sailed to America
expected to find an Eldorado. Fortune too did upon this
what she has done upon very few other occasions. She real-
MOTIVES FOR ESTABLISHING COLONIES 423
ized in some measure the extravagant hopes of her votaries,
and in the discovery and conquest of IMexico and Peru (of
which the one happened about thirty, the other about forty
years after the first expedition of Columbus), she presented
them with something not very unlike that profusion of the
precious metals which they sought for. ' • ,;
A project of commerce to the East Indies, therefore, gave
occasion to the first discovery of the West. A project of
conquest gave occasion to all the establishments of the Span-
iards in those newly discovered countries. The motive which
excited them to this conquest was a project of gold and silver
mines; and a course of accidents, which no human wisdom
could foresee, rendered this project much more successful
than the undertakers had any reasonable grounds for ex-
pecting.
The first adventurers of all the other nations of Europe,
who attempted to make settlements in America, were ani-
mated by the like chimerical views ; but they were not equally
successful. It was more than a hundred years after the first
settlement of the Brazils, before any silver, gold, or diamond
mines were discovered there. In the English, French, Dutch,
and Danish colonies, none have ever yet been discovered; at
least none that are at present supposed to be worth the work-
ing. The first English settlers in North America, however,
offered a fifth of all the gold and silver which should be
found there to the king, as a motive for granting them their
patents. In the patents to Sir Walter Raleigh, to the Lon-
don and Plymouth companies, to the council of Plymouth,
&c. this fifth was accordingly reserved to the crown. To the
expectation of finding gold and silver mines, those first sett'ers
too joined that of discovering a north-west passage to the
E^st Indies. They have hitherto been disappointed in both.
CHAPTER VIII
Conclusion of the Mercantile System
THOUGH the encouragement of exportation, and the
discouragement of importation, are the two great en-
gines by which the mercantile system proposes to en-
rich every country, yet with regard to some particular com-
modities, it seems to follow an opposite plan: to discourage
exportation and to encourage importation. Its ultimate ob-
ject, however, it pretends, is always the same, to enrich the
country by an advantageous balance of trade. It discourages
the exportation of the materials of manufacture, and of the
instruments of trade, in order to give our own workmen an
advantage, and to enable them to undersell those of other
nations in all foreign markets ; and by restraining, in this
manner, the exportation of a few commodities, of no great
price, it proposes to occasion a much greater and more valu-
able exportation of others. It encourages the importation of
the materials of manufacture, in order that our own people
may be enabled to work them up more cheaply, and thereby
prevent a greater and more valuable importation of the manu-
factured commodities. I do not observe, at least in our
Statute Book, any encouragement given to the importation of
the instruments of trade. When manufactures have advanced
to a certain pitch of greatness, the fabrication of the instru-
ments of trade becomes itself the object of a great number
of very important manufactures. To give any particular
encouragement to the importation of such instruments, would
interfere too much with the interest of those manufactures.
Such importation, therefore, instead of being encouraged, has
frequently been prohibited. Thus the importation of wool
cards, except from Ireland, or when brought in as wreck or
prize goods, was prohibited by the 3d of Edward IV.,
which prohibition was renewed by the 39th of Elizabeth,
424
CONCLUSION OF MERCANTILE SYSTEM 425
and has been continued and rendered perpetual by subse-
quent laws.
The importation of the materials of manufacture has some-
times been encouraged by an exemption from the duties to
which other goods are subject, and sometimes by bounties.
The importation of sheep's wool from several different
countries, of cotton wool from all countries, of undressed
flax, of the greater part of dying drugs, of the greater part
of undressed hides from Ireland or the British colonies, of
seal skins from the British Greenland fishery, of pig and bar
iron from the British colonies, as well as of several other
materials of manufacture, has been encouraged by an ex-
emption from all duties, if properly entered at the custom-
house. The private interest of our merchants and manufac-
turers may, perhaps, have extorted from the legislature these
exemptions, as well as the greater part of our other com-
mercial regulations. They are, however, perfectly just and
reasonable, and if, consistently with the necessities of the
state, they could be extended to all the other materials of
manufacture, the public would certainly be a gainer.
The avidity of our great manufacturers, however, has in
some cases extended these exemptions a good deal beyond
what can justly be considered as the rude materials of their
work. By the 24 Geo. II. chap 46, a small duty of only one
penny the pound was imposed upon the importation of foreign
brown linen yarn, instead of much higher duties to which it
had been subjected before, viz. of sixpence the pound upon
sail yarn, of one shilling the pound upon all French and
Dutch yarn, and of two pounds thirteen shillings and four-
pence upon the hundred weight of all spruce or Muscovia
yarn. But our manufacturers were not long satisfied with
this reduction. By the 29th of the same king, chap. 15, the
same law which gave a bounty upon the exportation of Brit-
ish and Irish linen of which the price did not exceed eighteen
pence the yard, even this small duty upon the importation of
brown linen yarn was taken away. In the different opera-
tions, however, which aje necessary for the preparation of
linen yarn, a good deal more industry is employed, than in
the subsequent operation of preparing linen cloth from linen
yarn. To say nothing of the industry of the flax-growers
426 WEALTH OF NATIONS
and flax-dressers, three or four spinners, at least, are neces-
sary, in order to keep one weaver in constant employment;
and more than four-fifths of the whole quantity of labour,
necessary for the preparation of linen cloth, is employed in
that of linen yarn; but our spinners are poor people, women
commonly, scattered about in all different parts of the coun-
try, without support or protection. It is not by the sale of
their work, but by that of the complete work of the weavers,
t!:r.t our great master manufacturers make their profits. As
it is their interest to sell the complete manufacture as dear,
so is it to buy the materials as cheap as possible. By extort-
ing from the legislature bounties upon the exportation of their
own linen, high duties upon the importation of all foreign
linen, and a total prohibition of the home consumption of
some sorts of French linen, they endeavour to sell their own
goods as dear as possible. By encouraging the importation
of foreign linen yarn, and thereby bringing it into compe-
tition with that which is m.ade by our own people, they en-
deavour to buy the work of the poor spinners as cheap as
possible. They are as intent to keep down the wages of their
own weavers, as the earnings of the poor spinners, and it is
by no means for the benefit of the workman, that they en-
deavour either to raise the price of the complete work, or to
lower that of the rude materials. It is the industry which is
carried on for the benefit of the rich and the powerful, that
is principally encouraged by our mercantile system. That
which is carried on for the benefit of the poor and the in-
digent, is too often, either neglected, or oppressed.
Both the bounty upon the exportation of linen, and the
exemption from duty upon the importation of foreign yarn,
which were granted only for fifteen years, but continued by
two different prolongations, expire with the end of the ses-
sion of parliament which shall immediately follow the 24th
of June 1786.
The encouragement given to the importation of the ma-
terials of manufacture by bounties, has been principally con-
fined to such as were imported from our American planta-
tions.
The first bounties of this kind were those granted, about the
beginning of the present century, upon the importation of
CONCLUSION OF MERCANTII^E SYSTEM 427
naval stores from America. Under this denomination were
comprehended timber fit for masts, yards, and bowsprits ;
hemp ; tar, pitch, and turpentine. The bounty, however, of
one pound the ton upon masting-timber, and that of six
pounds the ton upon hemp, were extended to such as should
be imported into England from Scotland. Both these boun-
ties continued without any variation, at the same rate, till
they were severally allowed to expire ; that upon hemp on
the 1st of January 1741, and that upon masting-timber at the
end of the session of parliament immediately following the
24th June 1 78 1.
The bounties upon the importation of tar, pitch, and tur-
pentine underwent, during their continuance, several altera-
tions. Originally that upon tar was four pounds the ton ;
that upon pitch the same ; and that upon turpentine, three
pounds the ton. The bounty of four pounds the ton upon
tar was afterwards confined to such as had been prepared in
a particular manner ; that upon other good, clean, and mer-
chantable tar was reduced to two pounds four shillings the
ton. The bounty upon pitch was likewise reduced to one
pound ; and that upon turpentine to one pound ten shillings
the ton.
The second bounty upon the importation of any of the
materials of manufacture, according to the order of time,
was that granted by the 21 Geo. II. chap 30. upon the im-
portation of indigo from the British plantations. When the
plantation indigo was worth three-fourths of the price of the
best French indigo, it was by this act entitled to a bounty of
sixpence the pound. This bounty, which, like most others,
was granted only for a limited time, v/as continued by several
prolongations, but was reduced to four pence the pound. It
was allowed to expire with the end of the session of parlia-
ment which followed the 25th March 1781.
The third bounty of this kind was that granted (much
about the time that we were beginning sometimes to court
and sometimes to quarrel with our American colonies) by the
4 Geo. III. chap. 26. upon the importation of hemp, or un-
dressed flax, from the British plantations. This bounty was
granted for twenty-one. years, from the 24th June 1764, to
the 2.4th June 1785. For the first seven years it was to be at
428 WEALTH OF NATIONS
the rate of eight pounds the ton, for the second at six pounds,
and for the third at four pounds. It was not extended to
Scotland, of which the cHmate (although hemp is sometimes
raised there, in small quantities and of an inferior quality)
is not very fit for that produce. Such a bounty upon the im-
portation of Scotch flax into England would have been too
great a discouragement to the native produce of the southern
part of the united kingdom.
The fourth bounty of this kind, was that granted by the
5 Geo. III. chap. 45. upon the importation of wood from
America. It was granted for nine years, from the ist Janu-
ary 1766, to the 1st January 1775. During the first three
years, it was to be for every hundred and twenty good deals,
at the rate of one pound; and for every load containing fifty
cubic feet of other squared timber at the rate of twelve shil-
lings. For the second three years, it was for deals to be at
the rate of fifteen shillings, and for other squared timber, at
the rate of eight shillings ; and for the third three years, it
was for deals, to be at the rate of ten shillings, and for other
squared timber, at the rate of five shillings.
The fifth bounty of this kind, was that granted by the
9 Geo. III. chap. 38. upon the importation of raw silk from
the British plantations. It was granted for twenty-one yearj,
from the ist January 1770, to the 1st January 1791. For the
first seven years it was to be at the rate of twenty-five pounds
for every hundred pounds value ; for the second, at twenty
pounds ; and for the third at fifteen pounds. The manage-
ment of the silk-worm, and the preparation of silk, requires
so much hand labour ; and labour is so very dear in America,
that even this great bounty, I have been informed, was not
likely to produce any considerable effect.
The sixth bounty of this kind, was that granted by 11 Geo,
III. chap. 50. for the importation of pipe, hogshead, and bar-
rel staves and heading from the British plantations. It was
granted for nine years, from ist January 1772, to the ist
January 1781. For the first three years, it was for a certain
quantity of each, to be at the rate of six pounds ; for the sec-
ond three years, at four pounds ; and for the third three years,
at two pounds.
The seventh and last bounty of this kind, was that granted
CONCLUSION OF MERCANTILE SYSTEM 429
bv the 19 Geo. HI. chap. 37. upon the importation of hemp
from Ireland. It was granted in the same manner as that for
the importation of hemp and undressed flax from America,
for twenty-one years, from the 24th June 1779, to the 24th
June 1800. This term is divided, Hkewise, into three periods
of seven years each; and in each of those periods, the rate
of the Irish bounty is the same with that of the American.
It does not, however, like the American bounty, extend to
the importation of undressed flax. It would have been too
great a discouragement to the cultivation of that plant in
Great Britain. When this last bounty was granted, the Brit-
ish and Irish legislatures were not in much better humour
with one another, than the British and American had been
before. But this boon to Ireland, it is to be hoped, has been
granted under more fortunate auspices, than all those to
America.
The same commodities upon which we thus gave bounties,
when imported from America, were subjected to considerable
duties when imported from any other country. The interest
of our American colonies was regarded as the same with that
of the mother country. Their wealth was considered as our
wealth. Whatever money was sent out to them, it was said,
came all back to us by the balance of trade, and we could
never become a farthing the poorer, by any expence which
we could lay out upon them. They were our own in every
respect, and it was an expence laid out upon the improvement
of our own property, and for the profitable employment of
our own people. It is unnecessary, I apprehend, at present
to say any thing further, in order to expose the folly of a
system, which fatal experience has now sufficiently exposed.
Had our American colonies really been a part of Great
Britain, those bounties might have been considered as boun-
ties upon production, and would still have been liable to all
the objections to which such bounties are liable, but to no
other.
The exportation of the materials of manufacture is some-
times discouraged by absolute prohibitions, and sometimes
by high duties.
Our woollen manufacturers have been more successful than
any other class of workmen, in persuading the legislature that
430 WEALTH OF NATIONS
the prosperity of the nation depended upon the success and
extension of their particular business. They have not only
obtained a monopoly against the consumers by an absolute
prohibition of importing woollen cloths from any foreign
country; but they have likewise obtained another monopoly
against the sheep farmers and growers of wool, by a similar
prohibition of the exportation of live sheep and wool. The
severity of many of the laws which have been enacted for
the security of the revenue is very justly complained of, as
imposing heavy penalties upon actions which, antecedent to
the statutes that declared them to be crimes, had always been
understood to be innocent. But the cruellest of our revenue
laws, I will venture to affirm, are mild and gentle, in com-
parison of some of those which the clamour of our merchants
and manufacturers have extorted from the legislature, for the
support of their own absurd and oppressive monopolies. Like
the laws of Draco, these laws may be said to be all written
in blood.
By the 8th of Elizabeth, chap. 3. the exporter of sheep,
lambs or rams, was for the first offence to forfeit all his
goods for ever, to suffer a year's imprisonment, and then to
have his left hand cut off in a market town upon a market
day, to be there nailed up; and for the second offence to be
adjudged a felon, and to suffer death accordingly. To pre-
vent the breed of our sheep from being propagated in foreign
countries, seems to have been the object of this law. By the
13th and 14th of Charles II. chap. 18. the exportation of wool
was made felony, and the exporter subjected to the same
penalties and forfeitures as a felon.
For the honour of the national humanity, it is to be hoped
that neither of these statutes were ever executed. The first
of them, however, so far as I know, has never been directly
repealed, and Serjeant Hawkins seems to consider it as still
in force. It may however, perhaps, be considered as virtually
repealed by the 12th of Charles II. chap. 32. sect. 3. which,
without expressly taking away the penalties imposed by for-
mer statutes, imposes a new penalty, viz. That of twenty
shillings for every sheep exported, or attempted to be ex-
ported, together with the forfeiture of the sheep and of the
owner's share of the ship. The second of them was expressly
CONCLUSION OF MERCANTILE SYSTEM 431
repealed by the 7th and 8th of William III. chap. 28. sect. 4,
By which it is declared that, "Whereac the statute of the
13th and 14th of King Charles II. made against the exporta-
tion of wool, among other things in the said act mentioned,
doth enact the same to be deemed felony; by the severity of
which penalty the prosecution of offenders hath not been so
effectually put in execution : Be it, therefore, enacted by
the authority foresaid, that so much of the said act, which
relates to the making the said offence felony, be repealed
and made void."
The penalties, however, which are either imposed by this
milder statute, or which, though imposed by former statutes,
are not repealed by this one, are still sufficiently severe. Be-
sides the forfeiture of the goods, the exporter incurs the
penalty of three shillings for every pound weight of wool
either exported or attempted to be exported, that is about
four or five times the value. Any merchant or other person
convicted of this offence is disabled from requiring any debt
or account belonging to him from any factor or other person.
Let his fortune be what it wil], whether he is, or is not able
to pay those heavy penalties, the law means to ruin him com-
pletely. But as the morals of the great body of the people
are not yet so corrupt as those of the contrivers of this stat-
ute, I have not heard that any advantage has- ever been taken
of this clause. If the person convicted of this offence is not
able to pay the penaltie,'^ within three months after judgment,
he is to be transported for seven years, and if he returns be-
fore the expiration of that term, he is liable to the pains of
felony, without benefit of clergy. The owner of the ship
knowing this offence forfeits all his interest in the ship and
furniture. The master and mariners knowing this offence
forfeit all their goods and chattels, and suffer three months
imprisonment. By a subsequent statute the master suffers
six months imprisonment.
In order to prevent exportation, the whole inland commerce
of wool is laid under very burdensome and oppressive restric-
tions. It cannot be packed in any box, barrel, cask, case,
chest, or any other package, but only in packs of leather or
pack-cloth, on which mnst be marked on the outside the words
zvool or yarn, in large letters not less than three inches long,
432 WEALTH OF NATIONS
on pain of forfeiting the same and the package, and three
shillings for every pound weight, to be paid by the owner or
packer. It cannot be loaden on any horse or cart, or carried
by land within five miles of the coast, but between sun-rising
and sun-setting, on pain of forfeiting the same, the horses
and carriages. The hundred next adjoining to the sea coast,
out of or through which the wool is carried or exported, for-
feits twenty pounds, if the wool is under the value of ten
pounds ; and if of greater value, then treble that value, to-
gether with treble costs, to be sued for within the year. The
execution to be against any two of the inhabitants, whom the
sessions must reimburse, by an assessment on the other in-
habitants, as in the cases of robbery. And if any person com-
pounds with the hundred for less than this penalty, he is to be
imprisoned for five years ; and any other person may prose-
cute. These regulations take place through the whole king-
dom.
But in the particular counties of Kent and Sussex the re-
strictions are still more troublesome. Every owner of wool
within ten miles of the sea-coast must give an account in writ-
ing, three days after shearing, to the next officer of the cus-
toms, of the number of his fleeces, and of the places where
they are lodged. And before he removes any part of them he
must give the like notice of the number and weight of the
fleeces, and of the name and abode of the person to whom
they are sold, and of the place to which it is intended they
should be carried. No person within fifteen miles of the sea,
in the said counties, can buy any wool, before he enters into
bond to the king, that no part of the wool which he shall so
buy shall be sold by him to any other person within fifteen
miles of the sea. If any wool is found carrying towards the
sea-side in the said counties, unless it has been entered and
security given as aforesaid, it is forfeited, and the offender
also forfeits three shillings for every pound weight. If any
person lays any wool, not entered as aforesaid, within fifteen
miles of the sea, it must be seized and forfeited; and if, after
such seizure, any person shall claim the same, he must give
security to the Exchequer, that if he is cast upon trial he
shall pay treble costs, besides all other penalties.
When such restrictions are imposed upon the inland trade.
CONCLUSION OF MERCANTILE SYSTEM 433
the coasting trade, we may believe, cannot be left very free.
Every owner of wool who carrieth or causeth to be carried
any wool to any port or place on the sea-coast, in order to
be from thence transported by sea to any other place or port
on the coast, must first cause an entry thereof to be made
at the port from whence it is intended to be conveyed, con-
taining the weight, marks, and number of the packages be-
fore he brings the same within five miles of that port; on
pain of forfeiting the same, and also the horses, carts, and
other carriages; and also of suffering and forfeiting, as by
the other laws in force against the exportation of wool.
This law, however, (i Will. IIL chap. 32.) is so very indul-
gent as to declare, that "this shall not hinder any person
"from carrying his wool home from the place of shearing,
"though it be within five miles of the sea, provided that in
"ten days after shearing, and before he remove the wool, he
"do under his hand certify to the next officer of the customs,
"the true number of fleeces, and where it is housed ; and do
"not remove the same, without certifying to such officer,
"under his hand, his intention so to do, three days before."
Bond must be given that the wool to be carried coast-ways
is to be landed at the particular port for which it is entered
outwards; and if any part of it is landed without the presence
of an oflicer, not only the forfeiture of the wool is incurred
as in other goods, but the usual additional penalty of three
sh'llings for every pound weight is likewise incurred.
Our woollen manufacturers, in order to justify their de-
mand of such extraordinary restrictions and regulations,
confidently asserted, that English wool was of a pecuhar
quality, superior to that of any other country; that the wool
of other countries could not, without some mixture of it, be
wrought up into any tolerable manufacture; that fine cloth
could not be made without it; that England, therefore, if the
exportation of it could be totally prevented, could monopo-
lize to herself almost the whole wollen trade of the world;
and thus, having no rivals, could sell at what price she
pleased, and in a short time acquire the most incredible de-
gree of wealth by the most advantageous balance of trade.
This doctrine, like most other doctrines which are confidently
asserted by any considerable number of people, was, and still
434 WEALTH OF NATIONS
continues to be, most implicitly believed by a much greater
number; by almost all those who are either unacquainted
with the woollen trade, or who have not made particular en-
quiries. It is, however, so perfectly false, that English wool
is in any respect necessary for the making of fine cloth, that
it is altogether unfit for it. Fine cloth is made altogether of
Spanish wool. English wool cannot be even so mixed with
Spanish wool as to enter into the composition without spoil-
ing and degrading, in some degree, the fabric of the cloth.
It has been shown in the foregoing part of this work, that
the effect of these regulations has been to depress the price
of English wool, not only below what it naturally would be
in the present times, but very much below what it actually
was in the time of Edward III. The price of Scots wool,
when in consequence of the union it became subject to the
same regulations, is said to have fallen about one half. It is
observed by the very accurate and intelligent author of the
Memoirs of Wool, the Reverend Mr. John Smith, that the
price of the best English wool in England is generally be-
low what wool of a very inferior quality commonly sells for
in the market of Amsterdam. To depress the price of this
commodity below what may be called its natural and proper
price, was the avowed purpose of those regulations; and
there seems to be no doubt of their having produced the effect
that was expected from them.
This reduction of price, it may perhaps be thought, by
discouraging the growing of wool, must have reduced very
much the annual produce of that commodity, though not be-
low what it formerly was, yet below what, in the present
state of things, it probably would huve been, had it, in conse-
quence of an open and free market, been allowed to rise to
the natural and proper price. I am, however, disposed to be-
lieve, that the quantity of the annual produce cannot have
been much, though it may perhaps have been a little, af-
fected by these regulations. The growing of wool is not
the chief purpose for which the sheep farmer employs his
industry and stock. He expects his profit, not so much from
the price of the fleece, as from that of the carcase; and the
average or ordinary price of the latter, must even, in many
cases, make up to him whatever deficiency there may be in
CONCLUSION OF MERCANTILE SYSTEM 435
the average or ordinary price of the former. It has been
observed in the foregoing part of this work, that "What-
"ever regulations tend to sink the price, either of wool or
"raw hides, below what it naturally would be, must, in an
"improved and cultivated country, have some tendency to
"raise the price of butchers meat. The price both of the
"great and small cattle which are fed on improved and cul-
"tivated land, must be sufficient to pay the rent which the
''landlord, and the profit which the farmer has reason 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, provided it is
"all paid to them. In an improved and cultivated country,
"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." Ac-
cording to this reasoning, therefore, this degradation in the
price of wool is not likely, in an improved and cultivated
country, to occasion any diminution in the annual produce
of that commodity; except so far as by raising the price
of mutton, it may somewhat diminish the demand for, and
consequently the production of, that particular species of
butchers meat. Its effect, however, even in this way, it is
probable, is not very considerable.
But though its eft'ect upon the quantity of the annual prod-
uce may not have been very considerable, its effect upon the
quality, it may perhaps be thought, must necessarily have
been very great. The degradation in the quality of English
wool, if not below what it was in former times, yet below
what it naturally would have been in the present state of im-
provement and cultivation, must have been, it may perhaps be
supposed, very nearly in proportion to the degradation of
price. As the quality depends upon the breed, upon the
pasture, and upon the management and cleanliness of the
sheep, during the whole progress of the growth of the fleece,
the attention to these circumstances, it may naturally enough
436 WEALTH OF NATIONS
be imagined, can never be greater than in proportion to the
reconipence which the price of the fleece is likely to make
for the labour and expence which that attention requires.
It happens, however, that the goodness of the fleece depends,
in a great measure, upon the health, growth, and bulk of the
animal ; the same attention which is necessary for the im-
provement of the carcase, is, in some respects, sufficient for
that of the fleece. Notwithstanding the degradation of price,
English wool is said to have been improved considerably
during the course even of the present century. The im-
provement might perhaps have been greater if the price
had been better ; but the lowness of price, though it may have
obstructed, yet certainly it has not altogether prevented that
improvement.
The violence of these regulations, therefore, seems to have
affected neither the quantity nor the quality of the annual
produce of wool so much as it might have been expected
to do (though I think it probable that it may have affected
the latter a good deal more than the former) ; and the inter-
est of the growers of wool, though it must have been hurt
in some degree, seems, upon the whole, to have been much
less hurt than could well have been imagined.
These considerations, however, will not justify the abso-
lute prohibition of the exportation of wool. But they will
fully justify the imposition of a considerable tax upon that
exportation.
To hurt in any degree the interest of any one order of
citizens, for no other purpose but to promote that of some
other, is evidently contrary to that justice and equality of
treatment which the sovereign owes to all the different
orders of his subjects. But the prohibition certainly hurts,
in some degree, the interest of the growers of wool, for no
other purpose but to promote that of the manufacturers.
Every different order of citizens is bound to contribute to
the support of the sovereign or commonwealth. A tax of
five, or even of ten shillings upon the exportation of every
tod of wool, would produce a very considerable revenue to
the sovereign. It would hurt the interest of the growers
somewhat less than the prohibition, because it would not
probably lower the price of wool quite so much. It would
CONCLUSION OF MERCANTILE SYSTEM 437
afford a sufficient advantage to the manufacturer, because,
though he might not buy his wool altogether so cheap as
under the prohibition, he would still buy it, at least, five
or ten shillings cheaper than any foreign manufacturer
could buy it, besides saving the freight and insurance, which
the other would be obliged to pay. It is scarce possible to
devise a tax which could produce any considerable revenue
to the sovereign, and at the same time occasion so little
inconveniency to any body.
The prohibition, notwithstanding all the penalties which
guard it, does not prevent the exportation of wool. It is
exported, it is well known, in great quantities. The great
difference between the price in the home and that in the for-
eign market, presents such a temptation to smuggling, that
all the rigour of the law cannot prevent it. This illegal
exportation is advantageous to nobody but the smuggler.
A legal exportation subject to a tax, by affording a revenue
to the sovereign, and thereby saving the imposition of some
other, perhaps, more burdensome and inconvenient taxes,
might prove advantageous to all the different subjects of the
state.
The exportation of fuller's earth, or fuller's clay, sup-
posed to be necessary for preparing and cleansing the woollen
manufactures, has been subjected to nearly the same pen-
alties as the exportation of wool. Even tobacco-pipe clay,
though acknowledged to be different from fuller's clay, yet,
on account of their resemblance, and because fuller's clay
might sometimes be exported as tobacco-pipe clay, has been
laid under the same prohibitions and penalties.
By the 13th and 14th of Charles II. chap. 7. the exporta-
tion, not only of raw hides, but of tanned leather, except
in the shape of boots, shoes, or slippers, was prohibited ; and
the law gave a monopoly to our boot-makers and shoe-mak-
ers, not only against our graziers, but against our tanners.
By subsequent statutes, our tanners have got themselves ex
empted from this monopoly, upon paying a small tax of only
one shilling on the hundred weight of tanned leather, weigh-
ing one hundred and twelve pounds. They have obtained
likewise the drawback of two-thirds of the excise duties
imposed upon their commodity, even when exported without
438 WEALTH OF NATIONS
further manufacture. All manufactures of leather may be
exported duty free ; and the exporter is besides entitled to
the drawback of the whole duties of excise. Our graziers
still continue subject to the old monopoly. Graziers sep-
arated from one another, and dispersed through all the dif-
ferent corners of the country, cannot, without great diffi-
culty, combine together for the purpose either of imposing
monopolies upon their fellow-citizens, or of exempting them-
selves from such as may have been imposed upon them by
other people. Manufacturers of all kinds, collected to-
gether in numerous bodies in all great cities, easily can.
Even the horns of cattle are prohibited to be exported;
and the two insignificant trades of the horner and comb-
maker enjoy, in this respect, a monopoly against the
graziers.
Restraints, either by prohibitions or by taxes, upon the
exportation of goods which are partially, but not completely
manufactured, are not peculiar to the manufacture of
leather. As long as any thing remains to be done, in order
to fit any commodity for immediate use and consumption,
our manufacturers think that they themselves ought to have
the doing of it. Woollen yarn and worsted are prohibited
to be exported under the same penalties as wool. Even while
cloths are subject to a duty upon exportation, and our
dyers have so far obtained a monopoly against our clothiers.
Our clothiers would probably have been able to defend them-
selves against it, but it happens that the greater part of our
principal clothiers are themselves likewise dyers. Watch-
cases, clock-cases, and dial-plates for clocks and watches
have been prohibited to be exported. Our clock-makers and
watch-makers are, it seems, unwilling that the price of this
sort of workmanship should be raised upon them by the
competition of foreigners.
By some old statutes of Edward III., Henry VIII., and
Edward VI., the exportation of all metals was prohibited.
Lead and tin were alone excepted; probably on account of
the great abundance of those metals; in the exportation of
which, a considerable part of the trade of the kingdom in
those days consisted. For the encouragement of the mining
trade, the 5th of William and Mary, chap 17, exempted
CONCLUSION OF MERCANTILE SYSTEM 439
from this prohibition, iron, copper, and mundic metal made
from British ore. The exportation of all sorts of copper
bars, foreign as well as British, was afterwards permitted
by the 9th and loth of William III., chap. 26. The ex-
portation of unmanufactured brass, of what is called gun-
metal, bell-metal, and shroff-metal, still continues to be pro-
hibited. Brass manufactures of all sorts may be exported
duty free.
The exportation of the materials of manufacture, where
it is not altogether prohibited, is in many cases subjected
to considerable duties.
By the 8th George I., chap. 15, the exportation of all goods,
the produce or manufacture of Great Britain, upon which
any duties had been imposed by former statutes, was ren-
dered duty free. The following goods, however, were ex-
cepted: Alum, lead, lead ore, tin, tanned leather, copperas
coals, wool cards, white woollen cloths, lapis calaminaris,
skins of all sorts, glue, coney hair or wool, hares wool, hair
of all sorts, horses, and litharge of lead. If you except
horses, all these are either materials of manufacture, or in-
complete manufactures (which may be considered as ma-
terials for still further manufacture), or instruments of
trade. This statute leaves them subject to all the old duties
which had ever been imposed upon them, the old subsidy
and one per cent, outwards.
By the same statute a great number of foreign drugs for
dyers use, are exempted from all duties upon importation.
Each of them, however, is afterwards subjected to a certain
duty, not indeed a very heavy one, upon exportation. Our
dyers, it seems, while they thought it for their interest to
encourage the importation of those drugs, by an exemption
from all duties, thought it likewise for their interest to throw
some small discouragement upon their exportation. The
avidity, however, which suggested this notable piece of mer-
cantile ingenuity, most probably disappointed itself of its
object. It necessarily taught the importers to be more care-
ful than they might otherwise have been, that their impor-
tation should not exceed what was necessary for the supply
of the home market. The home market was at all times
likely to be more scantily supplied ; the commodities were
440 WEALTH OF NATIONS
at all times likely to be somewhat dearer there than, they
would have been, had the exportation been rendered as free
as the importation.
By the above-mentioned statute, gum senega, or gum
arabic, being among the enumerated dying drugs, might be
imported duty free. They were subjected, indeed, to a small
poundage duty, amounting only to three pence in the hundred
weight upon their re-exportation. France enjoyed, at that
time, an exclusive trade to the country most productive of
those drugs, that which lies in the neighbourhood of the
Senegal ; and the British market could not be easily supplied
by the immediate importation of them from the place of
growth. By the 25th Geo. 11. therefore, gum senega was
allowed to be imported (contrary to the general dispositions
of the act of navigation), from any part of Europe. As the
law, however, did not mean to encourage this species of
trade, so contrary to the general principles of the mercan-
tile policy of England, it imposed a duty of ten shillings the
hundred weight upon such importation, and no part of this
duty was to be afterwards drawn back upon its exportation.
The successful war which began in 1755 gave Great Britain
the same exclusive trade to those countries which France
had enjoyed before. Our manufacturers, as soon as the
peace was made, endeavoured to avail themselves of this ad-
vantage, and to establish a monopoly in their own favour,
both against the growers, and against the importers of this
commodity. By the 5th Geo. III. therefore, chap. 37. the
exportation of gum senega from his majesty's dominions
in Africa was confined to Great Britain, and was subjected
to all the same restrictions, regulations, forfeitures, and
penalties, as that of the enumerated commodities of the
British colonies in America and the West Indies. Its im-
portation, indeed, was subjected to a small duty of six-pence
the hundred weight, but its re-exportation was subjected
to the enormous duty of one pound ten shillings the hun-
dred weight. It was the intention of our manufacturers
that the whole produce of those countries should be im-
ported into Great Britain, and in order that they themselves
might be enabled to buy it at their own price, that no part
of it should be exported again, but at such an expence as
CONCLUSION OF MERCANTILE SYSTEM 441
would sufficiently discourage that exportation. Their avidity,
however, upon this, as v^^ell as upon many other occasions,
disappointed itself of its object. This enormous duty pre-
sented such a temptation to smuggling, that great quantities
of this commodity w^ere clandestinely exported, probably
to all the manufacturing countries of Europe, but particu-
larly to Holland, not only from Great Britain but from
Africa. Upon this account, by the 14 Geo. III. chap. 10.
this duty upon exportation was reduced to five shillings
the hundred weight.
In the book of rates, according to which the old subsidy
was levied, beaver skins were estimated at six shillings and
eight-pence a-piece, and the different subsidies and imposts,
which before the year 1722 had been laid upon their im-
portation, amounted to one-fifth part of the rate, or to six-
teen-pence upon each skin; all of which, except half the
old subsidy, amounting only to two-pence, was drawn back
upon exportation. This duty upon the importation of so im-
portant a material of manufacture had been thought too
high, and, in the year 1722, the rate was reduced to two
shillings and six-pence, which reduced the duty upon im-
portation to six-pence, and of this only one half was to be
drawn back upon exportation. The same successful war
put the country most productive of beaver under the do-
minion of Great Britain, and beaver skins being among
the enumerated commodities, their exportation from America
was consequently confined to the market of Great Britain.
Our manufacturers soon bethought themselves of the ad-
vantage which they might make of this circumstance, and
in the year 1764, the duty upon the importation of beaver-
skin was reduced- to one penny, but the duty upon exporta-
tion was raised to seven-pence each skin, without any draw-
back of the duty upon importation. By the same law, a duty
of eighteen pence the pound was imposed upon the ex-
portation of beaver-wool or wombs, without making any
alteration in the duty upon the importation of that com-
modity, which when imported by British and in British ship-
ping, amounted at that time to between four-pence and five-
pence the piece.
Coals may be considered both as a material of manufacture
442 WEALTH OF NATIONS
and as an instrument of trade. Heavy duties, accordingly,
have been imposed upon their exportation, amounting at pres-
ent (1783) to more than five shillings the to", or to more
than fifteen shillings the chaldron, Newcastle measure ; which
is in most cases more than the original value of the com-
modity at the coal pit, or even at the shipping port for
exportation.
The exportation, however, of the instruments of trade,
properly so called, is commonly restrained, not by high du-
ties, but by absolute prohibitions. Thus by the 7th and 8th
of William III. chap. 20. sect. 8. the exportation of frames
or engines for knitting gloves or stockings is prohibited
under the penalty, not only of the forfeiture of such frames
or engines, so exported, or attempted to be exported, but
of forty pounds, one half to the king, the other to the person
who shall inform or sue for the same. In the same manner
by the 14th Geo. III. chap. 71, the exportation to foreign
parts, of any utensils made use of in the cotton, linen,
woollen and silk manufactures, is prohibited under the pen-
alty, not only of the forfeiture of such utensils, but of two
hundred pounds, to be paid by the person who shall offend
in this manner, and likewise of two hundred pounds to be
paid by the master of the ship who shall knowingly suffer
such utensils to be loaded on board his ship.
When such heavy penalties were imposed upon the ex-
portation of the dead instruments of trade, it could not well
be expected that the living instrument, the artificer, should
be allowed to go free. Accordingly, by the 5 Geo. I. chap.
27. the person who shall be convicted of enticing any artifi-
cer of, or in any of the manufactures of Great Britain, to
go into any foreign parts, in order to practise or teach his
trade, is liable for the first offence to be fined in any sum
not exceeding one hundred pounds, and to three months im-
prisonment, and until the fine shall be paid ; and for the
second offence, to be fined in any sum at the discretion of
the court, and to imprisonment for twelve months, and until
the fine shall be paid. By the 23 Geo. II. chap. 13. this pen-
alty is mcreased for the first offence to five hundred pounds
for every artificer so enticed, and to twelve months imprison-
ment, and until the fine shall be paid; and for the second
CONCLUSION OF MERCANTILE SYSTEM 443
offence, to one thousand pounds, and to two years imprison-
ment, and until the fine shall be paid.
By the former of those two statutes, upon proof that any
person has been enticing any artificer, or that any artificer
has promised or contracted to go into foreign parts for the
purposes aforesaid, such artificer may be obliged to give se-
curity at the discretion of the court, that he shall not go
beyond the seas, and may be committed to prison until he
give such security.
If any artificer has gone beyond the seas, and is exer-
cising or teaching his trade in any foreign coimtry, upon
warning being given to him by any of his majesty's min-
isters or consuls abroad, or by one of his majesty's secre-
taries of state for the time being, if he does not, within six
months after such warning, return into this realm, and from
thenceforth abide and inhabit continually within the same,
he is from thenceforth declared incapable of taking any
legacy devised to him within this kingdom, or of being ex-
ecutor or administrator to any person, or of taking any
lands within this kingdom by descent, device, or purchase.
He likewise forfeits to the king, all his lands, goods and
chattels, is declared an alien in every respect, and is put out
of the king's protection.
It is unnecessary, I imagine, to observe, how contrary such
regulations are to the boasted liberty of the subject, of which
we aft'ect to be so very jealous; but which, in this case^ is so
plainly sacrificed to the futile interests of our merchants and
manufacturers.
The laudable motive of all these regulations, is to extend
our own manufactures, not by their own improvement, but
by the depression of those of all our neighbours, and by
putting an end, as much as possible, to the troublesome com-
petition of such odious and disagreeable rivals. Our master
manufacturers think it reasonable, that they themselves
should have the monopoly of the ingenuity of all their coun-
trymen. Though by restraining, in some trades, the number
of apprentices which can be employed at one time, and by
imposing the necessity of a long apprenticeship in all trades,
they endeavour, all of them, to confine the knowledge of
their respective employments to as small a number as pos-
444 WEALTH OF NATIONS
sible ; they are unwilling, however, that any part of this small
number should go abroad to instruct foreigners.
Consumption is the sole end and purpose of all production ;
and the interest of the producer ought to be attended to,
only so far as it may be necessary for promoting that of
the consumer. The maxim is so perfectly self-evident, that
it would be absurd to attempt to prove it. But in the mer-
cantile stystem, the interest of the consumer is almost con-
stantly sacrificed to that of the producer; and it seems to
consider production, and not consumption, as the ultimate
end and object of all industry and commerce.
In the restraints upon the importation of all foreign com-
modities which can come into competition with those of our
own growth, or manufacture, the interest of the home-con-
sumer is evidently sacrificed to that of the producer. It is
altogether for the benefit of the latter, that the former is
obliged to pay that enhancement of price which this mo-
nopoly almost always occasions.
It is altogether for the benefit of the producer that boun-
ties are granted upon the exportation of some of his pro-
ductions. The home-consumer is obliged to pay, first, the
tax which is necessary for paying the bounty, and secondly,
the still greater tax which necessarily arises from the en-
hancement of the price of the commodity in the home
market.
By the famous treaty of commerce with Portugal, the
consumer is prevented by high duties from purchasing of a
neighbouring country, a commodity which our own climate
does not produce, but is obliged to purchase it of a distant
country, though it is acknowledged, that the commodity of
the distant country is of a worse quality than that of the
near one. The home-consumer is obliged to submit to this
inconveniency, in order that the producer may import into
the distant country some of his productions upon more ad-
vantageous terms than he would otherwise have been al-
lowed to do. The consumer, too, is obliged to pay, vvhatever
enhancement in the price of those very productions, this
forced exportation may occasion in the home market.
But in the system of laws which has been established for
the management of our American and West Indian colonies.
CONCLUSION OF MERCANTILE SYSTEM 445
the interest of the home-consumer has been sacrificed to
that of the producer with a more extravagant profusion than
in all our other commercial regulations. A great empire
has been established for the sole purpose of raising up a
nation of customers who should be obliged to buy from
the shops of our different producers, alLthe goods with which
these could supply them. For the sale of that little en-
hancement of price which this monopoly might afford our
producers, the home-consumers have been burdened with
the whole expence of maintaining and defending that em-
pire. For this purpose, and for this purpose only, in the two
last wars, more than two hundred millions have been spent,
and a new debt of more than a hundred and seventy millions
has been contracted over and above all that had been ex-
pended for the same purpose in former wars. The interest
of this debt alone is not only greater than the whole ex-
traordinary profit, which, it ever could be pretended, was
made by the monopoly of the colony trade, but than the
whole value of that trade, or than the whole value of the
goods, which at an average have been annually exported to
the colonies.
It cannot be very difficult to determine who have been the
contrivers of this whole mercantile system; not the con-
sumers, we may believe, whose interest has been entirely neg-
lected; but the producers, whose interest has been so care-
fully attended to; and among this latter class our merchants
and manufacturers have been by far the principal architects.
In the mercantile regulations, which have been taken notice
of in this chapter, the interest of our manufacturers has
been most peculiarly attended to ; and the interest, not so
much of the consumers, as that of some other sets of pro-
ducers, has been sacrificed to it.
CHAPTER IX
Of the Agricultural Systems, or of the Systems of
Political QLconomy, Which Represent the Produce
OF Land as Either the Sole or the Principal Source
of the Revenue and Wealth of Every Country
^HE agricultural systems of political ceconomy will not
require so long an explanation as that which I have
thought it necessary to bestow upon the mercantile
or commercial system.
That system which represents the produce of land as the
sole source of the revenue and wealth of every country has,
so far as I know, never been adopted by any nation, and it
at present exists only in the speculation of a few men of
great learning and ingenuity in France. It v/ould not, surely,
be worth while to examine at great length the errors of a
system which never has done, and probably never will do
any harm in any part of the world. I shall endeavour to
explain, however, as distinctly as I can, the great outlines
of this very ingenious system.
Mr. Colbert, the famous minister of Lewis XIV., was a
man of probity, of great industry and knowledge of detail;
of great experience and acuteness in the examination of pub-
lic accounts, and of abilities, in short, every way fitted for
introducing method and good order into the collection and
expenditure of the public revenue. That minister had un-
fortunately embraced all the prejudices of the mercantile
system, in its nature and essence a system of restraint and
regulation, and such as could scarce fail to be agreeable to
a laborious and plodding man of business, who had been
accustomed to regulate the different departments of public
offices, and to establish the necessary checks and controls
for confining each to its proper sphere. The industry and
commerce of a great country he endeavoured to regulate
446
AGRICULTURAL SYSTEMS 447
upon the same model as the departments of a public office;
and instead of allowing every man to pursue his own inter-
est his own way, upon the liberal plan of equality, liberty,
and justice, he bestowed upon certain branches of industry
extraordinary privileges, which he laid others under as ex-
traordinary restraints. He was not only disposed, like other
European ministers, to encourage more the industry of the
towns than that of the country ; but, in order to support the
industry of the towns, he was willing even to depress and
keep down that of the country. In order to render provi-
sions cheap to the inhabitants of the towns, and thereby
to encourage manufactures and foreign commerce, he pro-
hibited altogether the exportation of corn, and thus ex-
cluded the inhabitants of the country from every foreign
market for by far the most important part of the produce
of their industry. This prohibition, joined to the restraints
imposed by the ancient provincial laws of France upon the
transportation of corn from one province to another, and to
the arbitrary and degrading taxes which are levied upon the
cultivators in almost all the provinces, discouraged and kept
down the agriculture of that country very much below the
state to which it would naturally have risen in so very fertile
a soil and so very happy a climate. This state of discour-
agement and depression was felt more or less in every dif-
ferent part of the country, and many different inquiries were
set on foot concerning the causes of it. One of those causes
appeared to be the preference given, by the institutions of
Mr. Colbert, to the industry of the towns above that of the
country.
If the rod be bent too much one way, says the proverb, in
order to make it straight you must bend it as much the other.
The French philosophers, who have proposed the system
which represents agriculture as the sole source of the rev-
enue and wealth of every country, seem to have adopted this
proverbial maxim ; and as in the plan of Mr. Colbert the
industry of the towns was certainly over-valued in compari-
son with that of the country ; so in their system it seems to
be as certainly undervalued.
The different orders of people who have ever been sup-
posed to contribute in any respect towards the annual prod-
448 WEALTH OF NATIONS
uce of the land and labour of the country, they divide into
three classes. The first is the class of the proprietors of
land. The second is the class of the cultivators, of farmers
and country labourers, whom they honor with the peculiar
appellation of the productive class. The third is the class
of artificers, manufacturers and merchants, whom they en-
deavour to degrade by the humiliating appellation of the
barren or unproductive class.
The class of proprietors contributes to the annual produce
by the expence which they may occasionally lay out upon
the improvement of the land, upon the buildings, drains,
enclosures and other ameliorations, which they may either
make or maintain upon it, and by means of which the cul-
tivators are enabled, with the same capital, to raise a greater
produce, and consequently to pay a greater rent. This ad-
vanced rent may be considered as the interest or profit due
to the proprietor upon the expence or capital which he thus
employs in the improvement of his land. Such expences
are in this system called ground expences (depenses fon-
cieres).
The cultivators or farmers contribute to the annual prod-
uce by what are in this system called the original and annual
expences (depenses primitives et depenses annuelles) which
they lay out upon the cultivation of the land. The original
expences consist in the instruments of husbandry, in the
stock of cattle, in the seed, and in the maintenance of the
farmer's family, servants and cattle, during at least a great
part of the first year of his occupancy, or till he can receive
some return from the land. The annual expences consist
in the seed, in the wear and tear of the instruments of hus-
bandry, and in the annual maintenance of the farmer's serv-
ants and cattle, and of his family too, so far as any part
of them can be considered as servants employed in culti-
vation. That part of Ihe produce of the land which remains
to him after paying the rent, ought to be sufficient, first, to
replace to him within a reasonable time, at least during the
term of his occupancy, the whole of his original expences,
together with the ordinary profits of stock; and, secondly,
to replace to him annually the whole of his annual expences,
together likewise with the ordinary profits of stock. Those
AGRICULTURAL SYSTEMS 449
two sorts of expellees are two capitals which the farmer
employs in cultivation ; and unless they are regularly re-
stored to him, together with a reasonable profit, he cannot
carry on his employment upon a level with other employ-
ments; but, from a regard to his own interest, must desert
it as soon as possible, and seek some other. That part of
the produce of the land which is thus necessary for enabling
the farmer to continue his business, ought to be considered
as a fund sacred to cultivation, which if the landlord vio-
lates, he necessarily reduces the produce of his own land,
and in a few years not only disables the farmer from paying
this racked rent, but from payixig the reasonable rent which
he might otherwise have got for his land. The rent which
properly belongs to the landlord, is no more than the neat
produce which remains after paying in the completest man-
ner all the necessary expences which must be previously laid
out in order to raise the gross, or the whole produce. It
is because the labour of the cultivators, over and above pay-
ing completely all those necessary expences, affords a neat
produce of this kind, that this class of people are in this
system peculiarly distinguished by the honourable appella-
tion of the productive class. Their original and annual ex-
pences are for the same reason called, in this system, pro-
ductive expences, because, over and above replacing their
own value, they occasion the annual reproduction of this
neat produce.
The ground expences, as they are called, or what the land-
lord lays out upon the improvement of his land, are in this
system too honoured with the appellation of productive ex-
pences. Till the whole of those expences, together with the
ordinary profits of stock, have been completely repaid to
him by the advanced rent which he gets from his land, that
advanced rent ought to be regarded as sacred and invio-
lable, both by the church and by the king; ought to be subject
neither to tithe nor to taxation. If it is otherwise, by dis-
couraging the improvement of land, the church discourages
the future increase of her own tithes, and the king the future
increase of his own taxes. As in a well-ordered state of
things, therefore, those ground expences, over and above
reproducing in the completest manner their own value, oc-
c — lie X
450 WEALTH OF NATIONS
casion likewise after a certain time a reproduction of a neat
produce, they are in this system considered as productive
expences.
The ground expences of the landlord, however, together
with the original and the annual expences of the farmer,
are the only three sorts of expences which in this system are
considered as productive. All other expences and all other
orders of people, even those who in the common appre-
hensions of men are regarded as the most productive, are
in this account of things represented as altogether barren
and unproductive.
Artificers and manufacturers, in particular, whose indus-
try, in the common apprehensions of men, increases so much
the value of the rude produce of land, are in this system
represented as a class of people altogether barren and un-
productive. Their labour, it is said, replaces only the stock
which employs them, together with its ordinary profits. That
stock consists in the materials, tools, and wages, advanced
to them by their employer ; and is the fund destined for their
employment and maintenance. Its profits are the fund des-
tined for the maintenance of their employer. Their employer,
as he advances to them the stock of materials, tools and
wages necessary for their employment, so he advances to
himself what is necessary for his own maintenance, and this
maintenance he generally proportions to the profit which he
expects to make by the price of their work. Unless its
price repays to him the maintenance which he advances to
himself, as well as the materials, tools and wages which he
advances to his workmen, it evidently does not repay to him
the whole expence which he lays out upon it. The profits
of manufacturing stock, therefore, are not, like the rent of
land, a neat produce which remains after completely repay-
ing the whole expence which must be laid out in order to
obtain them. The stock of the farmer yields him a profit
as well as that of the master manufacturer; and it yields
a rent likewise to another person, which that of the master
manufacturer does not. The expence, therefore, laid out
in employing and maintaining artificers and manufacturers,
does no more than continue, if one may say so, the existence
of its own value, and does not produce any new value. It is
AGRICULTURAL SYSTEMS 451
therefore altogether a barren and unproductive expence. The
expence, on the contrary, laid out in employing farmers
and country labourers, over and above continuing the exist-
ence of its own value, produces a new value, the rent of
the landlord. It is therefore a productive expence.
Mercantile stock is equally barren and unproductive with
manufacturing stock. It only continues the existence of its
own value, without producing any new value. Its profits
are only the repayment of the maintenance which its em-
ployer advances to himself during the time that he employs
it, or till he receives the returns of it. They are only the
repayment of a part of the expence which must be laid out
in employing it.
The labour of artificers and manufacturers never adds any
thing to the value of the whole annual amount of the rude
produce of the land. It adds indeed greatly to the value of
some particular parts of it. But the consumption which in
the mean time it occasions of other parts, is precisely equal
to the value which it adds to those parts; so that the value
of the whole amount is not, at any one moment of time, in
the least augmented by it. The person who works the lace
of a pair of fine ruffles, for example, will sometimes raise
the value of perhaps a pennyworth of flax to thirty pounds
sterling. But though at first sight he appears thereby to
multiply the value of a part of the rude produce about seven
thousand and two hundred times, he in reality adds nothing
to the value of the whole annual amount of the rude produce.
The working of that lace costs him perhaps two years labour.
The thirty pounds which he gets for it when it is finished, is
no more than the repayment of the subsistence which he ad-
vances to himself during the two years that he is employed
about it. The value which, by every day's, month's, or year's
labour, he adds to the flax, does no more than replace the
value of his own consumption during that day, month, or
year. At no moment of time, therefore, does he add any
thing to the value of the whole annual amount of the rude
produce of the land: the portion of that produce which he
is continually consuming, being always, equal to the value
which he is continually producing. The extreme poverty of
the greater part of the persons employed in this expensive,
452 WEALTH OF NATIONS
though trifling manufacture, may satisfy us that the price of
tiieir work does not in ordinary cases exceed the value of
their subsistence. It is otherwise with the work of farmers
and country labourers. The rent of the landlord is a value,
which, in ordinary cases, it is continually producing, over
and above replacing, in the most complete manner, the whole
consumption, the whole expence laid out upon the employ-
ment and maintenance both of the workmen and of their
employer.
Artificers, manufacturers and merchants, can augment the
revenue and wealth of their society, by parsimony only; or,
as it is expressed in this system, by privation, that is, by de-
priving then:selves of a part of the funds destined for their
own subsistence. They annually reproduce nothing but those
funds. Unless, therefore, they annually save some part of them,
unless they annually deprive themselves of the enjoyment
of some part of them, the revenue and wealth of their society
can never be in the smallest degree augmented by means of
their industry. Farmers and country labourers, on the con-
trary, may enjoy completely the whole funds destined for their
own subsistence, and yet augment at the same time the revenue
and wealth of their society. Over and above what is destined
for their own subsistence, their industry annually affords a
neat produce, of which the augmentation necessarily aug-
ments the revenue and wealth of their society. Nations,
therefore, which, like France or England, consist in a great
measure of proprietors and cultivators, can be enriched by
industry and enjoyment. Nations, on the contrary, which,
like Holland and Hamburgh, are composed chiefly of mer-
chants, artificers and manufacturers, can grow rich only
through parsimony and privation. As the interest of nations
so differently circumstanced, is very different, so is likewise
the common character of the people. In those of the former
kind, liberality, frankness, and good fellowship, naturally
make a part of that common character. In the latter, nar-
rowness, meanness, and a selfish disposition, averse to all
social pleasure and enjoyment.
The unproductive class, that of merchants, artificers and
manufacturers, is maintained and employed altogether at the
expence of the two other classes, of that of proprietors, and
AGRICULTURAL SYSTEMS 453
of that of cultivators. They furnish it both with the ma-
terials of its work and with the fund of its subsistence, with
the corn and cattle which it consumes while it is employed
about that work. The proprietors and cultivators finally pay
both the wages of all the workmen of the unproductive class,
and the profits of all their employers. Those workmen and
their employers are properly the servants of the proprietors
and cultivators. They are only servants who work without
doors, as menial servants work within. Both the one and
the other, however, are equally maintained at the expence
of the same masters. The labour of both is equally unpro-
ductive. It adds nothing to the value of the sum total of the
rude produce of the land. Instead of increasing the value of
that sum total, it is a charge and expence which must be paid
out of it.
The unproductive class, however, is not only useful, but
greatly useful to the other two classes. By means of the
industry of merchants, artificers and manufacturers, the pro-
prietors and cultivators can purchase both the foreign goods
and the manufactured produce of their own country which
they have occasion for, with the produce of a much smaller
quantity of their own labour, than what they would be obliged
to employ, if they were to attempt, in an awkward and un-
skilful manner, either to import the one, or to make the other
for their own use. By means of the unproductive class, the
cultivators are delivered from many cares which would other-
wise distract their attention from the cultivation of land. The
superiority of produce, which, in consequence of this undi-
vided attention, they are enabled to raise, is fully sufficient
to pay the whole expence which the maintenance and em-
ployment of the unproductive class costs either the proprie-
tors, or themselves. The industry of merchants, artificers
and manufacturers, though in its own nature altogether un-
productive, yet contributes in this manner indirectly to in-
crease the produce of the larid. It increases the productive
powers of productive labour, by leaving it at liberty to con-
fine itself to its proper employment, the cultivation of land;
and the plough goes frequently the easier and the better by
means of the labour of the man whose business is most re-
mote from the plough.
4S4 WEALTH OF Ny\TIONS
It can never be the interest of the proprietors and culti-
vators to restrain or to discourage in any respect the indus-
try of merchants, artificers and manufacturers. The greater
the Hbcrty which this unproductive class enjoys, the greater
will be the competition in all the different trades which com-
pose it, and the cheaper will the other two classes be sup-
plied, both with foreign goods and with the manufactured
produce of their own country.
It can never be the interest of the unproductive class to
oppress the other two classes. It is the surplus produce of
the land, or what remains after deducting the maintenance,
first, of the cultivators, and afterwards, of the proprietors,
that maintains and employs the unproductive class. The
greater this surplus, the greater must likewise be the main-
tenance and employment of that class. The establishment
of perfect justice, of perfect liberty, and of perfect equality,
is the very simple secret which most effectually secures the
highest degree of prosperity to all the three classes.
The merchants, artificers and manufacturers of those mer-
cantile states which, like Holland and Hamburgh, consist
chiefly of this unproductive class, are in the same manner
maintained and employed altogether at the expence of the
proprietors and cultivators of land. The only difference is,
that those proprietors and cultivators are, the greater part
of them, placed at a most inconvenient distance from the
merchants, artificers and manufacturers whom they supply
with the materials of their work and the fund of their sub-
sistence, are the inhabitants of other countries, and the sub-
jects of other governments.
Such mercantile states, however, are not only useful, but
greatly useful to the inhabitants of those other countries.
They fill up, in some measure, a very important void, and'
supply the place of the merchants, artificers and manufac-
turers, whom the inhabitants of those countries ought to
find at home, but whom, from some defect in their policy,
they do not find at home.
It can never be the interest of those landed nations, if I
may call them so, to discourage or distress the industry of
such mercantile states, by imposing high duties upon their
trade, or upon the commodities which they furnish. Such
AGRICULTURAL SYSTEMS 455
duties, by rendering those commodities dearer, could serve
only to sink the real value of the surplus produce of their
own laud, with which, or, what comes to the same thing,
with the price of which, those commodities are purchased.
Such duties could serve only to discourage the increase of
that surplus produce, and consequently the improvement and
cultivation of their own land. The most effectual expedient,
on the contrary, for raising the value of that surplus produce,
for encouraging its increase, and consequently the improve-
ment and cultivation of their own land, would be to allow
the most perfect freedom to the trade of all such mercantile
nations.
This perfect freedom of trade would even be the most
effectual expedient for supplying them, in due time, with all
the artificers, manufacturers and merchants, whom they
wanted at home, and for filling up in the properest and most
advantageous manner that very important void which they
felt there.
The continual increase of the surplus produce of their
land, would, in due time, create a greater capital than what
could be employed with the ordinary rate of profit in the
improvement and cultivation of land; and the surplus part
of it would naturally turn itself to the employment of artifi-
cers and manufacturers at home. But those artificers and
manufacturers, finding at home both the materials of their
work and the fund of their subsistence, might immediately,
even with much less art and skill, be able to work as cheap
as the like artificers and manufacturers of such mercantile
states, who had both to bring from a great distance. Even
though, from want of art and skill, they might not for some
time be able to work as cheap, yet, finding a market at home,
they might be able to sell their work there as cheap as that
of the artificers and manufacturers of such mercantile states,
which could not be brought to that market but from so great
a distance ; and as their art and skill improved, they would
soon be able to sell it cheaper. The artificers and manu-
facturers of such mercantile states, therefore, would immedi-
ately be rivalled in the market of those landed nations, and
soon after undersold and justled out of it altogether. The
cheapness of the manufactures of those landed nations, in
456 WEALTH OF NATIONS
consequence of the gradual improvements of art and skill,
would, in due time, extend their sale beyond the home market,
and carry them to many foreign markets, from which they
would iti the same manner gradually justle out many of the
manufactures of such mercantile nations.
This continual increase both of the rude and manufactured
produce of those landed nations would in due time create a
greater capital than could, with the ordinary rate of profit,
be employed either in agriculture or in manufactures. The
surplus of this capital would naturally turn itself to foreign
trade, and be employed in exporting, to foreign countries,
such parts of the rude and manufactured produce of its own
country, as exceeded the demand of the home market. In the
exportation of the produce of their own country, the mer-
chants of a landed nation would have an advantage of the
same kind over those of mercantile nations, which its artifi-
cers and manufacturers had over the artificers and manu-
facturers of such nations; the advantage of finding at home
that cargo, and those stores and provisions, which the others
were obliged to seek for at a distance. With inferior art
and skill in navigation, therefore, they would be able to sell
that cargo as cheap in foreign markets as the merchants of
such mercantile nations ; and with equal art and skill they
would be able to sell it cheaper. They would soon, therefore,
rival those mercantile nations in this branch of foreign trade,
and in due time would justle them out of it altogether.
According to this liberal and generous system, therefore,
the most advantageous method in which a landed nation can
raise up artificers, manufacturers and merchants of its own,
is to grant the most perfect freedom of trade to the artifi-
cers, manufacturers and merchants of all other nations. It
thereby raises the value of the surplus produce of its own
land, of which the continual increase gradually establishes
a fund, which in due time necessarily raises up all the artifi-
cers, manufactures and merchants whom it has occasion for.
When a landed nation, on the contrary, oppresses either
by high duties or by prohibitions the trade of foreign na-
tions, it necessarily hurts its own interest in two different
ways. First, by raising the price of all foreign goods and of
all sorts of manufactures, it necessarily sinks the real value
AGRICULTURAL SYSTEMS 457
of the surplus produce of its own land, with which, or, what
comes to the same thing, with the price of which, it pur-
chases those foreign goods and manufactures. Secondly, by-
giving a sort of monopoly of the home market to its own
merchants, artificers and manufacturers, it raises the rate of
mercantile and manufacturing profit in proportion to that of
agricultural profit, and consequently either draws from agri-
culture a part of the capital which had before been employed
in it, or hinders from going to it a part of what would other-
wise have gone to it. This policy, therefore, discourages
agriculture in two different ways; first, by sinking the real
value of its produce, and thereby lowering the rate of its
profit; and, secondly, by raising the rate of profit in all other
employments. Agriculture is rendered less advantageous,
and trade and manufactures more advantageous than they
otherwise would be ; and every man is tempted by his own
interest to turn, as much as he can, both his capital and his
industry from the former to the latter employments.
Though, by this oppressive policy, a landed nation should
be able to raise up artificers, manufacturers and merchants
of its own, somewhat sooner than it could do by the freedom
of trade; a matter, however, which is not a little doubtful;
yet it would raise them up, if one may say so, prematurely,
and before it was perfectly ripe for them. By raising up
too hastily one species of industry, it would depress another
more valuable species of industry. By raising up too hastily
a species of industry which only replaces the stock which
employs it, together with the ordinary profit, it would de-
press a species of industry which, over and above replacing
that stock with its profit, affords likewise a neat produce, a
free rent to the landlord. It would depress productive labour,
by encouraging too hastily that labour which is altogether
barren and unproductive.
In what manner, according to this system, the sum total of
the annual produce of the land is distributed among the three
classes above mentioned, and in what manner the labour of
the unproductive class does no more than replace the value
of its own consumption, without increasing in any respect
the value of that sum total, is represented by Mr. Quesnai,
the very ingenious and profound author of this system, in
458 WEALTH OF NATIONS
some arithmetical formularies. The first of these formu-
laries, which by way of eminence he peculiarly distinguishes
by the name of the Economical Table, represents the manner
in which he supposes this distribution takes place, in a state
of the most perfect liberty, and therefore of the highest pros-
perity; in a state where the annual produce is such as to
afford the greatest possible neat produce, and where each
class enjoys its proper share of the whole annual produce.
Some subsequent formularies represent the manner, in which,
he supposes, this distribution is made in dift'erent states of
restraint and regulation; in which, either the class of proprie-
tors, or the barren and unproductive class, is more favoured
than the class of cultivators, and in which, either the one or
the other encroaches more or less upon the share which ought
properly to belong to this productive class. Every such en-
croachment, every violation of that natural distribution,
which the most perfect liberty would establish, must, accord-
ing to this system, necessarily degrade more or less, from
one year to another, the value and sum total of the annual
produce, and must necessarily occasion a gradual declension
in the real wealth and revenue of the society; a declension
of which the progress must be quicker or slower, according
to the degree of this encroachment, according as that nat-
ural distribution, which the most perfect liberty would es-
tablish, is more or less violated. Those subsequent formu-
laries represent the different degrees of declension, which,
according to this system, correspond to the different degrees
in which this natural distribution of things is violated.
Some speculative physicians seem to have imagined that
the health of the human body could be preserved only by a
certain precise regimen of diet and exercise, of which every,
the smallest, violation necessarily occasioned some degree
of disease or disorder proportioned to the degree of the vio-
lation. Experience, however, would seem to show, that the
human body frequently preserves, to all appearance at least,
the most perfect state of health under a vast variety of
different regimens; even under some which are generally
believed to be very far from being perfectly wholesome.
But the healthful state of the human body, it would seem,
contains in itself some unknown principle of preservation.
AGRICULTURAL SYSTEMS 459
capable either of preventing or of correcting, in many re-
spects, the bad effects even of a very faulty regimen. Mr,
Quesnai, who was himself a physician, and a very specU'
lative physician, seems to have entertained a notion of the
same kind concerning the political body, and to have imag'
ined that it would thrive and prosper only under a certain
precise regimen, the exact regimen of perfect liberty and
perfect justice. He seems not to have considered that in the
political body, the natural effort which every man is contin-
ually making to better his own condition, is a principle of
preservation capable of preventing and correcting, in many
respects, the bad effects of a political ceconomy, in some
degree both partial and oppressive. Such a political cecon-
omy, though it no doubt retards more or less, is not always
capable of stopping altogether the natural progress of a na-
tion towards wealth and prosperity, and still less of making
it go backwards. If a nation could not prosper without the
enjoyment of perfect liberty and perfect justice, there is not
in the world a nation which could ever have prospered. In
the political body, however, the wisdom of nature has fortu-
nately made ample provision for remedying many of the bad
effects of the folly and injustice of man; in the same manner
as it has done in the natural body, for remedying those of
his sloth and intemperance.
The capital error of this system, however, seems to lie in
its representing the class of artificers, manufacturers and
merchants, as altogether barren and unproductive. The fol-
lowing observations may serve to show the impropriety of
this representation.
First, this class, it is acknowledged, reproduces annually
the value of its own annual consumption, and continues, at
least, the existence of the stock or capital which maintains
and employs it. But upon this account alone the denomina-
tion of barren or unproductive should seem to be very im-
properly applied to it. We should not call a marriage
barren or unproductive, though it produced only a son and
a daughter, to replace the father and mother, and though
it did not increase the number of the human species,
but only continued it as it was before. Farmers and country
labourers, indeed, over and above the stock which maintains
460 WEALTH OF NATIONS
and employs them, reproduce annually a neat produce, a
free rent to the landlord. As a marriage which affords three
children is certainly more productive than one which affords
only two; so the labour of farmers and country labourers
is certainly more productive than that of merchants, artifi-
cers and manufacturers. The superior produce of the one
class, however, does not render the other barren or unpro-
ductive.
Secondly, it seems, upon this account, altogether improper
to consider artificers, manufacturers and merchants, in the
same light as menial servants. The labour of menial servants
does not continue the existence of the fund which maintains
and employs them. Their maintenance and employment is
altogether at the expence of their masters, and the work
which they perform is not of a nature to repay that expence.
That work consists in services which perish generally in the
very instant of their performance, and does not fix or realize
itself in any vendible commodity which can replace the value
of their wages and maintenance. The labour, on the contrary,
of artificers, manufacturers and merchants, naturally does
fix and realize itself in some such vendible commodity. It
is upon this account that, in the chapter in which I treat
of productive and unproductive labour, I have classed artifi-
1 cers, manufacturers and merchants, among the productive
labourers, and menial servants among the barren or unpro-
ductive.
Thirdly, it seems, upon every supposition, improper to say,
that the labour of artificers, manufacturers and merchants,
does not increase the real revenue of the society. Though
we should suppose, for example, as it seems to be supposed
in this system, that the value of the daily, monthly, and
yearly consumption of this class was exactly equal to that
of its daily, monthly, and yearly production; yet it would
not from thence follow that its labour added nothing to the
real revenue, to the real value of the annual produce of the
land and labour of the society. An artificer, for example,
who in the first six months after harvest, executes ten
pounds worth of work, though he should in the same time
consume ten pounds worth of corn and other necessaries,
yet really adds the value of ten pounds to the annual produce
AGRICULTURAL SYSTEISIS 461
of the land and labour of the society. While he has been
consuming a half yearly revenue of ten pounds worth of
corn and other necessaries, he has produced an equal value
of work capable of purchasing, either to himself or to some
other person, an equal half yearly revenue. The value, there-
fore, of what has been consumed and produced during these
six months is equal, not to ten, but to twenty pounds. It is
possible, indeed, that no more than ten pounds worth of this
value, may ever have existed at any one moment of time.
But if the ten pounds worth of corn and other necessaries,
which were consumed by the artificer, had been consumed
by a soldier or by a menial servant, the value of that part
of the annual produce which existed at the end of the six
months, would have been ten pounds less than it actually is
in consequence of the labour of the artificer. Though the
value of what the artificer produces, therefore, should not
at any one moment of time be supposed greater than the
value he consumes, yet at every moment of time the actually
existing value of goods in the market is, in consequence of
what he produces, greater than it otherwise would be.
When the patrons of this system assert, that the consump-
tion of artificers, manufacturers and merchants, is equal to
the value of what they produce, they probably mean no more
than that their revenue, or the fund destined for their con-
sumption, is equal to it. But if they had expressed them-
selves more accurately, and only asserted, that the revenue
of this class was equal to the value of what they produced,
it might readily have occurred to the reader, that what would
naturally be saved out of this revenue, must necessarily in-
crease more or less, the real wealth of the society. In order,
therefore, to make out something like an argument, it was
necessary that they should express themselves as they have
done ; and this argument, even supposing things actually were
as it seems to presume them to be, turns out to be a very
inconclusive one.
Fourthly, farmers and country labourers can no more aug-
ment, without parsimony, the real revenue, the annual prod-
uce of the land and labour of their society, than artificers,
manufacturers and merchants. The annual produce of the
land and labour of any society can be augmented only in two
462 WEALTH OF NATIONS
ways; either, first, by some improvement in the productive
powers of the useful labour actually maintained within it;
or, secondly, by some increase in the quantity of that labour.
The improvement in the productive powers of useful
labour depend, first, upon the improvement in the ability of
the workman; and, secondly, upon that of the machinery
with which he works. But the labour of artificers and manu-
facturers, as it is capable of being more subdivided, and the
labour of each workman reduced to a greater simplicity of
operation, than that of farmers and country labourers, so it
is likewise capable of both these sorts of improvement in a
much higher degree. In this respect, therefore, the class of
cultivators can have no sort of advantage over that of arti-
ficers and manufacturers.
The increase in the quantity of useful labour actually em-
ployed within any society, must depend altogether upon the
increase of the capital which employs it ; and the increase
of that capital again must be exactly equal to the amount of
the savings from the revenue, either of the particular per-
sons who manage and direct the employment of that capital,
or of some other persons who lend it to them. If merchants,
artificers and manufacturers are, as this system seems to
suppose, naturally more inclined to parsimony and saving
than proprietors and cultivators, they are, so far, more likely
to augment the quantity of useful labour employed within
their society, and consequently to increase its real revenue,
the annual produce of its land and labour.
Fifthly and lastly, though the revenue of the inhabitants
of every country was supposed to consist altogether, as this
system seems to suppose, in the quantity of subsistence which
their industry could procure to them ; yet, even upon this
supposition, the revenue of a trading and manufacturing
country must, other things being equal, always be much
greater than that of one without trade or manufactures. By
means of trade and manufactures, a greater quantity of sub-
sistence can be annually imported into a particular country
than what its own lands, in the actual state of their cultiva-
tion, could afford. The inhabitants of a town, though they
frequently possess no lands of their own, yet draw to them-
selves by their industry such a quantity of the rude produce
AGRICULTURAL SYSTEMS 463
of the lands of other people as supplies them, not only with the
materials of their work, but with the fund of their subsistence.
What a town always is with regard to the country in its neigh-
bourhood, one independent state or country may frequently be
with regard to other independent states or countries. It is thus
that Holland draws a great part of its subsistence from other
countries; live cattle from Holstein and Jutland, and corn
from almost all the different countries of Europe. A small
quantity of manufactured produce purchases a great quan-
tity of rude produce. A trading and manufacturing country,
therefore, naturally purchases with a small part of its manu-
factured produce a great part of the rude produce of other
countries ; while, on the contrary, a country without trade and
manufactures is generally obliged to purchase, at the expense
of a great part of its rude produce, a very small part of the
manufactured produce of other countries. The one exports
what can subsist and accommodate but a very few, and im-
ports the subsistence and accommodation of a great number.
The other exports the accommodation and subsistence of a
great number, and imports that of a very few only. The in-
habitants of the one must always enjoy a much greater quan-
tity of subsistence than what their own lands, in the actual
state of their cultivation, could afford. The inhabitants of
the other must always enjoy a much smaller quantity.
This system, however, with all its imperfections, is, per-
haps, the nearest approximation to the truth that has yet
been published upon the subject of political oeconomy, and is
upon that account well worth the consideration of every
man who wishes to examine with attention the principles of
that very important science. Though in representing the
labour which is employed upon land as the only productive
labour, the notions which it inculcates are perhaps too nar-
row and confined; yet in representing the wealth of nations
as consisting, not in the unconsumable riches of money, but
in the consumable goods annually reproduced by the labour
of the society; and in representing perfect liberty as the only
effectual expedient for rendering this annual reproduction
the greatest possible, its doctrine seems to be in every respect
as just as it is generous and liberal. Its followers are very
numerous ; and as men are fond of paradoxes, and of appear-
464 WEALTH OF NATIONS
ing to understand what surpasses the comprehension of
ordinary people, the paradox which it maintains, concerning
the unproductive nature of manufacturing labour, has not
perhaps contributed a little to increase the number of its
admirers. They have for some years past made a pretty
considerable sect, distinguished in the French republic of
letters by the name of. The (Economists. Their works have
certainly been of some service to their country; not only by
bringing into general discussion, many subjects which had
never been well examined before, but by influencing in some
measure the public administration in favour of agriculture.
It has been in consequence of their representations, accord-
ingly, that the agriculture of France has been delivered from
several of the oppressions which it before laboured under.
The term during which such a lease can be granted, as will
be valid against every future purchaser or proprietor of the
land, has been prolonged from nine to twenty-seven years.
The ancient provincial restraints upon the transportation of
corn from one province of the kingdom to another, have
been entirely taken away, and the liberty of exporting it to
all foreign countries, has been established as the common
law of the kingdom in all ordinary cases. This sect, in their
works, which are very numerous, and which treat not only
of what is properly called Political QEconomy, or of the na-
ture and causes of the wealth of nations, but of every other
branch of the system of civil government, all follow im-
plicitly, and without any sensible variation, the doctrine of
Mr. Quesnai. There is upon this account little variety in
the greater part of their works. The most distinct and best
connected account of this doctrine is to be found in a little
book written by Mr. Mercier de la Riviere, sometime Inten-
dant of Martinico, intitled, The natural and essential Order
of Political Societies. The admiration of this whole sect for
their master, who was himself a man of the greatest modesty
and simplicity, is not inferior to that of any of the ancient
philosophers for the founders of their respective systems.
"There have been, since the world began," says a very dili-
gent and respectable author, the Marquis de Mirabeau, "three
"great inventions which have principally given stability to
"political societies, independent of many other inventions
AGRICULTURAL SYSTEMS 465
"which have enriched and adorned them. The first, is the
"invention of writing, which alone gives human nature the
"power of transmitting, without alteration, its laws, its con-
"tracts, its annals, and its discoveries. The second, is the
"invention of money, which binds together all the relations
"between civilized societies. The third, is the CEconomical
"Table, the result of the other two, which completes them
"both by perfecting their object; the great discovery of our
"age, but of which our posterity will reap the benefit."
The greatest and most important branch of the commerce
of every nation, it has already been observed, is that which
is carried on between the inhabitants of the town and those
of the country. The inhabitants of the town draw from the
country the rude produce which constitutes both the mate-
rials of their work and the fund of their subsistence ; and
they pay for this rude produce by sending back to the coun-
try a certain portion of it manufactured and prepared for
immediate use. The trade which is carried on between
those two different sets of people, consists ultimately in a
certain quantity of rude produce exchanged for a certain
quantity of manufactured produce. The dearer the latter,
therefore, the cheaper the former ; and whatever tends in
any country to raise the price of manufactured produce,
tends to lower that of the rude produce of the land, and
thereby to discourage agriculture. The smaller the quantity
of manufactured produce which any given quantity of rude
produce, or, what comes to the same thing, which the price
of any given quantity of rude produce is capable of pur-
chasing, the smaller the exchangeable value of that given
quantity of rude produce ; the smaller the encouragement
which either the landlord has to increase its quantity by im-
proving, or the farmer by cultivating the land. Whatever,
besides, tends to diminish in any country the number of artifi-
cers and manufacturers, tends to diminish the home market,
the most important of all markets for the rude produce of the
land, and thereby still further to discourage agriculture.
Those systems, therefore, which preferring agriculture to
all other employments, in order to promote it, impose re-
straints upon manufactures and foreign trade, act contrary
to the very end which they propose, and directly discourage
466 WEALTH OF NATIONS
that very species of industry which they mean to proTnote.
They are so far, perhaps, more inconsistent than even the
mercantile system. That system, by encouraging manufac-
tures and foreign trade more than agriculture, turns a cer-
tain portion of the capital of the society from supporting a
more advantageous, to support a less advantageous species
of industry. But still it really and in the end encourages that
species of industry which it means to promote. Those agri-
cultural systems, on the contrary, really and in the end dis-
courage their own favourite species of industry.
It is thus that every system which endeavours, either, by
extraordinary encouragements, to draw towards a particular
species of industry a greater share of the capital of the soci-
ety than what would naturally go to it; or, by extraordinary
restraints, to force from a particular species of industry
some share of the capital which would otherwise be employed
in it; is in reality subversive of the great purpose which it
means to promote. It retards, instead of accelerating, the
progress of the society towards real wealth and greatness :
and diminishes, instead of increasing, the real value of the
annual produce of its land and labour.
All systems either of preference or of restraint, therefore,
being thus completely taken away, the obvious and simple
system of natural liberty establishes itself of its own accord.
Every man, as long as he does not violate the laws of jus-
tice, is left perfectly free to pursue his own interest his own
way, and to bring both his industry and capital into compe-
tition with those of any other man, or order of men. The
sovereign is completely discharged from a duty, in the at-
tempting to perform which he must always be exposed to
innumerable delusions, and for the proper performance of
which no human wisdom or knowledge could ever be suffi-
cient; the duty of superintending the industry of private
people, and of directing it towards the employments most
suitable to the interest of the society. According to the sys-
tem of natural liberty, the sovereign has only three duties to
attend to ; three duties of great importance, indeed, but plain
and intelligible to common understandings ; first, the duty of
protecting the society from the violence and invasion of other
independent societies; secondly, the duty of protecting, as
AGRICULTURAL SYSTEMS 467
far as possible, every member of the society from the injus-
tice or oppression of every other member of it, or the duty
of establishing an exact administration of justice; and,
thirdly, the duty of erecting and maintaining certain public
works and certain public institutions, which it can never be
for the interest of any individual, or small number of indi-
viduals, to erect and maintain; because the profit could never
repay the expence to any individual or small number of indi-
viduals, though it may frequently do much more than repay
it to a great society.
The proper performance of those several duties of the
sovereign necessarily supposes a certain expence ; and this
expence again necessarily requires a certain revenue to sup-
port it. In the following book, therefore, I shall endeavour
to explain ; first, what are the necessary expences of the
sovereign or commonwealth ; and which of those expences
ought to be defrayed by the general contribution of the
whole society; and which of them, by that of some particu-
lar part only, or of some particular members of the society:
secondly, what are the different methods in which the whole
society may be made to contribute towards defraying the
expences incumbent on the whole society, and what are the
principal advantages and inconveniences of each of those
methods : and, thirdly, what are the reasons and causes which
have induced almost all modern governments to mortgage
some part of this revenue, or to contract debts, and what
have been the effects of those debts upon the real wealth,
the annual produce of the land and labour of the society.
The following book, therefore, will naturally be divided into
three chapters.
BOOK V
Of the Revenue of the Sovereign or Commonwealth
CHAPTER I
Of the Expences of the Sovereign or Commonwealth
PART I
Of the Expence of Defence
THE first duty of the sovereign, that of protecting the
society from the violence and invasion of other inde-
pendent societies, can be performed only by means of
a military force. But the expence both of preparing this
military force in time of peace, and of employing it in time
of M^ar, is very different in the different states of society, in
the different periods of improvement.
Among nations of hunters, the lowest and rudest state of
society, such as we find it among the native tribes of North
America, every man is a warrior as vi^ell as a hunter. When
he goes to war, either to defend his society, or to revenge
the injuries which have been done to it by other societies,
he maintains himself by his own labour, in the same manner
as when he lives at home. His society, for in this state of
things there is properly neither sovereign nor commonwealth,
is at no sort of expence, either to prepare him for the field,
or to maintain him while he is In it.
**********
When a civilized nation depends for its defence upon a
militia, it is at all times exposed to be conquered by any
barbarous nation which happens to be in its neighbourhood.
The frequent conquests of all the civilized countries in Asia
by the Tartars, sufficiently demonstrates the natural superi-
468
EXPENCE OF DEFENCE 469
ority, which the militia of a barbarous, has over that of a
civilized nation. A well-regulated standing army is superior
to every militia. Such an army, as it can best be maintained
by an opulent and civilized nation, so it can alone defend such
a nation against the invasion of a poor and barbarous neigh-
bour. It is only by means of a standing army, therefore,
that the civilization of any country can be perpetuated, or
even preserved for any considerable time.
As it is only by means of a well-regulated standing army
that a civilized country can be defended; so it is only by
means of it, that a barbarous country can be suddenly and
tolerably civilized. A standing army establishes, with an
irresistible force, the law of the sovereign through the re-
motest provinces of the empire, and maintains some degree
of regular government in countries which could not other-
wise admit of any. Whoever examines, with attention, the
improvements which Peter the Great introduced into the
Russian empire, will find that they almost all resolve them-
selves into the establishment of a well-regulated standing
army. It is the instrument which executes and maintains all
his other regulations. That degree of order and internal
peace, which that empire has ever since enjoyed, is altogether
owing to the influence of that army.
Men of republican principles have been jealous of a stand-
ing army as dangerous to liberty. It certainly is so, wherever
the interest of the general and that of the principal officers
are not necessarily connected with the support of the consti-
tution of the state. The standing army of Caesar destroyed
the Roman republic. The standing army of Cromwel turned
the long parliament out of doors. But where the sovereign
is himself the general, and the principal nobility and gentry
of the country the chief officers of the army ; where the mili-
tary force is placed under the command of those who have
the greatest interest in the support of the civil authority, be-
cause they have themselves the greatest share of that
authority, a standing army can never be dangerous to liberty.
On the contrary, it may in some cases be favourable to lib-
erty. The security which it gives to the sovereign renders
unnecessary that troublessome jealousy, which, in some mod-
ern republics, seems to watch over the minutest actions, and
470 WEALTH OF NATIONS
to be at all times ready to disturb the peace of every citizeiv.
Where the security of the magistrate, though supported by
the principal people of the country, is endangered by every
popular discontent; where a small tumult is capable of bring-
ing about in a few hours a great revolution, the whole
authority of government must be employed to suppress and
punish every murmur and complaint against it. To a sov-
ereign, on the contrary, who feels himself supported, not only
by the natural aristocracy of the country, but by a well-
regulated standing army, the rudest, the most groundless, and
the most licentious remonstrances can give little disturbance.
He can safely pardon or neglect them, and his consciousness
of his own superiority naturally disposes him to do so. That
degree of liberty which approaches to licentiousness can be
tolerated only in countries where the sovereign is secured by
a well-regulated standing army. It is in such countries only,
that the public safety does not require, that the sovereign
should be trusted with any discretionary power, for suppress-
ing even the impertinent wantonness of this licentious liberty,
The first duty of the sovereign, therefore, that of defending
the society from the violence and injustice of other inde-
pendent societies, grows gradually more and more expensive,
as the society advances in civilization. The military force of
the society, which originally cost the sovereign no expence
either in time of peace or in time of war, must, in the prog-
ress of improvement, first be maintained by him in time of
war, and afterwards even in time of peace.
The great change introduced into the art of war by the
invention of fire-arms, has enhanced still further both the
expence of exercising and disciplining any particular number
of soldiers in time of peace, and that of employing them in
time of war. Both their arms and their ammunition are be-
come more expensive. A musquet is a more expensive ma-
chine that a javelin or a bow and arrows; a cannon or a
mortar than a balista or a catapulta. The powder, which is
spent in a modern review, is lost irrevocably, and occasions a
very considerable expence. The javelins and arrows which
were thrown or shot in an ancient one, could easily be picked
up again, and were besides of very little value. The cannon
and the mortar are, not only much dearer, but much heavier
EXPENCE OF DEFENCE 471
machines than the balista or catapulta, and require a greater
expence, not only to prepare them for the field, but to carry
them to it. As the superiority of the modern artillery too,
over that of the ancients is very great ; it has become much
more difficuh, and consequently much more expensive, to for-
tify a town so as to resist even for a few weeks the attack
of that superior artillery. In modern times many different
causes contribute to render the defence of the society more
expensive. The unavoidable effects of the natural progress
of improvement have, in this respect, been a good deal en-
hanced by a great revolution in the art of war, to which a
mere accident, the invention of gunpowder, seems to have
given occasion.
In modern war the great expence of fire-arms gives an
evident advantage to the nation which can best afford that
expence ; and consequently, to an opulent and civilized, over
a poor and barbarous nation. In ancient times the opulent
and civilized found it difficult to defend themselves against
the poor and barbarous nations. In modern times the poor
and barbarous find it difficult to defend themselves against
the opulent and civilized. The invention of fire-arms, an
invention which at first sight appears to be so pernicious, is
certainly favourable both to the permanency and to the exten-
sion of civilization.
PART II
Of the Expence of Justice
The second duty of the sovereign, that of protecting, as
far as possible, every member of the society from the in-
justice or oppression of every other member of it, or
the duty of establishing an exact administration of justice
requires too very different degrees of expence in the different
periods of society.
**********
Justice, however, never was in reality administered gratis
in any country. Lawyers and attornies, at least, must al-
ways be paid by the parties ; and, if they were not, they would
perform their duty still worse than they actually perform it.
The fees annually paid to lawyers and attornies amount, in
472 WEALTH OF NATIONS
every court, to a much greater sum than the salaries of the
judges. The circumstance of those salaries being paid by
the crown, can no-where much diminish the necessary ex-
pence of a law-suit. But it was not so much to diminish the
expence, as to- prevent the corruption of justice, that the
judges were prohibited from receiving any present or fee
from the parties.
The office of judge is in itself so very honourable, that men
are willing to accept of it, though accompanied with very
small emoluments. The inferior office of justice of peace,
though attended with a good deal of trouble, and in most
cases with no emoluments at all, is an object of ambition to
the greater part of our country gentlemen. The salaries of
all the different judges, high and low, together with the whole
expence of the administration and execution of justice, even
where it is not managed with very good oeconomy, makes, in
any civilized country, but a very inconsiderable part of the
whole expence of government.
The whole expence of justice too might easily be defrayed
by the fees of court ; and, without exposing the administra-
tion of justice to any real hazard of corruption, the public
revenue might thus be entirely discharged from a certain,
though, perhaps, but a small incumbrance. It is difficult to
regulate the fees of court effectually, where a person so
powerful as the sovereign is to share in them, and to derive
any considerable part of his revenue from them. It is very
easy, where the judge is the principal person who can reap
any benefit from them. The law can very easily oblige the
judge to respect the regulation, though it might not always
be able to make the sovereign respect it. Where the fees of
court are precisely regulated and ascertained, where they are
paid all at once, at a certain period of every process, into the
hands of a cashier or receiver, to be by him distributed in
certain known proportions among the different judges after
the process is decided, and not till it is decided, there seems
to be no more danger of corruption than where such fees are
prohibited altogether. Those fees, without occasioning any
considerable increase in the expence of a law-suit, might be
rendered fully sufficient for defraying the whole expence of
justice. By not being paid to the judges till the process was
EXPENCE OF DEFENCE 473
determined, they might be some incitement to the diHgence
of the court in examining and deciding it. In courts which
consisted of a considerable number of judges, by proportion-
ing the share of each judge to the number of hours and days
which he had employed in examining the process, either in
the court or in a committee by order of the court, those fees
might give some encouragement to the diHgence of each par-
ticular judge. Public services are never better performed
than when their reward comes only in consequence of their
being performed, and is proportioned to the diligence em-
ployed in performing them. . . .
A stamp-duty upon the law proceedings of each particular
court, to be levied by that court, and applied towards the
maintenance of the judges and other officers belonging to it,
might, in the same manner, afford a revenue sufficient for
defraying the expence of the administration of justice, with-
out bringing any burden upon the general revenue of the
society. The judges indeed might, in this case, be under the
temptation of multiplying unnecessarily the proceedings upon
every cause, in order to increase, as much as possible, the
produce of such a stamp-duty. It has been the custom in
modern Europe to regulate, upon most occasions, the pay-
ment of the attornies and clerks of court, according to the
number of pages which they had occasion to write ; the
court, however, requiring that each page should contain so
many lines, and each line so many words. In order to in-
crease their payment, the attornies and clerks have contrived
to multiply words beyond all necessity, to the corruption of
the law language of, I believe, every court of justice in
Europe. A like temptation might perhaps occasion a like
corruption in the form of law proceedings.
PART IIT
Of the Expence of Public Works and Public Institutions
The third and last duty of the sovereign or common-
wealth is that of erecting and maintaining those public
institutions and those public works, which, though they
may be in the highest degree advantageous to a great society,
474 WEALTH OF NATIONS
are, however, of such a nature, that the profit could never
repay the expence to any individual or small number of indi-
viduals, and which it therefore cannot be expected that any
individual or small number of individuals should erect or
maintain. The performance of this duty requires too very
different degrees of expence in the different periods of
society.
After the public institutions and public works necessary
for the defence of the society, and for the administration of
justice, both of which have already been mentioned, the other
works and institutions of this kind are chiefly those for
facilitating the commerce of the society, and those for pro-
moting the instruction of the people. The institutions for
instruction are of two kinds ; those for the education of the
youth, and those for the instruction of people of all ages.
The consideration of the manner in which the expence of
those different sorts of public works and institutions may
be most properly defrayed, will divide this third part of the
present chapter into three different articles.
ARTICLE I
Of the Public Works and Ixstitutioxs for F.-vcilitating the
Commerce of the Society
And, First, of Those Which are Necessary for Facilitating
Commerce in General
That the erection and maintenance of the public works
which facilitate the commerce of any country, such as
good roads, bridges, navigable canals, harbours, &c.
must require very different degrees of expence in the differ-
ent periods of society, is evident without any proof. The
expence of making and maintaining the public roads of any
country must evidently increase with the annual produce of
the land and labour of that country, or with the quantity
and weight of the goods which it becomes necessary to fetch
and carry upon those roads. The strength of a bridge must
be suited to the number and weight of the carriages which
are likely to pass over it. The depth and the supply of
water for a navigable canal must be proportioned to the num-
COMMERCE IN GENERAL 475
ber and tunnage of the lighters, which are likely to carry
goods upon it; the extent of a harbour to the number of the
shipping which are likely to take shelter in it.
It does not seem necessary that the expence of those pub-
lic works should be defrayed from that public revenue, as it
is commonly called, of which the collection and application
are in most countries assigned to the executive power. The
greater part of such public works may easily be so managed,
as to afford a particular revenue sufficient for defraying their
own expence, without bringing any burden upon the general
revenue of the society.
A highway, a bridge, a navigable canal, for example, may
in most cases be both made and maintained by a small toll
upon the carriages which make use of them : a harbour, by a
moderate port-duty upon the tunnage of the shipping which
load or unload in it. The coinage, another institution for
facilitating commerce, in many countries, not only defrays
its own expence, but affords a small revenue or seignorage
to the sovereign. The post-office, another institution for the
same purpose, over and above defraying its own expence,
affords in almost all countries a very considerable revenue
to the sovereign.
When the carriages which pass over a highway or a bridge,
and the lighters which sail upon a navigable canal, pay toll
in proportion to their weight or their tunnage, they pay for
the maintenance of those public works exactly in proportion
to the wear and tear which they occasion of them. It seems
scarce possible to invent a more equitable way of maintain-
ing such works. This tax or toll too, though it is advanced
by the carrier, is finally paid by the consumer, to whom it
must always be charged in the price of the goods. As the
expence of carriage, however, is very much reduced by means
of such public works, the goods, notwithstanding the toll,
come cheaper to the consumer than they could otherwise have
done ; their price not being so much raised by the toll, as it is
lowered by the cheapness of the carriage. The person who
finally pays this tax, therefore, gains by the application, more
than he loses by the payment of it. His payment is exactly
in proportion to his gain. It is in reality no more than a part
of that gain which he is obliged to give up in order to get
476 WEALTH OF NATIONS
the rest. It seems impossible to imagine a more equitable
method of raising a tax.
When the toll upon carriages of luxury, upon coaches,
post-chaises, &c. is made somewhat higher in proportion to
their weight, than upon carriages of necessary use, such as
carts, waggons, &c. the indolence and vanity of the rich is
made to contribute in a very easy manner to the relief of the
poor, by rendering cheaper the transportation of heavy goods
to all the different parts of the country.
When high roads, bridges, canals, &c. are in this manner
made and supported by the commerce which is carried on by
means of them, they can be made only where that commerce
requires them, and consequently where it is proper to make
them. Their expence too, their grandeur and magnificence,
must be suited to what that commerce can afford to pay.
They must be made consequently as it is proper to make them.
A magnificent high road cannot be made through a desart
country where there is little or no commerce, or merely be-
cause it happens tO' lead to the country villa of the intendant
of the province, or to that of some great lord to whom the
intendant finds it convenient to make his court. A great
bridge cannot be thrown over a river at a place where no-
body passes, or merely to embellish the view from the win-
dows of a neighbouring palace : things which sometimes hap-
pen, in countries where works of this kind are carried on by
any other revenue than that which they themselves are
capable of affording.
In several different parts of Europe the toll' or lock-duty
upon a canal is the property of private persons, whose pri-
vate interest obliges them to keep up the canal. If it is not
kept in tolerable order, the navigation necessarily ceases alto-
gether, and along with it the whole profit which they can
make by the tolls. If those tolls were put under the manage-
ment of commissioners, who had themselves no interest in
them, they might be less attentive to the maintenance of the
works which produced them. The canal of Languedoc cost
the king of France and the province upwards of thirteen mil-
lions of livres, which (at twenty-eight livres the mark of
silver, the value of French money in the end of the last cen-
tury) amounted to upwards of nine hundred thousand pounds
COMMERCE IN GENERAL 477
sterling. When that great work was finished, the most Hkely
method, it was found, of keeping it in constant repair was to
make a present of the tolls to Riquet the engineer, who
planned and conducted the work. Those tolls constitute at
present a very large estate to the different branches of the
family of that gentleman, who have, therefore, a great in-
terest to keep the work in constant repair. But had those
tolls been put under the management of commissioners,
who had no such interest, they might perhaps have been
dissipated in ornamental and unnecessary expences, while
the most essential parts of the work were allowed to go
to ruin.
The tolls for the maintenance of a high road, cannot with
any safety be made the property of private persons. A high
road, though entirely neglected, does not become altogether
impassable, though a canal does. The proprietors of the
tolls upon a high road, therefore, might neglect altogether the
repair of the road, and yet continue to levy very nearly the
same tolls. It is proper, therefore, that the tolls for the
maintenance of such work should be put under the manage-
ment of commissioners or trustees.
Even those public works which are of such a nature that
they cannot afford any revenue for maintaining themselves,
but of which the conveniency is nearly confined to some par-
ticular place or district, are always better maintained by a
local or provincial revenue, under the management of a local
and provincial administration, than by the general revenue
of the state, of which the executive power must always have
the management. Were the streets of London to be lighted
and paved at the expense of the treasury, is there any prob-
ability that they would be so well lighted and paved as they
are at present, or even at so small an expence? The ex-
pence, besides, instead f being raised by a local tax upon
the inhabitants of each particular street, parish, or district
in London, would, in this case, be defrayed out of the general
revenue of the state, and would onsequently be raised by a
tax upon all the inhabitants of the kingdom, of whom the
greater part derive no sort of benefit from the lighting and
paving of the streets of London.
478 WEALTH OF NATIONS
The abuses which sometimes creep into the local and pro-
vincial administration of a local and provincial revenue, how
enormous soever they may appear, are in reality however
almost always very trifling, in comparison of those whu:h
commonly take place in the administration and expenditure
of the revenue of a great empire. They are, besides, much
more easily corrected. Under the local or provincial adm m-
istration of the justices of the peace m Great Britain th e s x
days labour which the country people are obliged to give to
the reparation of the highways, is not always P^^haps very
judiciously applied, but it is scarce ever exacted with any
drcumstance of cruelty or oppression. n France, under Ae
administration of the intendants, the application is not always
more judicious, and the exaction is frequently the ^nost cruel
and oppressive. Such Corvees, as they are called make oe
of the principal instruments of tyranny by which those of
ficers chastise any parish or communeaute which has had the
misfortune to fall under their displeasure.
OF THE PUBLIC WORKS AND INSTITUTIONS WHICH ARE NECES-
SARY FOR FACILITATING PARTICULAR BRANCHES OF
COMMERCE
The object of the public works and "-ti">"™; f^°lXZ
tioned is to facilitate commerce in general. But n order to
aciltre some particular branches of it P"t.cular -t.tu^
tions are necessary, which again require a particular and
"somfpTi^cuTarbr:nches of commerce, which are carried
on wTth terbarous and uncivilized nations, -^"- "'J^ ;
dinarv protection. An ordinary store or counting-house
SVe liU'e security to th^goods o^J- -c -U ^who
trade to the western coast of Africa. ^/^J^^;^"^ j
the barbarous natives, it is necessary that theplace where
thev are deposited, should be, in some measure, fortihea.
Th dtsorderfin the government of In^ostan have been sup-
posed to render a like precaution "^^^^f T^ ^J^^^f ^"fe uJ-
mild and gentle people; and it was under P'-^^^^^^^^^J^^jJ^
inc. their persons and property from vio ence. that both the
English and French East India Companies were allowed to
PARTICULAR BRANCHES OF COMMERCE 479
erect the first forts which they possessed in that country.
Among other nations, whose vigorous government will suffer
no strangers to possess any fortified place within their terri-
tory, it may be necessary to maintain some ambassador, min-
ister, or consul, who may both decide, according to their own
customs, the differences arising among his own countrymen;
and, in their disputes with the natives, may, by means of his
public character, interfere with more authority, and afford
them a more powerful protection, than they could expect
from any private man. The interests of commerce have fre-
quently made it necessary to maintain ministers in foreign
countries, where the purposes, either of war or alliance,
would not have required any. The commerce of the Turkey
Company first occasioned the establishment of an ordinary
ambassador at Constantinople. The first English embassies
to Russia arose altogether from commercial interests. The
constant interference, which those interests necessarily occa-
sioned between the subjects of the different states of Europe,
has probably introduced the custom of keeping, in all neigh-
bouring countries, ambassadors or ministers constantly resi-
dent even in the time of peace. This custom, unknown to
ancient times, seems not to be older than the end of the fif-
teenth or beginning of the sixteenth century; that is, than
the time when commerce first began to extend itself to the
greater part of the nations of Europe, and when they first
began to attend to its interests.
It seems not unreasonable, that the extraordinary expence,
which the protection of any particular branch of commerce
may occasion, should be defrayed by a moderate tax upon
that particular branch; by a moderate fine, for example, to
be paid by the traders when they first enter into it, or, what
is more equal, by a particular duty of so much per cent, upon
the goods which they either import into, or export out of,
the particular countries with which it is carried on. The
protection of trade in general, from pirates and free-booters,
is said to have given occasion to the first institution of the
duties of customs. But, if it was thought reasonable to lay
a general tax upon trade, in order to defray the expence of
protecting trade in general, it should seem equally reasonable
to lay a particular tax upon a particular branch of trade, in
480 WEALTH OF NATIONS
order to defray the extraordinary expence of protecting that
branch.
The protection of trade in general has always been con-
sidered as essential to the defence of the commonwealth, and,
upon that account, a necessary part of the duty of the execu-
tive power. The collection and application of the general
duties of customs, therefore, have always been left to that
power. But the protection of any particular branch of trade
is a part of the general protection of trade ; a part, therefore,
of the duty of that power ; and if nations always acted con-
sistently, the particular duties levied for the purposes of such
particular protection, should always have been left equally
to its disposal. But in this respect, as well as in many others,
nations have not always acted consistently ; and in the greater
part of the commercial states of Europe, particular companies
of merchants have had the address to persuade the legislature
to entrust to them the performance of this part of the duty
of the sovereign, together with all the powers which are
necessarily connected with it.
These companies, though they may, perhaps, have been use-
ful for the first introduction of some branches of commerce,
by making, at their own expence, an experiment which the
state might not think it prudent to make, have in the long-
run proved, universally, either burdensome or useless, and
have either mismanaged or confined the trade.
When those companies do not trade upon a joint stock, but
are obliged to admit any person, properly qualified, upon pay-
ing a certain fine, and agreeing to submit to the regulations
of the company, each member trading upon his own stock,
and at his own risk, they are called regulated companies.
When they trade upon a joint stock, each member sharing
in the common profit or loss in proportion to his share in
this stock, they are called joint stock companies. Such com-
panies, whether regulated or joint stock, sometimes have,
and sometimes have not, exclusive privileges.
**********
When a company of merchants undertake, at their own
risk and expence, to establish a new trade with some remote
and barbarous nation, it may not be unreasonable to incor-
porate them into a joint stock company, and to grant them.
PARTICULAR BRANCHES OF COMMERCE 481
in case of their success, a monopoly of the trade for a certain
number of years. It is the easiest and most natural way in
which the state can recompense them for hazarding a dan-
gerous and expensive experiment, of which the public is
afterwards to reap the benefit. A temporary monopoly of
this kind may be vindicated upon the same principles upon
which a like monopoly of a new machine is granted to its
inventor, and that of a new book to its author. But upon
the expiration of the term, the monopoly ought certainly to
determine; the forts and garrisons, if it was found necessary
to establish any, to be taken into the hands of government,
their value to be paid to the company, and the trade to be
laid open to all the subjects of the state. By a perpetual
monopoly, all the other subjects of the state are taxed very
absurdly in two different ways ; first, by the high price of
goods, which, in the case of a free-trade, they could buy
much cheaper ; and, secondly, by their total exclusion from a
branch of business, which it might be both convenient and
profitable for many of them to carry on. It is for the most
worthless of all purposes too that they are taxed in this man-
ner. It is merely to enable the company to support the neg-
ligence, profusion, and malversation of their own servants,
whose disorderly conduct seldom allows the dividend of the
company to exceed the ordinary rate of profit in trades which
are altogether free, and very frequently makes it fall even a
good deal short of that rate. Without a monopoly, however,
a joint stock company, it would appear from experience, can-
not long carry on any branch of foreign trade. To buy in
one market, in order to sell, with profit, in another, when
there are many competitors in both ; to watch over, not only
the occasional variations in the demand, but the much greater
and more frequent variations in the competition, or in the
supply which that demand is likely to get from other people,
and to suit with dexterity and judgment both the quantity
and quality of each assortment of goods to all these circum-
stances, is a species of warfare of which the operations are
continually changing, and which can scarce ever be con-
ducted successfully, without such an unremitting exertion of
vigilance and attention, as cannot long be expected from the
directors of a joint stock company. The East India Com-
P — HC X
482 WEALTH OF NATIONS
pany, upon the redemption of their funds, and the expiration
of their exclusive privilege, have a right, by act of parlia-
ment, to continue a corporation with a joint stock, and to
trade in their corporate capacity to the East Indies in com-
mon with the rest of their fellow-subjects. But in this situ-
ation, the superior vigilance and attention of private adven-
turers would, in all probability, soon make them weary of
the trade.
An eminent French author, of great knowledge in matters
of political ceconomy, the Abbe Morellet, gives a list of fifty-
five joint stock companies for foreign trade, which have been
established in different parts of Europe since the yea-r 1600,
and which, according to him, have all failed from misman-
agement, notwithstanding they had exclusive privileges. He
has been misinformed with regard to the history of two or
three of them, which were not joint stock companies and
have not failed. But, in compensation, there have been sev-
eral joint stock companies which have failed, and which he
has omitted.
The only trades which it seems possible for a joint stock
company to carry on successfully, without an exclusive privi-
lege, are those, of which all the operations are capable of
being reduced to what is called a routine, or to such a uni-
formity of method as admits of little or no variation. Of
this kind is, first, the banking trade ; secondly, the trade of
insurance from fire, and from sea risk and capture in time of
war ; thirdly, the trade of making and maintaining a navi-
gable cut or canal ; and, fourthly, the similar trade of bring-
ing water for the supply of a great city.
Though the principles of the banking trade may appear
somewhat abstruse, the practice is capable of being reduced
to strict rules. To depart upon any occasion from those
rules, in consequence of some flattering speculation of extra-
ordinary gain, is almost always extremely dangerous, and
frequently fatal to the banking company which attempts it.
But the constitution of joint stock companies renders them
in general more tenacious of established rules than any pri-
vate copartnery. Such companies, therefore, seem extremely
well fitted for this trade. The principal banking companies
in Europe, accordingly, are joint stock companies, many of
PARTICULAR BRANCHES OF COMMERCE 483
which manage their trade very successfully without any ex-
clusive privilege. The Bank of England has no other ex-
clusive privilege, except that no other banking company in
England shall consist of more than six persons. The two
banks of Edinburgh are joint stock companies without any
exclusive privilege.
The value of the risk, either from fire, or from loss by sea,
or by capture, though it cannot, perhaps, be calculated very
exactly, admits, however, of such a gross estimation as ren-
ders it, in some degree, reducible tc strict rule and method.
The trade of insurance, therefore, may be carried on success-
fully by a joint stock company, without any exclusive privi-
lege. Neither the London Assurance, nor the Royal Ex-
change Assurance companies, have any such privilege.
When a navigable cut or canal has been once made, the
management of it becomes quite simple and easy, and is re-
ducible to strict rule and method. Even the making of it is
so, as it may be contracted for with undertakers at so much a
mile, and so much a lock. The same thing may be said of a
canal, an aqueduct, or a great pipe for bringing water to sup-
ply a great city. Such undertakings, therefore, may be, and
accordingly frequently are, very successfully managed by
joint stock companies without any exclusive privilege.
To establish a joint stock company, however, for any under-
taking, merely because such a company might be capable of
managing it successfully; or to exempt a particular set of
dealers from some of the general laws which take place with
regard to all their neighbours, merely because they might be
capable of thriving if they had such an exemption, would
certainly not be reasonable. To render such an establishment
perfectly reasonable, with the circumstance of being reducible
to strict rule and method, two other circumstances ought to
concur. First, it ought to appear with the clearest evidence,
that the undertaking is of greater and more general utility
than the greater part of common trades; and secondly, that
it requires a greater capital than can easily be collected into
a private copartnery. If a moderate capital were sufficient,
the great utility of the undertaking would not be a sufficient
reason for establishing a joint stock company; because, in
this case, the demand for what it was to produce, would
484 WEALTH OF NATIONS
readily and easily be supplied by private adventurers. In
the four trades above mentioned, both those circumstances
concur.
The great and general utility of the banking trade when
prudently managed, has been fully explained in the second
book of this inquiry. But a public bank which is to support
public credit, and upon particular emergencies to advance to
government the whole produce of a tax, to the amount, per-
haps, of several millions, a year or two before it comes in,
requires a greater capital than can easily be collected into
any private copartnery.
The trade of insurance gives great security to the fortunes
of private people, and by dividing among a great many that
loss which would ruin an individual, makes it fall light and
easy upon the whole society. In order to give this security,
however, it is necessary that the insurers should have a very
large capital. Before the establishment of the two joint
stock companies for insurance in London, a list, it is said,
was laid before the attorney-general, of one hundred and
fifty private insurers who had failed in the course of a few
years.
That navigable cuts and canals, and the works which are
sometimes necessary for supplying a great city with water,
are of great and general utility ; while at the same time they
frequently require a greater expence than suits the fortunes
of private people, is sufficiently obvious.
Except the four trades above mentioned. I have not been
able to recollect any other in which all the three circum-
stances, requisite for rendering reasonable the establishment
of a joint stock company, concur. The English copper com-
pany of London, the lead smelting company, the glass grind-
ing company, have not even the pretext of any great or
singular utility in the object which they pursue; nor does the
pursuit of that object seem to require any expence unsuit-
able to the fortunes of many private men. Whether the
trade which those companies carry on, is reducible to such
strict rule and method as to render it fit for the management
of a joint stock company, or whether they have any reason
to boast of their extraordinary profits, I do not pretend to
know. The mine-adventurers company has been long ago
EDUCATIONAL INSTITUTIONS 485
bankrupt. A share in the stock of the British Linen Com-
pany of Edinburgh sells, at present, very much below par,
though less so than it did some years ago. The joint stock
companies, which are established for the public-spirited pur-
pose of promoting some particular manufacture, over and
above managing their own affairs ill, to the diminution of
the general stock of the society, can in other respects scarce
ever fail to do more harm than good. Notwithstanding the
most upright intentions, the unavoidable partiality of their
directors to particular branches of the manufacture, of which
the undertakers mislead and impose upon them, is a real dis-
couragement to the rest, and necessarily breaks, more or less,
that natural proportion which would otherwise establish it-
self between judicious industry and profit, and which, to the
general industry of the country, is of all encouragements the
greatest and the most effectual
ARTICLE II
Of the Expence of the Institutions for the Education
OF Youth
The institutions for the education of the youth may,
in the same manner, furnish a revenue sufficient for de-
fraying their own expence. The fee or honorary which
the scholar pays to the master naturally constitutes a revenue
of this kind.
Even where the reward of the master does not arise alto-
gether from this natural revenue, it still is not necessary that
it should be derived from that general revenue of the society,
of which the collection and application are, in most countries,
assigned to the executive power. Through the greater part
of Europe, accordingly, the endowment of schools and col-
leges makes either no charge upon that general revenue, or
but a very small one. It every where arises chiefly from
some local or provincial revenue, from the rent of some
landed estate, or from the interest of some sum of money
allotted and put under the management of trustees for this
particular purpose, sometimes by the sovereign himself, and
sometimes by some private donor.
486 WEALTH OF NATIONS
ARTICLE III
Of the Expence of the Institutions F(jr the Instruction of
People of all Ages
The institutions for the instruction of people of all
ages are chiefly those for religious instruction. This is a
species of instruction of which the object is not so
much to render the people good citizens in this world, as to
prepare them for another and a better world in a life to come.
The teachers of the doctrine which contains this instruction,
in the same manner as other teachers, may either depend al-
together for their subsistence upon the voluntary contribu-
tions of their hearers ; or they may derive it from some other
fund to which the law of their country may entitle them ;
such as a landed estate, a tythe or land tax, an established
salary or stipend. Their exertion, their zeal and industry,
are likely to be much greater in the former situation than in
the latter. In this respect the teachers of new religions have
always had a considerable advantage in attacking those
ancient and established systems of which the clergy, reposing
themselves upon their benefices, had neglected to keep up the
fervour of faith and devotion in the great body of the people ;
and having given themselves up to indolence, were become al-
together incapable of making any vigorous exertion in de-
fence even of their own establishment.
PART IV
Of the Expence of Supporting the Dignity of the Sovereign
Over and above the expence necessary for enabling
the sovereign to perform his several duties, a certain
expence is requisite for the support of his dignity. This
expence varies both with the different periods of improve-
ment, and with the different forms of government.
In an opulenL and improved society, where all the different
orders of people are growing every day more expensive in
their houses, in their furniture, in their tables, in their dress,
and in their equipage ; it cannot well be expected that the
CONCLUSION 487
sovereign should alone hold out against the fashion. He
naturally, therefore, or rather necessarily becomes more ex-
pensive in all those different articles too. His dignity even
seems to require that he should become so.
As in point of dignity, a monarch is more raised above his
subjects than the chief magistrate of any republic is ever
supposed to be above his fellow-citizens ; so a greater expence
is necessary for supporting that higher dignity. We nat-
urally expect more splendor in the court of a king, than in
the mansion-house of a doge or burgo-master.
CONCLUSION
The expence of defending the society, and that of sup-
porting the dignity of the chief magistrate, are both
laid out for the general benefit of the whole society. It
is reasonable, therefore, that they should be defrayed by
the general contribution of the whole society, all the different
members contributing, as nearly as possible, in proportion to
their respective abilities.
The expence of the administration of justice too, may, no
doubt, be considered as laid out for the benefit of the whole
society. There is no impropriety, therefore, in its being
defrayed by the general contribution of the whole society.
The persons, however, who give occasion to this expence are
those who, by their injustice in one way or another, make it
necessary to seek redress or protection from the courts of
justice. The persons again most immediately benefited by
this expence, are those whom the courts of justice either
restore to their rights, or maintain in their rights. The ex-
pence of the administration of justice, therefore, may very
properly be defrayed by the particular contribution of one or
other, or both of those two different sets of persons, accord-
ing as different occasions may require, that is, by the fees of
court. It cannot be necessary to have recourse to the gen-
eral contribution of the whole society, except for the con-
viction of those criminals who have not themselves any
estate or fund sufficient for paying those fees.
Those local or provincial expences of which the benefit is
488 WEALTH OF NATIONS
local or provincial (what is laid out, for example, upon the
police of a particular town or district) ought to be defrayed
by a local or provincial revenue, and ought to be no burden
upon the general revenue of the society. It is unjust that
the whole society should contribute towards an expence of
which the benefit is confined to a part of the society.
The expence of maintaining good roads and communica-
tions is, no doubt, beneficial to the whole society, and may,
therefore, without any injustice, be defrayed by the general
contribution of the whole society. This expence, however,
Is most immediately and directly beneficial to those who
travel or carry goods from one place to another, and to those
who consume such goods. The turnpike tolls in England,
and the duties called peages in other countries, lay it alto-
gether upon those two different sets of people, and thereby
discharge the general revenue of the society from a very
considerable burden.
The expence of the institutions for education and religious
instruction, is likewise, no doubt, beneficial to the whole
society, and may, therefore, without injustice, be defrayed
by the general contribution of the whole society. This ex-
pence, however, might perhaps with equal propriety, and
even with some advantage, be defrayed altogether by those
who receive the immediate benefit of such education and in-
struction, or by the voluntary contribution of those who think
they have occasion for either the one or the other.
When the institutions or public works which are beneficial
to the whole society, either cannot be maintained altogether,
or are not maintained altogether by the contribution of such
particular members of the society as are most immediately
benefited by them, the deficiency must in most cases be made
up by the general contribution of the whole society. The
general revenue of the society, over and above defraying the
expence of defending the society, and of supporting the dig-
nity of the chief magistrate, must make up for the deficiency
of many particular branches of revenue. The sources of this
general or public revenue, I shall endeavour to explain in
the following chapter.
CHAPTER II
Of the Sources of the General or Public Revenue
OF THE Society
THE revenue which must defray, not only the expence
of defending the society and of supporting the dignity
of the chief magistrate, but all the other necessary ex-
pences of government, for which the constitution of the state
has not provided any particular revenue, may be drawn,
either, first, from some fund which peculiarly belongs to the
sovereign or commonwealth, and which is independent of
the revenue of the people ; or, secondly, from the revenue of
the people.
PART I
Of the Funds or Sources of Revenue Which May Peculiarly
Belong to the Sovereign or Commonwealth
The funds or sources of revenue which may peculiarly
belong to the sovereign or commonwealth must consist,
either in stock, or in land.
The sovereign, like any other owner of stock, may derive
a revenue from it, either by employing it himself, or by
lending it. His revenue is in the one case profit, in the other
interest.
The revenue of a Tartar or Arabian chief consists in
profit. It arises principally from the milk and increase of
his own herds and flocks, of which he himself superintends
the management, and is the principal shepherd or herdsman
of his own horde or tribe. It is, however, in this earliest and
rudest state of civil government only that profit has ever
made the principal part of the public revenue of a monarchi-
cal state.
Small republics have sometimes derived a considerable
489
490 WEALTH OF NATIONS
revenue from the profit of mercantile projects. The republic
of Hamburgh is said to do so from the profits of a public wine
cellar and apothecary's shop. The state cannot be very great
of which the sovereign has leisure to carry on the trade of
a vi'ine merchant or apothecary. The profit of a public bank
has been a source of revenue to more considerable states.
It has been so not only to Hamburgh, but to Venice and
Amsterdam. A revenue of this kind has even by some people
been thought not below the attention of so great an empire
as that of Great Britain. Reckoning the ordinary dividend
of the bank of England at five and a half per cent., and its
capital at ten millions seven hundred and eighty thousand
pounds, the neat annual profit, after paying the expence of
management, must amount, it is said, to five hundred and
ninety-two thousand nine hundred pounds. Government, it
is pretended, could borrow this capital at three per cent, in-
terest, and by taking the management of the bank into its
own hands, might make a clear profit of two hundred and
sixty-nine thousand five hundred pounds a year. The or-
derly, vigilant, and parsimonious administration of such aris-
tocracies as those of Venice and Amsterdam, is extremely
proper, it appears from experience, for the management of a
mercantile project of this kind. But whether such a govern-
ment as that of England ; which, whatever may be its vir-
tues, has never been famous for good ceconomy; which, in
time of peace, has generally conducted itself with the sloth-
ful and negligent profusion that is perhaps natural to mon-
archies ; and in time of war has constantly acted with all the
thoughtless extravagance that democracies are apt to fall
into; could be safely trusted with the management of such a
project, must at least be a good deal more doubtful.
The post office is properly a mercantile project. The gov-
ernment advances the expence of establishing the different
offices, and of buying or hiring the necessary horses or car-
riages, and is repaid with a large profit by the duties upon
what is carried. It is perhaps the only mercantile project
which has been successfully managed by, I believe, every
sort of government. The capital to be advanced is not very
considerable. There is no mystery in the business. The
returns are not only certain, but immediate.
FUNDS OF THE SOVEREIGN 491
Princes, however, have frequently engaged in many other
mercantile projects, and have been willing, like private per-
sons, to mend their fortunes by becoming adventurers in the
common branches of trade. They have scarce ever suc-
ceeded. The profusion with which the affairs of princes are
always managed, renders it almost impossible that they
should. The agents of a prince regard the wealth of their
master as inexhaustible; are careless at what price they buy;
are careless at what price they sell ; are careless at what ex-
pence they transport his goods from one place to another.
Those agents frequently live with the profusion of princes,
and sometimes too, in spite of that profusion, and by a proper
method of making up their accounts, acquire the fortunes of
princes. It was thus, as we are told by Machiavel, that the
agents of Lorenzo of Medicis, not a prince of mean abilities,
carried on his trade. The republic of Florence was several
times obliged to pay the debt into which their extravagance
had involved him. He found it convenient, accordingly, to
give up the business of merchant, the business to which his
family had originally owed their fortune, and in the latter
part of his life to employ both what remained of that for-
tune, and the revenue of the state of which he had the dis-
posal, in projects and expences more suitable to his station.
No two characters seem more inconsistent than those of
trader and sovereign. If the trading spirit of the English
East India company renders them very bad sovereigns; the
spirit of sovereignty seems to have rendered them equally bad
traders. While they were traders only, they managed their
trade successfully, and were able to pay from their profits a
moderate dividend to the proprietors of their stock. Since
they became sovereigns, with a revenue which, it is said, was
originally more than three millions sterling, they have been
obliged to beg the extraordinary assistance of government
in order to avoid immediate bankruptcy. In their former
situation, their servants in India considered themselves as
the clerks of merchants : in their present situation, those
servants consider themselves as the ministers of sovereigns.
A state may sometimes derive some part of its public reve-
nue from the interest of money, as well as from the profits
of stock. If it has amassed a treasure, it may lend a part of
492 WEALTH OF NATIONS
that treasure, either to foreign states, or to its own subjects.
The canton of Berne derives a considerable revenue by
lending a part of its treasure to foreign states ; that is, by
placing it in the public funds of the different indebted nations
of Europe, chiefly in those of France and England. The
security of this revenue must depend, first, upon the security
of the funds in which it is placed, or upon the good faith of
the government which has the management of them ; and,
secondly, upon the certainty or probability of the continu-
ance of peace with the debtor nation. In the case of a war,
the very first act of hostility, on the part of the debtor nation,
might be the forfeiture of the funds of its creditor. This
policy of lending money to foreign states is, so far as I know,
peculiar to the canton of Berne.
The city of Hamburgh has established a sort of public
pawn-shop, which lends money to the subjects of the state
upon pledges at six per cent, interest. This pawn-shop or
Lombard, as it is called, affords a revenue, it is pretended,
to the state of a hundred and fifty thousand crowns, which,
at four-and-sixpence the crown, amounts to 33,750/ sterling.
The government of Pensylvania, without amassing any
treasure, invented a method of lending, not money indeed,
but what is equivalent to money, to its subjects. By advanc-
ing to private people, at interest, and upon land security to
double the value, paper bills of credit to be redeemed fifteen
years after their date, and in the mean time made transfer-
rable from hand to hand like bank notes, and declared by act
of assembly to be a legal tender in all payments from one
inhabitant of the province to another, it raised a moderate
revenue, which went a considerable way towards defraying
an annual expence of about 4,500/. the whole ordinary ex-
pence of that frugal and orderly government. The success
of an expedient of this kind must have depended upon three
different circumstances ; first, upon the demand for some
other instrument of commerce, besides gold and silver money ;
or upon the demand for such a quantity of consumable stock,
as could not be had without sending abroad the greater part
of their gold and silver money, in order to purchase it; sec-
ondly, upon the good credit of the government which made
use of this expedient; and, thirdly, upon the moderation with
FUNDS OF THE SOVEREIGN 493
which it was used, the whole value of the paper bills of credit
never exceeding that of the gold and silver money whicli
would have been necessary for carrying on their circulation,
had there been no paper bills of credit. The same expedient
was upon different occasions adopted by several other Ameri-
can colonies: but, from want of this moderation, it produced,
in the greater part of them, much more disorder than con-
veniency.
The unstable and perishable nature cf stock and credit,
however, render them unfit to be trusted to, as the principal
funds of that sure, steady and permanent revenue, which can
alone give security and dignity to government. The govern-
ment of no great nation, that was advanced beyond the shep-
herd state, seems ever to have derived the greater part of its
public revenue from such sources.
Land is a fund of a more stable and permanent nature:
and the rent of public lands, accordingly, has been the prin-
cipal source of the public revenue of many a great nation
that was much advanced beyond the shepherd state. From
the produce or rent of the public lands, the ancient republics
of Greece and Italy derived, for a long time, the greater part
of that revenue which defrayed the necessary expences of the
commonwealth. The rent of the crown lands constituted for
a long time the greater part of the revenue of the ancient
sovereigns of Europe.
War and the preparation for war, are the two circum-
stances which in modern times occasion the greater part of
the necessary expence of all great states. But in the ancient
republics of Greece and Italy every citizen was a soldier, who
both served and prepared himself for service at his own ex-
pence. Neither of those two circumstances, therefore, could
occasion any very considerable expence to the state. The
rent of a very moderate landed estate might be fully sufficient
for defraying all the other necessary expences of government.
In the ancient monarchies of Europe, the manners and cus-
toms of the times sufficiently prepared the great body of the
people for war ; and when they took the field, they were, by
the condition of their feudal tenures, to be maintained, either
at their own expence, or at that of their immediate lords,
without bringing any new charge upon the sovereign. The
494 WEALTH OF NATIONS
other expences of government were, the greater part of them,
very moderate. The administration of justice, it has been
shown, instead of being a cause of expence, was a source of
revenue. The labour of the country people, for three days
before and for three days after harvest, was thought a fund
sufficient for making and maintaining all the bridges, high-
ways, and other public works which the commerce of the
country was supposed to require. In those days the prin-
cipal expence of the sovereign seems to have consisted in the
maintenance of his own family and household. The officers
of his household, accordingly, were then the great officers of
state. The lord treasurer received his rents. The lord stew-
ard and lord chamberlain looked after the expence of his
family. The care of his stables was committed to the lord
constable and the lord marshal. His houses were all built
in the form of castles, and seem to have been the principal
fortresses which he possessed. The keepers of those houses
or castles might be considered as a sort of military gov-
ernors. They seem to have been the only military officers
whom it was necessary to maintain in time of peace. In
these circumstances the rent of a great landed estate might,
upon ordinary occasions, very well defray all the necessary
expences of government.
In the present state of the greater part of the civilized
monarchies of Europe, the rent of all the lands in the coun-
try, managed as they probably would be if they all belonged
to one proprietor, would scarce perhaps amount to the or-
dinary revenue which they levy upon the people even in
peaceable times. The ordinary revenue of Great Britain, for
example, including not only what is necessary for defraying
the current expence of the year, but for paying the interest
of the public debts, and for sinking a part of the capital of
those debts, amounts to upwards of ten millions a year. But
the land tax, at four shillings in the pound, falls short of two
millions a year. This land tax, as it is called, however, is
supposed to be one-fifth, not only of the rent of all the land,
but of that of all the houses, and of the interest of all the
capital stock of Great Britain, that part of it only excepted
which is either lent to the public, or employed as farming
stock in the cultivation of land. A very considerable part of
FUNDS OF THE SOVEREIGN 49S
the produce of this tax arises from the rent of houses, and the
interest of capital stock. The land-tax of the city of London,
for example, at four shillings in the pound, amounts to
123,399/. 6s. yd. That of the city of Westminster, to 63,092/.
IS. $d. That of the palaces of Whitehall and St. James's, to
30,754/. 6s. 3c?. A certain proportion of the land-tax is in
the same manner assessed upon all the other cities and towns
corporate in the kingdom, and arises almost altogether, either
from the rent of houses, or from what is supposed to be the
interest of trading and capital stock. According to the esti-
mation, therefore, by which Great Britain is rated to the land-
tax, the whole mass of revenue arising from the rent of all
the lands, from that of all the houses, and from the interest
of all the capital stock, that part of it only excepted which
is either lent to the public, or employed in the cultivation of
land, does not exceed ten millions sterling a year, the or-
dinary revenue which government levies upon the people even
in peaceable times. The estimation by which Great Britain
is rated to the land-tax is, no doubt, taking the whole king-
dom at an average, very much below the real value; though
in several particular counties and districts it is said to be
nearly equal to that value. The rent of the lands alone, ex-
clusive of that of houses, and of the interest of stock, has by
many people been estimated at twenty millions, an estimation
made in a great measure at random, and which, I apprehend,
is as likely to be above as below the truth. 'But if the lands
of Great Britain, in the present state of their cultivation, do
not afford a rent of more than twenty millions a year, they
could not well afford the half, most probably not the fourth
part of that rent, if they all belonged to a single proprietor,
and were put under the negligent, expensive, and oppressive
management of his factors and agents. The crown lands of
Great Britain do not at present afford the fourth part of the
rent, which could probably be drawn from them if they were
the property of private persons. If the crown lands were
more extensive, it is probable they would be still worse
managed.
The revenue which the great body of the people derives
from land is in proportion, not to the rent, but to the produce
of the land. The whole annual produce of the land of every
496 WEALTH OF NATIONS
country, if we except what is reserved for seed, is either
annually consumed by the great body of the people, or ex-
changed for something else that is consumed by them. What-
ever keeps down the produce of the land below what it would
otherwise rise to, keeps down the revenue of the great body
of the people, still more than it does that of the proprietors
of land. The rent of land, that portion of the produce which
belongs to the proprietors, is scarce anywhere in Great
Britain supposed to be more than a third part of the whole
produce. If the land, which in one state of cultivation affords
a rent of ten millions sterling a year, would in another afford
a rent of twenty millions; the rent being, in both cases, sup-
posed a third part of the produce ; the revenue of the pro-
prietors would be less than it otherwise might be by ten mil-
lions a year only ; but the revenue of the great body of the
people would be less than it otherwise might be by thirty
millions a year, deducting only what would be necessary for
seed. The population of the country would be less by the
number of people which thirty millions a year, deducting al-
ways the seed, could maintain, according to the particular
mode of living and expence which might take place in the
different ranks of men among whom the remainder was
distributed.
Though there is not at present, in Europe, any civilized
state of any kind which derives the greater part of its public
revenue from the rent of lands which are the property of the
state ; yet, in all the great monarchies of Europe, there are
still many large tracts of land which belong to the crown.
They are generally forest ; and sometimes forest where, after
travelling several miles, you will scarce find a single tree ; a
mere waste and loss of country in respect both of produce and
population. In every great monarchy of Europe the sale of the
crown lands would produce a very large sum of money,
which, if applied to the payment of the public debts, would
deliver from mortgage a much greater revenue than any
which those lands have ever afforded to the crown. In coun-
tries where lands, improved and cultivated very highly, and
yielding at the time of sale as great a rent as can easily be
got from them, commonly sell at thirty years purchase ; the
unimproved, uncultivated, and low-rented crown lands might
FUNDS OF THE SOVEREIGN 497
well be expected to sell at forty, fifty, or sixty years pur-
chase. The crown might immediately enjoy the revenue
which this great price would redeem from mortgage. In the
course of a few years it would probably enjoy another rev-
enue. When the crown lands had become private property,
they would, in the course of a few years, become well im-
proved and well cultivated. The increase of their produce
would increase the population of the country, by augmenting
the revenue and consumption of the people. But the revenue
which the crown derives from the duties of customs and ex-
cise, would necessarily increase with the revenue and con-
sumption of the people.
The revenue which, in any civilized monarchy, the crown
derives from the crown lands, though it appears to cost noth-
ing to individuals, in reality costs more to the society than
perhaps any other equal revenue which the crown enjoys.
It would, in all cases, be for the interest of the society to
replace this revenue to the crown by some other equal rev-
enue, and to divide the lands among the people, which could
not well be done better, perhaps, than by exposing them
to public sale.
Lands, for the purposes of pleasure and magnificence,
parks, gardens, public walks, &c., possessions which are
every where considered as causes of expence, not as sources
of revenue, seem to be the only lands which, in a great and
civilized monarchy, ought to belong to the crown.
Public stock and public lands, therefore, the two sources
of revenue which may peculiarly belong to the sovereign or
commonwealth, being both improper and insufficient funds
for defraying the necessary expence of any great and civi-
lized state; it remains that this expence must, the greater
part of it, be defrayed by taxes of one kind or another; the
people contributing a part of their own private revenue in
order to make up a public revenue to the sovereign or com-
monwealth.
498 WEALTH OF NATIONS
PART I
Of Taxes
The private revenue of individuals, it has' been shewn
in the first book of this Inquiry, arises ultimately from
three different sources : Rent, Profit, and Wages. Every
tax must finally be paid from some one or other of
those three different sorts of revenue, or from all of them
indifferently. I shall endeavour to give the best account I
can, first, of those taxes which, it is intended, should fall
upon rent; secondly, of those which, it is intended, should
fall upon profit ; thirdly, of those which, it is intended, should
fall upon wages; and, fourthly, of those which, it is intended,
should fall indifferently upon all those three different sources
of private revenue. The particular consideration of each of
these four different sorts of taxes will divide the second
part of the present chapter into four articles, three of which
will require several other subdivisions. Many of those taxes,
it will appear from the following review, are not finally paid
from the fund, or source of revenue, upon which it was in-
tended they should fall.
Before I enter upon the examination of particular taxes,
it is necessary to premise the four following maxims with
regard to taxes in general.
I. The subjects of every state ought to contribute towards
the support of the government, as nearly as possible, in pro-
portion to their respective abilities ; that is, in proportion to
the revenue which they respectively enjoy under the protec-
tion of the state. The expence of government to the indi-
viduals of a great nation, is like the expence of manage-
ment to the joint tenants of a great estate, who are all obliged
to contribute in proportion to their respective interests in
the estate. In the observation or neglect of this maxim
consists, what is called the equality or inequality of taxation.
Every tax, it must be observed once for all, which falls
finally upon one only of the three sorts of revenue above
mentioned, is necessarily unequal, in so far as it does not
affect the other two. In the following examination of dif-
ferent taxes I shall seldom take much further notice of this
TAXES 499
sort of inequality, but shall, in most cases, confine my obser-
vations to that inequality which is occasioned by a particular
tax falling unequally even upon that particular sort of pri-
vate revenue which is affected by it.
II. The tax which each individual is bound to pay ought
to be certain, and not arbitrary. The time of payment, the
manner of payment, the quantity to be paid, ought all to be
clear and plain to the contributor, and to every other person.
Where it is otherwise, every person subject to the tax is put
more or less in the power of the tax-gatherer, who can
either aggravate the tax upon any obnoxious contributor, or
extort, by the terror of such aggravation, some present or
perquisite to himself. The uncertainty of taxation encour-
ages the insolence and favours the corruption of an order of
men who are naturally unpopular, even where they are
neither insolent nor corrupt. The certainty of what each in-
dividual ought to pay is, in taxation, a matter of so great
importance, that a very considerable degree of inequality,
it appears, I believe, from the experience of all nations, is
not near so great an evil as a very small degree of un-
certainty.
III. Every tax ought to be levied at the time, or in the
manner, in which it is most likely to be convenient for the
contributor to pay it. A tax upon the rent of land or of
houses, payable at the same term at which such rents are
usually paid, is levied at the time when it is most likely to
be convenient for the contributor to pay; or, when he is
most likely to have wherewithal to pay. Taxes upon such
consumable goods as are articles of luxury, are all finally
paid by the consumer, and generally in a manner that is very
convenient for him. He pays them by little and little, as he
has occasion to buy the goods. As he is at liberty too, either
to buy, or not to buy, as he pleases, it must be his own fault
if he ever suffers any considerable inconveniency from such
taxes.
IV. Every tax ought to be so contrived as both to take out
and to keep out of the pockets of the people as little as pos-
sible, over and above wliat it brings into the public treasury
of the state. A tax may either take out or keep out of the
pockets of the people a great deal more than it brings into
500 WEALTH OF NATIONS
the public treasury, in the four following ways. First, the
levying of it may require a great number of officers, whose
salaries may eat up the greater part of the produce of the
tax, and whose perquisites may impose another additional
tax upon the people. Secondly, it may obstruct the industry
of the people, and discourage them from applying to certain
branches of business which might give maintenance and em-
ployment to great multitudes. While it obliges the people to
pay, it may thus diminish, or perhaps destroy, some of the
funds which might enable them more easily to do so.
Thirdly, by the forfeitures and other penalties which
those unfortunate individuals incur who attempt unsuc-
cessfully to evade the tax, it may frequently ruin
them, and thereby put an end to the benefit which the
community might have received from the employment
of their capitals. An injudicious tax offers a great
temptation to smuggling. But the penalties of smuggling
must rise in proportion to the temptation. The law, con-
trary to all the ordinary principles of justice, first creates
the temptation, and then punishes those who yield to it; and
it commonly enhances the punishment too in proportion to
the very circumstance which ought certainly to alleviate it,
the temptation to commit the crime. Fourthly, by subjecting
the people to the frequent visits and the odious examination
of the tax-gatherers, it may expose them to much unneces-
sary trouble, vexation, and oppression ; and though vexation
is not, strictly speaking, expence, it is certainly equivalent
to the expence at which every man would be willing to re-
deem himself from it. It is in some one or other of these
four different ways that taxes are frequently so much more
burdensome to the people than they are beneficial to the
sovereign.
The evident justice and utility of the foregoing maxims
have recommended them more or less to the attention of all
nations. All nations have endeavoured, to the best of their
judgment, to render their taxes as equal as they could con-
trive; as certain, as convenient to the contributor, both in
the time and in the mode of payment, and in proportion to
the revenue which they brought to the prince, as little bur-
densome to the people. The following short review of some
TAXES ON THE RENT OF LAND 501
of the principal taxes which have taken place in different
ages and countries will show, that the endeavours of all na-
tions have not in this respect been equally successful.
ARTICLE I
Taxes upon Rent. Taxes upon the Rent of Land.
A TAX upon the rent of land may either be imposed
according to a certain canon, every district being valued
at a certain rent, which valuation is not afterwards to be
altered; or it may be imposed in such a manner as to
vary with every variation in the real rent of the land,
and to rise or fall with the improvement or declension of
its cultivation.
A land-tax, which, like that of Great Britain, is assessed
upon each district according to a certain invariable canon,
though it should be equal at the time of its first establish-
ment, necessarily becomes unequal in process of time, accord-
ing to the unequal degrees of improvement or neglect in the
cultivation of the different parts of the country. In Eng-
land, the valuation according to which the different counties
and parishes were assessed to the land-tax by the 4th of
William and Mary was very unequal even at its first estab-
lishment. This tax, therefore, so far offends against the
first of the four maxims above-mentioned. It is perfectly
agreeable to the other three. It is perfectly certain The
time of payment for the tax, being the same as that for the
rent, is as convenient as it*can be to the contributor. Though
the landlord is in all cases the real contributor, the tax is
commonly advanced by the tenant, to whom the landlord is
obliged to allow it in the payment of the rent. This tax is
levied by a much smaller number of officers than any other
which affords nearly the same revenue. As the tax upon
each district does not rise with the rise of the rent, the sov-
ereign does not share in the profits of the landlord's im-
provements. Those improvements sometimes contribute,
indeed, to the discharge of the other landlords of the district.
But the aggravation of the tax, which this may sometimes
occasion upon a particular estate, is always so very small,
502 WEALTH OF NATIONS
that it never can discourage those improvements, nor keep
down the produce of the land below what it would otherwise
rise to. As it has no tendency to diminish the quantity, it
can have none to raise the price of that produce. It does
not obstruct the industry of the people. It subjects the land-
lord to no other inconveniency besides the unavoidable one
of paying the tax.
The advantage, however, which the landlord has derived
from the invariable constancy of the valuation by which all
the lands of Great Britain are rated to the land-tax, has
been principally owing to some circumstances altogether ex-
traneous to the nature of the tax.
It has been owing in part to the great prosperity of almost
every part of the country, the rents of almost all the estates
of Great Britain having, since the time when this valuation
was first established, been continually rising, and scarce any
of them having fallen. The landlords, therefore, have al-
most all gained the difference between the tax which they
would have paid, according to the present rent of their es-
tates, and that which they actually pay according to the
ancient valuation. Had the state of the country been differ-
ent, had rents been gradually falling in consequence of the
declension of cultivation, the landlords would almost all have
lost this difference. In the state of things which has hap-
pened to take place since the revolution, the constancy of
the valuation has been advantageous to the landlord and
hurtful to the sovereign. In a different state of things it
might have been advantageous to the sovereign and hurtful
to the landlord.
As the tax is made payable in money, so the valuation of
the land is expressed in money. Since the establishment of
this valuation the value of silver has been pretty uniform,
and there has been no alteration in the standard of the coin
either as to weight or fineness. Had silver risen considerably
in its value, as it seems to have done in the course of the
two centuries which preceded the discovery of the mines of
America, the constancy of the valuation might have proved
very oppressive to the landlord. Had silver fallen consid-
erably in its value, as it certainly did for about a century at
least after the discovery of those mines, the same constancy
TAXES ON THE RENT OF LAND 503
of valuation would have reduced very much this branch of the
revenue of the sovereign. Had any considerable alteration
been made in the standard of the money, either by sinking
the same quantity of silver to a lower denomination, or by
raising it to a higher; had an ounce of silver, for example,
instead of being coined into five shillings and twopence, been
coined, either into pieces which bore so low a denomination
as two shillings and seven-pence, or into pieces which bore
so high a one as ten shillings and four-pence, it would in
the one case have hurt the revenue of the proprietor, in the
other that of the sovereign.
In circumstances, therefore, somewhat different from those
which have actually taken place, this constancy of valuation
might have been a very great inconveniency, either to the
contributors, or to the commonwealth. In the course of ages
such circumstances, however, must, at some time or other,
happen. But though empires, like all 'he other works of
men, have all hitherto proved mortal, yet every empire aims
at immortality. Every constitution, therefore, which it is
meant should be as permanent as the empire itself, ought to
be convenient, not in certain circumstances only, but in all
circumstances; or ought to be suited, not to those circum-
stances which are transitory, occasional, or accidental, but
to those which are necessary and therefore always the same.
A tax upon the rent of land which varies with every varia-
tion of the rent, or which rises and falls according to the
improvement or neglect of cultivation, is recommended by
that sect of men of letters in France, who call themselves
the oeconomists, as the most equitable of all taxes. All taxes,
they pretend, fall ultimately upon the rent of land, and ought
therefore to be imposed equally upon the fund which must
finally pay them. That all taxes ought to fall as equally
as possible upon the fund which must finally pay them, is
certainly true. But without entering into the disagreeable
discussion of the metaphysical arguments by which they
support their very ingenious theory, it will sufficiently ap-
pear, from the following review, what are the taxes which
fall finally upon the rent of the land, and what are those
which fall finally upon some other fund.
In the Venetian territory all the arable lands which are
504 WEALTH OF NATIONS
given in lease to farmers are taxed at a tenth of the rent.
The leases are recorded in a public register which is kept by
the officers of revenue in each province or district. When
the proprietor cultivates his own lands, they are valued ac-
cording to an equitable estimation, and he is allowed a deduc-
tion of one-fifth of the tax, so that for such lands he pays
only eight instead of ten per cent, of the supposed rent.
A laud-tax of this kind is certainly more equal than the
land-tax of England. It might not, perhaps, be altogether
so certain, and the assessment of the tax might frequently
occasion a good deal more trouble to the landlord. It might
too be a good deal more expensive in the levying.
Such a system of administration, however, might perhaps
be contrived as would, in a great measure, both prevent this
uncertainty and moderate this expence.
The landlord and tenant, for example, might jointly be
obliged to record their lease in a public register. Proper
penalties might be enacted against concealing or misrepre-
senting any of the conditions; and if part of those penalties
were to be paid to either of the two parties who informed
against and convicted the other of such concealment or mis-
representation, it would effectually deter them from com-
bining together in order to defraud the public revenue. All
the conditions of the lease might be sufficiently known from
such a record.
Some landlords, instead of raising the rent, take a fine for
the renewal of the lease. This practice is in most cases the
expedient of a spendthrift, who for a sum of ready money
sells a future revenue of much greater value. It is in most
cases, therefore, hurtful to the landlord. It is frequently
hurtful to the tenant, and it is always hurtful to the com-
munity. It frequently takes from the tenant so great a part
of his capital, and thereby diminishes so much his ability to
cultivate the land, that he finds it more difficult to pay a
small rent than it would otherwise have been to pay a great
one. Whatever diminishes his ability to cultivate, necessarily
keeps down, below what it would otherwise have been, the
most important part of the revenue of the community. By
rendering the tax upon such fines a good deal heavier than
upon the ordinary rent, this hurtful practice might be dis-
TAXES ON THE RENT OF LAND 505
couraged, to the no small advantage of all the different
parties concerned, of the landlord, of the tenant, of the sov-
ereign, and of the whole community.
Such a system of administration might, perhaps, free a tax
of this kind from any degree of uncertainty which could
occasion either oppression or inconveniency to the contribu-
tor ; and might at the same time serve to introduce into the
common management of land such a plan or policy, as might
contribute a good deal to the general improvement and good
cultivation of the country.
The expence of levying a land-tax, which varied with
every variation of the rent, would no doubt be somewhat
greater than that of levying one which was always rated
according to a fixed valuation. Some additional expence
would necessarily be incurred both by the different register
offices which it would be proper to establish in the different
districts of the country, and by the different valuations which
might occasionally be made of the lands which the proprietor
chose to occupy himself. The expence of all this, how-
ever, might be very moderate, and much below what is in-
curred in the levying of many other taxes, which afford a
very inconsiderable revenue in comparison of what might
easily be drawn from a tax of this kind.
The discouragement which a variable land-tax of this
kind might give to the improvement of land, seems to be the
most important objection which can be made to it. The
landlord would certainly be less disposed to improve, when
the sovereign, who contributed nothing to the expence, was
to share in the profit of the improvement. Even this objec-
tion might perhaps be obviated by allowing the landlord, be-
fore he began his improvement, to ascertain, in conjunction
with the officers of revenue, the actual value of his lands,
according to the equitable arbitration of a certain number of
landlords and farmers in the neighbourhood, equally chosen
by both parties ; and by rating him according to this valua-
tion for such a number of years, as might be fully sufficient
for his complete indemnification. To draw the attention of
the sovereign towards the improvement of the land, from a
regard to the increase of his own revenue, is one of the
principal advantages proposed by this species of land-tax.
506 WEALTH OF NATIONS
I'he term, therefore, allowed for the indemnification of the
landlord, ought not to be a great deal longer than what was
necessary for that purpose ; lest the remoteness of the interest
should discourage too much this attention. It had better,
however, be somewhat too long than in any respect too short.
No incitement to the attention of the sovereign can ever
counterbalance the smallest discouragement to that of the
landlord. The attention of the sovereign can be at best but
a very general and vague consideration of what is likely to
contribute to the better cultivation of the greater part of his
dominions. The attention of the landlord is a particular and
minute consideration of what is likely to be the most advan-
tageous application of every inch of ground upon his estate.
The principal attention of the sovereign ought to be to en-
courage, by every means in his power, the attention both of
the landlord and of the farmer ; by allowing both to pursue
their own interest in their own way, and accordingly to their
own judgment; by giving to both the most perfect security
that they shall enjoy the full recompence of their own in-
dustry ; and by procuring to both the most extensive market
for every part of their produce, in consequence of establish-
ing the easiest and safest communications both by land and
by water, through every part of his own dominions, as well
as the most unbounded freedom of exportation to the do-
minions of all other princes.
If by such a system of administration a tax of this kind
could be so managed as to give, not only no discouragement,
but, on the contrary, some encouragement to the improve-
ment of land, it does not appear likely to occasion any other
inconveniency to the landlord, except always the unavoidable
one of being obliged to pay the tax.
In all the variations of the state of the society, in the
improvement and in the declension of agriculture; in all the
variations in the value of silver, and in all those in the stand-
ard of the coin, a tax of this kind would, of its own accord
and without any attention of government, readily suit itself
to the actual situation of things, and would be equally just
and equitable in all those different changes. It would, there-
fore, be much more proper to be established as a perpetual
and unalterable regulation, or as what is called a fundamental
TAXES ON THE RENT OF I>AND 507
law of the commonwealth, than any tax which was always
to be levied according to a certain valuation.
Some states, instead of the simple and obvious expedient
of a register of leases, have had recourse to the laborious
and expensive one of an actual survey and valuation of all
the lands in the country. They have suspected, probably,
that the lessor and lessee, in order to defraud the public rev-
enue, might combine to conceal the real terms of the lease.
Doomsday-book seems to have been the result of a v(fvy ac-
curate survey of this kind.
In the ancient dominions of the king of Prussia, the land-
tax is assessed according to an actual survey and valuation,
which is reviewed and altered from time to time. According
to that valuation, the lay proprietors pay from twenty to
twenty-five per cent, of their revenue. Ecclesiastics from
forty to forty-five per cent. The survey and valuation of
Silesia was made by order of the present king; it is said
with great accuracy. According to that valuation, the lands
belonging to the bishop of Breslaw are taxed at twenty-five
per cent, of their rent. The other revenues of the ecclesias-
tics of both religions, at fifty per cent. The commanderies
of the Teutonic order, and of that of Malta, at forty per
cent. Lands held by a noble tenure, at thirty-eight and one-
third per cent. Lands held by a base tenure, at thirty-five
and one-third per cent.
A land-tax assessed according to a general survey and
valuation, how equal soever it may be at first, must, in the
course of a very moderate period of time, become unequal.
To prevent its becoming so would require the continual and
painful attention of government to all the variations in the
state and produce of every different farm in the country.
The governments of Prussia, of Bohemia, of Sardinia, and
of the dutchy of Milan, actually exert an attention of this
kind ; an attention so unsuitable to the nature of government,
that it is not likely to be of long continuance, and which, if
it is continued, will probably in the long-run occasion much
more trouble and vexation than it can possibly bring relief
to the contributors.
In 1666, the generality of Montauban was assessed to the
Real or predial taille according, it is said, to a very exact
508 WEALTH OF NATIONS
survey and valuation. By 1727, this assessment had become
altogether unequal. In order to remedy this inconveniency,
government has found no better expedient than to impose
upon the whole generality an additional tax of a hundred
and twenty thousand livres. This additional tax is rated
upon all the different districts subject to the taille according
to the old assessment. But it is levied only upon those which
in the actual state of things are by that assessment under-
taxed, and it is applied to the relief of those which by the
same assessment are over-taxed. Two districts, for example,
one of which ought in the actual state of things to be taxed
at nine hundred, the other at eleven hundred livres, are by
the old assessment both taxed at a thousand livres. Both
these districts are by the additional tax rated at eleven hun-
dred livres each. But this additional tax is levied only upon
the district under-charged, and it is applied altogether to the
relief of that over-charged, which consequently pays only
nine hundred livres. The government neither gains nor
loses by the additional tax, which is applied altogether to
remedy the inequalities arising from the old assessment. The
application is pretty much regulated according to the discre-
tion of the intendant of the generality, and must, therefore,
be in a great measure arbitrary.
TAXES WHICH ARE PROPORTIONED, NOT TO THE RENT, BUT
TO THE PRODUCE OF LAND
Taxes upon the produce of land are in reality taxes upon
the rent; and though they may be originally advanced by the
farmer, are finally paid by the landlord. When a certain
portion of the produce is to be paid away for a tax, the
farmer computes, as well as he can, what the value of this
portion is, one year with another, likely to amount to, and
he makes a proportionable abatement in the rent which he
agrees to pay to the landlord. There is no farmer who does
not compute beforehand what the church tythe, which is a
land-tax of this kind, is, one year with another, likely to
amount to.
The tythe, and every other land-tax of this kind, under
the appearance of perfect equality, are very unequal taxes;
TAXES ON THE PRODUCE OF LAND 509
a certain portion of the produce being, in different situations,
equivalent to a very different portion of the rent. In some
very rich lands the produce is so great, that the one half of
it is fully sufificient to replace the farmer his capital employed
in cultivation, together with the ordinary profits of farming
stock in the neighbourhood. The other half, or what comes
to the same thing, the value of the other half, he could afford
to pay as rent to the landlord, if there was no tythe. But if
a tenth of the produce is taken from him in the way of tythe,
he must require an abatement of the fifth part of his rent,
otherwise he cannot get back his capital with the ordinary
profit. In this case the rent of the landlord, instead of
amounting to a half, or five-tenths of the whole produce, will
amount only to four-tenths of it. In poorer lands, on the
contrary, the produce is sometimes so small, and the expence
of cultivation so great, that it requires four-fifths of the
whole produce to replace to the farmer his capital with the
ordinary profit. In this case, though there was no tythe,
the rent of the landlord could amount to no more than one-
fifth or two-tenths of the whole produce. But if the farmer
pays one-tenth of the produce in the way of tythe, he must
require an equal abatement of the rent of the landlord, which
will thus be reduced to one-tenth only of the whole produce.
Upon the rent of rich lands, the tythe may sometimes be a
tax of no more than one-fifth part, or four shillings in the
pound; whereas upon that of poorer lands, it may sometimes
be a tax of one-half, or of ten shillings in the pound.
The tythe, as it is frequently a very unequal tax upon the
rent, so it is always a great discouragement both to the im-
provements of the landlord and to the cultivation of the
farmer. The one cannot venture to make the most im-
portant, which are generally the most expensive improve-
ments ; nor the other to raise the most valuable, which are
generally too the most expensive crops ; when the church,
which lays out no part of the expence, is to share so very
largely in the profit. The cultivation of madder was for a
long time confined by the tythe to the United Provinces,
which, being presbyterian countries, and upon that account
exempted from this destructive tax, enjoyed a sort of mo-
nopoly of that useful dying drug against the rest of Europe.
510 WEALTH OF NATIONS
The late attempts to introduce the culture of this plant into
England, have been made only in consequence of the statute
which enacted that five shillings an acre should be received
in lieu of all manner of tythe upon madder.
As through the greater part of Europe, the church, so in
many different countries of Asia, the state, is principally
supported by a land-tax, proportioned, not to the rent, but
to the produce of the land. In China, the principal revenue
of the sovereign consists in a tenth part of the produce of
all the lands of the empire. This tenth part, however, is
estimated so very moderately, that, in many provinces, it is
said not to exceed a thirtieth part of the ordinary produce.
The land-tax or land-rent which used to be paid to the Ma-
hometan government of Bengal, before that country fell into
the hands of the English East India company, is said to have
amounted to about a fifth part of the produce. The land-tax
of ancient Egypt is said likewise to have amounted to a
fifth part. . .'.
TAXES UPON THE RENT OP HOUSES
The rent of a house may be distinguished into two parts,
of which the one may very properly be called the Building
rent ; the other is commonly called the Ground rent.
The building rent is the interest or profit of the capital
expended in building the house. In order to put the trade of
a builder upon a level with other trades, it is necessary that
this rent should be sufficient, first, to pay him the same inter-
est which he would have got for his capital if he had lent
it upon good security ; and, secondly, to keep the house in
constant repair, or, what comes to the same thing, to replace,
within a certain term of years, the capital which had been
employed in building it. The building rent, or the ordinary
profit of building, is, therefore, every where regulated by the
ordinary interest of money. Where the market rate of inter-
est is four per cent, the rent of a house which, over and
above paying the ground rent, affords six, or six and a half
per cent, upon the whole expence of building, may perhaps
afford a sufficient profit to the builder. Where the market
rate of interest is five per cent., it may perhaps require
TAXES ON THE RENT OF HOUSES 511
seven or seven and a half per cent. If, in proportion to
the interest of money, the trade of the builder affords at
any time a much greater profit than this, it will soon draw
so much capital from other trades as will reduce the profit
to its proper level. If it affords at any time much less than
this, other trades will soon draw so much capital from it
as will again raise that profit.
Whatever part of the whole rent of a house is over and
above what is sufficient for affording this reasonable profit,
naturally goes to the ground-rent; and where the owner of
the ground and the owner of the building are two different
persons, is, in most cases, completely paid to the former.
This surplus rent is the price which the inhabitant of the
house pays for some real or supposed advantage of the situa-
tion. In country houses, at a distance from any great town,
where there is plenty of ground to chuse upon, the ground-
rent is scarce any thing, or no more than what the ground
which the house stands upon would pay if employed in agri-
culture. In country villas in the neighbourhood of some great
town, it is sometimes a good deal higher ; and the peculiar
conveniency or beauty of situation is there frequently very
well paid for. Ground-rents are generally highest in the
capital, and in those particular parts of it where there hap-
pens to be the greatest demand for houses, whatever be the
reason of that demand, whether for trade and business, for
pleasure and society, or for mere vanity and fashion.
A tax upon house-rent, payable by the tenant and propor-
tioned to the whole rent of each house, could not, for any
considerable time at least, affect the building rent. If the
builder did not get his reasonable profit, he would be obliged
to quit the trade; which, by raising the demand for build-
ing, would in a short time bring back his profit to its
proper level with that of other trades. Neither would such
a tax fall altogether upon the ground-rent; but it would
divide itself in such a manner as to fall, partly upon the
inhabitants of the house, and partly upon the owner of the
ground.
Let us suppose, for example, that a particular person
judges that he can afford for house-rent an expence of sixty
pounds a year; and let us suppose too that a tax of four
512 WEALTH OF NATIONS
shillings in the pound, or of one-fifth, payable by the inhabi-
tant, is laid upon house-rent. A house of sixty pounds rent
will in this case cost him seventy-two pounds a year, which
is twelve pounds more than he thinks he can afford. He
will, therefore, content himself with a worse house, or a
house of fifty pounds rent, which, with the additional ten
pounds that he must pay for the tax, will make up the sum
of sixty pounds a year, the expence which he judges he can
afford ; and in order to pay the tax he will give up a part of
the additional conveniency which he might have had from a
house of ten pounds a year more rent. He will give up, I
say, a part of this additional conveniency ; for he will seldom
be obliged to give up the whole, but will, in consequence of
the tax, get a better house for fifty pounds a year, than he
could have got if there had been no tax. For as a tax of
this kind, by taking away this particular competitor, must
diminish the competition for houses of sixty pounds rent, so
it must likewise diminish it for those of fifty pounds rent,
and in the same manner for those of all other rents, except
the lowest rent, for which it would for some time increase
the competition. But the rents of every class of houses for
which the competition was diminished, would necessarily
be more or less reduced. As no part of this reduction, how-
ever, could for any considerable time at least, affect the
building rent; the whole of it must in the long-run necessa-
rily fall upon the ground-rent. The final payment of this
tax, therefore, would fall, partly upon the inhabitant of the
house, who, in order to pay his share, would be obliged to
give up a part of his conveniency : and partly upon the
owner of the ground, who, in order to pay his share, would
be obliged to give up a part of his revenue. In what propor-
tion this final payment would be divided between them, it is
not perhaps very easy to ascertain. The division would
probably be very different in different circumstances, and a
tax of this kind might, according to those different circum-
stances, affect very unequally both the inhabitant of the
house and the owner of the ground.
The inequality with which a tax of this kind might fall
upon the owners of different ground-rents, would arise alto-
gether from the accidental inequality of this division. But
TAXES ON THE RENT OF HOUSES 513
the inequality with which it might fall upon the inhabitants
of different houses would arise, not only from this, but from
another cause. The proportion of the expence of house-
rent to the whole expence of living, is different in the dif-
ferent degrees of fortune. It is perhaps highest in the high-
est degree, and it diminishes gradually through the inferior
degrees, so as in general to be lowest in the lowest degree.
The necessities of life occasion the great expence of the
poor. Thy find it difficult to get food, and the greater part
of their little revenue is spent in getting it. The luxuries
and vanities of life occasion the principal expence of the
rich; and a magnificent house embellishes and sets off to the
best advantage all the other luxuries and vanities which they
possess. A tax upon house-rents, therefore, would in gen-
eral fall heaviest upon the rich; and in this sort of ine-
quality there would not, perhaps, be any thing very unrea-
sonable. It is not very unreasonable that the rich should
contribute to the public expence, not only in proportion to
their revenue, but something more than in that proportion.
The rent of houses, though it in some respects resembles
the rent of land, is in one respect essentially different from
it. The rent of land is paid for the use of a productive
subject. The land* which pays it produces it. The rent of
houses is paid for the use of an unproductive subject.
Neither the house nor the ground which it stands upon pro-
duce any thing. The person who pays the rent, therefore,
must draw it from some other source of revenue, distinct
from and independent of this subject. A tax upon the rent
of houses, so far as it falls upon the inhabitants, must be
drawn from the same source as the rent itself, and must be
paid from their revenue, whether derived from the wages
of labour, the profits of, stock, or the rent of land. So far
as it falls upon the inhabitants, it is one of those taxes which
fall, not upon one only, but indifferently upon all the three
different sources of revenue ; and is in every respect of the
same nature as a tax upon any other sort of consumable
commodities. In general there is not, perhaps, any one
article of expence or consumption by which the liberality
or narrowness of a man's whole expence can be better
judged of, than by his house-rent. A proportional tax upon
Q— HC X
514 WEALTH OF NATIONS
this particular article of expence might, perhaps, produce a
more considerable revenue than any which has hitherto been
drawn from it in any part of Europe. If the tax indeed was
very high, the greater part of people would endeavour to
evade it, as much as they could, by contenting themselves
with smaller houses, and by turning the greater part of their
expence into some other channel.
The rent of houses might easily be ascertained with suffi-
cient accuracy, by a policy of the same kind with that which
would be necessary for ascertaining the ordinary rent of
land. Houses not inhabited ought to pay no tax. A tax
upon them would fall altogether upon the proprietor, who
would thus be taxed for a subject which afforded him neither
conveniency nor revenue. Houses inhabited by the proprie-
tor ought to be rated, not according to the expence which
they might have cost in building, but according to the rent
which an equitable arbitration might judge them likely to
bring, if leased to a tenant. If rated according to the ex-
pence which they may have cost in building, a tax of three
or four shillings in the pound, joined with other taxes,
would ruin almost all the rich and great families of this,
and, I believe, of every other civilized country. Whoever
will examine, with attention, the different town and country
houses of some of the richest and greatest families in this
country, will find that, at the rate of only six and a half, or
seven per cent, upon the original expence of building, their
house-rent is nearly equal to the whole neat rent of their
estates. It is the accumulated expence of several successive
generations, laid out upon objects of great beauty and mag-
nificence, indeed; but, in proportion to what they cost, of
very small exchangeable value.
Ground-rents are a still more proper subject of taxation
than the rent of houses. A tax upon ground-rents would
not raise the rents of houses. It would fall altogether upon
the owner of the ground-rent, who acts always as a mo-
nopolist, and exacts the greatest rent which can be got for
the use of his ground. More or less can be got for it ac-
cording as the competitors happen to be richer or poorer,
or can afford to gratify their fancy for a particular spot of
ground at a greater or smaller expence. In every country
TAXES ON THE RENT OF HOUSES 515
the greatest number of rich competitors is in the capital, and
it is there accordingly that the highest ground-rents are al-
ways to be found. As the wealth of those competitors would
in no respect be increased by a tax upon ground-rents, they
would not probably be disposed to pay more for the use of
the ground. Whether the tax was to be advanced by the
inhabitant, or by the owner of the ground, would be of little
importance. The more the inhabitant was obliged to pay
for the tax, the less he would incline to pay for the ground ;
so that the final payment of the tax would fall altogether
upon the owner of the ground-rent. The ground-rents of
uninhabited houses ought to pay no tax.
Both ground-rents and the ordinary rent of land are a
species of revenue which the owner, in many cases, enjoys
without any care or attention of his own. Though a part
of this revenue should be taken from him in order to defray
the expences of the state, no discouragement will thereby be
given to any sort of industry. The annual produce of the
land and labour of the society, the real wealth and revenue
of the great body of the people, might be the same
after such a tax as before. Ground-rents, and the ordinary
rent of land, are, therefore, perhaps, the species of revenue
which can best bear to have a peculiar tax imposed upon
them.
Ground-rents seem, in this respect, a more proper subject
of peculiar taxation than even the ordinary rent of land.
The ordinary rent of land is, in many cases, owing partly
at least to the attention and good management of the land-
lord. A very heavy tax might discourage too much this
attention and good management. Ground-rents, so far as
they exceed the ordinary rent of land, are altogether owing
to the good government of the sovereign, which, by pro-
tecting the industry either of the whole people, or of the in-
habitants of some particular place, enables them to pay so
much more than its real value for the ground which they
build their houses upon; or to make to its owner so much
more than compensation for the loss which he might sustain
by this use of it. Nothing can be more reasonable than that
a fund which owes its existence to the good government of
the state, should be taxed peculiarly, or should contribute
S16 WEALTH OF NATIONS
something more than the greater part of other funds, towards
the support of that government.
Though, in many different countries of Europe, taxes have
been imposed upon the rent of houses, I do not know of any
in which ground-rents have been considered as a separate
subject of taxation. The contrivers of taxes have, probably,
found some difficulty in ascertaining what part of the rent
ought to be considered as ground-rent, and what part ought
to be considered as building-rent. It should not, however,
seem very difficult to distinguish those two parts of the rent
from one another.
In Great Britain the rent of houses is supposed to be taxed
in the same proportion as the rent of land, by what is called
the annual land-tax. The valuation, according to which each
different parish and district is assessed to this tax, is always
the same. It was originally extremely unequal, and it still
continues to be so. Through the greater part of the kingdom
this tax falls still more lightly upon the rent of houses than
upon that of land. In some few districts only which were
originally rated high, and in which the rents of houses have
fallen considerably, the land-tax of three or four shillings
in the pound, is said to amount to an equal proportion of
the real rent of houses. Untenanted houses, though by law
subject to the tax, are, in most districts, exempted from it
by the favour of the assessors ; and this exemption sometimes
occasions some little variation in the rate of particular houses,
though that of the district is always the same. Improvements
of rent, by new buildings, repairs, &c. ; go to the discharge
of the district, which occasions still further variations in the
rate of particular houses.
In the province of Holland every house is taxed at two and
a half per cent, of its value, without any regard either to
the rent which it actually pays, or to the circumstance of its
being tenanted or untenanted. There seems to be a hardship
in obliging the proprietor to pay a tax for an untenanted
house, from which he can derive no revenue, especially so
very heavy a tax. In Holland, where the market rate of
interest does not exceed three per cent, two and a half per
cent, upon the whole value of the house, must, in most cases,
amount to more than a third of the building-rent, perhaps
TAXES ON THE RENT OF HOUSES 517
of the whole rent. The valuation, indeed, according to which
the houses are rated, though very unequal, is said to be al-
ways below the real value. When a house is rebuilt, im-
proved or enlarged, there is a new valuation, and the tax is
rated accordingly.
The contrivers of the several taxes which in England have,
at different times, been imposed upon houses, seem to have
imagined that there was some great difficulty in ascertaining,
with tolerable exactness, what was the real rent of every
house. They have regulated their taxes, therefore, according
to some more obvious circumstance, such as they had prob-
ably imagined would, in most cases, bear some proportion
to the rent.
The first tax of this kind was hearth-money; or a tax of
two shillings upon every hearth. In order to ascertain how
many hearths were in the house, it was necessary that the
tax-gatherer should enter every room in it. This odious visit
rendered the tax odious. Soon after the revolution, there-
fore, it was abolished as a badge of slavery.
The next tax of this kind was, a tax of two shillings upon
every dwelling house inhabited. A house with ten windows
to pay four shillings more. A house with twenty windows
and upwards to pay eight shillings. This tax was afterwards
so far altered, that houses witli twenty windows, and with
less than thirty, were ordered to pay ten shillings, and those
with thirty windows and upwards to pay twenty shillings.
The number of windows can, in most cases, be counted from
the outside, and, in all cases, without entering every room
in the house. The visit of the tax-gatherer, therefore, was
less offensive in this tax than in the hearth-money.
This tax v/as afterwards repealed, and in the room of it
was established the window-tax, which has undergone too
several alterations and augmentations. The window-tax, as
it stands at present (January, 1/75), over and above the
duty of three shillings upon every house in England, and of
one shilling upon every house in Scotland, lays a duty upon
every window, which, in England, augments gradually from
two-pence, the lowest rate, upon houses with not more than
seven windows; to two shillings, the highest rate, upon
houses with twenty-five windows and upwards.
518 WEALTH OF NATIONS
The principal objection to all such taxes is their inequality,
an inequality of the worst kind, as they must frequently fall
much heavier upon the poor than upon the rich. A house of
ten pounds rent in a country town may sometimes have more
windows than a house of five hundred pounds rent in London ;
and though the inhabitant of the former is likely to be a
much poorer man than that of the latter, yet so far as his
contribution is regulated by the window-tax, he must con-
tribute more to the support of the state. Such taxes are,
therefore, directly contrary to the first of the four maxims
above mentioned. They do not seem to offend much against
any of the other three.
The natural tendency of the window-tax, and of all other
taxes upon houses, is to lower rents. The more a man pays
for the tax, the less, it is evident, he can afford to pay for
the rent. Since the imposition of the window-tax, however,
the rents of houses have upon the whole risen, more or less,
in almost every town and village of Great Britain, with
which I am acquainted. Such has been almost every where
the increase of the demand for houses, that it has raised the
rents more than the window-tax could sink them; one of the
many proofs of the great prosperity of the country, and of
the increasing revenue of its inhabitants. Had it not been
for the tax, rents would probably have risen still higher.
ARTICLE II
Taxes upon Profit, or upon the Revenue arising from Stock
The revenue or profit arising from stock naturally
divides itself into two parts ; that which pays the interest,
and which belongs to the owner of the stock ; and that
surplus part which is over and above what is necessary for
paying the interest.
This latter profit is evidently a subject not taxable directly.
It is the compensation, and in most cases it is no more than a
very moderate compensation, for the risk and trouble of
employing the stock. The employer must have this compen-
sation, otherwise he cannot, consistently with his own inter-
est, continue the employment. If he was taxed directly,
therefore, in proportion to the whole profit, he would be
TAXES ON PROFITS IN GENERAL 519
obliged either to raise the rate of his profit, or to charge the
tax upon the interest of money ; that is, to pay less interest.
If he raised the rate of his profit in proportion to the tax,
the whole tax, though it might be advanced by him, would
be finally paid by one or other of two different sets of people,
according to the different ways in which he might employ
the stock of which he had the management. If he employed
it as a farming stock in the cultivation of land, he could
raise the rate of his profit only by retaining a greater por-
tion, or, what comes to the same thing, the price of a greater
portion of the produce of the land; and as this could be done
only by a reduction of lent, the final payment of the tax
would fall upon the landlord. If he employed it as a mer-
cantile or manufacturing stock, he could raise the rate of his
profit only by raising the price of his goods; in which case
the final payment of the tax would fall altogether upon the
consumers of those goods. If he did not raise the rate of
his profit, he would be obliged to charge the whole tax upon
that part of it which was allotted for the interest of money.
He could afford less interest for whatever stock he borrowed,
and the whole weight of the tax would in this case fall ulti-
mately upon the interest of money. So far as he could not
relieve himself from the tax in the one way, he would be
obliged to relieve himself in the other.
The interest of money seems at first sight a subject equally
capable of being taxed directly as the rent of land. Like
the rent of land, it is a neat produce which remains after
completely compensating the whole risk and trouble of em-
ploying the stock. As a tax upon the rent of land cannot
raise rents; because the neat produce which remains after
replacing the stock of the farmer, together with his reason-
able profit, cannot be greater after the tax than before it ; so,
for the same reason, a tax upon the interest of money could
not raise the rate of interest; the quantity of stock or money
in the country, like the quantity of land, being supposed to
remain the same after the tax as before it. The ordinary
rate of profit, it has been shewn in the first book, is every
where regulated by the quantity of stock to be employed in
proportion to the quantity of the employment, or of the busi-
ness which must be done by it. But the quantity of the em-
520 WEALTH OF NATIONS
ployment, or of the business to be done by stock, could neither
be increased nor diminished by any tax upon the interest of
money. If the quantity of the stock to be employed, therefore,
was neither increased nor diminished by it, the ordinary rate
of profit would necessarily remain the same. But the por-
tion of this profit necessary for compensating the risk and
trouble of the employer, would likewise remain the same;
that risk and trouble being in no respect altered. The residue,
therefore, that portion which belongs to the owner of the
stock, and which pays the interest of money, would neces-
sarily remain the same too. At first sight, therefore, the
interest of money seems to be a subject as fit to be taxed
directly as the rent of land.
There are, however, two different circumstances which
render the interest of money a much less proper subject of
direct taxation than the rent of land.
First, the quantity and value of the land which any man
possesses can never be a secret, and can always be ascer-
tained with great exactness. But the whole amount of the
capital stock which he possesses is almost always a secret,
and can scarce ever be ascertained with tolerable exactness.
It is liable, besides, to almost continual variations. A year
seldom passes away, frequently not a month, sometimes scarce
a single day, in which it does not rise or fall more or less.
An inquisition into every man's private circumstances, and
an inquisition which, in order to accommodate the tax to
them, watched over all the fluctuations of his fortune, would
be a source of such continual and endless vexation as no
people could support.
Secondly, land is a subject which cannot be removed,
whereas stock easily may. The proprietor of land is neces-
sarily a citizen of the particular country in which his estate
lies. The proprietor of stock is properly a citizen of the
world, and is not necessarily attached to any particular coun-
try. He would be apt to abandon the country in which he
was exposed to a vexatious inquisition, in order to be as-
sessed to a burdensome tax, and would remove his stock
to some other country where he could either carry on his
business, or enjoy his fortune more at his ease. By remov-
ing his stock he would put an end to all the industry which
TAXES OX PROFITS IN GENERAL 521
it had maintained in the country which he left. Stock culti-
vates land; stock employs labour. A tax which tended to
drive away stock from any particular country, would so far
tend to dry up every source of revenue, both to the sovereign
and to the society. Not only the profits of stock, but the
rent of land and the wages of labour, would necessarily be
more or less diminished by its removal.
The nations, accordingly, who have attempted to tax the
revenue arising from stock, instead of any severe inquisition
of this kind, have been obliged to content themselves with
some very loose, and, therefore, more or less arbitrary esti-
mation. The extreme inequality and uncertainty of a tax
assessed in this manner, can be compensated only by its
extreme moderation, in consequence of which every man
finds himself rated so very much below his real revenue, that
he gives himself little disturbance though his neighbour
should be rated somewhat lower.
By what is called the land-tax in England, it was intended
that stock should be taxed in the same proportion as land.
When the tax upon land was at four shillings in the pound,
or at one-fifth of the supposed rent, it was intended that
stock should be taxed at one-fifth of the supposed interest.
When the present annual land-tax was first imposed, the legal
rate of interest was six per cent. Every hundred pounds
stock, accordingly, was supposed to be taxed at twenty-four
shillings, the fifth part of six pounds. Since the legal rate
of interest has been reduced to five per cent, every hundred
pounds stock is supposed to be taxed at twenty shillings
only. The sum to be raised, by what is called the land-tax,
was divided between the country and the principal towns.
The greater part of it was laid upon the country; and of
what was laid upon the towns, the greater part was assessed
upon the houses. What remained to be assessed upon the
stock or trade of the towns (for the stock upon the land was
not meant to be taxed) was very much below the real value
of that stock or trade. Whatever inequalities, therefore,
there might be in the original assessment, gave little dis-
turbance. Every parish • and district still continues to be
rated for its land, its houses, and its stock, according to the
original assessment; and the almost universal prosperity of
522 WEALTH OF NATIONS
the country, which in most places has raised very much the
value of all these, has rendered those inequalities of still
less importance now. The rate too upon each district con-
tinuing always the same, the uncertainty of this tax, so far
as it might be assessed upon the stock of any individual,
has been very much diminished, as well as rendered of much
less consequence. If the greater part of the lands of Eng-
land are not rated to the land-tax at half their actual value,
the greater part of the stock of England is, perhaps, scarce
rated at the fiftieth part of its actual value. In some towns
the whole land-tax is assessed upon houses; as in West-
minster, where stock and trade are free. It is otherwise in
London.
In all countries a severe inquisition into the circumstances
of private persons has been carefully avoided.
At Hamburgh every inhabitant is obliged to pay to the
state, one-fourth per cent, of all that he possesses; and as
the wealth of the people of Hamburgh consists principally
in stock, this tax may be considered as a tax upon stock.
Every man assesses himself, and, in the presence of the
magistrate, puts annually into the public coffer a certain
sum of money, which he declares upon oath to be one-fourth
per cent, of all that he possesses, but without declaring what
it amounts to, or being liable to any examination upon that
subject. This tax is generally supposed to be paid with
great fidelity. In a small republic, where the people have
entire confidence in their magistrates, are convinced of the
necessity of the tax for the support of the state, and believe
that it will be faithfully applied to that purpose, such con-
scientious and voluntary payment may sometimes be ex-
pected. It is not peculiar to the people of Hamburgh.
The canton of Underwald in Switzerland is frequently
ravaged by storms and inundations, and is thereby exposed
to extraordinary expences. Upon such occasions the people
assemble, and every one is said to declare with the greatest
frankness what he is worth, in order to be taxed accordingly.
At Zurich the law orders, that, in cases of necessity, every
one should be taxed in proportion to his revenue ; the amount
of which, he is obliged to declare upon oath. They have no
suspicion, it is said, that any of their fellow-citizens will
TAXES ON PROFITS IN GENERAL 523
deceive ihem. At Basil the principal revenue of the state
arises from a small custom upon goods exported. All the
citizens make oath that they will pay every three months
all the taxes imposed by the law. All merchants and even
all inn-keepers are trusted with keeping themselves the ac-
count of the goods which they sell either within or without
the territory. At the end of every three months they send
this account to the treasurer, with the amount of the tax
computed at the bottom of it. It is not suspected that the
revenue suffers by this confidence.
To oblige every citizen to declare publicly upon oath the
amount of his fortune, must not, it seems, in those Swiss
cantons, be reckoned a hardship. At Hamburgh it would
be reckoned the greatest. Merchants engaged in the hazard-
ous projects of trade, all tremble at the thoughts of being
obliged at all times to expose the real state of their circum-
stances. The ruin of their credit and the miscarriage of
their projects, they foresee, would too often be the conse-
quence. A sober and parsimonious people, who are strangers
to all such projects, do not feel that they have occasion for
any such concealment.
In Holland, soon after the exaltation of the late prince of
Orange to the stadtholdership, a tax of two per cent, or the
fiftieth penny, as it was called, was imposed upon the whole
substance of every citizen. Every citizen assessed himself
and paid his tax in the same manner as at Hamburgh ; and
it was in general supposed to have been paid with great
fidelity. The people had at that time the greatest affection
for their new government, which they had just established
by a general insurrection. The tax was to be paid but once ;
in order to relieve the state in a particular exigency. It was,
indeed, too heavy to be permanent. In a country where the
market rate of interest seldom exceeds three per cent., a tax
of two per cent, amounts to thirteen shillings and fourpence
in the pound upon the highest neat revenue which is com-
monly drawn from stock. It is a tax which very few people
could pay without encroaching more or less upon their capi-
tals. In a particular exigency the people may, from great
public zeal, make a great effort, and give up even a part of
their capital, in order to relieve the state. But it is im-
524 WEALTH OF NATIONS
possible that they should continue to do so for any con-
siderable time; and if they did, the tax would soon ruin
them so completely as to render them altogether incapable
of supporting the state.
The tax upon stock imposed by the land-tax bill in Eng-
land, though it is proportioned to the capital, is not intended
to diminish or take away any part of that capital. It is
meant only to be a tax upon the interest of money pro-
portioned to that upon the rent of land; so that when the
latter is at four shillings in the pound, the former may be at
four shillings in the pound too. The tax at Hamburgh, and
the still more moderate taxes of Underwald and Zurich, are
meant, in the same manner, to be taxes, not upon the capi-
tal, but upon the interest or neat revenue of stock. That of
Holland was meant to be a tax upon the capital.
TAXES UPON THE PROFIT OF PARTICULAR EMPLOYMENTS
In some countries extraordinary taxes are imposed
upon the profits of stock ; sometimes when employed in
particular branches of trade, and sometimes when employed
in agriculture.
Of the former kind are in England the tax upon hawkers
and pedlars, that upon hackney coaches and chairs, and that
which the keepers of ale-houses pay for a licence to retail
ale and spirituous liquors. During the late war, another tax
of the same kind was proposed upon shops. The war having
been undertaken, it was said, in defence of the trade of the
country, the merchants, who were to profit by it, ought to
contribute towards the support of it.
A tax, however, upon the profits of stock employed in any
particular branch of trade, can never fall finally upon the
dealers (who must in all ordinary cases have their reason-
able profit, and, where the competition is free, can seldom
have more than that profit), but always upon the consumers,
who must be obliged to pay in the price of the goods the
tax which the dealer advances; and generally with some
overcharge.
A tax of this kind when it is proportioned to the trade of
the dealer, is finally paid by the consumer, and occasions no
TAXES ON PARTICULAR PROFITS 525
oppression to the dealer. When it is not so proportioned, but
is the same upon all dealers, though in this case too it is
finally paid by the consumer, yet it favours the great, and
occasions some oppression to the small dealer. The tax of
five shillings a week upon every hackney coach, and that of
ten shillings a year upon every hackney chair, so far as it is
advanced by the different keepers of such coaches and chairs,
is exactly enough proportioned to the extent of their re-
spective dealings. It neither favours the great, nor oppresses
the smaller dealer. The tax of twenty shillings a year for
a license to sell ale; of forty shillings for a licence to sell
spirituous liquors; and of forty shillings more for a licence
to sell wine, being the same upon all retailers, must neces-
sarily give some advantage to the great, and occasion some
oppression to the small dealers. The former must find it
more easy to get back the tax in the price of their goods
than the latter. The moderation of the tax, however, renders
this inequality of less importance, and it may to many people
appear not improper to give some discouragement to the mul-
tiplication of little ale-houses. The tax upon shops, it was
intended, should be the same upon all shops. It could not
well have been otherwise. It would have been impossible to
proportion with tolerable exactness the tax upon a shop to the
extent of the trade carried on in it, without such an inquisi-
tion as would have been altogether insupportable in a free
country. If the tax had been considerable, it would have
oppressed the small, and forced almost the whole retail
trade into the hands of the great dealers. The competition
of the former being taken away, the latter would have en-
joyed a monopoly of the trade ; and like all other monopolists
would soon have combined to raise their profits much be-
yond what was necessary for the payment of the tax. The
final payment, instead of falling upon the shopkeeper, would
have fallen upon the consumer, with a considerable over-
charge to the profit of the shopkeeper. For these reasons,
the project of a tax upon shops was laid aside, and in the
room of it was substituted the subsidy 1759.
When a tax is imposed upon the profits of stock in a
particular branch of trade, the traders are all careful to bring
no more goods to market than what they can sell at a price
526 WEALTH OF NATIONS
sufficient to reimburse them for advancing the tax. Some
of them withdraw a part of their stocks from the trade, and
the market is more sparingly supplied than before. The
price of the goods rises, and the final payment of the tax
falls upon the consumer. But when a lax is imposed upon
the profits of stock employed in agriculture, it is not the
interest of the farmers to withdraw any part of their stock
from that employment. Each farmer occupies a certain
quantity of land, for which he pays rent. For the proper
cultivation of this land a certain quantity of stock is neces-
sary; and by withdrawing any part of this necessary quan-
tity, the farmer is not likely to be more able to pay, either
the rent or the tax. In order to pay the tax, it can never
be his interest to diminish the quantity of his produce, nor
consequently to supply the market more sparingly than be-
fore. The tax, therefore, will never enable him to raise the
price of his produce, so as to reimburse himself by throwing
the final payment upon the consumer. The farmer, however,
must have his reasonable profit as well as every other dealer,
otherwise he must give up the trade. After the imposition
of a tax of this kind, he can get this reasonable profit only
by paying less rent to the landlord. The more he is obliged
to pay in the way of tax, the less he can afford to pay in
the way of rent. A tax of this kind imposed during the
currency of a lease may, no doubt, distress or ruin the
farmer. Upon the renewal of the lease it must always fall
upon the landlord.
What are called poll-taxes in the southern provinces of
North America, and in the West Indian islands, annual
taxes of so much a head upon every negroe, are properly
taxes upon the profits of a certain species of stock employed
in agriculture. As the planters are, the greater part of them,
both farmers and landlords, the final payment of the tax
falls upon them in their quality of landlords without any
retribution.
Taxes of so much a head upon the bondmen employed in
cultivation, seem anciently to have been common all over
Europe. There subsists at present a tax of this kind in the
empire of Russia. It is probably upon this account that poll-
taxes of all kinds have often been represented as badges of
TAXES ON PARTICULAR PROFITS 527
slavery. Every tax, however, is to the person who pays it
a badge, not of slavery, but of liberty. It denotes that he is
subject to government, indeed, but that, as he has some prop-
erty, he cannot himself be the property of a master. A poll-
tax upon slaves is altogether different from a poll-tax upon
freemen. The latter is paid by the persons upon whom it
is imposed ; the former by a different set of persons. The
latter is either altogether arbitrary or altogether unequal,
and in most cases is both the one and the other ; the former,
though in some respects unequal, different slaves being of
different values, is in no respect arbitrary. Every master who
knows the number of his own slaves, knows exactly what he
has to pay. Those dift'erent taxes, however, being called by
the same name, have been considered as of the same nature.
The taxes which in Holland are imposed upon men and
maid servants, are taxes, not upon stock, but upon expence ;
and so far resemble the taxes upon consumable commodities.
The tax of a guinea a head for every man servant, which
has lately been imposed in Great Britain, is of the same kind.
It falls heaviest upon the middling rank. A man of two
hundred a year may keep a single man servant. A man of
ten thousand a year will not keep fifty. It does not affect
the poor.
Taxes upon the profits of stock in particular employments
can never affect the interest of money. Nobody will lend
his money for less interest to those who exercise the taxed,
than to those who exercise the untaxed employments. Taxes
upon the revenue arising from stock in all employments,
where the government attempts to levy them with any degree
of exactness, will, in many cases, fall upon the interest of
money. The Vingtieme, or twentieth penny, in France, is a
tax of the same kind with what is called the land-tax in
England, and is assessed, in the same manner, upon the
revenue arising from land, houses, and stock. So far as it
affects stock it is assessed, though not with great rigour, yet
with much more exactness than that part of the land-tax
of England which is imposed upon the same fund. It, in
many cases, falls altogether upon the interest of money.
Money is frequently sunk in France upon what are called
Contracts for the constitution of a rent; that is, perpetual
528 WEALTH OF NATIONS
annuities redeemable at any time by the debtor upon repay-
ment of the sum originally advanced, but of which this re-
demption is not exigible by the creditor except in particular
cases. The Vingtieme seems not to have raised the rate of
those annuities, though it is exactly levied upon them all.
APPENDIX TO ARTICLES I AND II
Taxes upon the Capital Value of Land, Houses, and Stock
While property remains in the possession of the same
person, whatever permanent taxes may have been im-
posed upon it, they have never been intended to dimin-
ish or take away any part of its capital value, but only
some part of the revenue arising from it. But when prop-
erty changes hands, when it is transmitted either from the
dead to the living, or from the living to the living, such taxes
have frequently been imposed upon it as necessarily take
away some part of its capital value.
The transference of all sorts of property from the dead to
the living, and that of immoveable property, of lands and
houses, from the living to the living, are transactions which
are in their nature either public and notorious, or such as
cannot be long concealed. Such transactions, therefore, may
be taxed directly. The transference of stock or moveable
property, from the living to the living, by the lending of
money, is frequently a secret transaction, and may always
be made so. It cannot easily, therefore, be taxed directly.
It has been taxed indirectly in two different ways; first, by
requiring that the deed, containing the obligation to repay,
should be written upon paper or parchment which had paid
a certain stamp-duty, otherwise not to be valid; secondly, by
requiring, under the like penalty of invalidity, that it should
be recorded either in a public or secret register, and by im-
posing certain duties upon such registration. Stamp-duties
and duties of registration have frequently been imposed like-
wise upon the deeds transferring property of all kinds from
the dead to the living, and upon those transferring immove-
able property from the living to the living, transactions which
might easily have been taxed directly.
TAXES ON CAPITAL VALUE 529
The Vicesima Hereditatum, the twentieth penny of inher-
itances, imposed by Augustus upon the ancient Romans, was
a tax upon the transference of property from the dead to the
living. Dion Cassius, the author who writes concerning it
the least indistincdy, says, that it was imposed upon all suc-
cessions, legacies, and donations, in case of death, except
upon those to the nearest relations, and to the poor.
Of the same kind is the Dutch tax upon successions. Col-
lateral successions are taxed, according to the degree of rela-
tion, from five to thirty per cent, upon the whole value of
the succession. Testamentary donations, or legacies to col-
laterals, are subject to the like duties. Those from husband
to wife, or from wife to husband, to the fifteenth penny.
The Luctuosa Hereditas, the mournful succession of as-
cendents to descendents, to the twentieth penny only. Direct
successions, or those of descendents to ascendents, pay no
tax. The death of a father, to such of his children as live
in the same house with him, is seldom attended with any
increase, and frequently with a considerable diminution of
revenue ; by the loss of his industry, of his office, or of some
life-rent estate, of which he may have been in possession.
That tax would be cruel and oppressive which aggravated
their loss by taking from them any part of his succession.
It may, however, sometimes be otherwise with those chil-
dren who, in the language of the Roman law, are said to be
emancipated; in that of the Scotch law, to be foris-famili-
ated ; that is, who have received their portion, have got fam-
ilies of their own, and are supported by funds separate and
independent of those of their father. Whatever part of his
succession might come to such children, would be a real
addition to their fortune, and might therefore, perhaps, with-
out more inconveniency than what attends all duties of this
kind, be liable to some tax.
The casualties of the feudal law were taxes upon the
transference of land, both from the dead to the living, and
from the living to the living. In ancient times they con-
stituted in every part of Europe one of the principal branches
of the revenue of the crown.
The heir of every immediate vassal of the crown paid a
certain duty, generally a year's rent, upon receiving the in-
530 WEALTH OP^ NATIONS
vestiture of the estate. If the heir was a minor, the whole
rents of the estate, during the continuance of the minority,
devolved to the superior without any other charge, besides
the maintenance of the minor, and the payment of the
widow's dower, when there happened to be a dowager upon
the land. When the minor came to be of age, another tax,
called Relief, was still due to the superior, which generally
amounted likewise to a year's rent. A long minority, which
in the present times so frequently disburdens a great estate
of all its incumbrances, and restores the family to their
ancient splendour, could in those times have no such effect.
The waste, and not the disincumbrance of the estate, was
the common effect of a long minority.
By the feudal law the vassal could not alienate without
the consent of his superior, who generally extorted a fine or
composition for granting it. This fine, which was at first
arbitrary, came in many countries to be regulated at a certain
portion of the price of the land. In some countries, where
the greater part of the other feudal customs have gone into
disuse, this tax upon the alienation of land still continues to
make a very considerable branch of the revenue of the sov-
ereign. In the canton of Berne it is so high as a sixth part
of the price of all noble fiefs ; and a tenth part of that of all
ignoble ones. In the canton of Lucerne the tax upon the
sale of lands is not universal, and takes place only in certain
districts. But if any person sells his land, in order to remove
out of the territory, he pays ten per cent, upon the whole
price of the sale. Taxes of the same kind upon the sale
either of all lands, or of lands held by certain tenures, take
place in many other countries, and make a more or less
considerable branch of the revenue of the sovereign.
Such transactions may be taxed indirectly, by means either
of stamp-duties, or of duties upon registration; and those
duties either may or may not be proportioned to the value
of the subject which is transferred.
In Great Britain the stamp-duties are higher or lower, not
so much according to the value of the property transferred
(an eighteen penny or half crown stamp being sufficient upon
a bond for the largest sum of money) as according to the
nature of the deed. The highest do not exceed six pounds
TAXES ON CAPITAL VALUE 531
upon every sheet of paper, or skin of parchment; and these
high duties fall chiefly upon grants from the crown, and
upon certain law proceedings, without any regard to the
value of the subject. There are in Great Britain no duties
on the registration of deeds or writings, except the fees of
the officers who keep the register ; and these are seldom
more than a reasonable recompence for their labour. The
crown derives no revenue from them.
In Holland there are both stamp-duties and duties upon
registration ; which in somes cases are, and in some are not
proportioned to the value of the property transferred. All
testaments must be written upon stamped paper of which the
price is proportioned to the property disposed of, so that
there are stamps which cost from three pence, or three stivers
a sheet, to three hundred florins, equal to about twenty-seven
pounds ten shillings of our money. If the stamp is of an
inferior price to what the testator ought to have made use of,
his succession is confiscated. This is over and above all
their other taxes on succession. Except bills of exchange,
and some other mercantile bills, all other deeds, bonds, and
contracts, are subject to a stamp-duty. This duty, however,
does not rise in proportion to the value of the subject. All
sales of land and of houses, and all mortgages upon either,
must be registered, and, upon registration, pay a duty to the
state of two and a half per cent, upon the amount of the
price or of the mortgage. This duty is extended to the sale
of all ships and vessels of more than two tons burthen,
whether decked or undecked. These, it seems, are considered
as a sort of houses upon the water. The sale of moveables,
when it is ordered by a court of justice, is subject to the like
duty of two and a half per cent.
In France there are both stamp-duties and duties upon
registration. The former are considered as a branch of the
aides or excise, and in the provinces where those duties take
place, are levied by the excise officers. The latter are con-
sidered as a branch of the domain of the crown, and are
levied by a dififerent set of officers.
Those modes of taxation, by stamp-duties and by duties
upon registration, are of very modern invention. In the
course of little more than a century, however, stamp-duties
532 WEALTH OF NATIONS
have, in Europe, become almost universal, and duties upon
registration extremely common. There is no art which one
government sooner learns of another, than that of draining
money from the pockets of the people.
Taxes upon the transference of property from the dead to
the living, fall finally as well as immediately upon the person
to whom the property is transferred. Taxes upon the sale
of land fall altogether upon the seller. The seller is almost
always under the necessity of selling, and must, therefore,
take such a price as he can get. The buyer is scarce ever
under the necessity of buying, and will, therefore, only give
such a price as he likes. He considers what the land will
cost him in tax and price together. The more he is obliged
to pay in the way of tax, the less he will be disposed to give
in the way of price. Such taxes, therefore, fall almost always
upon a necessitous person, and must, therefore, be frequently
very cruel and oppressive. Taxes upon the sale of new-built
houses, where the building is sold without the ground, fall
generally upon the buyer, because the builder must generally
have his profit; otherwise he must give up the trade. If he
advances the tax, therefore, the buyer must generally repay
it to him. Taxes upon the sale of old houses, for the same
reason as those upon the sale of land, fall generally upon
the seller; whom in most cases either conveniency or neces-
sity obliges to sell. The number of new-built houses that are
annually brought to market, is more or less regulated by the
demand. Unless the demand is such as to afford the builder
his profit, after paying all expences, he will build no more
houses. The number of old houses which happen at any time
to come to market is regulated by accidents of which the
greater part have no relation to the demand. Two or three
great bankruptcies in a mercantile town, will bring many
houses to sale, which must be sold for what can be got for
them. Taxes upon the sale of ground rents fall altogether
upon the seller; for the same reason as those upon the sale
of land. Stamp-duties, and duties upon the registration of
bonds and contracts for borrowed money, fall altogether upon
the borrower, and, in fact, are always paid by him. Duties
of the same kind upon law proceedings fall upon the suitors.
They reduce to both the capital value of the subject in dis-
TAXES ON CAPITAL VALUE 533
pute. The more it costs to acquire any property, the less
must be the neat value of it when acquired.
All taxes upon the transference of property of every kind,
so far as they diminish the capital value of that property,
tend to diminish the funds destined for the maintenance of
productive labour. They are all more or less unthrifty taxes
that increase the revenue of the sovereign, which seldom
maintains any but unproductive labourers ; at the expence of
the capital of the people, which maintains none but pro-
ductive.
Such taxes, even when they are proportioned to the value
of the property transferred, are still unequal; the frequency
of transference not being always equal in property of equal
value. When they are not proportioned to this value, which
is the case with the greater part of the stamp duties, and
duties of registration, they are still more so. They are in no
respect arbitrary, but are or may be in all cases perfectly
clear and certain. Though they sometimes fall Upon the
person who is not very able to pay; the time of payment is
in most cases sufficiently convenient for him. When the pay-
ment becomes due, he must in most cases have the money
to pay. They are levied at very little expence, and in gen-
eral subject the contributors to no other inconveniency be-
sides always the unavoidable one of paying the tax.
In France the stamp-duties are not much complained of.
Those of registration, which they call the Controle, are. They
give occasion, it is pretended, to much extortion in the officers
of the farmers-general who collect the tax, which is in a
great measure arbitrary and uncertain. In the greater part
of the libels which have been written against the present
system of finances in France, the abuses of the Controle make
a principal article. Uncertainty, however, does not seem to
be necessarily inherent in the nature of such taxes. If the
popular complaints are well founded, the abuse must arise,
not so much from the nature of the tax, as from the want
of precision and distinctness in the words of the edicts or
laws which impose it.
The registration of mortgages, and in general of all rights
upon immoveable property, as it gives great security both to
creditors and purchasers, is extremely advantageous to the
534 WEALTH OF NATIONS
public. That of the greater part of deeds of other kinds is
frequently inconvenient and even dangerous to individuals,
without any advantage to the public. All registers which,
it is acknowledged, ought to be kept secret, ought certainly
never to exist. The credit of individuals ought certainly
never to depend upon so very slender a security as the probity
and religion of the inferior officers of revenue. But where
the fees of registration have been made a source of rev-
enue to the sovereign, register offices have commonly been
multiplied without end, both for the deeds which ought to
be registered, and for those which ought not. In France
there are several different sorts of secret registers. This
abuse, though not perhaps a necessary, it must be acknowl-
edged, is a very natural effect of such taxes.
Such stamp-duties as those in England upon cards and
dice, upon news-papers and periodical pamphlets, &c. are
properly taxes upon consum.ption ; the final payment falls
upon the persons who use or consume such commodities.
Such stamp-duties as those upon licences to retail ale, wine,
and spirituous liquors, though intended, perhaps, to fall upon
the profits of the retailers, are likewise finally paid by the
consumers of those liquors. Such taxes, though called by the
same name, and levied by the same officers and in the same
manner with the stamp-duties above mentioned upon the
transference of property, are however of a quite different
nature, and fall upon quite different funds.
ARTICLE III
Taxes upon the Wages of Labour
The wages of the inferior classes of workmen, I
have endeavoured to show in the first book, are every
where necessarily regulated by two different circum-
stances ; the demand for labour, and the ordinary or average
price of provisions. The demand for labour, according as it
happens to be either increasing, stationary, or declining; or
to require an increasing, stationary, or declining population,
regulates the subsistence of the labourer, and determines in
what degree it shall be, either liberal, moderate, or scanty.
TAXES ON WAGES 535
The ordinary or average price of provisions determines the
quantity of money which must be paid to the workman in
order to enable him, one year with another, to purchase this
liberal, moderate, or scanty subsistence. While the demand
for labour and the price of provisions, therefore, remain the
same, a direct tax upon the wages of labour can have no
other effect than to raise them somewhat higher than the
tax. Let us suppose, for example, that in a particular place
the demand for labour and the price of provisions were such,
as to render ten shillings a week the ordinary wages of la-
bour; and that a tax of one-fifth, or four shillings in the
pound, was imposed upon wages. If the demand for labour
and the price of provisions remained the same, it would
still be necessary that the labourer should in that place earn
such a subsistence as could be bought only for ten shillings
a week, or that after paying the tax he should have ten
shillings a week free wages. But in order to leave him such
free wages after paying such a tax, the price of labour must
in that place soon rise, not to twelve shillings a week only,
but to twelve and sixpence ; that is, in order to enable him
to pay a tax of one-fifth, his wages must necessarily soon
rise, not one-fifth part only, but one-fourth. Whatever was
the proportion of the tax, the wages of labour must in all
cases rise, not only in that proportion, but in a higher pro-
portion. If the tax, for example, was one-tenth, the wages
of labour must necessarily soon rise, not one-tenth part only,
but one-eighth.
A direct tax upon the wages of labour, therefore, though
the labourer might perhaps pay it out of his hand, could not
properly be said to be even advanced by him; at least if the
demand for labour and the average price of provisions re-
mained the same after the tax as before it. In all such
cases, not only the tax, but something more than the tax,
would in reality be advanced by the person who immediately
employed him. The final payment would in different cases
fall upon different persons. The rise which such a tax might
occasion in the wages of manufacturing labour would be ad-
vanced by the master manufacturer, who would both be en-
titled and obliged to charge it, with a profit, upon the price
of his goods. The final payment of this rise of wages, there-
536 WEALTH OF NATIONS
fore, together with the additional profit of the master manu-
facturer, would fall upon the consumer. The rise which such
a tax might occasion in the wages of country labour would
be advanced by the farmer, who, in order to maintain the
same number of labourers as before, would be obliged to
employ a greater capital. In order to get back this greater
capital, together with the ordinary profits of stock, it would
be necessary that he should retain a larger portion, or what
comes to the same thing, the price of a larger portion, of
the produce of the land, and consequently that he should pay
less rent to the landlord. The final payment of this rise of
wages, therefore, would in this case fall upon the landlord,
together with the additional profit of the farmer who had
advanced it. In all cases a direct tax upon the wages of
labour must, in the long-run, occasion both a greater re-
duction in the rent of land, and a greater rise in the price
of manufactured goods, than would have followed from the
proper assessment of a sum equal to the produce of the tax,
partly upon the rent of land, and partly upon consumable
commodities.
If direct taxes upon the wages of labour have not always
occasioned a proportionable rise in those wages, it is be-
cause they have generally occasioned a considerable fall in
the demand for labour. The declension of industry, the
decrease of employment for the poor, the diminution of the
annual produce of the land and labour of the country, have
generally been the effects of such taxes. In consequence of
them, however, the price of labour must always be higher
than it otherwise would have been in the actual state of the
demand : and this enhancement of price, together with the
profit of those who advance it, must always be finally paid
by the landlords and consumers.
A tax upon the wages of country labour does not raise
the price of the rude produce of land in proportion to the
tax; for the same reason that a tax upon the farmer's profit
does not raise that price in that proportion.
Absurd and destructive as such taxes are, however, they
take place in many countries. In France that part of the
taille which is charged upon the industry of workmen and
day-labourers in country villages, is properly a tax of this
TAXES ON WAGES 537
kind. Their wages are computed according* to the common
rate of the district in which they reside, and that they may
be as httle hable as possible to any ovei -charge, their yearly
gains are estimated at no more than two hundred working
days in the year. The tax of each individual is varied from
year to year according to different circumstances, of which
the collector or the commissary, whom the intendant appoints
to assist him, are the judges. In Bohemia, in consequence
of the alteration in the system of finances which was begun
in 1748, a very heavy tax is imposed upon the industry of
artificers. They are divided into four classes. The highest
class pay a hundred* florins a year; which, at two-and-twenty-
pence halfpenny a florin, amounts to 9/. ys. 6d. The second
class are taxed at seventy; the third at fifty; and the fourth,
comprehending artificers in villages, and the lowest class of
those in towns, at twenty-five florins.
The recompence of ingenious artists and of men of liberal
professions, I have endeavoured to show in the first book,
necessarily keeps a certain proportion to the emoluments of
inferior trades. A tax upon this recompence, therefore, could
have no other effect than to raise it somewhat higher than
in proportion to the tax. If it did not rise in this manner,
the ingenious arts and the liberal professions, being no
longer upon a level with other trades, would be so much
deserted that they would soon return to that level.
The emoluments of offices are not, like those of trades
and professions, regulated by the free competition of the
market, and do not, therefore, always bear a just proportion
to what the nature of the employment requires. They are
perhaps, in most countries, higher than it requires ; the per-
sons who have the administration of government being gen-
erally disposed to reward both themselves and their immedi-
ate dependents rather more than enough. The emoluments
of offices, therefore, can in most cases very well bear to be
taxed. The persons, besides, who enjoy public offices, es-
pecially the more lucrative, are in all countries the objects
of general envy; and a tax upon their emoluments, even
though it should be somewhat higher than upon any other
sort of revenue, is always a very popular tax. In England,
for example, when by the land-tax every other sort of rev-
538 WEALTH OF NATIONS
enue was supposed to be assessed at four shillings in the
pound, it was very popular to lay a real tax of five shillings
and sixpence in the pound upon the salaries of offices which
exceeded a hundred pounds a year; the pensions of the
younger branches of the royal family, the pay of the officers
of the army and navy, and a few others less obnoxious to
envy excepted. There are in England no other direct taxes
upon the wages of labour.
ARTICLE IV
Taxes which, it is intended, should fall indifferently upon
EVERY DIFFERENT SpECIES OF REVENUE
The taxes which, it is intended, should fall indiffer-
ently upon every different species of revenue, are capitation
taxes, and taxes upon consumable commodities. These
must be paid indifferently from whatever revenue the con-
tributors may possess ; from the rent of their land,
from the profits of their stock, or from the wages of
their labour.
CAPITATION TAXES
Capitation taxes, if it is attempted to proportion them to
the fortune or revenue of each contributor, become alto-
gether arbitrary. The state of a man's fortune varies from
day to day, and without an inquisition more intolerable than
any tax, and renewed at least once every year, can only be
guessed at. His assessment, therefore, must in most cases
depend upon the good or bad humour of his assessors, and
must, therefore, be altogether arbitrary and uncertain.
Capitation taxes, if they are proportioned not to the sup-
posed fortune, but to the rank of each contributor, become
altogether unequal ; the degrees of fortune being frequently
unequal in the same degree of rank.
Such taxes, therefore, if it is attempted to render them
equal, become altogether arbitrary and uncertain; and if it
is attempted to render them certain and not arbitrary, be-
come altogether unequal. Let the tax be light or heavy, un-
certainty is always a great grievance. In a light tax a con-
CAPITATION TAXES 539
siderable degree of inequality may be supported ; in a heavy
one it is altogether intolerable
In the different poll-taxes which took place in England
during the reign of William III. the contributors were, the
greater part of them, assessed according to the degree of
their rank ; as dukes, marquisses, earls, viscounts, barons,
esquires, gentlemen, the eldest and youngest sons of peers,
&c. All shopkeepers and tradesmen worth more than three
hundred pounds, that is, the better sort of them, were subject
to the same assessment; how great soever might be the dif-
ference in their fortunes. Their rank was more considered
than their fortune. Several of those who in the first poll-
tax were rated according to their supposed fortune, were
afterwards rated according to their rank. Serjeants, at-
tornies, and proctors at law, who in the first poll-tax were
assessed at three shillings in the pound of their supposed
income, were afterwards assessed as gentlemen. In the as-
sessment of a tax which was not very heavy, a considerable
degree of inequality had been found less insupportable than
any degree of uncertainty.
In the capitation which has been levied in France without
any interruption since the beginning of the present century,
the highest orders of people are rated according to their
rank, by an invariable tariff; the lower orders of people,
according to what is supposed to be their fortune, by ati
assessment which varies from" year to year. The officers of
the king's court, the judges and other officers in the superior
courts of justice, the officers of the troops, &c. are assessed
in the first manner. The inferior ranks of people in the
provinces are assessed in the second. In France the great
easily submit to a considerable degree of inequality in a tax
which, so far as it affects them, is not a very heavy one : but
could not brook the arbitrary assessment of an intendant.
The inferior ranks of people must, in that country, suffer
patiently the usage which their superiors think proper to
give them.
In England the different poll-taxes never produced the sum
which had been expected from them, or which, it was sup-
posed, they might have produced, had they been exactly
levied. In France the capitation always produces the sum
540 WEALTH OF NATIONS
expected from it. The mild government of England, when
it assessed the different ranks of people to the poll-tax, con-
tented itself with what that assessment happened to produce ;
and required no compensation for the loss which the state
might sustain either by those who could not pay, or by those
who would not pay (for there were many such), and who,
by the indulgent execution of the law, were not forced to
pay. The more severe government of France assesses upon
each generality a certain sum, which the intendant must find
as he can. If any province complains of being assessed too
high, it may, in the assessment of next year, obtain an abate-
ment proportioned to the over-charge of the year before.
But it must pay in the mean time. The intendant, in order
to be sure of finding the sum assessed upon his generality,
was impowered to assess it in a larger sum, that the failure
or inability of some of the contributors might be compen-
sated by the over-charge of the rest ; and till 1765, the fix-
ation of this surplus assessment was left altogether to his
discretion. In that year indeed the council assumed this
power to itself. In the capitation of the provinces, it is
observed by the perfectly well-informed author of the
Memoirs upon the impositions in France, the proportion
which falls upon the nobility, and upon those whose privi-
leges exempt them from the taille, is the least considerable.
The largest falls upon those subject to the taille, who are
assessed to the capitation at so much a pound of what they
pay to that other tax.
Capitation taxes, so far as they are levied upon the lower
ranks of people, are direct taxes upon the wages of labour,
and are attended with all the inconveniences of such taxes.
Capitation taxes are levied at little expence; and, where
they are rigorously exacted, afford a very sure revenue to
the state. It is upon this account that in countries where
the ease, comfort, and security of the inferior ranks of
people are little attended to, capitation taxes are very com-
mon. It is in general, however, but a small part of the pub-
lic revenue, which, in a great empire, has ever been drawn
from such taxes ; and the greatest sum which they have ever
afforded, might always have been found in some other way
much more convenient to the people.
TAXES UPON CONSUMABLE COMMODITIES 541
TAXES UPON CONSUMABLE COMMODITIES
The impossibility of taxing the people, in proportion to
their revenue, by any capitation, seems to have given occa-
sion to the invention of taxes upon consumable commodities.
The state not knowing how to tax, directly and proportion-
ably, the revenue of its subjects, endeavours to tax it indi-
rectly by taxing their expence, which, it is supposed, will in
most cases be nearly in proportion to their revenue. Their
expence is taxed by taxing the consumable commodities upon
which it is laid out.
Consumable commodities are either necessaries or luxuries.
By necessaries I understand, not only the commodities
which are indispensably necessary for the support of life, but
whatever the custom of the country renders it indecent for
creditable people, even of the lowest order, to be without. A
linen shirt, for example, is, strictly speaking, not a necessary
of life. The Greeks and Romans lived, I suppose, very com-
fortabl)', though they had no linen. But in the present times,
through the greater part of Europe, a creditable day-labourer
would be ashamed to appear in public without a linen shirt,
the want of which would be supposed to denote that dis-
graceful degree of poverty, which, it is presumed, no body
can well fall into without extreme bad conduct. Custom,
in the same manner, has rendered leather shoes a necessary
of life in England. The poorest creditable person of either
sex would be ashamed to appear in public without them. In
Scotland, custom has rendered them a necessary of life to
the lowest order of men ; but not to the same order of women,
who may, without any discredit, walk about bare-footed. In
France, they are necessaries neither to men nor to women;
the lowest rank of both sexes appearing there publicly, with-
out any discredit, sometimes in wooden shoes, and sometimes
bare-footed. Under necessaries therefore, I comprehend, not
only those things which nature, but those things which the
established rules of decency have rendered necessary to the
lowest rank of people. All other things I call luxuries ; with-
out meaning by this appellation, to throw the smallest degree
of reproach upon the temperate use of them. Beer and ale,
for example, in Great Britain, and wine, even in the wine
542 WEALTH OF NATIONS
countries, I call luxuries, A man of any rank may, without
any reproach, abstain totally from tasting such liquors.
Nature does not render them necessary for the support of
life ; and custom nowhere renders it indecent to live without
them.
As the wages of labour are every where regulated, partly
by the demand for it, and partly by the average price of the
necessary articles of subsistence ; whatever raises this aver-
age price must necessarily raise those wages, so that the
labourer may still be able to purchase that quantity of those
necessary articles which the state of the demand for labour,
whether increasing, stationary, or declining, requires that he
should have. A tax upon those articles necessarily raises
their price somewhat higher than the amount of the tax, be-
cause the dealer who advances the tax, must generally get it
back with a profit. Such a tax must, therefore, occasion a
rise in the wages of labour proportionable to this rise of
price.
It is thus that a tax upon the necessaries of life, operates
exactly in the same manner as a direct tax upon the
wages of labour. The labourer, though he may pay
it out of his hand, cannot, for any considerable time at
least, be properly said even to advance it. It must always
in the long-run be advanced to him by his immediate
employer in the advanced rate of his wages. His employer,
if he is a manufacturer, will charge upon the price of his
goods this rise of wages, together with a profit; so that the
final payment of the tax, together with this over-charge, will
fall upon the consumer. If his employer is a farmer, the
final payment, together with a like over-charge, will fall
upon the rent of the landlord.
It is otherwise with taxes upon what I call luxuries ; even
upon those of the poor. The rise in the price of the taxed
commodities, will not necessarily occasion any rise in the
wages of labour. A tax upon tobacco, for example, though
a luxury of the poor as well as of the rich, will not raise
wages. Though it in taxed in England at three times, and
in France at fifteen times its original price, those high duties
seem to have no effect upon the wages of labour. The same
thing may be said of the taxes upon tea and sugar ; which in
TAXES UPON CONSUMABLE COMMODITIES 543
England and Holland have become luxuries of the lowest
ranks of people ; and of those upon chocolate, which in Spain
is said to have become so. The different taxes which in
Great Britain have in the course of the present century been
imposed upon spirituous liquors, are not supposed to have
had any effect upon the wages of labour. The rise in the
price of porter, occasioned by an additional tax of three shil-
lings upon the barrel of strong beer, has not raised the
wages of common labour in London. These were about
eighteen pence and twenty-pence a day before the tax, and
they are not more new.
The high price of such commodities does not necessarily
diminish the ability of the inferior ranks of people to bring
up families. Upon the sober and industrious poor, taxes
upon such commodities act as sumptuary laws, and dispose
them either to moderate, or to refrain altogether from the
use of superfluities which they can no longer easily afford.
Their ability to bring up families, in consequence of this
forced frugality, instead of being diminished, is frequently,
perhaps, increased by the tax. It is the sober and industrious
poor who generally bring up the most numerous families,
and who principally supply the demand for useful labour.
All the poor indeed are not sober and industrious, and the
dissolute and disorderly might continue to indulge themselves
in the use of such commodities after this rise of price in the
same manner as before ; without regarding the distress which
this indulgence might bring upon their families. Such dis-
orderly persons, however, seldom rear up numerous fami-
lies; their children generally perishing from neglect, mis-
management, and the scantiness or unwholesomeness of
their food. If by the strength of their constitution they
survive the hardships to which the bad conduct of their par-
ents exposes them ; yet the example of that bad conduct com-
monly corrupts their morals ; so that, instead of being useful
to society by their industry, they become public nuisances by
their vices and disorders. Though the advanced price of the
luxuries of the poor, therefore, might increase somewhat the
distress of such disorderly families, and thereby diminish
somewhat their ability to bring up children; it would not
probably diminish much the useful population of the country.
544 WEALTH OF NATIONS
Any rise in the average price of necessaries, unless it is
compensated by a proportionable rise in the wages of labour,
must necessarily diminish more or less the ability of the poor
to bring up numerous families, and consequently to supply
the demand for useful labour ; whatever may be the state of
that demand, whether increasing, stationary, or declining;
or such as requires an increasing, stationary, or declining
population.
Taxes upon luxuries have no tendency to raise the price
of any other commodities except that of the commodities
taxed. Taxes upon necessaries, by raising the wages of
labour, necessarily tend to raise the price of all manufac-
tures, and consequently to diminish the extent of their sale
and consumption. Taxes upon luxuries are finally paid by
the consumers of the commodities taxed, without any retri-
bution. They fall indiiTerently upon every species of reve-
nue, the wages of labour, the profits of stock, and the rent
of land. Taxes upon necessaries, so far as they affect the
labouring poor, are finally paid, partly by landlords in the
diminished rent of their lands, and partly by rich consumers,
whether landlords or others, in the advanced price of manu-
factured goods; and always with a considerable over-charge.
The advanced price of such manufactures as are real neces-
saries of life, and are destined for the consumption of the
poor, of coarse woollens, for example, must be compensated
to the poor by a farther advancement of their wages. The
middling and superior ranks of people^ if they understood
their own interest, ought always to oppose all taxes upon
the necessaries of life, as well as all direct taxes upon the
wages of labour. The final payment of both the one and the
other falls altogether upon themselves, and always with a
considerable over-charge. They fall heaviest upon the land-
lords, who always pay in a double capacity ; in that of land-
lords, by the reduction of their rent ; and in that of rich con^
sumers, by the increase of their expence. The observation
of Sir Matthew Decker, that certain taxes are, in the price
of certain goods, sometimes repeated and accumulated four
or five times, is perfectly just with regard to taxes upon the
necessaries of life. In the price of leather, for example,
you must pay, not only for the tax upon the leather of your
TAXES UPON CONSUMABLE COMMODITIES 545
own shoes, but for a part of that upon those of the shoe-
maker and the tanner. You must pay too for the tax upon
the salt, upon the soap, and upon the candles which those
workmen consume while employed in your service, and for
the tax upon the leather, which the salt-maker, the soap-
maker, and the candle-maker consume while employed in
their service.
In Great Britain, the principal taxes upon the necessaries
of life are those upon the four commodities just now men-
tioned, salt, leather, soap, and candles.
Salt is a very ancient and a very universal subject of tax-
ation. It was taxed among the Romans, and it is so at pres-
ent in, I believe, every part of Europe. The quantity an-
nually consumed by any individual is so small, and may be
purchased so gradually, that nobody, it seems to have been
thought, could feel very sensibly even a pretty heavy tax
upon it. It is in England taxed at three shillings and four-
pence a bushel ; about three times the original price of the
commodity. In some other countries the tax is still higher.
Leather is a real necessary of life. The use of linen renders
soap such. In countries where the winter nights are long,
candles are a necessary instrument of trade. Leather and
soap are in Great Britain taxed at three halfpence a pound;
candles at a penny; taxes which, upon the original price of
leather, may amount to about eight or ten per cent. ; upon
that of soap about twenty or five and twenty per cent.,
and upon that of candles to about fourteen or fifteen per
cent. ; taxes which, though lighter than that upon salt, are
still very heavy. As all those four commodities are real
necessaries of life, such heavy taxes upon them must in-
crease somewhat the expence of the sober and industrious
poor, and must consequently raise more or less the wages of
their labour.
In a country where the winters are so cold as in Great
Britain, fuel is, during that season, in the strictest sense of
the word, a necessary of life, not only for the purpose of
dressing victuals, but for the comfortable subsistence of
many dififerent sorts of workmen who work within doors;
and coals are the cheapest of all fuel. The price of fuel has
so important an influence upon that of labour, that all over
k — HC X
546 WEALTH OF NATIONS
Great Britain manufactures have confined themselves prin-
cipally to the coal countries; other parts of the country, on
account of the high price of this necessary article, not being
able to work so cheap. In some manufactures, besides, coal
is a necessary instrument of trade; as in those of glass, iron,
and all other metals. If a bounty could in any case be rea-
sonable, it might perhaps be so upon the transportation of
coals from those parts of the country in which they abound,
to those in which they are vvanted. But the legislature, in-
stead of a bounty, has imposed a tax of three shillings and
three-pence a ton upon coal carried coastways; which upon
most sorts of coal is more than sixty per cent, of the original
price at the coal-pit. Coals carried either by land or by
inland navigation pay no duty. Where they are naturally
cheap, they are consumed duty free ; where they are nat-
urally dear, they are loaded with a heavy duty.
Such taxes, though they raise the price of subsistence, and
consequently the wages of labour, yet they afford a consid-
erable revenue to government, which it might not be easy to
find in any other way. There may, therefore, be good rea-
sons for continuing them. The bounty upon the exportation
of corn, so far as it tends in the actual state of tillage to
raise the price of that necessary article, produces all the like
bad effects ; and instead of aft'ording any revenue, frequently
occasions a very great expense to government. The high
duties upon the importation of foreign corn, which in years
of moderate plenty amount to a prohibition ; and the abso-
lute prohibition of the importation either of live cattle or of
salt provisions, which takes place in the ordinary state of
the law, and which, on account of the scarcity, is at present
suspended for a limited time with regard to Ireland and the
British plantations, have all the bad effects of taxes upon the
necessaries of life, and produce no revenue to government.
Nothing seems necessary for the repeal of such regulations,
but to convince the public of the futility of that system in
consequence of which they have been established.
Taxes upon the necessaries of life are much higher in
many other countries than in Great Britain. Duties upon
flour and meal when ground at the mill, and upon bread
when baked at the oven, take place in many countries. In
TAXES UPON CONSUMABLE COMMODITIES 547
Holland the money price of the bread consumed in towns is
supposed to be doubled by means of such taxes. In lieu of
a part of them, the people who live in the country pay every
year so much a head, according to the sort of bread they are
supposed to consume. Those who consume wheaten bread,
pay three guilders fifteen stivers ; about six shillings and
ninepence halfpenny. These, and some other taxes of the
same kind, by raising the price of labour, are said to have
ruined the greater part of the manufactures of Holland.
Similar taxes, though not quite so heavy, take place in the
Milanese, in the states of Genoa, in the dutchy of Modena,
in the dutchies of Parma, Placentia, and Guastalla, and in
the ecclesiastical state. A French author of some note has
proposed to reform the finances of his country, by substitut-
ing in the room of the greater part of other taxes, this most
ruinous of all taxes. There is nothing so absurd, says
Cicero, which has not sometimes been asserted by some
philosophers.
Taxes upon butchers meat are still more common than
those upon bread. It may indeed be doubted whether
butchers meat is any where a necessary of life. Grain and
other vegetables, with the help of milk, cheese, and butter,
or oil, where butter is not to be had, it is known from ex-
perience, can, without any butchers meat, afford the most
plentiful, the most wholesome, the most nourishing, and the
most invigorating diet. Decency no where requires that any
man should eat butchers meat, as it in most places requires
that he should wear a linen shirt or a pair of leather shoes.
Consumable commodities, whether necessaries or luxuries,
may be taxed in two different ways. The consumer may
either pay an annual sum on account of his using or con-
suming goods of a certain kind ; or the goods may be taxed
while they remain in the hands of the dealer, and before they
are delivered to the consumer. The consumable goods which
last a considerable time before they are consumed altogether,
are most properly taxed in the one way. Those of which
the consumption is either immediate or more speedy, in the
other. The coach-tax and plate-tax are examples of the
former method of imposing: the greater part of the other
duties of excise and customs, of the latter.
548 WEALTH OF NATIONS
The duties of excise are imposed chiefly upon goods of
home produce destined for home consumption. They are
imposed only upon a few sorts of goods of the most general
use. There can never be any doubt either concerning the
goods which are subject to those duties, or concerning the
particular duty which each species of goods is subject to.
They fall almost altogether upon what I call luxuries, ex-
cepting always the four duties above mentioned, upon salt,
soap, leather, candles, and, perhaps, that upon green glass.
The duties of customs are much more ancient than those
of excise. They seem to have been called customs, as de-
noting customary payments which had been in use from time
immemorial. They appear to have been originally consid-
ered as taxes upon the profits of merchants. During the
barbarous times of feudal anarchy, merchants, like all the
other inhabitants of burghs, were considered so little better
than emancipated bondmen, whose persons were despised, and
whose gains were envied. The great nobility, who had con-
sented that the king should tallage the profits of their own
tenants, were not unwilling that he should tallage likewise
those of an order of men whom it was much less their in-
terest to protect. In those ignorant times, it was not under-
stood, that the profits of merchants are a subject not taxable
directly; or that the final payment of all such taxes must
fall, with a considerable over-charge, upon the consumers.
The gains of alien merchants were looked upon more un-
favourably than those of English merchants. It was nat-
ural, therefore, that those of the former should be taxed more
heavily than those of the latter. This distinction between
the duties upon aliens and those upon English merchants,
which was begun from ignorance, has been continued from
the spirit of monopoly, or in order to give our own merchants
an advantage both in the home and in the foreign market.
With this distinction, the ancient duties of customs were
imposed equally upon all sorts of goods, necessaries as well
as luxuries, goods exported as well as goods imported. Why
should the dealers in one sort of goods, it seems to have been
thought, be more favoured than those in another? or why
should the merchant exporter be more favoured than the
merchant importer?
TAXES UPON CONSUMABLE COMMODITIES 549
The ancient customs were divided into three branches.
The first, and perhaps the most ancient of all those duties,
was that upon wool and leather. It seems to have been
chiefly or altogether an exportation duty. When the woollen
manufacture came to be established in England, lest the king
should lose any part of his customs upon wool by the ex-
portation of woollen cloths, a like duty was imposed upon
them. The other two branches were, first, a duty upon wine,
which, being imposed at so much a ton, was called a ton-
nage; and, secondly, a duty upon all other goods, which,
being imposed at so much a pound of their supposed value,
was called a poundage. In the forty-seventh year of Ed-
ward III. a duty of sixpence in the pound was imposed upon
all goods exported and imported, except wools, wool-fells,
leather, and wines, which were subject to particular duties.
In the fourteenth of Richard II, this duty was raised to one
shilling in the pound ; but three years afterwards, it was
again reduced to sixpence. It was raised to eight-pence in
the second year of Henry IV. ; and in the fourth year of the
same prince, to one shilling. From this time to the ninth
year of William III. this duty continued at one shilling in
the pound. The duties of tonnage and poundage were gen-
erally granted to the king by one and the same act of par-
liament, and were called the Subsidy of Tonnage and Pound-
age. The subsidy of poundage having continued for so long
a time at one shilling in the pound, or at five per cent. ; a
subsidy came, in the language of the customs, to denote a
general duty of this kind of five per cent. The subsidy,
which is now called the Old Subsidy, still continues to be
levied according to the book of rates established in the
twelfth of Charles II. The method of ascertaining, by a
book of rates, the value of goods subject to this duty, is said
to be older than the time of James I. The new subsidy im-
posed by the ninth and tenth of William III , was an addi-
tional five per cent, upon the greater part of goods. The
one-third and the two-third subsidy made up between them
another five per cent, of which they were proportionately
parts. The subsidy of 1747 made a fourth five per cent, upon
the greater part of goods ; and that of 1759, a fifth upon some
particular sorts of goods. Besides those five subsidies, a
550 WEALTH OF NATIONS
great variety of other duties have occasionally been imposed
upon particular sorts of goods, in order sometimes to relieve
the exigencies of the state, and sometimes to regulate the
trade of the country, according to the principles of the mer-
i.:antile system.
That system has come gradually more and more into
fashion. The old subsidy was imposed indifferently upon
exportation as well as importation. The four subsequent
subsidies, as well as the other duties which have since been
occasionally imposed upon particular sorts of goods, have,
with a few exceptions, been laid altogether upon importation.
The greater part of the ancient duties which had been im-
posed upon the exportation of the goods of home produce
and manufacture, have either been lightened or taken away
altogether. In most cases they have been taken away.
Bounties have even been given upon the exportation of some
of them. Drawbacks too, sometimes of the whole, and, in
most cases, of a part of the duties which are paid upon the
importation of foreign goods, have been granted upon their
exportation. Only half the duties imposed by the old subsidy
upon importation are drawn back upon exportation : but t"he
whole of those imposed by the latter subsidies and other im-
posts are, upon the greater part of goods, drawn back in the
same manner. This growing favour of exportation, and dis-
couragement of importation, have suffered only a few excep-
tions, which chiefly concern the materials of some manufac-
tures. These, our merchants and manufacturers are willing
should come as cheap as possible to themselves, and as dear
as possible to their rivals and competitors in other countries.
Foreign materials are, upon this account, sometimes allowed
to be imported duty free ; Spanish wool, for example, flax,
and raw linen yarn. The exportation of the materials of
home produce, and of those which are the particular produce
of our colonies, has sometimes been prohibited, and some-
times subjected to higher duties. The exportation of Eng-
lish wool has been prohibited. That of beaver skins, of
beaver wool, and of gum Senega, has been subjected to higher
duties; Great Britain, by the conquest of Canada and Senegal,
having got almost the monopoly of those commodities.
That the mercantile system has not been very favourable
TAXES UPON CONSUMABLE COMMODITIES 551
to the revenue of the great body of the people, to the annual
produce of the land and labour of the country, I have en-
deavoured to shew? in the fourth book of this Inquiry. It
seems not to have been more favourable to the revenue of the
sovereign ; so far at least as that revenue depends upon the
duties of customs.
In consequence of that system, the importation of several
sorts of goods has been prohibited altogether. This pro-
hibition has in some cases entirely prevented, and in others
has very much diminished the importation of those commodi-
cies, by reducing the importers to the necessity of smuggling.
It has entirely prevented the importation of foreign woollens ;
and it has very much diminished that of foreign silks and
velvets. In both cases it has entirely annihilated the reve-
nue of customs which might have been levied upon such
importation.
The high duties which have been imposed upon the im-
portation of many different sorts of foreign goods, in order
to discourage their consumption in Great Britain, have in
many cases served only to encourage smuggling; and in all
cases have reduced the revenue of the customs below what
more moderate duties would have afforded. The saying of
Dr. Swift, that in the arithmetic of the customs two and two,
instead of making four, make sometimes only one, holds per-
fectly true with regard to such heavy duties, which never
could have been imposed, had not the mercantile system
taught us, in many cases, to employ taxation as an instru-
ment, not of revenue, but of monopoly.
In order that the greater part of the members of any
society should contribute to the public revenue in proportion
to their respective expence, it does not seem necessary that
every single article of that expence should be taxed. The
revenue, which is levied by the duties of excise, is supposed
to fall as equally upon the contributors as that which is levied
by the duties of customs; and the duties of excise are im-
posed upon a few articles only of the most general use and
consumption. It has been the opinion of many people, that,
by proper management, the duties of customs might likewise,
without any loss to the public revenue, and with great ad-
vantage to foreign trade, be confined to a few articles only.
SS2 WEALTH OF NATIONS
The foreign articles, of the most general use and consump-
tion in Great Britain, seem at present to consist chiefly in
foreign wines and brandies; in some of the productions of
America and the West Indies, sugar, rum, tobacco, cocoa-
nuts, &c. and in some of those of the East Indies, tea, coffee,
china-ware, spiceries of all kinds, several sorts of piece-
goods, &c. These different articles afford, perhaps, at pres-
ent, the greater part of the revenue which is drawn from
the duties of customs. The taxes which at present subsist
upon foreign manufactures, if you except those upon the few
contained in the foregoing enumeration, have the greater
part of them been imposed for the purpose, not of revenue,
but of monopoly, or to give our own merchants an advantage
in the home market. By removing all prohibitions, and by
subjecting all foreign manufactures to such moderate taxes,
as it was found from experience afforded upon each article
the greatest revenue to the public, our own workmen might
still have a considerable advantage in the home market, and
many articles, some of which at present afford no revenue
to government, and others a very inconsiderable one, might
afford a very great one.
High taxes, sometimes by diminishing the consumption of
the taxed commodities, and sometimes by encouraging smug-
gling, frequently afford a smaller revenue to government
than what might be drawn from more moderate taxes.
When the diminution of revenue is the effect of the di-
minution of consumption, there can be but one remedy, and
that is the lowering of the tax.
When the diminution of the revenue is the effect of the
encouragement given to smuggling, it may perhaps be reme-
died in two ways; either by diminishing the temptation to
smuggle, or by increasing the difficulty of smuggling. The
temptation to smuggle can be diminished only by the lower-
ing of the tax ; and the difficulty of smuggling can be in-
creased only by establishing that system of administration
which is most proper for preventing it.
The excise laws, it appears, I believe, from experience,
obstruct and embarrass the operations of the smuggler much
more effectually than those of the customs. By introducing
into the customs a system of administration as similar to
TAXES UPON CONSUMABLE COMMODITIES 553
that of the excise as the nature of the different duties will
admit, the difficulty of smuggling might be very much in-
creased. This alteration, it has been supposed by many
people, might very easily be brought about.
The importer of commodities liable to any duties of cus-
toms, it has been said, might at his option be allowed either to
carry them to his own private warehouse, or to lodge them in
a warehouse provided either at his own .expence or at that of
the public, but under the key of the customhouse officer, and
never to be opened but in his presence. If the merchant car-
ried them to his own private warehouse, the duties to be
immediately paid, and never afterwards to be drawn back ;
and that warehouse to be at all times subject to the visit and
examination of the customhouse officer, in order to ascertain
how far the quantity contained in it corresponded with that
for which the duty had been paid. If he.carried them to the
public warehouse, no duty to be paid till they were taken out
for home consumption. If taken out for exportation, to be
duty-free ; proper security being always given that they
should be so exported. The dealers in those particular com-
modities, either by wholesale or retail, to be at all times sub-
ject to the visit and examination of the customhouse officer;
and to be obliged to justify by proper certificates the pay-
ment of the duty upon the whole quantity contained in their
shops or warehouses. What are called the excise-duties
upon rum imported are at present levied in this manner, and
the same system of administration might perhaps be ex-
tended to all duties upon goods imported; provided always
that those duties were, like the duties of excise, confined to
a few sorts of goods of the most general use and consump-
tion. If they were extended to almost all sorts of goods, as
at present, public warehouses of sufficient extent could not
easily be provided, and goods of a very delicate nature, or of
which the preservation required much care and attention,
could not safely be trusted by the merchant in any warehouse
but his own.
If by such a system of administration smuggling, to any
considerable extent, could be prevented even under pretty high
duties ; and if every duty was occasionally either heightened
or lowered according as it was most likely, either the one
.^54 WEALTH OF NATIONS
way or the other, to afford the greatest revenue to the state;
taxation being always employed as an instrument of revenue
and never of monopoly; it seems not improbable that a reve-
nue, at least equal to the present neat revenue of the cus-
toms, might be drawn from duties upon the importation of
only a few sorts of goods of the most general use and con-
sumption; and that the duties of customs might thus be
brought to the same degree of simplicity, certainty, and pre-
cision, as those of excise. What the revenue at present loses,
by drawbacks upon the re-exportation of foreign goods which
are afterwards relanded and consumed at home, would under
this system be saved altogether. If to this saving, which
would alone be very considerable, were added the abolition
of all bounties upon the exportation of home-produce; in all
cases in which those bounties were not in reality drawbacks
of some duties of excise which had before been advanced ; it
cannot well be doubted but that the neat revenue of customs
might, after an alteration of this kind, be fully equal to what
it had ever been before.
If by such a change of system the public revenue suffered
no loss, the trade and manufactures of the country would
certainly gain a very considerable advantage. The trade in
the commodities not taxed, by far the greatest number, would
be perfectly free, and might be carried on to and from all
parts of the world with every possible advantage. Among
those commodities would be comprehended all the necessaries
of life, and all the materials of manufacture. So far as the
free importation of the necessaries of life reduced their aver-
age money price in the home market, it would reduce the
money price of labour, but without reducing in any respect
its real recompence. The value of money is in proportion to
the quantity of the necessaries of life which it will purchase.
That of the necessaries of life is altogether independent of
the quantity of money which can be had for them. The
reduction in the money price of labour would necessarily be
attended with a proportionable one in that of all home-manu-
factures, which would thereby gain some advantage in all
foreign markets. The price of some manufactures would be
reduced in a still greater proportion by the free importation
of the raw materials. If raw silk could be imported from
TAXES UPON CONSUMABLE COMMODITIES 555
China and Indostan duty-free, the silk manufacturers in
England could greatly undersell those of both France and
Italy. There would be no occasion to prohibit the importa-
tion of foreign silks and velvets. The cheapness of their
goods would secure to our own workmen, not only the pos-
session of the home, but a very great command of the foreign
market. Even the trade in the commodities taxed would be
carried on with much more advantage than at present. If
those commodities were delivered out of the public warehouse
for foreign exportation, being in this case exempted from all
taxes, the trade in them would be perfectly free. The carry-
ing trade in all sorts of goods would under this system enjoy
every possible advantage. If those commodities were deliv-
ered out for home-consumption, the importer not being
obliged to advance the tax till he had an opportunity of sell-
ing his goods, either to some dealer, or to some consumer, he
could always afford to sell them cheaper than if he had been
obliged to advance it at the moment of importation. Under
the same taxes, the foreign trade of consumption even in the
taxed commodities, might in this manner be carried on with
much more advantage than it can at present.
It was the object of the famous excise scheme of Sir Rob-
ert Walpole to establish, with regard to wine and tobacco, a
system not very unlike that which is here proposed. But
though the bill which was then brought into parliament, com-
prehended those two commodities only ; it was generally sup-
posed to be meant as an introduction to a more extensive
scheme of the same kind. Faction, combined with the in-
terest of smuggling merchants, raised so violent, though so
unjust, a clamour against that bill, that the minister thought
proper to drop it ; and from a dread of exciting a clamour of
the same kind, none of his successors have dared to resume
the project.
The duties upon foreign luxuries imported for home-con-
sumption, though they sometimes fall upon the poor, fall
principally upon people of middling or more than middling
fortune. Such are, for example, the duties upon foreign
wines, upon coffee, chocolate, tea, sugar, &c.
The duties upon the cheaper luxuries of home-produce
destined for home-consumption, fall pretty equally upon
556 WEALTH OF NATIONS
people of all ranks in proportion to their respective expence.
The poor pay the duties upon malt, hops, beer, and ale, upon
their own consumption : The rich, upon both their own con-
sumption and that of their servants.
The whole consumption of the inferior ranks of people,
or of those below the middling rank, it must be observed, is
in every country much greater, not only in quantity, but in
value, than that of the middling and of those above the
middling rank. The whole expence of the inferior is much
greater than that of the superior ranks. In the first place,
almost the whole capital of every country is annually dis-
tributed among the inferior ranks of people, as the wages of
productive labour. Secondly, a great part of the revenue
arising from both* the rent of land and the profits of stock,
is annually distributed among the same rank, in the wages
and maintenance of menial servants, and other unproductive
labourers. Thirdly, some part of the profits of stock be-
longs to the same rank, as a revenue arising from the em-
ployment of their small capitals. The amount of the profits
annually made by small shopkeepers, tradesmen, and re
tailers of all kinds, 'is every where very considerable, arr
makes a very considerable portion of the annual produce.
Fourthly, and lastly, some part even of the rent of land be-
longs to the same rank ; a considerable part to those who are
somewhat below the middling rank, and a small part even to
the lowest rank ; common labourers sometimes possessing in
property an acre or two of land. Though the expence of
those inferior ranks of people, therefore, taking them indi-
vidually, is very small, yet the whole mass of it, taking them
collectively, amounts always to by much the largest portion
of the whole expence of the society; what remains, of the
annual produce of the land and labour of the country for the
consumption of the superior ranks, being always much less,
not only in quantity but in value. The taxes upon expence,
therefore, which fall chiefly upon that of the superior ranks
of people, upon the smaller portion of the annual produce,
are likely to be much less productive than either those which
fall indifferently upon the expence of all ranks, or even those
which fall chiefly upon that of the inferior ranks ; than either
those which fall indifferently upon the whole annual produce,
TAXES UPON CONSUMABLE COMMODITIES 557
or those which fall chiefly upon the larger portion of it. The
excise upon the materials and manufacture of home-made
fermented and spirituous liquors is accordingly, of all the
different taxes upon expence, by far the most productive;
and this branch of the excise falls very much, perhaps prin-
cipally, upon the expence of the common people. In the
year which ended on the 5th of July 1775, the gross produce
of this branch of the excise amounted to 3,341,837/. 9^. gd.
It must always be remembered, however, that it is the
luxurious and not the necessary expence of the inferior ranks
of people that ought ever to be taxed. The final payment of
any tax upon their necessary expence would fall altogether
upon the superior ranks of people ; upon the smaller portion
of the annual produce, and not upon the greater. Such a tax
must in all cases either raise the wages of labour, or lessen
the demand for it. It could not raise the wages of labour,
without throwing the final payment of the tax upon the
superior ranks of people. It could not lessen the demand for
labour, without lessening the annual produce of the land and
labour of the country, the fund from which all taxes must be
finally paid. Whatever might be the state to which a tax of
this kind reduced the demand for labour, it must always raise
wages higher than they otherwise would be in that state ; and
the final payment of this enhancement of wages must in all
cases fall upon the superior ranks of people.
Fermented liquors brewed, and spirituous liquors distilled,
not for sale, but for private use, are not in Great Britain
liable to any duties of excise. This exemption, of which the
object is to save private families from the odious visit and
examination of the tax-gatherer, occasions the burden of
those duties to fall frequently much lighter upon the rich
than upon the poor. It is not, indeed, very common to distil
for private use, though it is done sometimes. But in the
country, many middling and almost all rich and great fami-
lies brew their own beer. Their strong beer, therefore, costs
them eight shillings a barrel less than it costs the common
brewer, who must have his profit upon the tax, as well as
upon all the other expence which he advances. Such fami-
lies, therefore, must drink their beer at least nine or ten shil-
lings a barrel cheaper than any liquor of the same quality
558 WEALTH OF NATIONS
can be drunk by the common people, to whom it is every
where more convenient to buy their beer, by little and little,
from the brewery or the alehouse. Malt, in the same man-
ner, that is made for the use of a private family, is not liable
to the visit or examination of the tax-gatherer ; but in this
case the family must compound at seven shillings and six-
pence a head for the tax. Seven shillings and sixpence are
equal to the excise upon ten bushels of malt ; a quantity
fully equal to what all the different members of any sober
family, men, women, and children, are at an average likely
to consume. But in rich and great families, where country
hospitality is much practised, the malt liquors consumed by
the members of the family make but a small part of the con-
sumption of the house. Either on account of this composi-
tion, however, or for other reasons, it is not near so common
to malt as to brew for private use. It is difficult to imagine
any equitable reason why those who either brew or distil for
private use, should not be subject to a composition of the
same kind.
A greater revenue than what is at present drawn from all
the heavy taxes upon malt, beer, and ale, might be raised, it
has frequently been said, by a much lighter tax upon malt;
the opportunities of defrauding the revenue being much
greater in a brewery than in a malt-house ; and those who
brew for private use being exempted from all duties or com-
position for duties, which is not the case with those who malt
for private use
***********
Besides such duties as those of customs and excise above-
mentioned, there are several others which affect the price of
goods more unequally and more indirectly. Of this kind are
the duties which in French are called Peages, which in old
Saxon times were called Duties of Passage, and which seem
to have been originally established for the same purpose as
our turnpike tolls, or the tolls upon our canals and navigable
rivers, for the maintenance of the road or of the navigation.
Those duties, when applied to such purposes, are most prop-
erly imposed according to the bulk of weight of the goods.
As they were originally local and provincial duties, appli-
cable to local and provincial purposes, the administration of
TAXES UPON CONSUMABLE COMMODITIES 559
them was in most cases entrusted to the particular town,
parish, or lordship, in which they were levied; such com-
munities being in some way or other supposed to be account-
able for the application. The sovereign, who is altogether
unaccountable, has in many countries assumed to himself the
administration of those duties ; and though he has in most
cases enhanced very much the duty, he has in many entirely
neglected the application. If the turnpike tolls of Great
Britain should ever become one of the resources of govern-
ment, we may learn, by the example of many other nations,
what would probably be the consequence. Such tolls are no
doubt finally paid by the consumer; but the consumer is not
taxed in proportion to his expence when he pays, not accord-
ing to the value, but according to the bulk or weight of what
he consumes. When such duties are imposed, not according
to the bulk or weight, but according to the supposed value of
the goods, they become properly a sort of inland customs or
excises, which obstruct very much the most important of all
branches of commerce, the interior commerce of the country.
In some small states duties similar to those passage duties
are imposed upon goods carried across the territory, either
by land or by water, from one foreign country to another.
These are in some countries called transit-duties. Some of
the little Italian states, which are situated upon the Po, and
the rivers which run into it, derive some revenue from duties
of this kind, which are paid altogether by foreigners, and
which, perhaps, are the only duties that one state can impose
upon the subjects of another, without obstructing in any re-
spect the industry or commerce of its own. The most im-
portant transit-duty in the world is that levied by the king of
Denmark upon all merchant ships which pass through the
Sound.
Such taxes upon luxuries as the greater part of the duties
of customs and excise, though they all fall indifferently upon
every different species of revenue, and are paid finally, or
without any retribution, by whoever consumes the commodi-
ties upon which they are imposed, yet they do not always fall
equally or proportionably upon the revenue of every indi-
vidual. As every man's humour regfulates the degree of his
consumption, every man contributes rather according to his
560 WEALTH OF NATIONS
humour than in proportion to his revenue ; the profuse con-
tribute more, the parsimonious less, than their proper pro-
portion. During the minority of a man of great fortune, he
contributes commonly very little, by his consumption, towards
the support of that state from vi^hose protection he derives a
great revenue. Those who live in another country con-
tribute nothing, by their consumption, towards the support
of the government of that country, in which is situated the
source of their revenue. If in this latter country there should
be no land-tax, nor any considerable duty upon the transfer-
ence either of moveable or of immoveable property, as is the
case in Ireland, such absentees may derive a great revenue
from the protection of a government to the support of which
they do not contribute a single shilling. This inequality is
likely to be greatest in a country of which the government is
in some respects subordinate and dependent upon that of
some other. The people who possess the most extensive
property in the dependent, will in this case generally chuse
to live in the governing country. Ireland is precisely in this
situation, and we cannot therefore wonder that the proposal
of a tax upon absentees should be so very popular in that
country. It might, perhaps, be a little difficult to ascertain
either what sort, or what degree of absence would subject a
man to be taxed as an absentee, or at what precise time the
tax should either begin or end. If you except, however,
this very particular situation, any inequality in the contribu-
tion of individuals, which can arise from such taxes, is much
more than compensated by the very circumstance which oc-
casions that inequality; the circumstance that every man's
contribution is altogether voluntary ; it being altogether in
his power either to consume or not to consume the com-
modity taxed. Where such taxes, therefore, are properly
assessed and upon proper commodities, they are paid with
less grumbling than any other. When they are advanced by
the merchant or manufacturer, the consumer, who finally pays
them, soon comes to confound them with the price of the
commodities, and almost forgets that he pays any tax.
Such taxes are or may be perfectly certain, or may be
assessed so as to leave no doubt concerning either what ought
to be paid, or when it ought to be paid; concerning either
TAXES UPON CONSUMABLE COMMODITIES 561
the quantity or the time of payment. Whatever uncertainty
there may sometimes be, either in the duties of customs in
Great Britain, or in other duties of the same kind in other
countries, it cannot arise from the nature of those duties,
but from the inaccurate or unskilful manner in which the
law that imposes them is expressed.
Taxes upon luxuries generally are, and always may be,
paid piecemeal, or in proportion as the contributors have oc-
casion to purchase the goods upon which they are imposed.
In the time and mode of payment they are, or may be, of all
taxes the most convenient. Upon the whole, such taxes,
therefore, are, perhaps, as agreeable to the three first of the
four general maxims concerning taxation, as any other.
They ofifend in every respect against the fourth.
Such taxes, in proportion to what they bring into the pub-
lic treasury of the state, always take out or keep out of the
pockets of the people more than almost any other taxes.
They seem to do this in all the four different ways in which
it is possible to do it.
First, the levying of such taxes, even when imposed in the
most judicious manner, requires a great number of custom-
house and excise officers, whose salaries and perquisites are a
real tax upon the people, which brings nothing into the treas-
ury of the state. This expence, however, it must be ac-
knowledged, is more moderate in Great Britain than in most
other countries. In the year which ended on the fifth of
July 1775, the gross produce of the different duties, under
the management of the commissioners of excise in England,
amounted to 5,507,308/. i8.y. 8^4^?. which was levied at an ex-
pence of little more than five and a half per cent. From
this gross produce, however, there must be deducted what
was paid away in bounties and drawbacks upon the exporta-
tion of exciseable goods, which will reduce the neat produce
below five millions. The levying of the salt duty, an excise
duty, but under a different management, is much more ex-
pensive. The neat revenue of the customs does not amount
to two millions and a half, which is levied at an expense of
more than ten per cent, in the salaries of officers, and other
incidents. But the perquisites of customhouse officers are
every where much greater than their salaries; at some ports
562 WEALTH OF NATIONS
more than double or triple those salaries. If the salaries of
officers, and other incidents, therefore, amount to more than
ten per cent, upon the neat revenue of the customs ; the whole
expense of levying that revenue may amount, in salaries and
perquisites together, to more than twenty or thirty per cent.
The officers of excise receive few or no perquisites : and the
administration of that branch of the revenue being of more
recent establishment, is in general less corrupted than that of
the customs, into which length of time has introduced and
authorized many abuses. By charging upon malt the whole
revenue which is at present levied by the different duties upon
malt and malt liquors, a saving, it is supposed, of more than
fifty thousand pounds might be made in the annual expence
of the excise. By confining the duties of customs to a few
sorts of goods, and by levying those duties according to the
excise laws, a much greater saving might probably be made
in the annual expence of the customs.
Secondly, such taxes necessarily occasion some obstruction
or discouragement to certain branches of industry. As they
always raise the price of the commodity taxed, they so far
discourage its consumption, and consequently its production.
If it is a commodity of home growth or manufacture, less
labour comes to be employed in raising and producing it. If
it is a foreign commodity of which the tax increases in this
manner, the price, the commodities of the same kind which
are made at home may thereby, indeed, gain some advantage
in the home market, and a greater quantity of domestic in-
dustry may thereby be turned toward preparing them. But
though this rise of price in a foreign commodity may en-
courage domestic industry in one particular branch, it neces-
sarily discourages that industry in almost every other. The
dearer the Birmingham manufacturer buys his foreign wine,
the cheaper he necessarily sells that part of his hardware
with which, or, what comes to the same thing, with the price
of which he buys it. That part of his hardware, therefore,
becomes of less value to him, and he has less encouragement
to work at it. The dearer the consumers in one country pay
for the surplus produce of another, the cheaper they neces-
sarily sell that part of their own surplus produce with which,
or, what comes to the same thing, with the price of which
TAXES UPON CONSUMABLE COMMODITIES 563
they buy it. That part of their own surplus produce becomes
of less value to them, and they have less encouragement to
increase its quantity. All taxes upon consumable commodi-
ties, therefore, tend to reduce the quantity of productive
labour below what it otherwise would be, either in preparing
the commodities taxed, if they are home commodities; or in
preparing those with which they are purchased, if they are
foreign commodities. Such taxes too always alter, more or less,
the natural direction of national industry, and turn it into a
channel always different from, and always less advantageous
than that in which it would have run of its own accord.
Thirdly, the hope of evading such taxes by smuggling gives
frequent occasion to forfeitures and other penalties, which
entirely ruin the smuggler ; a person who, though no doubt
highly blameable for violating the laws of his country, is fre-
quently incapable of violating those of natural justice, and
would have been, in every respect, an excellent citizen, had
not the laws of his country made that a crime which nature
never meant to be so. In those corrupted governments where
there is at least a general suspicion of much unnecessary ex-
pence, and great misapplication of the public revenue, the
laws which guard it are little respected. Not many people
are scrupulous about smuggling, when, without perjury, they
can find easy and safe opportunity of doing so. To pre-
tend to have any scruple about buying smuggled goods,
though a manifest encouragement to the violation of the rev-
enue laws, and to the perjury which almost always attends it,
would in most countries be regarded as one of those pedantic
pieces of hypocrisy which, instead of gaining credit with any
body, serve only to expose the person who affects to practise
them, to the suspicion of being a greater knave than most of
his neighbours. By this indulgence of the public, the smug-
gler is often encouraged to continue a trade which he is thus
taught to consider as in some measure innocent ; and when
the severity of the revenue laws is ready to fall upon him, he
is frequently disposed to defend with violence, what he has
been accustomed to regard as his just property. From being
at first, perhaps, rather imprudent than criminal, he at last
too often becomes one oi the hardiest and most determined
violators of the laws of society. By the ruin of the smuggler,
564 WEALTH OF NATIONS
his capital, which had before been employed in maintaining
productive labour, is absorbed either in the revenue of the
state or in that of the revenue-officer, and is employed in
maintaining unproductive, to the diminution of the general
capital of the society, and of the useful industry which it
might otherwise have maintained.
Fourthly, such taxes, by subjecting at least the dealers in
the taxed commodities to the frequent visits and odious ex-
amination of the tax-gatherers, expose them sometimes, no
doubt, to some degree of oppression, and always to much
trouble and vexation; and though vexation, as has already
been said, is not strictly speaking expence, it is certainly
equivalent to the expence at which every man would be
willing to redeem himself from it. The laws of excise,
though more effectual for the purpose for which they were
instituted, are, in this respect, more vexatious than those of
the customs. When a merchant has imported goods subject
to certain duties of customs, when he has paid those duties,
and lodged the goods in his warehouse, he is not in most
cases liable to any further trouble or vexation from the cus-
tomhouse officer. It is otherwise with goods subject to duties
of excise. The dealers have no respite from the continual
visits and examination of the excise officers. The duties of
excise are, upon this account, more unpopular than those of
the customs ; and so are the officers who levy them. Those
officers, it is pretended, though in general, perhaps, they do
their duty fully as well as those of the customs; yet, as that
duty obliges them to be frequently very troublesome to some
of their neighbours, commonly contract a certain hardness of
character which the others frequently have not. This obser-
vation, however, may very probably be the mere suggestion of
fraudulent dealers, whose smuggling is either prevented or
detected by their diligence.
The inconveniencies, however, which are, perhaps, in some
degree inseparable from taxes upon consumable commodities,
fall as light upon the people of Great Britain as upon those
of any other country of which the government is nearly as
expensive. Our state is not perfect, and might be mended;
but it is as good or better than that of most of our
neighbours.
TAXES UPON CONSUMABLE COMMODITIES 565
In consequence of the notion that duties upon consumable
goods were taxes upon the profits of merchants, those duties
have, in some countries, been repeated upon every successive
sale of the goods. If the profits of the merchant importer
or merchant manufacturer were taxed, equality seemed to
require that those of all the middle buyers, who intervened
between either of them and the consumer, should likewise be
taxed. The famous Alcavala of Spain seems to have been
established upon this principle. It was at first a tax of ten
per cent., afterwards of fourteen per cent., and is at present
of only six per cent, upon the sale of every sort of property,
whether moveable or immoveable ; and it is repeated every
time the property is sold. The levying of this tax requires
a multitude of revenue officers sufficient to guard the trans-
portation of goods, not only from one province to another,
but from one shop to another. It subjects, not only the
dealers in some sorts of goods, but those in all sorts, every
farmer, every manufacturer, every merchant and shop-keeper,
to the continual visits and examination of the tax-gatherers.
Through the greater part of a country in which a tax of this
kind is established, nothing can be produced for distant sale.
The produce of every part of the country must be propor-
tioned to the consumption of the neighbourhood. It is to the
Alcavala, accordingly, that Ustaritz imputes the ruin of the
manufactures of Spain. He might have imputed to it like-
wise the declension of agriculture, it being imposed not only
upon manufactures, but upon the rude produce of the land.
In the kingdom of Naples there is a similar tax of three
per cent, upon the value of all contracts, and consequently
upon that of all contracts of sale. It is both lighter than the
Spanish tax, and the greater part of towns and parishes are
allowed to pay a composition in lieu of it. They levy this
composition in what manner they please, generally in a way
that gives no interruption to the interior commerce of the
place. The Neapolitan tax, therefore, is not near so ruinous
as the Spanish one.
The uniform system of ta.xation, which, with a few excep-
tions of no great consequence, takes place in all the different
parts of the united kingdom of Great Britain, leaves the in-
terior commerce of the country, the inland and coasting trade,
566 WEALTH OF NATIONS
almost entirely free. The inland trade is almost perfectly
free, and the greater part of goods may be carried from one
end of the kingdom to the other, without requiring any
permit or let-pass, without being subject to question, visit, or
examination from the revenue officers. There are a few ex-
ceptions, but they are such as can give no interruption to any
important branch of the inland commerce of the country.
Goods carried coastwise, indeed, require certificates or coast
cockets. If you except coals, however, the rest are almost
all duty-free. This freedom of interior commerce, the effect
of the uniformity of the system of taxation, is perhaps one
of the principal causes of the prosperity of Great Britain;
every great country being necessarily the best and most ex-
tensive market for the greater part of the productions of its
own industry. If the same freedom, in consequence of the
same Uniformity, could be extended to Ireland and the planta-
tions, both the grandeur of the state and the prosperity of
every part of the empire, would probably be still greater than
at present.
In France, the different revenue laws which take place in
the different provinces, require a multitude of revenue-officers
to surround, not only the frontiers of the kingdom, but those
of almost each particular province, in order either to prevent
the importation of certain goods, or to subject it to the pay-
ment of certain duties, to the no small interruption of the
interior commerce of the country. Some provinces are al-
lowed to compound for the gabelle or salt-tax. Others are
exempted from it altogether. Some provinces are exempted
from the exclusive sale of tobacco, which the farmers-general
enjoy through the greater part of the kingdom. The aids,
which correspond to the excise in England, are very different
in different provinces. Some provinces are exempted from
them, and pay a composition or equivalent. In those in which
they take place and are in farm, there are many local duties
which do not extend beyond a particular town or district.
The Traites, which correspond to our customs, divide the
kingdom into three great parts; first, the provinces subject
to the tarif of 1664, which are called the provinces of the five
great farms, and under which are comprehended Picardy,
Normandy, and the greater part of the interior provinces of
TAXES UPON CONSUMABLE COMMODITIES 567
the kingdom; secondly, the provinces subject to the tarif of
1667, which are called the provinces reckoned foreign, and
under which are comprehended the greater part of the fron-
tier provinces; and, thirdly, those provinces which are said
to be treated as foreign, or which, because they are allowed
a free commerce with foreign countries, are in their com-
merce with the other provinces of France subjected to the
same duties as other foreign countries. These are Alsace,
the three bishopricks of Metz, Toul, and Verdun, and the
three cities of Dunkirk, Bayonne, and Marseilles. Both in
the provinces of the five great farms (called so on account
of an ancient division of the duties of customs into five great
branches, each of which was originally the subject of a par-
ticular farm, though they are now-all united into one), and in
those which are said to be reckoned foreign, there are many
local duties which do not extend beyond a particular town or
district. There are some such even in the provinces which
are said to be treated as foreign, particularly in the city of
Marseilles. It is unnecessary to observe how much, both the
restraints upon the interior commerce of the country, and the
number of the revenue officers must be multiplied, in order
to guard the frontiers of those different provinces and dis-
tricts, which are subject to such different systems of taxation.
Over and above the general restraints arising from this
complicated system of revenue laws, the commerce of wine,
after corn perhaps the most important production of France,
is in the greater part of the provinces subject to particular
restraints, arising from the favour which has been shewn to
the vineyards of particular provinces and districts, above
those of others. The provinces most famous for their wines,
it will be found, I believe, are those in which the trade in
that article is subject to the fewest restraints of this kind.
The extensive market which such provinces enjoy, encour-
ages good management both in the cultivation of their vine-
yards, and in the subsequent preparation of their wines.
Such various and complicated revenue laws are not pe-
culiar to France. The little dutchy of Milan is divided into
six provinces, in each of which there is a different system of
taxation with regard to several different sorts of consumable
goods. The still smaller territories of the duke of Parma
568 WEALTH OF NATIONS
are divided into three or four, each of which has, in the
same manner, a system of its own. Under such absurd man-
agement, nothing, but the great fertility of the soil and hap-
piness of the climate, could preserve such countries from soon
relapsing into the lowest state of poverty and barbarism.
Taxes upon consumable commodities may either be levied
by an administration of which the officers are appointed by
government and are immediately accountable to government,
of which the revenue must in this case vary from year to
year, according to the occasional variations in the produce of
the tax; or they may be let in farm for a rent certain, the
farmer being allowed to appoint his own officers, who, though
obliged to levy the tax in the manner directed by the law,
are under his immediate inspection, and are immediately ac-
countable to him. The best and most frugal way of levying
a tax can never be by farm Over and above what is neces-
sary for paying the stipulated rent, the salaries of the officers,
and the whole expence of administration, the farmer must
always draw from the produce of the tax a certain profit pro-
portioned at least to the advance which he makes, to the risk
which he runs, to the trouble which he is at, and to the
knowledge and skill which it requires to manage so very
complicated a concern. Government, by establishing an ad-
ministration under their own immediate inspection, of the
same kind with that which the farmer establishes, might at
least save this profit, which is almost always exorbitant. To
farm any considerable branch of the public revenue, requires
either a great capital or a great credit; circumstances which
would alone restrain the competition for such an undertaking
to a very small number of people. Of the few who have this
capital or credit, a still smalter number have the necessary
knowledge or experience ; another circumstance which re-
strains the competition still further. The very few, who are
in condition to become competitors, find it more for their
interest to combine together; to become co-partners instead
of competitors, and when the farm is set up to auction, to
offer no rent, but what is much below the real value. In
countries where the public revenues are in farm, the farmers
are generally the most opulent people. Their wealth would
alone excite the public indignation, and the vanity which al-
TAXES UPON CONSUMABLE COMMODITIES 569
most always accompanies such upstart fortunes, the foolish
ostentation with which they commonly display that wealth,
excites that indignation still more.
The farmers of the public revenue never find the laws too
severe, which punish any attempt to evade the payment of a
tax. They have no bowels for the contributors, who are not
their subjects, and whose universal bankruptcy, if it should
happen the day after their farm is expired, would not much
affect their interest. In the greatest exigencies of the state,
when the anxiety of the sovereign for the exact payment
of his revenue is necessarily the greatest, they seldom fail
to complain that without laws more rigorous than those which
actually take place, it will be impossible for them to pay even
the usual rent. In those moments of public distress their
demands cannot be disputed. The revenue laws, therefore,
become gradually more and more severe. The most sangui-
nary are always to be found in countries where the greater
part of the public revenue is in farm. The mildest, in coun-
tries where it is levied under the immediate inspection of the
sovereign. Even a bad sovereign feels more compassion
for his people than can be expected from the farmers
of his revenue. He knows that the permanent grandeur of
his family depends upon the prosperity of his people, and he
will never knowingly ruin that prosperity for the sake of any
momentary interest of his own. It is otherwise with the
farmers of his revenue, whose grandeur may frequently be
the effect of the ruin, and not of the prosperity of his people.
A tax is sometimes, not only farmed for a certain rent,
but the farmer has, besides, the monopoly of the commodity
taxed. In France^ the duties upon tobacco and salt are levied
in this manner. In such cases the farmer, instead of one,
levies two exorbitant profits upon the people ; the profit of
the farmer, and the still more exorbitant one of the monop-
olist. Tobacco being a luxury, every man is allowed to buy
or not to buy as he chuses. But salt being a necessary, every
man is obliged to buy of the farmer a certain quantity of it ;
because, if he did not buy this quantity of the farmer, he
would, it is presumed, buy it of some smuggler. The taxes
upon both commodities are exorbitant. The temptation to
smuggle consequently is to many people irresistible, while
570 WEALTH OF NATIONS
at the same time the rigour of the law, and the vigilance of
the farmer's ofificers, render the yielding to that temptation
almost certainly ruinous. The smuggling of salt and tobacco
sends every year several hundred people to the gallies, be-
sides a very considerable number whom it sends to the gibbet.
Those taxes levied in this manner yield a very considerable
revenue to government. In 1767, the farm of tobacco was
let for twenty-two millions five hundred and forty-one thou-
sand two hundred and seventy-eight livres a year. That of
salt, for thirty-six millions four hundred and nine-two thou-
sand four hundred and foiir livres. The farm in both cases
was to commence in 1768, and to last for six years. Those
who consider the blood of the people as nothing in compari-
son with the revenue of the prince, may perhaps approve of
this method of levying taxes. Similar taxes and monopolies
of salt and tobacco have been established in many other coun-
tries ; particularly in the Austrian and Prussian dominions,
and in the greater part of the states of Italy.
In France, the greater part of the actual revenue of the
crown is derived from eight different sources ; the taille,
the capitation, the two vingtiemes, the gabelles, the aides, the
traites, the domaine, and the farm of tobacco. The five last
are, in the greater part of the provinces, under farm. The
three first are every where levied by an administration under
the immediate inspection and direction of government, and
it is universally acknowledged that, in proportion to what
they take out of the pockets of the people, they bring more
into the treasury of the prince than the other five, of which
the administration is much more wasteful and expensive.
The finances of France seem, in their present state, to ad-
mit of three very obvious reformations. First, by abolishing
the taille and the capitation, and by encreasing the number
of vingtiemes, so as to produce an additional revenue equal
to the amount of those other taxes, the revenue of the crown
might be preserved ; the expence of collection might be much
diminished; the vexation of the inferior ranks of people,
which the taille and capitation occasion, might be entirely
prevented; and the superior ranks might not be more bur-
dened than the greater part of them are at present. The ving-
tieme, I have already observed, is a tax very nearly of the
TAXES UPON CONSUMABLE COMMODITIES 571
same kind with what is called the land-tax of England. The
burden of the taille, it is acknowledged, falls finally upon the
proprietors of land, and as the greater part of the capitation
is assessed upon those who are subject to the taille at so
much a pound of that other tax, the final payment of the
greater part of it must likewise fall upon the same order of
people. Though the number of the vingtiemes, therefore,
was increased so as to produce an additional revenue equal to
the amount of both those taxes, the superior ranks of people
might not be more burdened than they are at present. Many
individuals no doubt would, on account of the great inequal-
ities with which the taille is commonly assessed upon the es-
tates and tenants of different individuals. The interest and
opposition of such favoured subjects are the obstacles most
likely to prevent this or any other reformation of the same
kind. Secondly, by rendering the gabelle, the aides, the
traites, the taxes upon tobacco, all the different customs and
excises, uniform in all the different parts of the kingdom,
those taxes might be levied at much less expence, and the
interior commerce of the kingdom might be rendered as free
as that of England. Thirdly, and lastly, by subjecting all
those taxes to an administration under the immediate inspec-
tion and direction of government, the exorbitant profits of
the farmers general might be added to the revenue of the
state. The opposition arising from the private interest of
individuals, is likely to be as effectual for preventing the two
last as the first mentioned scheme of reformation.
The French system of taxation seems, in every respect,
inferior to the British. In Great Britain ten million sterling
are annually levied upon less than eight millions of people,
without its being possible to say that any particular order is
oppressed. From the collections of the Abbe Expilly, and
the observations of the author of the Essay upon the legis-
lation and commerce of corn, it appears probable, that France,
including the provinces of Lorraine and Bar, contains about
twenty-three or twenty-four millions of people ; three times
the number perhaps contained in Great Britain. The soil
and climate of France are better than those of Great Britain.
The country has been much longer in a state of improvement
and cultivation, and is, upon that account, better stocked with
572 WEALTH OF NATIONS
all those things which it requires a long time to raise up and
accumulate, such as great towns, and convenient and well-
built houses, both in town and country. With these advan-
tages, it might be expected that in France a revenue of thirty
millions might be levied for the support of the state, with
as little inconveniency as a revenue of ten millions is in Great
Britain. In 1765 and 1766, the whole revenue paid into the
treasury of France, according to the best, though, I acknowl-
edge, very imperfect, accounts which I could get of it, usually
run between 308 and 325 millions of livres ; that is, it did not
amount to fifteen millions sterling; not the half of what might
have been expected, had the people contributed in the same
proportion to their numbers as the people of Great Britain.
The people of France, however, it is generally acknowledged,
are much more oppressed by taxes than the people of Great
Britain. France, however, is certainly the great empire in
Europe which, after that of Great Britain, enjoys the mildest
and most indulgent government.
In Holland the heavy taxes upon the necessaries of life
have ruined, it is said, their principal manufactures, and are
likely to discourage gradually even their fisheries and their
trade in ship-building. The taxes upon the necessaries of
life are inconsiderable in Great Britain, and no manufacture
has hitherto been ruined by them. The British taxes which
bear hardest on manufactures are some duties upon the im-
portation of raw materials, particularly upon that of raw silk.
The revenue of the states general and of the different cities,
however, is said to amount to more than five millions two
hundred and fifty thousand pounds sterling; and as the in-
habitants of the United Provinces cannot well be supposed
to amount to more than a third part of those of Great Britain,
they must, in proportion to their number, be much more
heavily taxed.
After all the proper subjects of taxation have been ex-
hausted, if the exigencies of the state still continue to require
new taxes, they must be imposed upon improper ones. The
taxes upon the necessaries of life, therefore, may be no im-
peachment of the wisdom of that republic, which, in order
to acquire and to maintain its independency, has, in spite of
its great frugality, been involved in such expensive wars as
TAXES UPON CONSUMABLE COMMODITIES 573
have obliged it to contract great debts. The singpalar coun-
tries of Holland and Zealand, besides, require a considerable
expence even to preserve their existence, or to prevent their
being swallowed up by the sea, which must have contributed
to increase considerably the load of taxes in those two prov-
inces. The republican form of government seems to be the
principal support of the present grandeur of Holland. The
owners of great capitals, the great mercantile families, have
generally either some direct share, or some indirect influence,
in the administration of that government. For the sake of
the respect and authority which they derive from this situa-
tion, they are willing to live in a country where their capital,
if they employ it themselves, will bring them less profit, and
if they lend it to another, less interest; and where the very
moderate revenue which they can draw from it will purchase
less of the necessaries and conveniences of life than in any
other part of Europe. The residence of such wealthy people
necessarily keeps alive, in spite of all disadvantages, a certain
degree of industry in the country. Any public calamity which
should destroy the republican form of government, which
should throw the whole administration into the hands of no-
bles and of soldiers, which should annihilate altogether the
importance of those wealthy merchants, would soon render it
disagreeable to them to live in a country where they were no
longer likely to be much respected. They would remove both
their residence and their capital to some other country, and
the industry and commerce of Holland would soon follow the
capitals which supported them.
CHAPTER III
Of Public Debts
IN that rude state of society which precedes the extension
of commerce and the improvement of manufactures,
when those expensive luxuries which commerce and man-
ufactures can alone introduce, are altogether unknown, the
person who possesses a large revenue, I have endeavoured to
show in the third book of this Inquiry, can spend or enjoy
that revenue in no other way than by maintaining nearly as
many people as it can maintain. A large revenue may at all
times be said to consist in the command of a large quantity of
the necessaries of life. In that rude state of things it is com-
monly paid in a large quantity of those necessaries, in the
materials of plain food and coarse clothing, in corn and cattle,
in wool and raw hides. When neither commerce nor manu-
factures furnish any thing for which the owner can ex-
change the greater part of those materials which are over
and above his own consumption, he can do nothing with the
surplus but feed and clothe nearly as many people as it will
feed and clothe. A hospitality in which there is no luxury,
and a liberality in which there is no ostentation, occasion, in
this situation of things, the principal expences of the rich and
the great. But these, I have likewise endeavoured to show
in the same book, are expences by which people are not very
apt to ruin themselves. There is not, perhaps, any selfish
pleasure so frivolous, of which the pursuit has not sometimes
ruined even sensible men. A passion for cock-fighting has
ruined many. But the instances, I believe, are not very nu-
merous of people who have been ruined by a hospitality or
liberality of this kind ; though the hospitality of luxury and
the liberality of ostentation have ruined many. Among our
feudal ancestors, the long time during which estates used to
continue in the same family, sufficiently dem.onstrates the
574
PUBLIC DEBTS 575
general disposition of people to live within their income.
Though the rustic hospitality, constantly exercised by the
great land-holders, may not, to us in the present times, seem
consistent with that order, which we are apt to consider as
inseparably connected with good oeconomy, yet we must cer-
tainly allow them to have been at least so far frugal as not
commonly to have spent their whole income. A part of their
v/ool and raw hides they had generally an opportunity of
selling for money. Some part of this money, perhaps, they
spent in purchasing the few objects of vanity and luxury,
with which the circumstances of the times could furnish
them; but some part of it they seem commonly to have
hoarded. They could not well indeed do any thing else but
hoard whatever money they saved. To trade was disgraceful
to a gentleman, and to lend money at interest, which at that
time was considered as usury and prohibited by law, would
have been still more so. In those times of violence and dis-
order, besides, it was convenient to have a hoard of money
at hand, that in case they should be driven from their own
home, they might have something of known value to carry
with them to some place of safety. The same violence, which
made it convenient to hoard, made it equally convenient to
conceal the hoard. The frequency of treasure-trove, or of
treasure found of which no owner was known, sufficiently
demonstrates the frequency in those times both of hoarding
and of concealing the hoard. Treasure-trove was then con-
sidered as an important branch of the revenue of the sov-
ereign. All the treasure-trove of the kingdom would
scarce perhaps in the present times make an important
branch of the revenue of a private gentleman of a good
estate.
The same disposition to save and to hoard prevailed in the
sovereign, as well as in the subjects. Among nations to whom
commerce and manufactures are little known, the sovereign,
it has already been observed in the fourth book, is in a situa-
tion which naturally disposes him to the parsimony requisite
for accumulation. In that situation the expence even of a
sovereign cannot be directed by that vanity which delights
in the gaudy finery of a court. The ignorance of the times
affords but few of the trinkets in which that finery consists.
576 WEALTH OF NATIONS
Standing armies are not then necessary, so that the expence
even of a sovereign, like that of any other great lord, can be
employed in scarce any thing but bounty to his tenants, and
h'Dspitality to his retainers. But bounty and hospitality very
seldom lead to extravagance; though vanity almost always
does. All the ancient sovereigns of Europe accordingly, it
has already been observed, had treasures. Every Tartar chief
in the present times is said to have one.
In a commercial country abounding with every sort of
expensive luxury, the sovereign, in the same manner as al-
most all the great proprietors in his dominions, naturally
spends a great part of his revenue in purchasing those lux-
uries His own and the neighbouring countries supply him
abundantly with all the costly trinkets which compose the
splendid, but insignificant pageantry of a court. For the
sake of an inferior pageantry of the same kind, his nobles
dismiss their retainers, make their tenants independent, and
become gradually themselves as insignificant as the greater
part of the wealthy burghers in his dominions. The same
frivolous passions, which influence their conduct, influence
his How can it be supposed that he should be the only rich
man in his dominions who is insensible to pleasures of this
kind? H he does not, what he is very likely to do, spend upon
those pleasures so great a part of his revenue as to debilitate
very much the defensive power of the state, it cannot wel
be expected that he should not spend upon them all that part
of it which is over and above what is necessary for support-
ing that defensive power. His ordinary expence becomes
equal to his ordinary revenue, and it is well if it does not
frequentlv exceed it. The amassing of treasure can no longer
be expected, and whet extraordinary exigencies require ex-
traordinary expences, he must necessarily call upon his sub-
jects for an extraordinary aid. The present and the late king
of Prussia are the only great princes of Europe, who, since
the death of Henry IV. of France in 1610, are supposed to
have amassed anv considerable treasure. The parsimony
which leads to accumulation has become almost as rare in
republican as in monarchial governments. The Italian re-
publics, the United Provinces of the Netherlands, are all m
debt. The canton of Berne is the single republic in Europe
PUBLIC DEBTS 577
which has amassed any considerable treasure. The other
Swiss republics have not. The taste for some sort of pa-
geantry, for splendid buildings, at least, and other public
ornaments, frequently prevails as much in the apparently
sober senate-house of a little republic, as in the dissipated
court of the greatest king.
The want of parsimony in time of peace, imposes the ne-
cessity of contracting debt in time of war. When war comes,
there is no money in the treasury but what is necessary for
carrying on the ordinary expence of the peace establishment.
In war an establishment of three or four times that expence
becomes necessary for the defence of the state, and conse-
quently a revenue three or four times greater than the peace
revenue. Supposing that the sovereign should have, what he
scarce ever has, the immediate means of augmenting his rev-
enue in proportion to the augmentation of his expence, yet
still the produce of the taxes, from which this increase of
revenue must be drawn, will not begin to come into the
treasury till perhaps ten or twelve months after they are im-
posed. But the moment in which war begins, or rather the
moment in which it appears likely to begin, the army must be
augmented, the fleet must be fitted out, the garrisoned towns
must be put into a posture of defence ; that army, that fleet,
those garrisoned towns must be furnished with arms, ammu-
nition, and provisions. An immediate and great expence
must be incurred in that moment of immediate danger, which
will not wait for the gradual and slow returns of the new
taxes. In this exigency government can have no other re-
source but in borrowing.
The same commercial state of society which, by the oper-
ation of moral causes, brings government in this manner
into the necessity of borrowing, produces in the subjects both
an ability and an inclination to lend. If it commonly brings
along with it the necessity of borrowing, it likewise brings
along with it the facility of doing so.
A country abounding with merchants and manufacturers,
necessarily abounds with a set of people through whose
hands not only their own capitals, but the capitals of all
those who either lend them money, or trust them with goods,
pass as frequently, or more frequently, than the revenue of
S — HC X
578 WEALTH OF NATIONS
a private man, who, without trade or business, lives upon
his income, passes through his hands. The revenue of such
a man can regularly pass through his hands only once in a
year. But the whole amount of the capital and credit of a
merchant, who deals in a trade in which the returns are very
quick, may sometimes pass through his hands two, three, or
four times in a year. A country abounding with merchants
and manufacturers, therefore, necessarily abounds with a set
of people who have at all times in their power to advance, if
they chuse to do so, a very large sum of money to govern-
ment. Hence the ability in the subjects of a commercial state
to lend.
Commerce and manufactures can seldom flourish long in
any state which does not enjoy a regular administration of
justice, in which the people do not feel themselves secure
in the possession of their property, in which the faith of
contracts is not supported by law, and in which the authority
of the state is not supposed to be regularly employed in
enforcing the payment of debts from all those who are able
to pay. Commerce and manufactures, in short, can seldom
flourish in any state in which there is not a certain degree of
confidence in the justice of government. The same confi-
dence which disposes great merchants and manufacturers,
upon ordinary occasions, to trust their property to the pro-
tection of a particular government; disposes them, upon ex-
traordinary occasions, to trust that government with the use
of their property. By lending money to government, they do
not even for a moment diminish their ability to carry on their
trade and manufactures. On the contrary, they commonly
augment it. The necessities of the state render government
upon most occasions willing to borrow upon terms extremely
advantageous to the lender. The security which it grants
to the original creditor, is made transferable to any^ other
creditor, and. from the universal confidence in the justice
of the state, generally sells in the market for more than was
originally paid for it. The merchant or monied man makes
money by lending money to government, and instead of di-
minishing, increases his trading capital. He generally con-
siders it as a favour, therefore, when the administration
admits him to a share in the first subscription for a new
PUBLIC DEBTS S79
loan. Hence the inclination or willingness in the subjects
of a commercial state to lend.
The government of such a state is very apt to repose itself
upon this ability and willingness of its subjects to lend it
their money on extraordinary occasions. It foresees the
facility of borrowing, and therefore dispenses itself from the
duty of saving.
In a rude state of society there are no great mercantile
or manufacturing capitals. The individuals, who hoard whaif;-
ever money they can save, and who conceal their hoard, do
so from a distrust of the justice of government, from a fear
that if it was known that they had a hoard, and where that
hoard was to be found, they would quickly be plundered. In
such a state of things few people would be able, and no body
would be willing, to lend their money to government on ex-
traordinary exigencies. The sovereign feels that he must
provide for such exigencies by saving, because he foresees
the absolute impossibility of borrowing. This foresight in-
creases still further his natural disposition to save.
The progress of the enormous debts which at present op-
press, and will in the long-run probably ruin, all the great
nations of Europe, has been pretty uniform. Nations, like
private men, have generally begun to borrow upon what
may be called personal credit, without assigning or mort-
gaging any particular fund for the payment of the debt ; and
when this resource has failed them, they have gone on to
borrow upon assignments or mortgages of particular funds.
What is called the unfunded debt of Great Britain, is con-
tracted in the former of those two ways. It consists partly
in a debt which bears, or is supposed to bear, no interest, and
which resembles the debts that a private man contracts upon
account ; and partly in a debt which bears interest, and which
resembles what a private man contracts upon his bill or
promissory note. The debts which are due either for ex-
traordinary services, or for services either not provided for,
or not paid at the time when they are performed ; part of the
extraordinaries of the army, navy, and ordnance, the arrears
of subsidies to foreign princes, those of seamen's wages, &c.
usually constitute a debt of the first kind. Navy and Ex-
chequer bills, which are issued sometimes in payment of a
580 WEALTH OF NATIONS
part of such debts and sometimes for other purposes, consti-
tute a debt of the second kind; Exchequer bills bearing in-
terest from the day on which they are issued, and navy bills
six months after they are issued. The bank of England,
either by voluntarily discounting those bills at their current
value, or by agreeing with government for certain consider-
ations to circulate Exchequer bills, that is, to receive them
at par, paying the interest which happens to be due upon
them, keeps up their value and facilitates their circulation,
and thereby frequently enables government to contract a very
large debt of this kind. In France, where there is no bank,
the state bills (billets d'etat) have sometimes sold at sixty
and seventy per cent, discount. During the great re-coinage
in King William's time, when the bank of England thought
proper to put a stop to its usual transactions, Exchequer
bills and tallies are said to have sold from twenty-five to
sixty per cent, discount; owing partly, no doubt, to the sup-
posed instability of the new government established by the
Revolution, but partly too to the want of the support of the
bank of England.
When this resource is exhausted, and it becomes necessary,
in order to raise money, to assign or mortgage some par-
ticular branch of the public revenue for the payment of the
debt, government has upon different occasions done this in
two different ways. Sometimes it has made this assignment
or mortgage for a short period of time only, a year, or a few
years, for example ; and sometimes for perpetuity. In the
one case, the fund was supposed sufficient to pay, within the
limited time, both principal and interest of the money bor-
rowed. In the other, it was supposed sufficient to pay the
interest only, or a perpetual annuity equivalent to the interest,
government being at liberty to redeem at any time this an-
nuity, upon paying back the principal sum borrowed. When
money was raised in the one way, it was said to be raised
by anticipation; when in the other, by perpetual funding, or,
more shortly, by funding.
The ordinary expence of the greater part of modern gov-
ernments in time of peace being equal or nearly equal to their
ordinary revenue, when war comes, they are both unwilling
PUBLIC DEBTS 581
and unable to increase their revenue in proportion to the in-
crease of their expence. They are unwilling, for fear of of-
fending the people, who by so great and so sudden an in-
crease of taxes, would soon be disgusted with the war; and
they are unable, from not well knowing what taxes would be
sufficient to produce the revenue wanted. The facility of
borrowing delivers them from the embarrassment which this
fear and inability would otherwise occasion. By means of
borrowing they are enabled, with a very moderate increase
of taxes, to raise, from year to year, money sufficient for
carrying on the war, and by the practice of perpetual funding
they are enabled, with the smallest possible increase of taxes,
to raise annually the largest possible sum of money. In
great empires the people who live in the capital, and in the
provinces remote from the scene of action, feel, many of
them, scarce any inconveniency from the war; but enjoy, at
their ease, the amusement of reading in the newspapers the
exploits of their own fleets and armies. To them this amuse-
ment compensates the small difference between the taxes
which they pay on account of the war, and those which they
had been accustomed to pay in time of peace. They are com-
monly dissatisfied with the return of peace, which puts an end
to their amusement, and to a thousand visionary hopes of con-
quest and national glory, from a longer continuance of the war.
The return of peace, indeed, seldom relieves them from the
greater part of the taxes imposed during the war. These are
mortgaged for the interest of the debt contracted in order
to carry it on. If, over and above paying the interest of this
debt, and defraying the ordinary expence of government, the
old revenue, together with the new taxes, produce some sur-
plus revenue, it may perhaps be converted into a sinking
fund for paying off the debt. But, in the first place, this
sinking fund, even supposing it should be applied to no other
purpose, is generally altogether inadequate for paying, in the
course of any period during which it can reasonably be ex-
pected that peace should continue, the whole debt contracted
during the war ; and, in the second place, this fund is almost
always applied to other purposes.
The new taxes were imposed for the sole purpose of pay-
ing the interest of the money borrowed upon them. If they
582 WEALTH OF NATIONS
produce more, it is generally something which was neither
intended nor' expected, and is therefore seldom very consid-
erable. Sinking funds have generally arisen, not so much
from any surplus of the taxes which was over and above
what was necessary for paying the interest or annuity orig-
inally charged upon them, as from a subsequent reduction
of that interest. That of Holland in 1655, and that of the
ecclesiastical state in 1685, were both formed in this manner.
Hence the usual insufficiency of such funds.
During the most profound peace, various events occur
which require an extraordinary expence, and government
finds it always more convenient to defray this expence by
misapplying the sinking fund than by imposing a new tax.
Every new tax is immediately felt more or less by the people.
It occasions always some murmur, and meets with some op-
position. The more taxes may have been multiplied, the
higher they may have been raised upon every different sub-
ject of taxation; the more loudly the people complain of every
new tax, the more difficult it becomes too either to find out
new subjects of taxation, or to raise much higher the taxes
already imposed upon the old. A momentary suspension of
the payment of debt is not immediately felt by the people,
and occasions neither murmur nor complaint. To borrow of
the sinking fund is always an obvious and easy expedient for
getting out of the present difficulty. The more the public
debts may have been accumulated, the more necessary it may
have become to study to reduce them, the more dangerous, the
more ruinous it may be to misapply any part of the sinking
fund ; the less likely is the public debt to be reduced to any
considerable degree, the more likely, the more certainly is
the sinking fund to be misapplied towards defraying all the
extraordinary expences which occur in time of peace. When
a nation is already overburdened with taxes, nothing but the
necessities of a new war, nothing but either the animosity of
national vengeance, or the anxiety for national security, can
induce the people to submit, with tolerable patience, to a new
tax. Hence the usual misapplication of the sinking fund.
**********
The public funds of the different indebted nations of Eu-
rope, particularly those of England, have by one author
PUBLIC DEBTS 583
been represented as the accumulation of a great capital super-
added to the other capital of the country, by means of which
its trade is extended, its manufactures multiplied, and its
Lands cultivated and improved much beyond what they could
have been by means of that other capital only. He does not
consider that the capital which the first creditors of the public
advanced to government, was, from the moment in which they
advanced it, a certain portion of the annual produce turned
away from serving in the function of a capital, to serve in
that of a revenue ; from maintaining productive labourers to
maintain unproductive ones, and to be spent and wasted, gen-
erally in the course of the year, without even the hope of any
future reproduction. In return for the capital which they
advanced they obtained, indeed, an annuity in the public
funds in most cases of more than equal value. This annuity,
no doubt, replaced to them their capital, and enabled them to
carry on their trade and business to the same or perhaps to
a greater extent than before ; that is, they were enabled either
to borrow of other people a new capital upon the credit of
this annuity, or by selling it to get from other people a new
capital of their own, equal or superior to that which they had
advanced to government. This new capital, however, which
they in this manner either bought or borrowed of other
people, must have existed in the country before, and must
have been employed as all capitals are, in maintaining pro-
ductive labour. When it came into the hands of those who
had advanced their money to government, though it was in
some respects a new capital to them, it was not so to the
country ; but was only a capital withdrawn from certain
employments in order to be turned towards others. Though
it replaced to them what they had advanced to government,
it did not replace it to the country. Had they not advanced
this capital to government, there would have been in the
country two capitals, two portions of the annual produce, in-
stead of one, employed in maintaining productive labour.
When for defraying the expence of government a revenue
is raised within the year from the produce of free or unmort-
gaged taxes, a certain portion of the revenue of private people
is only turned away -from maintaining one species of un-
productive labour, towards maintaining another. Some part
584 WEALTH OF NATIONS
of what they pay in those taxes might no doubt have been
accumulated into capital, and consequently employed in main-
taining productive labour; but the greater part vi^ould prob-
ably have been spent and consequently employed in main-
taining unproductive labour. The public expence, however,
when defrayed in this manner, no doubt hinders more or
less the further accumulation of new capital ; but it does not
necessarily occasion the destruction of any actually existing
capital.
When the public expence is defrayed by funding, it is de-
frayed by the annual destruction of some capital which had
before existed in the country; by the perversion of some
portion of the annual produce which had before been destined
for the maintenance of productive labour, towards that of
unproductive labour. As in this case, however, the taxes are
lighter than they would have been, had a revenue sufficient
for defraying the same expence been raised within the year ;
the private revenue of individuals is necessarily less bur-
dened, and consequently their ability to save and accumulate
some part of that revenue into capital is a good deal less im-
paired. If the method of funding destroy more old capital,
it at the same time hinders less the accumulation or acquisi-
tion of new capital, than that of defraying the public expence
by a revenue raised within the year. Under the system of
funding, the frugality and industry of private people can
more easily repair the breaches which the waste and ex-
travagance of government may occasionally make in the
general capital of the society.
It is only during the continuance of war, however, that the
system of funding has this advantage over the other system.
Were the expence of war to be defrayed always by a revenue
raised within the year, the taxes from which that extraordi-
nary revenue was drawn would last no longer than the war.
The ability of private people to accumulate, though less dur-
ing the war, would have been greater during the peace than
under the system of funding. War would not necessarily have
occasioned the destruction of any old capitals, and peace
would have occasioned the accumulation of many more new.
Wars would in general be more speedily concluded, and less
wantonly undertaken. The people feeling, during the con-
PUBLIC DEBTS 585
tinuance of the war, the complete burden of it. would soon
grow weary of it, and government, in order to humour them,
would not be under the necessity of carrying it on longer
than it was necessary to do so. The foresight of the heavy
and unavoidable burdens of war would hinder the people from
wantonly calling for it when there was no real or solid in-
terest to fight for. The seasons during which the ability of
private people to accumulate was somewhat impaired, would
occur more rarely, and be of shorter continuance. Those on
the contrary, during which that ability was in the highest
vigour, would be of much longer duration than they can well
be under the system of funding.
When funding, besides, has made a certain progress, the
multiplication of taxes which it brings along with it some-
times impairs as much the ability of private people to ac-
cumulate even in time of peace, as the other system would
in time of war. The peace revenue of Great Britain amounts
at present to more than ten millions a year. If free and un-
mortgaged, it might be sufficient, with proper management
and without contracting a shilling of new debt, to carry on
the most vigorous war. The private revenue of the inhabi-
tants of Great Britain is at present as much encumbered in
time of peace, their ability to accumulate is as much impaired
as it would have been in the time of the most expensive war,
had the pernicious system of funding never been adopted.
In the payment of the interest of the public debt, it has
been said, it is the right hand which pays the left. The money
does not go out of the country. It is only a part of the rev-
enue of one set of the inhabitants which is transferred to
another ; and the nation is not a farthing the poorer. This
apology is founded altogether in the sophistry of the mer-
cantile system, and after the long examination which I have
already bestowed upon that system, it maj' perhaps be unnec-
essary to say any thing further about it. It supposes, besides,
that the whole public debt is owing to the inhabitants of the
country, which happens not to be true; the Dutch, as well
as several other foreign nations, having a very considerable
share in our public funds. But though the whole debt were
owing to the inhabitants of the country, it would not upon
that account be less pernicious.
586 WEALTH OF NATIONS
Land and capital stock are the two original sources of all
revenue both private and public. Capital stock pays the
wages of productive labour, whether employed in agriculture,
manufactures, or commerce. The management of those two
original sources of revenue belongs to two different sets of
people ; the proprietors of land, and the owners or employers
of capital stock.
The proprietor of land is interested for the sake of his own
revenue to keep his estate in as good condition as he can, by
building and repairing his tenants houses, by making and
maintaining the necessary drains and enclosures, and all those
other expensive improvements which it properly belongs to
the landlord to make and maintain. But by different land-
taxes the revenue of the landlord may be so much dimin-
ished; and by different duties upon the necessaries and con-
veniences of life, that diminished revenue may be rendered
of so little real value, that he may find himself altogether
unable to make or maintain those expensive improvements.
When the landlord, however, ceases to do his part, it is alto-
gether impossible that the tenant should continue to do his.
As the distress of the landlord increases, the agriculture of
the country must necessarily decline.
When, by different taxes upon the necessaries and con-
veniences of life, the owners and employers of capital stock
find, that whatever revenue they derive from it, will not, in a
particular country, purchase the same quantity of those nec-
essaries and conveniences which an equal revenue would in
almost any other, they will be disposed to remove to some
other. And when, in order to raise those taxes, all or the
greater part of merchants and manufacturers, that is, all
or the greater part of the employers of great capitals, come
to be continually exposed to the mortifying and vexatious
visits of the tax-gatherers, this disposition to remove will
soon be changed into an actual removal. The industry of the
country will necessarily fall with the removal of the capital
which supported it, and the ruin of trade and manufactures
will follow the declension of agriculture.
To transfer from the owners of those two great sources of
revenue, land and capital stock, from the persons immediately
interested in the good condition of every particular portion
PUBLIC DEBTS S87
of land, and in the good management of every particular por-
tion of capital stock, to another set of persons (the creditors
of the public, who have no such particular interest), the
greater part of the revenue arising from either, must, in the
long-run, occasion both the neglect of land, and the waste or
removal of capital stock. A creditor of the public has no
doubt a general interest in the prosperity of the agriculture,
manufactures, and commerce of the country; and conse-
quently in the good condition of its lands, and in the good
management of its capital stock. Should there be any gen-
eral failure or declension in any of these things, the produce
of the different taxes might no longer be sufficient to pay him
the annuity or interest which is due him. But a creditor of the
public, considered merely as such, has no interest in the good
condition of any particular portion of land, or in the good
management of any particular portion of capital stock. As
a creditor of the public h^ has no knowledge of any such
particular portion. He has no inspection of it. He can have
no care about it. Its ruin may in some cases be unknown to
him, and cannot directly affect him.
The practice of funding has gradually enfeebled every state
which has adopted it. The Italian republics seem to have
begun it. Genoa and Venice, the only two remaining which
can pretend to an independent existence, have both been en-
feebled by it. Spain seems to have learned the practice from
the Italian republics, and (its taxes being probably less judi-
cious than theirs) it has, in proportion to its natural strength,
been still more enfeebled. The debts of Spain are of very old
standing. It was deeply in debt before the end of the six-
teenth century, about a hundred years before England owed
a shilling. France, notwithstanding all its natural resources,
languishes under an oppressive load of the same kind. The
republic of the United Provinces is as much enfeebled by its
debts as either Genoa or Venice. Is it likely that in Great
Britain alone a practice, which has brought either weakness
or desolation into every other country, should prove alto-
gether innocent?
The system of taxation established in those different coun-
tries, it may be said, is inferior to that of England. I believe
it is so. But it ought to be remembered, that when the wisest
588 WEALTH OF NATIONS
government has exhausted all the proper subjects of taxation,
it must, in cases of urgent necessity, have recourse to im-
proper ones. The wise republic of Holland has upon some
occasions been obliged to have recourse to taxes as incon-
venient as the greater part of those of Spain. Another war
begun before any considerable liberation of the public revenue
had been brought about, and growing in its progress as ex-
pensive as the last war, may, from irresistible necessity,
render the British system of taxation as oppressive as that of
Holland, or even as that of Spain. To the honour of our
present system of taxation, indeed, it has hitherto given so
little embarrassment to industry, that, during the course even
of the most expensive wars, the frugality and good conduct
of individuals seem to have been able, by saving and accumu-
lation, to repair all the breaches which the waste and extrava-
gance of government had made in the general capital of the
society. At the conclusion of the late war, the most ex-
pensive that Great Britain ever waged, her agriculture was
as flourishing, her manufacturers as numerous and as fully
employed, and her commerce as extensive, as they had ever
been before. The capital, therefore, which supported all
those different branches of industry, must have been equal
to what it had ever been before. Since the peace, agricul-
ture has been still further improved, the rents of houses have
risen in every town and village of the country, a proof of the
increasing wealth and revenue of the people ; and the annual
amount of the greater part of the old taxes, of the principal
branches of the excise and customs in particular, has been
continually increasing, an equally clear proof of an increas-
ing consumption, and consequently of an increasing produce,
which could alone support that consumption. Great Britain
seems to support with ease a burden which, half a century
ago, nobody believed her capable of supporting. Let us not,
however, upon this account rashly conclude that she is ca-
pable of supporting any burden; nor even be too confident
that she could support, without great distress, a burden a
little greater than what has already been laid upon her.
When national debts have once been accumulated to a cer-
tain degree, there is scarce, I believe, a single instance of
their having been fairly and completely paid. The liberation
PUBLIC DEBTS 589
of the public revenue, if it has ever been brought about at
all, has always been brought about by a bankruptcy; some-
times by an avowed one, but always by a real one, though fre-
quently by a pretended payment.
The raising of the denomination of the coin has been the
most usual expedient by which a real public bankruptcy has
been disguised under the appearance of a pretended pay-
ment. If a sixpence, for example, should either by act of
parliament or royal proclamation be raised to the denomina-
tion of a shilling, and twenty sixpences to that of a pound
sterling; the person who under the old denomination had
borrowed twenty shillings, or near four ounces of silver,
would, under the new, pay with twenty sixpences, or with
something less than two ounces. A national debt of about
a hundred and twenty-eight millions, nearly the capital of
the funded and unfunded debt of Great Britain, might in
this manner be paid with about sixty-four millions of our
present money. It would indeed be a pretended payment
only, and the creditors of the public would really be de-
frauded of ten shillings in the pound of what was due to
them. The calamity, too, would extend much further than
to the creditors of the public, and those of every private per-
son would suffer a proportionable loss ; and this without any
advantage, but in most cases with a great additional loss, to
the creditors of the public. If the creditors of the public
indeed were generally much in debt to other people, they
might in some measure compensate their loss by paying their
creditors in the same coin in which the public had paid them.
But in most countries the creditors of the public are, the
greater part of them, wealthy people, who stand more in the
relation of creditors than in that of debtors towards the
rest of their fellow-citizens. A pretended payment of this
kind, therefore, instead of alleviating, aggravates in most
cases the loss of the creditors of the public ; and without
any advantage to the public, extends the calamity to a great
number of other innocent people. It occasions a general and
most pernicious subversion of the fortunes of private peo-
ple; enriching in most cases the idle and profuse debtor at
the expense of the industrious and frugal creditor, and trans-
porting a great part of the national capital from the hands
590 WEALTH OF NATIONS
which were likely to increase and improve it, to those which
are likely to dissipate and destroy it. When it becomes nec-
essary for a state to declare itself bankrupt, in the same
manner as when it becomes necessary for an individual to
do so, a fair, open, and avowed bankruptcy is always the
measure which is both least dishonourable to the debtor, and
least hurtful to the creditor. The honour of a state is surely
very poorly provided for, when, in order to cover the dis-
grace of a real bankruptcy, it has recourse to a juggling trick
of this kind, so easily seen through, and at the same time so
extremely pernicious.
THE PUBLISHERS OF THE HAR-
VARD CLASSICS • DR. ELIOT'S
FIVE-FOOT SHELF OF BOOKS • ARE
PLEASED TO ANNOUNCE THE
PUBLICATION OF
THE JUNIOR CLASSICS
A LIBRARY FOR BOYS AND GIRLS
The Junior Classics constitute a set
of books whose contents will delight
children and at the same time satisfy
the legitimate ethical requirements of
those who have the children's best
interests at heart."
CHARLES W. ELIOT
THE COLLIER PRESS • NEW YORK
P-F-COLLIER y SON
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