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THE FIVE-FOOT SHELF OF BOOKS
"THI-; IIARVAIIU CLASSICS"
EDITED BY CHARLES W ELIOT LL D
AN INQUIRY INTO THE NATURE
AND CAUSES OF THE
WEALTH OF NATIONS
BY ADAM SMITH
EDITED BV C J BULLOCK Pli D
Professor of Economics, Harvard University
WITH INTRODUCTION AND NOTES
VOLUME 10
P F COLLIER & SON
NEW YORK
Copyright, 1906
By p. F. Collier & Son
Designed, Printed, and Bound at
Cf)e Collier ^rtii. ^eto gorfe
CONTENTS
BOOK I
PAGE
Of the Causes of Improvement in the productive Power of
Labour, and of the Order according to which its Prod-
uce IS NATURALLY DISTRIBUTED AMONG THE DIFFERENT RaNKS
of the People g
CHAP.
I. Of the Division of Labour . g
II. Of the Principle Which Gives Occasion to the Division of
Labour 19
III. That the Division of Labour is Limited by the Extent of the
Market 24
IV. Of the Origin and Use of Money 29
V. Of the Real and Nominal Price of Commodities, or of Their
Price in Labour, and Their Price in Money 36
VI. Of the Component Parts of the Price of Commodities ... 50
VII. Of the Natural and Market Price of Commodities .... 58
VIII. Of the Wages of Labour 68
IX. Of the Profits of Stock 93
X. Of Wages and Profit in the Different Employments of Labour
and Stock 105
XI. Of the Rent of Land 153
BOOK II
Of the Natuke, Accumulation, and Employment of Stock 221
CHAP.
I. Of the Division of Stock 224
II. Of Money Considered as a Particular Branch of the General
Stock of the Society, or of the Expence of Maintaining
the National Capital 233
A — HC X 1
2 CONTENTS
PAGE
III. Of the Accumulation of Capital, or of Productive and Unpro-
ductive Labour 270
IV. Of Stock Lent at Interest 291
V. Of the Different Employment of Capitals 301
BOOK III
Of the Different Progress of Opulence in Different
Nations 3:9
CHAP.
I. Of the Natural Progress of Opulence 319
BOOK IV
Of Systems of Political CEconomy 325
CHAP.
I. Of the Principle of the Commercial or Mercantile System . . 3^6
II. Of Restraints Upon the Importation from Foreign Countries of
Such Goods as Can Be Produced at Home 348
III. Of the Extraordinary Restraints upon the Importation of Goods
of Almost All Kinds, from Those Countries with which the
Balance Is Supposed to Be Disadvantageous 370
IV. Of Drawbacks 389
V. Of Bounties 392
VI. Of Treaties of Commerce 407
VII. Of Colonies 4i4
VIII. Conclusion of the Mercantile System 4^4
IX. Of the Agricultural Systems, or of the Systems of Political
CEconomy, Which Represent the Produce of Land as Either
the Sole or the Principal Source of the Revenue and Wealth
of Every Country 44^
BOOK V
Of the Revenue of the Sovereign or Commonwealth . . 468
CHAF.
I. Of the Expences of the Sovereign or Commonwealth . . . 468
II. Of the Sources of the General or Public Revenue of the Society 489
III. Of Public Debts 574
INTRODUCTORY NOTE
Adam Smith, political economist and moral philosopher, was
born in Kirkcaldy, Scotland, June 5, 1723. His father, a lawyer
and customs official, died before the birth of his son, who was
brought up through a delicate childhood by his mother. At four-
teen he was sent to the University of Glasgow, where he came
under the influence of Francis Hutcheson, and in 1740 he went
up to Oxford as Snell exhibitioner at Balliol College, remaining
there till 1746. After leaving Oxford, he gave lectures upon
English Literature and Economics, and in 1751 became professor
of logic, and in 1752 of moral philosophy, at Glasgow. The
reputation won by his lectures was in-creased by the publication,
in 1739, of his " Theory of the Moral Sentiments," one result of
which was his appointment as travelling tutor to the third Duke
of Buccleuch. In this capacity he spent nearly three years in
France, and made the acquaintance of many of the intellectual
leaders of that country. Returning to Britain in the end of 1766,
he lived chiefly in Kirkcaldy and London, working upon his
" Wealth of Nations," which was Anally published in 1776. It
met with immediate success, and in a few years had taken an
authoritative place with both philosophers and men of afl^airs.
In the folloiving year Smith was appointed a Commissioner of
Customs, and took a house in Edinburgh, where he lived quietly
and at ease till his death on July 17, 1790.
Political economy had been studied long before Adam Smith,
but the " Wealth of Nations" may be said to constitute it for the
first time as a separate science. The work was based upon a vast
historical knowledge, and its principles were worked out with
remarkable sanity as well as ingenuity, and skilfully illuminated
by apt illustrations. In spite of more than a century of specula-
tion, criticism, and the amassing of new facts and fresh experi-
ence, the work still stands as the best all-round statement and
defence of some of the fundamental principles of the science of
economics.
The most notable feature .of the teaching of the "Wealth of
Nations," from the point of view of its divergence from previous
economic thought as well- as of its subsequent influence, is the
3
4 INTRODUCTORY NOTE
statement of the doctrine of natural liberty. Smith believed that
"man's self-interest is God's providence," and held that if govern-
ment abstained from interfering with free competition, industrial
problems would work themselves out and the practical maximum
of efficiency would be reached. This isame doctrine was applied
to international relations, and Smith's working out of it here is
the classical statement of the argument for free trade.
In its original form the hook contained a considerable num-
ber of digressions and illustrations which the progress of knowl-
edge and of ijidustrial civilization have shown to be inaccurate or
useless, and of these the present edition has been unburdened.
This process, while greatly increasing the interest and readable-
ness of the book, has left intact Smith's main argument, which
is here offered to the reader as admittedly the best foundation
for the study of political economy.
INTRODUCTION
AND PLAN OF THE WORK
The annual labour of every nation is the fund which originally
supplies it with all the necessaries and conveniencies of life
which it annually consumes, and which consist always either in
the immediate produce of that labour, or in what is purchased
with that produce from other nations.
According therefore, as this produce, or what is purchased with
it, bears a greater or smaller proportion to the number of those
who are to consume it, the nation will be better or worse sup-
plied with all the necessaries and conveniencies for which it has
occasion.
But this proportion must in every nation be regulated by two
different circumstances; first, by the skill, dexterity, and judg-
ment with which its labour is generally applied; and, secondly,
by the proportion between the number of those who are employed
in useful labour, and that of those who are not so employed.
Whatever be the soil, climate, or extent of territory of any par-
ticular nation, the abundance or scantiness of its annual supply
must, in that particular situation, depend upon those two cir-
cumstances.
The abundance or scantiness of this supply too seems to depend
more upon the former of those two circumstances than upon the
latter. Among the savage nations of hunters and fishers, every
individual who is able to work, is more or less employed in useful
labour, and endeavours to provide, as well as he can, the neces-
saries and conveniencies of life, for himself, or such of his family
or tribe as are either too old, or too young, or too infirm to go
a hunting and fishing. Such nations, however, are so miserably
poor that, from mere want, they are frequently reduced, or, at
least, think themselves reduced, to the necessity sometimes of
directly destroying, and sometimes of abandoning their infants,
their old people, and those afflicted with lingering diseases, to
5
6 INTRODUCTION
perish with hunger, or to be devoured by wild beasts. Among
civilized and thriving nations, on the contrary, though a great
number of people do not labour at all, many of whom consume
the produce of ten times, frequently of a hundred times more
labour than the greater part of those who work; yet the produce
of the whole labour of the society is so great, that all are often
abundantly supplied, and a workman, even of the lowest and
poorest order, if he is frugal and industrious, may enjoy a
greater share of the necessaries and conveniences of life than
it is possible for any savage to acquire.
The causes of this improvement, in the productive powers of
labour, and the order, according to which its produce is naturally
distributed among the different ranks and conditions of men in
the society, make the subject of the First Book of this Inquiry.
Whatever be the actual state of the skill, dexterity, and judg-
ment with which labour is applied in any nation, the abundance
or scantiness of its annual supply must depend, during the con-
tinuance of that state, upon the proportion between the number
of those who are annually emplo3'ed in useful labour, and of
those who are not so employed. The number of useful and.
productive labourers, it will hereafter appear, is every where in
proportion to the quantity of capital stock which is employed in
setting them to work and to the particular way in which it is so
employed. The Second Book, therefore, treats of the nature of
capital stock, of the manner in which it is gradually accumulated,
and of the different quantities of labour which it puts into motion,
according to the different ways in which it is employed.
Nations tolerably well advanced as to skill, dexterity, and judg-
ment, in the application of labour, have followed very different
plans in the general conduct or direction of it; and those plans
have not all been equally favourable to the greatness of its prod-
uce. The policy of some nations has given extraordinary en-
couragement to the industry of the country; that of others to
the industry of towns. Scarce any nation has dealt equally and
impartially with every sort of industry. Since the downfal of
the Roman empire, the policy of Europe has been more favourable
to arts, manufactures, and commerce, the industry of towns ; than
to agriculture, the industry of the country. The circumstances
which seem to have introduced and established this policy are
explained in the Third Book.
INTRODUCTION 7
Though those different plans were, perhaps, first introduced by
the private interests and prejudices of particular orders of men,
without any regard to, or foresight of, their consequences upon
the general welfare of the society; yet they have given occasion
to very different theories of political oeconomy; of which some
magnify the importance of that industry which is carried on in
towns, others of that which is carried on in the country. Those
theories have had a considerable influence, not only upon the
opinions of men of learning, but upon the public conduct of
princes and sovereign states. I have endeavoured, in the Fourth
Book, to explain, as fully and distinctly as I can, those different
theories, and the principal effects which they have produced in
different ages and nations.
To explain in what has consisted the revenue of the great body
of the people, or what has been the nature of those funds, which,
in different ages and nations, have supplied their annual con-
sumption, is the object of these Four first Books. The Fifth and
last Book treats of the revenue of the sovereign, or common-
wealth. In this book I have endeavoured to show ; first, what
are the necessary expences of the sovereign, or commonwealth;
which of those expences ought to be defrayed by the general
contribution of the whole society; and which of them, by that
of some particular part only, or of some particular members of it :
secondly, what are the different methods in which the whole soci-
ety may be made to contribute towards defraying the expences
incumbent on the whole society, and what are the principal
advantages and inconveniencies of each of those methods : and,
thirdly and lastly, 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.
AN INQUIRY INTO THE NATURE AND CAUSES
OF THE
WEALTH OF NATIONS
BOOK I
Of the Causes of Improvement in the productive Power
OF Labour and of the Order according to which
ITS Produce is naturally distributed among
the different Ranks of the People.
CHAPTER I
Of the Division of Labour
THE greatest improvement in the productive pow^ers of
labour, and the greater part of the skill, dexterity, and
judgment with which it is any where directed, or ap-
plied, seem to have been the effects of the division of labour.
The effects of the division of labour, in the general business
of society, will be more easily understood, by considering in
what manner it operates in some particular manufactures.
It is commonly supposed to be carried furthest in some very
trifling ones ; not perhaps that it really is carried further in
them than in others of more importance: but in those trifling
manufactures which are destined to supply the small wants of
but a small number of people, the whole number of workmen
must necessarily be small ; and those employed in every dif-
ferent branch of the work can often be collected into the
same workhouse, and placed at once under the view of the
spectator.
In those great manufactures, on the contrary, which
are destined to supply the great wants of the great body
cf the people, every different branch of the work em-
ploys so great a number of workmen, that it is impossible to
collect them all into the same workhouse. We can seldom see
9
10 WEALTH OF NATIONS
more, at one time, than those employed in one single branch.
Though in such manufactures, therefore, the work may really
be divided into a much greater number of parts, than in those
of a more trifling nature, the division is not near so obvious,
and has accordingly been much less observed.
To take an example, therefore, from a very trifling manu-
facture; but one in which the division of labour has been
very often taken notice of, the trade of the pin-maker ; a
workman not educated to this business (which the division
of labour has rendered a distinct trade), nor acquainted with
the use of the machinery employed in it (to the invention of
which the same division of labour has probably given occa-
sion), could scarce, perhaps, with his utmost industry, make
one pin in a day, and certainly could not make twenty. But in
the way in which this business is now carried on, not only
the whole work is a peculiar trade, but it is divided into a
number of branches, of which the greater part are likewise
peculiar trades. One man draws out the wire, another
straights it, a third cuts it. a fourth points it, a fifth grinds
it at the top for receiving the head ; to make the head requires
two or three distinct operations; to put it on, is a peculiar
business, to whiten the pins is another; it is even a trade by
itself to put them into the paper ; and the important business
of making a pin is, in this manner, divided into about eight-
een distinct operations, which, in some manufactories, are all
performed by distinct hands, though in others the same man
will sometimes perform two or three of them. I have seen
a small manufactory of this kind where ten men only were
employed, and where some of them consequently performed
two or three distinct operations. But though they were very
poor, and therefore but indifferently accommodated with the
necessary machinery, they could, when they exerted them-
selves, make among them about twelve pounds of pins in a
day. There are in a pound upwards of four thousand pins of
a middling size. Those ten persons, therefore, could make
among them upwards of forty-eight thousand pins in a day.
Each person, therefore, making a tenth part of forty-eight
thousand pins, might be considered as making four thousand
eight hundred pins in a day. But if they had all wrought
separately and independently, and without any of them hav-
DIVISION OF LABOUR 11
ing been educated to this peculiar business, they certainly
could not each of them have made twenty, perhaps not one
pin in a day; that is, certainly, not the two hundred and forti-
eth, perhaps not the four thousand eight hundredth part of
what they are at present capable of performing, in conse-
quence of a proper division and combination of their different
operations.
In every other art and manufacture, the effects of the
division of labour are similar to what they are in this very
trifling one ; though, in many of them, the labour can neither
be so much subdivided, nor reduced to so great a simplicity
of operation. The division of labour, however, so far as it
can be introduced, occasions, in every art, a proportionate
increase of the productive powers of labour. The separation
of different trades and employments from one another, seems
to have taken place, in consequence of this advantage. This
separation too is generally carried furthest in those countries
which enjoy the highest degree of industry and improvement;
what is the work of one man in a rude state of society, being
generally that of several in an improved one. In every im-
proved society, the farmer is generally nothing but a farmer;
the manufacturer, nothing but a manufacturer. The labour
too which is necessary to produce any one complete manu-
facture, is almost always divided among a great number of
hands. How many different trades are employed in each
branch of the linen and woollen manufactures, from the
growers of the flax and the wool, to the bleachers and
smoothers of the linen, or to the dyers and dressers of the
cloth ! The nature of agriculture, indeed, does not admit of
so many subdivisions of labour, nor of so complete a separa-
tion of one business from another, as manufactures. It is
impossible to separate so entirely, the business of the grazier
from that of the corn-farmer, as the trade of carpenter is
commonly separated from that of the smith. The spinner is
almost always a distinct person from the weaver; but the
ploughman, the harrower, the sower of the seed, and the
reaper of the corn, are often the same. The occasions for
those different sorts of labour returning with the different
seasons of the year, it is impossible that one man should be
constantly employed in any one of them. This impossibility
12 WEALTH OF NATIONS
of making so complete and entire a separation of all the dif-
ferent branches of labour employed in agriculture, is perhaps
the reason why the improvement of the productive powers of
labour in this art, does not always keep pace with their im-
provement in manufactures. The most opulent nations, in-
deed, generally excel all their neighbours in agriculture as
well as in manufactures ; but they are commonly more distin-
guished by their superiority in the latter than in the former.
Their lands are in general better cultivated, and having
more labour and expence bestowed upon them, produce more
in proportion to the extent and natural fertility of the
ground. But this superiority of produce is seldom much
more than in proportion to the superiority of labour and
expence. In agriculture, the labour of the rich country is
not always much more productive than that of the poor ; or,
at least, it is never so much more productive, as it commonly
is in manufactures. The corn of the rich country, there-
fore, will not always, in the same degree of goodness, come
cheaper to market than that of the poor. The corn of Po-
land, in the same degree of goodness, is as cheap as that of
France, notwithstanding the superior opulence and improve-
ment of the latter country. The corn of France is, in the
corn provinces, fully as good, and in most years nearly about
the same price with the corn of England, though, in opu-
lence and improvement, France is perhaps inferior to Eng-
land. The corn-lands of England, however, are better culti-
vated than those of France, and the corn-lands of France
are said to be much better cultivated than those of Poland.
But though the poor country, notwithstanding the inferiority
of its cultivation, can, in some measure, rival the rich in the
cheapness and goodness of its corn, it can pretend to no such
competition in its manufactures ; at least if those manufac-
tures suit the soil, climate, and situation of the rich country.
The silks of France are better and cheaper than those of
England, because the silk manufacture, at least under the
present high duties upon the importation of raw silk, does
not so well suit the climate of England as that of France.
But the hard-ware and the coarse woollens of England are
beyond all comparison superior to those of France, and much
cheaper too in the same degree of goodness. In Poland
DIVISION OF LABOUR 13
there are said to be scarce any manufactures of any kind,
a few of those coarser household manufactures excepted,
without which no country can well subsist.
This great increase of the quantity of work, which, in
consequence of the division of labour, the same number
of people are capable of performing, is owing to three dif-
ferent circumstances; first, to the increase of dexterity in
every particular workman ; secondly, to the saving of the
time which is commonly lost in passing from one species
of work to another ; and lastly, to the invention of a great
number of machines which facilitate and abridge labour, and
enable one man to do the work of many.
First, the improvement of the dexterity of the workman
necessarily increases the quantity of the work he can per-
form; and the division of labour, by reducing every man's
business to some one simple operation, and by making this
operation the sole employment of his life, necessarily in-
creases very much the dexterity of the workman. A com-
mon smith, who, though accustomed to handle the hammer,
has never been used to make nails, if upon some particular
occasion he is obliged to attempt it, will scarce, I am as-
sured, be able to make above two or three hundred nails in
a day, and those too very bad ones. A smith who has been
accustomed to make nails, but whose sole or principal busi-
ness has not been that of a nailer, can seldom with his ut-
most diligence make more than eight hundred or a thousand
nails in a day. I have seen several boys under twenty years
of age who had never exercised any other trade but that of
making nails, and who, when they exerted themselves, could
make, each of them, upwards of two thousand three hundred
nails in a day. The making of a nail, however, is by no
means one of the simplest operations. The same person
blows the bellows, stirs or mends the fire as there is occa-
sion, heats the iron, and forges every part of the nail : In
forging the head too he is obliged to change his tools. The
different operations into which the making of a pin, or of a
metal button, is subdivided, are all of them much more sim-
ple, and the dexterity o£ the person, of whose life it has been
the sole business to perform them, is usually much greater.
The rapidity with which some of the operations of those
14 WEALTH OF NATIONS
manufactures are performed, exceeds what the human hand
could, by those who had never seen them, be supposed ca-
pable of acquiring.
Secondly, the advantage which is gained by saving the
time commonly lost in passing from one sort of work to
another, is much greater than we should at first view be apt
to imagine it. It is impossible to pass very quickly from one
kind of work to another, that is carried on in a different
place, and with quite different tools. A country weaver, who
cultivates a small farm, must lose a good deal of time in
passing from his loom to the field, and froin the field to his
loom. When the two trades can be carried on in the same
workhouse, the loss of time is no doubt much less. It is
even in this case, however, very considerable. A man com-
monly saunters a little in turning his hand from one sort of
employment to another. When he first begins the new work
he is seldom very keen and hearty ; his mind, as they say,
does not go to it, and for some time he rather trifles than
applies to good purpose. The habit of sauntering and of
indolent careless application, which is naturally, or rather
necessarily acquired by every country workman who is
obliged to change his work and his tools every half hour,
and to apply his hand in twenty different ways almost every
day of his life; renders him almost always slothful and lazy,
and incapable of any vigorous application even on the most
pressing occasions. Independent, therefore, of his deficiency
in point of dexterity, this cause alone must always reduce
considerably the quantity of work which he is capable of
performing.
Thirdly, and lastly, every body must be sensible how much
labour is facilitated and abridged by the application of
proper machinery. It is unnecessary to give any example
I shall only observe, therefore, that the invention of all
those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the divi-
sion of labour. Men are much more likely to discover easier
and readier methods of attaining any object, when the whole
attention of their minds is directed towards that single ob-
ject, than when it is dissipated among a great variety of
things. But in consequence of the division of labour, the
DIVISION OF LABOUR 15
whole of every man's attention comes naturally to be di-
rected towards some one very smiple object. It is naturally
to be expected, therefore, that some one or other of those
who are employed in each particular branch of labour should
soon find out easier and readier methods of performing their
own particular work, wherever the nature of it admits of
such improvement. A great part of the machines made
use of in those manufactures in which labour is most sub-
divided, were originally the inventions of common workmen,
who, being each of them employed in some very simple oper-
ation, naturally turned their thoughts towards finding out
easier and readier methods of performing it. Whoever has
been much accustomed to visit such manufactures, must fre-
quently have been shewn very pretty machines, which were
the inventions of such workmen, in order to facilitate and
quicken their own particular part of the work. In the first
tire-engines, a boy was constantly employed to open and
shut alternately the communication between the boi'er and
the cylinder, according as the piston either ascended or
descended. One of those boys, who loved to play with his
companions, observed that, by tying a string from the handle
of the valve which opened this communication to another
part of the machine, the valve would open and shut without
his assi.stance, and leave him at liberty to divert himself with
his play- fellows. One of the greatest improvements that has
been made upon this machine, since it was first invented, was
in this manner the discovery of a boy who wanted to save
his own labour.
All the improvements in machinery, however, have by no
means been the mventions of those who had occasion to use
the machines. Many improvements have been made by the
ingenuity of the makers of the machines, when to make
them became the business of a peculiar trade ; and some by
that of those who are called philosophers or men of specu-
lation, whose trade it is not to do any thing, but to observe
every thing ; and who, upon that account, are often capable
of combining together the powers of the most distant and
dissimilar objects. In She progress of society, philosophy or
speculation becomes, like every other employment, the princi-
pal or sole trade and occupation of a particular class of
16 WEALTH OF NATIONS
citizens. Like every other employment too, it is subdivided
into a great number of different branches, each of which
affords occupation to a pecuHar tribe or class of philoso-
phers; and this subdivision of employment in philosophy, as
well as in every other business, improves dexterity, and
saves time. Each individual becomes more expert in his
own peculiar branch, more work is done upon the whole,
and the quantity of science is considerably increased by it.
It is the great multiplication of the productions of all the
different arts, in consequence of the division of labour, which
occasions, in a well-governed society, that universal opu-
lence which extends itself to the lowest ranks of the people.
Every workman has a great quantity of his own work to
dispose of beyond what he himself has occasion for; and
every other workman being exactly in the same situation,
he is enabled to exchange a great quantity of his own goods
for a great quantity, or, what comes to the same thing, for
the price of a great quantity of theirs. He supplies them
abundantly with what they have occasion for, and they ac-
commodate him as amply with what he has occasion for,
and a general plenty diffuses itself through all the different
ranks of the society.
Observe the accommodation of the most common artificer
or day-labourer in a civilized and thriving country, and you
will perceive that the number of people of whose industry
a part, though but a small part, has been employed in pro-
curing him this accommodation, exceeds all computation.
The woollen coat, for example, which covers the day-
labourer, as coarse and rough as it may appear, is the
produce of the joint labour of a great multitude of work-
men. The shepherd, the sorter of the wool, the wool-
comber or carder, the dyer, the scribbler, the spinner, the
w^eaver, the fuller, the dresser, with many others, must all
join their different arts in order to complete even this homely
production. How many merchants and carriers, besides,
must have been employed in transporting the materials from
some of those workmen to others who often live in a very
distant part of the country ! how much commerce and navi-
gation in particular, how many ship-builders, sailors, sail-
makers, rope-makers, must have been employed in order to
DIVISION OF LABOUR 17
bring together the different drugs made use of by the dyer,
which often come from the remotest corners of the world !
What a variety of labour too is necessary in order to pro-
duce the tools of the meanest of those workmen ! To say
nothing of such complicated machines as the ship of the
sailor, the mill of the fuller, or even the loom of the weaver,
let us consider only what a variety of labour is requisite in
order to form that very simple machine, the shears with
which the shepherd clips the wool. The miner, the builder
of the furnace for smelting the ore, the feller of the timber,
the burner of the charcoal to be made use of in the smelting-
house, the brick-maker, the brick-layer, the workmen who
attend the furnace, the mill-wright, the forger, the smith,
must all of them join their different arts in order to produce
them. Were we to examine, in the same manner, all the
different parts of his dress and household furniture, the
coarse linen shirt which he wears next his skin, the shoes
which cover his feet, the bed which he lies on, and all the
different parts which compose it, the kitchen-grate at which
he prepares his victuals, the coals which he makes use of
for that purpose, dug from the bowels of the earth, and
brought to him perhaps by a long sea and a long land car-
riage, all the other utensils of his kitchen, all the furniture
of his table, the knives and forks, the earthen or pewter
plates upon which he serves up and divides his victuals, the
different hands employed in preparing his bread and his beer,
the glass window which lets in the heat and the light, and
keeps out the wind and the rain, with all the knowledge and
art requisite for preparing that beautiful and happy inven-
tion, without which these northern parts of the world could
scarce have afforded a very comfortable habitation, together
with the tools of all the different workmen employed in pro-
ducing those different conveniences; if we examine, I say,
all these things, and consider what a variety of labour is
employed about each of them, we shall be sensible that
without the assistance and co-operation of many thousands,
the very meanest person in a civilized country could not
be provided, even according to, what we very falsely imagine,
the easy and simple manner in which he is commonly ac-
commodated. Compared, indeed, with the more extrava-
18 WEALTH OF NATIONS
gant luxury of the great, his accommodation must no doubt
appear extremely simple and easy ; and yet it may be true,
perhaps, that the accommodation of an European prince does
not always so much exceed that of an industrious and frugal
peasant, as the accommodation of the latter exceeds that of
many an African king, the absolute master of the lives and
liberties of ten thousand naked savages.
CHAPTER II
Of the Principle Which Gives Occasion to the
Division of Labour
THIS division of labour, from w^hich so many advan-
tages are derived, is not originally the effect of any
human wisdom, which foresees and intends that gen-
eral opulence to which it gives occasion. It is the neces-
sary, though very slow and gradual, consequence of a certain
propensity in human nature which has in view no such ex-
tensive utility; the propensity to truck, barter, and exchange
one thing for another.
Whether this propensity be one of those original princi-
ples in human nature, of which no further account can be
given ; or whether, as seems more probable, it be the neces-
sary consequence of the faculties of reason and speech, it
belongs not to our present subject to enquire. It is common
to all men, and to be found in no other race of animals,
which seem to know neither this nor any other species of
contracts. Two greyhounds, in running down the same
hare, have sometimes the appearance of acting in some sort
of concert. Each turns her towards his companion, or en-
deavours to intercept her when his companion turns her
toward himself. This, however, is not the effect of any
contract, but of the accidental concurrence of their passions
in the same object at that particular time. Nobody ever saw
a dog make a fair and deliberate exchange of one bone for
another with another dog. Nobody ever saw one animal by
its gestures and natural cries signify to another, this is mine,
that yours; I am willing to give this for that. When an
animal wants to obtain something either of a man or of
another animal, it has no other means of persuasion but to
gain the favour of those whose service it requires. A puppy
fawns upon its dam, and a spaniel endeavours by a thousand
19
20 WEALTH OF NATIONS
attractions to engage the attention of its master who is at
dinner, when it wants to be fed by him. Man sometimes
uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his incli-
nations, endeavours by every servile and fawning attention to
obtain their good will. He has not time, however, to do this
upon every occasion. In civilized society he stands at all
times in need of the co-operation and assistance of great
multitudes, while his whole life is scarce sufficient to gain
the friendship of a few persons. In almost every other race
of animals each individual, when it is grown up to maturity,
is entirely independent, and in its natural state has occasion
for the assistance of no other living creature. But man has
almost constant occasion for the help of his brethren, and it
is in vain for him to expect it from their benevolence only.
He will be more likely to prevail if he can interest their
self-love in his favour, and shew them that it is for their
own advantage to do for him what he requires of them.
Whoever offers to another a bargain of any kind, proposes
to do this: Give me that which I want, and you shall have
this which you want, is the meaning of every such offer;
and it is in this manner that we obtain from one another the
far greater part of those good offices which we stand in
need of.
It is not from the benevolence of the butcher, the
brewer, or the baker, that we expect our dinner, but from
their regard to their own interest. We address ourselves,
not to their humanity but to their self-love, and never talk
to them of our own necessities but of their advantages. No-
body but a beggar chuses to depend chiefly upon the benev-
olence of his fellow-citizens. Even a beggar does not de-
pend upon it entirely. The charity of well-disposed people,
indeed, supplies him with the whole fund of his subsistence. But
though this principle ultimately provides him with all the
necessaries of life which he has occasion for, it neither does
nor can provide him with them as he has occasion for them.
The greater part of his occasional wants are supplied in the
same manner as those of other people, by treaty, by barter,
and by purchase. With the money which one man gives
him he purchases food. The old cloaths which another bestows
ORIGIN OF DIVISION OF LABOUR 21
upon him he exchanges for other old cloaths which suit him
better, or for lodging, or for food, or for money, with which
he can buy either food, cloaths, or lodging, as he has oc-
casion.
As it is by treaty, by barter, and by purchase, that we
obtain from one another the greater part of those mutual
good offices which we stand in need of, so it is this same
trucking disposition which originally gives occasion to the
division of labour. In a tribe of hunters or shepherds a
particular person makes bows and arrows, for example,
with more readiness and dexterity than any other. He fre-
quently exchanges them for cattle or for venison with his
companions; and he finds at last that he can in this manner
get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest,
therefore, the making of bows and arrows grows to be his
chief business, and he becomes a sort of armourer. Another
excels in making the frames and covers of their little huts
or moveable houses. He is accustomed to be of use in this
way to his neighbours, who reward him in the same manner
with cattle and with venison, till at last he finds it his interest
to dedicate himself entirely to this employment, and to become
a sort of house-carpenter. In the same manner a third be-
comes a smith or a brazier ; a fourth a tanner or dresser of
hides or skins, the principal part of the clothing of savages.
And thus the certainty of being able to exchange all that
surplus part of the produce of his own labour, which is over
and above his own consumption, for such parts of the prod-
uce of other men's labour as he may have occasion for.
encourages every man to apply himself to a particular occu-
pation and to cultivate and bring to perfection whatever
talent or genius he may possess for that particular species of
business.
The difference of natural talents in different men is, in
reality, much less than we are aware of ; and the very dif-
ferent genius which appears to distinguish men of different
professions, when grown up to maturity, is not upon many
occasions so much the cause, as the effect of the division of
labour. The difference between the most dissimilar char-
acters, between a philosopher and a common street porter,
22 WEALTH OF NATIONS
for example, seems to arise not so much from nature. aS
from habit, custom, and education. When they came into
the world, and for the first six or eight years of their ex-
istence, they were, perhaps, very much alike, and neither
their parents nor playfellows could perceive any remarkable
difference. About that age, or soon after, they come to be
employed in very different occupations. The difference of
talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing
to acknowledge scarce any resemblance. But without the
disposition to truck, barter, and exchange, every man must
have procured to himself every necessary and conveniency
of life which he wanted. All must have had the same duties
to perform, and the same work to do, and there could have
been no such difference of employment as could alone give
occasion to any great difference of talents.
As it is this disposition' which forms that difference of
talents, so remarkable among men of different professions,
so it is this same disposition which renders that difference
useful. Many tribes of animals acknowledged to be all of
the same species, derive from nature a much more remark-
able distinction of genius, than what, antecedent to custom
and education, appears to take place among men. By nature
a philosopher is not in genius and disposition half so different
from a street porter, as a mastiff is from a greyhound, or a
greyhound from a spaniel, or this last from a shepherd's
dog. Those different tribes of animals, however, though all
of the same species, are of scarce any use to one another.
The strength of the mastiff is not in the least supported
either by the swiftness of the greyhound, or by the sagacity
of the spaniel, or by the docility of the shepherd's dog.
The effects of those different geniuses and talents, for want
of the power or disposition to barter and exchange, can-
not be brought into a common stock, and do not in the
least contribute to the better accommodation' and conven-
iency of the species. Each animal is still obliged to sup-
port and defend itself, separately and independently, and
derives no sort of advantage from that variety of talents
with which nature has distinguished its fellows. Among
men, on the contrary, the most dissimilar geniuses are of
ORIGIN OF DIVISION OF LABOUR 23
use to one another; the different produces of their respec-
tive talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock,
where every man may purchase whatever part of the prod-
ace of other men's talents he has occasion for.
CHAPTER III
That the Division of Labour is Limited by the Extent
OF THE Market
AS it is the power of exchanging that gives occasion to
l\ the division of labour, so the extent of this division
-^ -*- must always be limited by the extent of that power, or,
in other words, by the extent of the market. When the
market is very small, no person can have any encourage-
ment to dedicate himself entirely to one employment, for
want of the power to exchange all that surplus part of the
produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men's
labour as he has occasion for.
There are some sorts of industry, even of the lowest kind,
which can be carried on no where but in a great town. A
porter, for example, can find employment and subsistence in
no other place. A village is by much too narrow a sphere
for him ; even an ordinary market town is scarce large
enough to afford him constant occupation. In the lone houses
and very small villages which are scattered about in so desert
a country as the Highlands of Scotland, every farmer must
be butcher, baker and brewer for his own family. In such
situations we can scarce expect to find even a smith, a car-
penter, or a mason, within less than twenty miles of another
of the same trade. The scattered families that live at eight
or ten miles distant from the nearest of them, must learn
to perform themselves a great number of little pieces of work,
for which, in more populous countries, they would call in the
assistance of those workmen. Country workmen are almost
everywhere obliged to apply themselves to all the different
branches of industry that have so much affinity to one an-
other as to be employed about the same sort of materials.
A country carpenter deals in every sort of work that is made
24
LIMIT OF DIVISION OF LABOUR 25
of wood: a country smith in every sort of work that is made
of iron. The former is not only a carpenter, but a joiner, a
cabinet maker, and even a carver in wood, as well as a wheel-
wright, a plough-wright, a cart and waggon maker. The
employments of the latter are still more various. It is im-
possible there should be such a trade as even that of a nailer
in the remote and inland parts of the Highlands of Scotland.
Such a workman at the rate of a thousand nails a day, and
three hundred working days in the year, will make three
hundred thousand nails in the year. But in such a situation
it would be impossible to dispose of one thousand, that is,
of one day's work in the year.
As by means of water-carriage a more extensive market
is opened to every sort of industry than whast land-carriage
alone can afford it, so it is upon the sea-coast, and along the
banks of navigable rivers, that industry of every kind natu-
rally begins to subdivide and improve itself, and it is fre-
quently not till a long time after that those improvements
extend themselves to the inland parts of the country. A
broad-wheeled waggon, attended by two men, and drawn by
eight horses, in about six weeks time carries and brings back
between London and Edinburgh near four ton weight of
goods. In about the same time a ship navigated by six or
eight men, and sailing between the ports of London and
Leith, frequently carries and brings back two hundred ton
weight of goods. Six or eight men, therefore, by the help of
water-carriage, can carry and bring back in the same time
the same quantity of goods between London and Edinburgh,
as fifty broad-wheeled waggons, attended by a hundred men,
and drawn by four hundred horses. Upon two hundred tons
of goods, therefore, carried by the cheapest land-carriage
from London to Edinburgh, there must be charged the main-
tenance of a hundred men for three weeks, and both the
maintenance, and, what is nearly equal to the maintenance,
the wear and tear of four hundred horses as well as of fifty
great waggons. Whereas, upon the same quantity of goods
carried by water, there is to be charged only the mainte-
nance of six or eight men, and the wear and tear of a ship
of two hundred tons burthen, together with the value of the
superior risk, or the difference of the insurance between land
26 WEALTH OF NATIONS
and water-carriage. Were there no other communication
between those two places, therefore, but by land-carriage, as
no goods could be transported from the one to the other,
except such whose price was very considerable in proportion
to their weight, they could carry on but a small part of that
commerce which at present subsists between them, and con-
sequently could give but a small part of that encourage-
ment which they at present mutually afford to each other's
industry. There could be little or no commerce of any kind
between the distant parts of the world. What goods could
bear the expence of land-carriage between London and Cal-
cutta? Or if there were any so precious as to be able to
support this expence, with what safety could they be trans-
ported through the territories of so many barbarous na-
tions? Those two cities, however, at present carry on a
very considerable commerce with each other, and by mu-
tually affording a market, give a good deal of encouragement
to each other's industry.
Since such, therefore, are the advantages of water-car-
riage, it is natural that the first improvements of art and
industry should be made where this conveniency opens the
whole world for a market to the produce of every sort of
labour, and that they should always be much later in ex-
tending themselves into the inland parts of the country. The
inland parts of the country can for a long time have no
other market for the greater part of their goods, but the
country which lies round about them, and separates them
from the sea-coast, and the great navigable rivers. The
extent of their market, therefore, must for a long time be in
proportion to the riches and populousness of that country,
and consequently their improvement must always be posterior
to the improvement of that country. In our North American
colonies the plantations have constantly followed either the
sea-coast or the banks of the navigable rivers, and have
scarce any where extended themselves to any considerable
distance from both.
The nations that, according to the best authenticated his-
tory, appear to have been first civilized, were those that
dwelt round the coast of the Mediterranean sea. That sea,
by far the greatest inlet that is known in the world, having
LIMIT OF DIVISION OF LABOUR 27
no tides, nor consequently any waves except such as are
caused by the wind only, was, by the smoothness of its sur-
face, as well as by the multitude of its islands, and the prox-
imity of its neighbouring shores, extremely favourable to the
infant navigation of the world ; when, from their ignorance
of the compass, men were afraid to quit the view of the
coast, and from the imperfection of the art of ship-building,
to abandon themselves to the boisterous waves of the ocean.
To pass beyond the pillars of Hercules, that is, to sail out
of the Streights of Gibraltar, was, in the antient world, long
considered as a most wonderful and dangerous exploit of
navigation. It was late before even the Phenicians and
Carthaginians, the most skilful navigators and ship-builders
of those old times, attempted it, and they were for a long
time the only nations that did attempt it.
Of all the countries on the coast of the Mediterranean sea,
Egypt seems to have been the first in which either agriculture
or manufactures were cultivated and improved to any con-
siderable degree. Upper Egypt extends itself nowhere above
a few miles from the Nile, and in Lower Egypt that great
river breaks itself into many different canals, which, with
the assistance of a little art, seem to have afforded a com-
munication by water-carriage, not only between all the great
towns, but between all the considerable villages, and even
to many farm-houses in the country; nearly in the same
manner as the Rhine and the Maese do in Holland at pres-
ent. The extent and easiness of this inland navigation was
probably one of the principal causes of the early improve-
ment of Egypt.
The improvements in agriculture and manufactures seem
likewise to have been of very great antiquity in the provinces
of Bengal in the East Indies, and in some of the eastern
provinces of China ; though the great extent of this antiquity
is not authenticated by any histories of whose authority we,
in this part of the world, are well assured. In Bengal the
Ganges and several other great rivers form a great number
of navigable canals in the same manner as the Nile does in
Egypt. In the eastern provinces of China, too, several great
rivers form, by their different branches, a multitude of
canals, and by communicating with one another afford an
28 WEALTH OF NATIONS
inland navigation much more extensive than that either of
the Nile or the Ganges, or perhaps than both of them put
together. It is remarkable that neither the antient Egyp-
tians, nor the Indians, nor the Chinese, encouraged foreign
commerce, but seem all to have derived their great opulence
from this inland navigation.
All the inland parts of Africa, and all that part of Asia
which lies any considerable v^ay north of the Euxine and
Caspian seas, the antient Scythia, the modern Tartary and
Siberia, seem in all ages of the world to have been in the
same barbarous and uncivilized state in which w^e find them
at present. The sea of Tartary is the frozen ocean which
admits of no navigation, and though some of the greatest
rivers in the world run through that 'country, they are at too
great a distance from one another to carry commerce and
communication through the greater part of it. There are in
Africa none of those great inlets, such as the Baltic aiid
Adriatic seas in Europe, the Mediterranean and Euxine seas
in both Europe and Asia, and the gulphs of Arabia, Persia,
India, Bengal, and Siam, in Asia, to carry maritime com-
merce into the interior parts of that great continent: and
the great rivers of Africa are at too great a distance from
one another to give occasion to any considerable inland navi-
gation. The commerce besides which any nation can carry
on by means of a river which does not break itself into any
great number of branches or canals, and which runs into
another territory before it reaches the sea, can never be
very considerable ; because it is always in the power of the
nations who possess that other territory to obstruct the com-
munication between the upper country and the sea. The
navigation of the Danube is of very little use to the different
states of Bavaria, Austria and Hungary, in comparison of
what it would be if any of them possessed the whole of its
course till it falls into the Black Sea.
CHAPTER IV
Of the Origin and Use of Money
WHEN the division of labour has been once thor-
oughly established, it is but a very small part of
a man's wants which the produce of his own
labour can supply. He supplies the far greater part of them
by exchanging that surplus part of the produce of his own
labour, which is over and above his own consumption, for
such parts of the produce of other men's labour as he has
occasion for. Every man thus lives by exchanging, or be-
comes in some measure a merchant, and the society itself
grows to be what is properly a commercial society.
But when the division of labour first began to take place, this
power of exchanging must frequently have been very much
clogged and embarrassed in its operations. One man, we
shall suppose, has more of a certain commodity than he him-
self has occasion for, while another has less. The former
consequently would be glad to dispose of, and the latter to
purchase, a part of this superfluity. But if this latter should
chance to have nothing that the former stands in need of,
no exchange can be made between them. The butcher has
more meat in his shop than he himself can consume, and
the brewer and the baker would each of them be willing to
purchase a part of it. But they have nothing to offer in
exchange, except the different productions of their respec-
tive trades, and the butcher is already provided with all the
bread and beer which he has immediate occasion for. No
exchange can, in this case, be made between them. He can-
not be their merchant, nor they his customers; and they are
all of them thus mutually less serviceable to one another.
In order to avoid the inconveniency of such situations, every
prudent man in every period of society, after the first estab-
lishment of the division of labour, must naturally have en-
29
30 WEALTH OF NATIONS
deavourcd to manage his affairs in such a manner, as to
have at all times by him, besides the peculiar produce of his
own industry, a certain quantity of some one commodity or
other, such as he imagined few people would be likely to
refuse in exchange for the produce of their industry.
Many different commodities, it is probable, were succes-
sively both thought of and employed for this purpose. In
the rude ages of society, cattle are said to have been the
common instrument of commerce; and, though they must
have been a most inconvenient one, yet in old times we find
things were frequently valued according to the number of
cattle which had been given in exchange for them. The
armour of Diomede, says Homer, cost only nine oxen ; but
that of Glaucus cost an hundred oxen. Salt is said to be
the common instrument of commerce and exchanges in Abys-
sinia; a species of shells in some parts of the coast of India;
dried cod at Newfoundland; tobacco in Virginia; sugar in
some of our West India colonies; hides or dressed leather
in some other countries; and there is at this day a village in
Scotland where it is not uncommon, I am told, for a work-
man to carry nails instead of money to the baker's shop op
the ale-house.
In all countries, however, men seem at last to have been
determined by irresistible reasons to give the preference, for
this employment, to metals above every other commodity.
Metals can not only be kept with as little loss as any other
commodity, scarce any thing being less perishable than they
are, but they can likewise, without any loss, be divided into
any number of parts, as by fusion those parts can easily be
reunited again; a quality which no other equally durable
commodities possess, and which more than any other quality
renders them fit to be the instruments of commerce and cir-
culation. The man who wanted to buy salt, for example,
and had nothing but cattle to give in exchange for it, must
have been obliged to buy salt to the value of a whole ox, or
a whole sheep, at a time. He could seldom buy less than
this, because what he was to give for it could seldom be
divided without loss ; and if he had a mind to buy more, he
must, for the same reasons, have been obliged to buy double
or triple the quantity, the value, to wit, of two or three oxen.
ORIGIN AND USE OF MONEY 31
or of two or three sheep. If on the contrary, instead of sheep
or oxen, he had metals to give in exchange for it, he could
easily proportion the quantity of the metal to the precise
quantity of the commodity which he had immediate occa-
sion for.
Different metals have been made use of by different na-
tions for this purpose. Iron was the common instrument of
commerce among the antient Spartans ; copper among the
antient Romans ; and gold and silver among all rich and
commercial nations.
Those metals seem originally to have been made use of
for this purpose in rude bars, without any stamp or coinage.
Thus we are told by Pliny, upon the authority of Timaeus,
an antient historian, that, till the time of Servius Tullius, the
Romans had no coined money, but made use of unstamped
bars of copper, to purchase whatever they had occasion for.
These rude bars, therefore, performed at this time the func-
tion of money.
The use of metals in this rude state was attended with two
very considerable inconveniences ; first with the trouble of
weighing ; and, secondly, with that of assaying them. In
the precious metals, where a small difference in the quantity
makes a great difference in the value, even the business of
weighing, with proper exactness, requires at least very accu-
rate weights and scales. The weighing of gold in particular
is an operation of some nicety. In the coarser metals, in-
deed, where a small error would be of little consequence,
less accuracy would, no doubt, be necessary. Yet we should
find it excessively troublesome, if every time a poor man had
occasion either to buy or sell a farthing's worth of goods,
he was obliged to weigh the farthing. The operation of assay-
ing is still more difficult, still more tedious, and, unless a part
of the metal is fairly melted in the crucible, with proper dis-
solvents, any conclusion that can be drawn from it, is ex-
tremely uncertain. Before the institution of coined money,
however, unless they went through this tedious and difficult
operation, people must always have been liable to the gross-
est frauds and impositions, and instead of a pound weight
of pure silver, or pure copper, might receive in exchange
for their goods, an adulterated composition of the coarsest
32 WEALTH OF NATIONS
and cheapest materials, which had, however, in their out-
ward appearance, been made to resemble those metals. To
prevent such abuses, to facilitate exchanges, and thereby
to encourage all sorts of industry and commerce, it has
been found necessary, in all countries that have made any
considerable advances towards improvement, to affix a pub-
lic stamp upon certain quantities of such particular metals,
as were in those countries commonly made use of to pur-
chase goods. Hence the origin of coined money, and of
those public offices called mints ; institutions exactly of the
same nature with those of the aulnagers and stampmasters
of woollen and linen cloth. All of them are equally meant
to ascertain, by means of a public stamp, the quantity and
uniform goodness of those different commodities when
brought to market.
The first public stamps of this kind that were affixed to the
current metals, seem in many cases to have been intended
to ascertain, what it was both most difficult and most im-
portant to ascertain, the goodness or fineness of the metal,
and to have resembled the sterling mark which is at present
affixed to plate and bars of silver, or the Spanish mark which
is sometimes affixed to ingots of gold, and which being
struck only upon one side of the piece, and not covering the
v/hole surface, ascertains the fineness, but not the weight of
the metal. Abraham weighs to Ephron the four hundred
shekels of silver which he had agreed to pay for the field of
Machpelah. They are said, however, to be the current money
of the merchant, and yet are received by weight and not
by tale, in the same manner as ingots of gold and bars of
silver are at present. The revenues of the antient Saxon
kings of England are said to have been paid, not in money
but in kind, that is, in victuals and provisions of all sorts.
William the Conqueror introduced the custom of paying
them in money. This money, however, was, for a long time,
received at the exchequer, by weight and not by tale.
The inconveniency and difficulty of weighing those metals
with exactness gave occasion to the institution of coins, of
which the stamp, covering entirely both sides of the piece
and sometimes the edges too, was supposed to ascertain not
only the fineness, but the weight of the metal. Such coins,
ORIGIN AND USE OF MONEY 33
therefore, were received by tale as at present, without the
trouble of weighing.
The denominations of those coins seem originally to have
expressed the weight or quantity of metal contained in them.
In the time of Servius Tullius, who first coined money at
Rome, the Roman As or Pondo contained a Roman pound
of good copper. It was divided in the same manner as our
Troyes pound, into twelve ounces, each of which containeil
a real ounce of good copper. The English pound sterling
in the time of Edward I., contained a pound. Tower weight,
of silver of a known fineness. The Tower pound seems to
have been something more than the Roman pound, and some-
thing less than the Troyes pound. This last was not intro-
duced into the mint of England till the i8th of Henry VIII.
The French livre contained in the time of Charlemagne a
pound, Troyes weight, of silver of a known fineness. The
fair of Troyes in Champaign was at that time frequented by
all the nations of Europe, and the weights and measures of
so famous a market were generally known and esteemed.
The Scots money pound contained, from the time of Alex-
ander the First to that of Robert Bruce, a pound of silver
of the same weight and fineness with the English pound ster-
ling. English, French, and Scots pennies too, contained all
of them originally a real pennyweight of silver, the twen-
tieth part of an ounce, and the two-hundred-and-fortieth part
of a pound. The shilling, too, seems originally to have been
the denomination of a weight. When zvhcat is at twelve shil-
lings the quarter, says an antient statute of Henry III., then
wastel bread of a farthing shall weigh eleven shillings and
four pence. The proportion, however, between the shilling
and either the penny on the one hand, or the pound on the
other, seems not to have been so constant and uniform as
that between the penny and the pound. During the first race
of the kings of France, the French sou or shilling appears
upon dififerent occasions to have contained five, twelve,
twenty, and forty pennies. Among the antient Saxons a
shilling appears at one time to have contained only five pen-
nies, and it is not improbable that it may have been as varia-
ble among them as among their neighbours, the antient
Franks. From the time of Charlemagne among the FrencJ*
34 WEALTH OF NATIONS
and from that of William the Conquerer among the English,
the proportion between the pound, the shilling, and the
penny, seems to have been uniformly the same as at present,
though the value of each has been very different. For in
every country of the w^orld, I believe, the avarice and in-
justice of princes and sovereign states, abusing the confi-
dence of their subjects, have by degrees diminished the real
quantity of metal, which had been originally contained in
their coins. The Roman As, in the latter ages of the Re-
public, was reduced to the twenty-fourth part of its original
value, and, instead of weighing a pound, came to weigh only
half an ounce. The English pound and penny contain at
present about a third only ; the Scots pound and penny about
a thirty-sixih; and the French pound and penny about a
sixty-sixth part of their original value. By means of those
operations the princes and sovereign states which performed
them were enabled, in appearance, to pay their debts and to
fulfil their engagements with a smaller quantity of silver
than would otherwise have been requisite. It was indeed
in appearance only ; for their creditors were really defrauded
of a part of what was due to them. All other debtors in the
state were allowed the same privilege, and might pay with
the same nominal sum of the new and debased coin what-
ever they had borrowed in the old. Such operations,
therefore, have always proved favourable to the debtor,
and ruinous to the creditor, and have sometimes pro-
duced a greater and more universal revolution in the for-
tunes of private persons, than could have been occasioned
by a very great public calamity.
It is in this manner that money has become in all civilized
nations the universal instrument of commerce, by the inter-
vention of which goods of all kinds are bought and sold, or
exchanged for one another.
What are the rules which men naturally observe in ex-
changing them either for money or for one another, I shall
now proceed to examine. These rules determine what may
be called the relative or exchangeable value of goods.
\ The word value, it is to be observed, has two different
meanings, and sometimes expresses the utility of some par-
ticular object, and sometimes the power of purchasing other
ORIGIN AND USE OF MONEY 35
goods which the possession of that object conveys. The
one may be called "value in use ;" the other, "value in ex-
change." The things which have the greatest value in use
have frequently little or no value in exchange; and on the
contrary, those which have the greatest value in exchange
have frequently little or no value in use. Nothing is inore
useful than water: but it will purchase scarce any thing;
scarce any thing can be had in exchange for it. A diamond,
on the contrary, has scarce any value in use; but a very
great quantity of other goods may frequently be had in ex-
change for it.
In order to investigate the principles which regulate the
exchangeable value of commodities, I shall endeavour to
shew.
First, what is the real measure of this exchangeable value;
or, wherein consists the real price of all commodities.
Secondly, what are the different parts of which this real
price is composed or made up.
And, lastly, what are the different circumstances which
sometimes raise some or all of these different parts of price
above, and sometimes sink them below their natural or or-
dinary rate; or, what are the causes which sometimes hinder
the market price, that is, the actual price of commodities,
from coinciding exactly with what may be called their natu-
ral price.
I shall endeavour to explain, as fully and distinctly as I
can, those three subjects in the three following chapters, for
which I must very earnestly entreat both the patience and
attention of the reader: his patience in order to examine a
detail which may perhaps in some places appear unneces-
sarily tedious ; and his attention in order to understand what
may, perhaps, after the fullest explication which I am capa-
ble of giving of it, appear still in some degree obscure. I
am always willing to run some hazard of being tedious in
order to be sure that I am perspicuous ; and after taking the
utmost pains that I can to be perspicuous, some obscurity
may still appear to remain upon a subject m its own nature
extremely abstracted.
CHAPTER V
Of the Real and Nominal Price of Commodities, or of
Their Price in Labour, and Their Price in Money
EVERY man is rich or poor according to the degree in
which he can afford to enjoy the necessaries, con-
veniences, and amusements of human life. But after
the division of labour has once thoroughly taken place, it is
but a very small part of these with which a man's own la-
bour can supply him. The far greater part of them he must
derive from the labour of other people, and he must be rich
or poor according to the quantity of that labour which he
can command, or which he can afford to purchase. The
value of any commodity, therefore, to the person who pos-
sesses it, and who means not to use or consume it himself,
but to exchange it for other commodities, is equal to the
quantity of labour which it enables him to purchase or com-
mand. Labour, therefore, is the real measure of the ex-
changeable value of all commodities.
The real price of every thing, what every thing really
costs to the man who wants to acquire it, is the toil and trou-
ble of acquiring it. What every thing is really worth to the
man who has acquired it, and who wants to dispose of it or
exchange it for something else, is the toil and trouble which
it can save to himself, and which it can impose upon other
people. What is bought with money or with goods is pur-
chased by labour, as much as what we acquire by the toil of
our own body. That money or those goods indeed save us
this toil. They contain the value of a certain quantity of
labour which we exchange for what is supposed at the time
to contain the value of an equal quantity. Labour was the
first price, the original purchase-money that was paid fdr
all things. It was not by gold or by silver, but by labour,
that all the wealth of the world was originally purchased;
36
REAL AND NOMINAL PRICE 37
and its value, to those who possess it, and who want to ex-
change it for some new productions, is precisely equal to the
quantity of labour which it can enable them to purchase or
command.
Wealth, as Mr. Hobbes says, is power. But the person
who either acquires, or succeeds to a great fortune, does not
necessarily acquire or succeed to any political power, either
civil or military. His fortune may, perhaps, afford him the
means of acquiring both, but the mere possession of that
fortune does not necessarily convey to him either. The
power which that possession immediately and directly con-
veys to him, is the power of purchasing; a certain command
over all the labour, or over all the produce of labour which
is then in the market. His fortune is greater or less, pre-
cisely in proportion to the extent of this power, or to the
quantity either of other men's labour, or, what is the same
thing, of the produce of other men's labour, which it en-
ables him to purchase or command. The exchangeable value
of every thing must always be precisely equal to the extent
of this power which it conveys to its owner.
But though labour be the real measure of the ex-
changeable value of all commodities, it is not that by which
their value is commonly estimated. It is often difficult to
ascertain the proportion between two different quantities of
labour. The time spent in two different sorts of work will
not always alone determine this proportion. The different
degrees of hardship endured, and of ingenuity exercised,
must likewise be taken into account. There may be more
labour in an hour's hard work than in two hours' easy busi-
ness; or in an hour's application to a trade which it cost ten
years' labour to learn, than in a month's industry at an or-
dinary and obvious employment. But it is not easy to find
any accurate measure either of hardship or ingenuity. In
exchanging indeed the different productions of different
sorts of labour for one another, some allowance is commonly
made for both. It is adjusted, however, not by any accurate
measure, but by the higgling and bargaining of the market,
according to that sort of rough equality which, though not
exact, is sufficient for carrying on the business of common
life.
38 WEALTH OF NATIONS
Every commodity besides, is more frequently exchanged
for, and thereby compared with, other commodities than with
labour. It is more natural, therefore, to estimate its ex-
changeable value by the quantity of some other commodity
than by that of the labour which it can purchase. The
greater part of people, too, understand better what is meant
by a quantity of a particular commodity, than by a quantity
of labour. The one is a plain palpable object; the other an
abstract notion, which, though it can be made sufficiently
intelligible, is not altogether so natural and obvious.
But when barter ceases, and money has become the com-
mon instrument of commerce, every particular commodity
is more frequently exchanged for money than for any other
commodity. The butcher seldom carries his beef or his mut-
ton to the baker, or the brewer, in order to exchange them
for bread or for beer; but he carries them to the market,
where he exchanges them for money, and afterwards ex-
changes that money for bread and for beer. The quantity
of money which he gets for them regulates, too, the quan-
tity of bread and beer which he can afterwards purchase.
It is more natural and obvious to him, therefore, to estimate
their value by the quantity of money, the commodity for
which he immediately exchanges them, than by that of bread
and beer, the commodities for which he can exchange them
only by the intervention of another commodity ; and rather
to say that his butcher's meat is worth threepence or four-
pence a pound, than that it is worth three or four pounds of
bread, or three or four quarts of small beer. Hence it comes
to pass, that the exchangeable value of every commodity is
more frequently estimated by the quantity of money, than by
the quantity either of labour or of any other commodity
which can be had in exchange for it.
Gold and silver, however, like every other commodity,
vary in their value, are sometimes cheaper and sometimes
dearer, sometimes of easier and sometimes of more difficult
purchase. The quantity of labour which any particular quan-
tity of them can purchase or command, or the quantity of
other goods which it will exchange for, depends always upon
the fertility or barrenness of the mines which happen to be
known about the time when such exchanges are made. The
REAL AND NOMINAL PRICE 39
discovery of the abundant mines of America reduced, in the
sixteenth century, the value of gold and silver in Europe to
about a third of what it had been before. As it cost less
labour to bring those metals from the mine to the market, so
when they are brought thither they could purchase or com-
mand less labour; and this revolution in their value, though
perhaps the greatest, is by no means the only one of which
history gives some accoimt. But as a measure of quantity,
such as the natural foot, fathom, or handful, which is con-
tinually varying in its own quantity, can never be an accu-
rate measure of the quantity of other things; so a com-
modity which is itself continually varying in its own value,
can never be an accurate measure of the value of other com-
modities. Equal quantities of labour, at all times and places,
may be said to be of equal value to the labourer. In his
ordinary state of health, strength and spirits; in the ordinary
degree of his skill and dexterity, he must always lay down
the same portion of his ease, his liberty, and his happiness.
The price which he pays must always be the same, whatever
may be the quantity of the goods which he receives in re-
turn for it. Of these, indeed, it may sometimes purchase a
greater and sometimes a smaller quantity; but it is their
value which varies, not that of the labour which purchases
them. At all times and places that is dear which it is diffi-
cult to come at, or which costs much labour to acquire; and
that cheap which is to be had easily, or with very little la-
bour. Labour alone, therefore, never varying in its own
value, is alone the ultimate and real standard by which the
value of all commodities can at all times and places be esti-
mated and compared. It is their real price; money is their
nominal price only.
But though equal quantities of labour are always of equal
value to the labourer, yet to the person who employs him
they appear sometimes to be of greater and sometimes of
smaller value. He purchases them sometimes with a greater
and sometimes with a smaller quantity of goods, and to him
the price of labour seems to vary like that of all other things.
It appears to him dear- in the one case, and cheap in the
other. In reality, however, it is the goods which are cheap
in the one case, and dear in the other.
40 WEALTH OF NATIONS
In this popular sense, therefore, labour, like commodities,
may be said to have a real and a nominal price. Its real
price may be said to consist in the quantity of the neces-
saries and conveniences of life which are given for it; its
nominal price, in the quantity of money. The labourer is
rich or poor, is well or ill rewarded, in proportion to the real,
not to the nominal price of his labour.
The distinction between the real and the nominal price of
commodities and labour, is not a matter of mere speculation,
but may sometimes be of considerable use in practice. The
same real price is always of the same value; but on account
of the variations in the value of gold and silver, the same
nominal price is sometimes of very different value. When
a landed estate, therefore, is sold with a reservation of a
perpetual rent, if it is intended that this rent should always
be of the same value, it is of importance to the family in
whose favour it is reserved, that it should not consist in a
particular sum of money. Its value would in this case be
liable to variations of two different kinds; first, to those
which arise from the different quantities of gold and silver
which are contained at different times in coin of the same
denomination ; and, secondly, to those which arise from the
different values of equal quantities of gold and silver at
different times.
Princes and sovereign states have frequently fancied that
they had a temporary interest to diminish the quantity of
pure metal contained in their coins ; but they seldom have
fancied that they had any to auginent it. The quantity of
metal contained in the coins, I believe of all nations, has,
accordingly, been almost continually diminishing, and hardly
ever augmenting. Such variations therefore tend almost
always to diminish the value of a money rent.
The discovery of the mines of America diminished the
value of gold and silver in Europe. This diminution, it is
commonly supposed, though I apprehend without any cer-
tain proof, is still going on gradually, and is likely to con-
tinue to do so for a long time. Upon this supposition, there-
fore, such variations are more likely to diminish, than to
augment the value of a money rent, even though it should
be stipulated to be paid, not in such a quantity of coined
REAL AND NOMINAL PRICE 41
money of such a denomination (in so many pounds sterling,
for example), but in so many ounces either of pure silver,
or of silver of a certain standard.
The rents which have been reserved in corn have pre-
served their value much better than those which have been
reserved in money, even where the denomination of the coin
has not been altered. By the i8th of Elizabeth it was en-
acted, That a third of the rent of all college leases should be
reserved in corn, to be paid, either in kind, or according to
the current prices at the nearest public market. The money
arising from this corn rent, though originally but a third of
the whole, is in the present times, according to Doctor Black-
stone, commonly near double of what arises from the other
two-thirds. The old money rents of colleges must, accord-
ing to this account, have sunk almost to a fourth part of
their antient value ; or are worth little more than a fourth
part of the corn which they were formerly worth. But
since the reign of Philip and Mary the denomination of the
English coin has undergone little or no alteration, and the
same number of pounds, shillings and pence have contained
very nearly the same quantity of pure silver. This degrada-
tion, therefore, in the value of the money rents of colleges,
has arisen altogether from the degradation in the value of
silver.
When the degradation in the value of silver is combined
with the diminution of the quantity of it contained in the
coin of the same denomination, the loss is frequently still
greater. In Scotland, where the denomination of the coin
has undergone much greater alterations than it ever did in
England, and in France, where it has undergone still greater
than it ever did in Scotland, some antient rents, originally
of considerable value, have in this manner been reduced
almost to nothing.
Equal quantities of labour will at distant times be pur-
chased more nearly with equal quantities of corn, the sub-
sistence of the labourer, than with equal quantities of gold
and silver, or perhaps of any other commodity. Equal quan-
tities of corn, therefore, will, at distant times, be more nearly
of the same real value, or enable the possessor to purcihase
or command more nearly the same quantity of the laboui of
42 WEALTH OF NATIONS
other people. They will do this, I say, more nearly than
equal quantities of almost any other commodity ; for even
equal quantities of corn will not do it exactly. The subsist-
ence of the labourer, or the real price of labour, as I shall
endeavour to show hereafter, is very different upon different
occasions ; more liberal in a society advancing to opulence,
than in one that is standing still ; and in one that is standing
still, than in one that is going backwards. Every other com-
modity, however, will at any particular time purchase a
greater or smaller quantity of labour in proportion to the
quantity of subsistence which it can purchase at that time.
A rent therefore reserved in corn is liable only to the vari-
ations in the quantity of labour which a certain quantity of
corn can purchase. But a rent reserved in any other com-
modity is liable, not only to the variations in the quantity of
labour which any particular quantity of corn can purchase,
but to the variations in the quantity of corn which can be
purchased by any particular quantity of that commodity.
Though the real value of a corn rent, it is to be observed
however, varies much less from century to century than that
of a money rent, it varies much more from year to year.
The money price of labour, as I shall endeavour to show
hereafter, does not fluctuate from year to year with the
money price of corn, but seems to be every where accommo-
dated, not to the temporary or occasional, but to the average
or ordinary price of that necessary of life. The average or
ordinary price of corn again is regulated, as I shall likewise
endeavour to show hereafter, by the value of silver, by the
richness or barrenness of the mines which supply the market
with that metal, or by the quantity of labour which must be
employed, and consequently of corn which must be con-
sumed, in order to bring any particular quantity of silver
from the mine to the market. But the value of silver, though
it sometimes varies greatly from century to century, seldom
varies much from year to year, but frequently continues the
same, or very nearly the same, for half a century or a cen-
tury together. The ordinary or average money price of
corn, therefore, may, during so long a period, continue the
same or very nearly the same too, and along with it the
money price of labour, provided, at least, the society con-
REAL AND NOMINAL PRICE 43
tinues, in other respects, in the same or nearly in the same
condition. In the mean time the temporary and occasional
price of corn may frequently be double, one year, of what it
had been the year before, or fluctuate, for example, from
five and twenty to fifty shillings the quarter. But when
corn is at the latter price, not only the nominal, but the real
value of a corn rent will be double of what it is when at the
former, or will command double the quantity either of labour
or of the greater part of other comniodities ; the money price
of labour, and along with it that of most other things, con-
tinuing the same during all these fluctuations.
Labour, therefore, it appears evidently, is the only uni-
versal, as well as the only accurate measure of value, or the
only standard by which we can compare the values of dif-
ferent commodities at all times and at all places. We can-
not estimate, it is allowed, the real value of different com-
modities from century to century by the quantities of silver
which were given for them. We cannot estimate it from
year to year by the quantities of corn. By the quantities of
labour we can, with the greatest accuracy, estimate it both
from century to century and from year to year. From cen-
tury to century, corn is a better measure than silver, be-
cause, from century to century, equal quantities of corn will
command the same quantity of labour more nearly than equal
quantities of silver. From year to year, on the contrary, silver
is a better measure than corn, because equal quantities of it
will more nearly command the same quantity of labour.
But though in establishing perpetual rents, or even in let-
ting very long leases, it may be of use to distinguish be-
tween real and nominal price; it is of none in buying and
selling, the more common and ordinary transactions of
human life.
At the same time and place the real and the nominal price
of all commodities are exactly in proportion to one another.
The more or less money you get for any commodity, in the
London market, for example, the more or less labour it will
at that time and place enable you to purchase or command.
At the same time and place, therefore, money is the exact
measure of the real exchangeable value of all commodities.
It is so, however, at the same time and place only.
44 WEALTH OF NATIONS
Though at distant places, there is no regular proportion
between the real and the money price of commodities, yet
the merchant who carries goods from the one to the other
has nothing to consider but their money price, or the differ-
ence between the quantity of silver for which he buys them,
and that for which he is likely to sell them. Half an ounce
of silver at Canton in China may command a greater quan-
tity both of labour and of the necessaries and conveniencies
of life, than an ounce at London. A commodity, therefore,
which sells for half an ounce of silver at Canton may there
be really dearer, of more real importance to the man who
possesses it there, than a commodity which sells for an
ounce at London is to the man who possesses it at London.
If a London merchant, however, can buy at Canton for half
an ounce of silver, a commodity which he can afterwards
sell at London for an ounce, he gains a hundred per cent,
by the bargain, just as much as if an ounce of silver was at
London exactly of the same value as at Canton. It is of no
importance to him that half an ounce of silver at Canton
would have given him the command of more labour and of
a greater quantity of the necessaries and conveniencies of
life than an ounce can do at London. An ounce at London
will always give him the command of double the quantity of
all these, which half an ounce could have done there, and
this is precisely what he wants.
As it is the nominal or money price of goods, therefore,
which finally determines the prudence or imprudence of all
purchases and sales, and thereby regulates almost the whole
business of common life in which price is concerned, we
cannot wonder that it should have been so much more
attended to than the real price.
In such a work as this, however, it may sometimes be of
use to compare the different real values of a particular com-
modity at different times and places, or the different degrees
of power over the labour of other people which it may, upon
different occasions, have given to those who possessed it.
We must in this case compare, not so much the different
quantities of silver for which it was commonly sold, as the
different quantities of labour which those different quantities
of silver could have purchased. But the current prices of
EEAL AND NOMINAL PRICE 45
labour at distant times and places can scarce ever be known
with any degree of exactness. Those of corn, though they
have in a few places been regularly recorded, are in general
better known and have been more frequently taken notice of
by historians and other writers. We must generally, there-
fore, content ourselves with them, not as being always ex-
actly in the same proportion as the current prices of labour,
but as being the nearest approximation which can commonly
be had to that proportion. I shall hereafter have occasion
to make several comparisons of this kind.
In the progress of industry, commercial nations have found
it convenient to coin several different metals into money;
gold for larger payments, silver for purchases of moderate
value, and copper, or some other coarse metal, for those of
still smaller consideration. They have always, however,
considered one of those metals as more peculiarly the meas-
ure of value than any of the other two; and this preference
seems generally to have been given to the metal which they
happened first to make use of as the instrument of commerce.
Having once begun to use it as their standard, which they
must have done when they had no other money, they have
generally continued to do so even when the necessity was not
the same.
The Romans are said to have had nothing but copper
money till within five years before the first Punic war, when
they first began to coin silver. Copper, therefore, appears
to have continued always the measure of value in that re-
public. At Rome all accounts appear to have been kept, and
the value of all estates to have been computed, either in
Asses or in Sestertii. The As was always the denomination
of a copper coin. The word Sestertius signifies two Asses
and a half. Though the Sestertius, therefore, was originally
a silver coin, its value was estimated in copper. At Rome,
one who owed a great deal of money, was said to have a
great deal of other people's copper.
The northern nations who established themselves upon the
ruins of the Roman empire, seem to have had silver money
from the first beginning of their settlements, and not to have
known either gold or copper coins for several ages thereafter.
There were silver coins in England in the time of the Saxons ;
46 WEALTH OF NATIONS
but there was little gold coined till the time of Edward III.
nor arty copper till that of James I. of Great Britain. In
England, therefore, and for the same reason, I believe, in
all other modern nations of Europe, all accounts are kept,
and the value of all goods and of all estates is generally com-
puted in silver : and when we mean to express the amount of
a person's fortune, we seldom mention the number of guineas,
but the number of pounds sterling which we suppose would
be given for it.
Originally, in all countries, I believe, a legal tender of
payment could be made only in the coin of that metal, which
was peculiarly considered as the standard or measure of
value. In England, gold was not considered as a legal ten-
der for a long time after it was coined into money. The
proportion between the values of gold and silver money was
not fixed by any public law or proclamation; but was left
to be settled by the market. If a debtor offered payment in
gold, the creditor might either reject such payment alto-
gether, or accept of it at such a valuation of the gold as he
and his debtor could agree upon. Copper is not at present
a legal tender, except in the change of the smaller silver
coins. In this state of things the distinction between the
metal which was the standard, and that which was not the
standard, was something more than a nominal distinction.
In process of time, and as people became gradually more
familiar with the use of tlie different metals in coin, and
consequently better acquaijited with the proportion between
their respective values, it has in most countries, I believe,
been found convenient to ascertain this proportion, and to
declare by a public law that a guinea, for example, of such
a weight and fineness, should exchange for one-and-twenty
shillings, or be a legal tender for a debt of that amount.
In this state of things, and during the continuance of any
one regulated proportion of this kind, the distinction between
the metal which is the standard, and that which is not the
standard, becomes little more than a nominal distinction.
In consequence of any change, however, in this regulated
proportion, this distinction becomes, or at least seems to be-
come, something more than nominal again. If the regulated
value of a guinea, for example, was either reduced to twenty,
REAL AND NOMINAL PRICE 47
or raised to two-and-twenty shillings, all accounts being
kept and almost all obligations for debt being expressed in
silver money, the greater part of payments could in either
case be made with the same quantity of silver money as
before ; but would require very different quantities of gold
money; a greater in the one case, and a smaller in the other.
Silver would appear to be more invariable in its value than
gold. Silver would appear to measure the value of gold,
and gold would not appear to measure the value of silver.
The value of gold would seem to depend upon the quantity
of silver which it would exchange for ; and the value of sil-
ver would not seem to depend upon the quantity of gold
which it would exchange for. This difference, however,
would be altogether owing to the custom of keeping ac-
counts, and of expressing the amount of all great and small
sums rather in silver than in gold money. One of Mr. Drum-
mond's notes for five-and-twenty or fifty guineas would, after
an alteration of this kind, be still payable with five-and-
twenty or fifty guineas in the same manner as before. It
would, after such an alteration, be payable with the same
quantity of gold as before, but with very different quantities
of silver. In the payment of such a note, gold would appear
to be more invariable in its value than silver. Gold would
appear to measure the value of silver, and silver would not
appear to measure the value of gold. If the custom of keep-
ing accounts, and of expressing promissory notes and other
obligations for money in this manner, should ever l:)ecome
general, gold, and not silver, would be considered as the
metal which was peculiarly the standard or measure of
value.
In reality, during the continuance of any one regulated
proportion between the respective values of the different
metals in coin, the value of the most precious metal regu-
lates the value of the whole coin. Twelve copper pence con-
tain half a pound, avoirdupois, of copper, of not the best
quality, which, before it is coined, is seldom worth seven-
pence in silver. But as by the regulation twelve such pence
are ordered to exchange for a shilling, they are in the market
considered as worth a shilling, and a shilling can at any time
be had for them. Even before the late reformation of the
48 WEALTH OF NATIONS
gold coin of Great Britain, the gold, that part of it at least
which circulated in London and its neighbourhood, was in
general less degraded below its standard weight than the
greater part of the silver. One-and-twenty worn and de-
faced shillings, however, were considered as equivalent to a
guinea, which perhaps, indeed, was worn and defaced too,
but seldom so much so. The late regulations have brought
the gold coin as near perhaps to its standard weight as it is
possible to bring the current coin of any nation; and the
order, to receive no gold at the public offices but by weight,
is likely to preserve it so, as long as that order is enforced.
The silver coin still continues in the same worn and degraded
state as before the reformation of the gold coin. In the mar-
ket, however, one-and-twenty shillings of this degraded sil-
ver coin are still considered as worth a guinea of this excel-
lent gold coin.
The reformation of the gold coin has evidently raised the
value of the silver coin which can be exchanged for it.
The occasional fluctuations in the market price of gold
and silver bullion arise from the same causes as the like
fluctuations in that of all other commodities. The frequent
loss of those metals from various accidents by sea and by
land, the continual waste of them in gilding and plating, in
lace and embroidery, in the wear and tear of coin, and in
that of plate ; require, in all countries which possess no mines
of their own, a continual importation, in order to repair this
loss and this waste. The merchant importers, like all other
merchants, we may believe, endeavour, as well as they can,
to suit their occasional importations to what, they judge, is
likely to be the immediate demand. With all their attention,
however, they sometimes over-do the business, and some-
times under-do it. When they import more bullion than is
wanted, rather than incur the risk and trouble of exporting
it again, they are sometimes willing to sell a part of it for
something less than the ordinary or average price. When,
on the other hand, they import less than is wanted, they get
something more than this price. But when, under all those
occasional fluctuations, the market price either of gold or
silver bullion continues for several years together steadily
and constantly, either more or less above, or more or less
REAL AND NOMINAL PRICE 49
below the mint price : we may be assured that this steady and
constant, either superiority or inferiority of price, is the
effect of something in the state of the coin, which, at that
time, renders a certain quantity of coin either of more value
or of less value than the precise quantity of bullion which
it ought to contain. The constancy and steadiness of the
effect, supposes a proportionable constancy and steadiness
in the cause.
The money of any particular country is, at any particular
time and place, more or less an accurate measure of value
according as the current coin is more or less exactly agree-
able to its standard, or contains more or less exactly the
precise quantity of pure gold or pure silver which it ought to
contain. If in England, for example, forty-four guineas and
a half contained exactly a pound weight of standard gold, or
eleven ounces of fine gold and one ounce of alloy, the gold
coin of England would be as accurate a measure of the actual
value of goods at any particular time and place as the nature
of the thing would admit. But if, by rubbing and wearing,
forty-four guineas and a half generally contain less than a
pound weight of standard gold ; the diminution, however,
being greater in some pieces than in others; the measure of
value comes to be liable to the same sort of uncertainty to
which all other weights and measures are commonly ex-
posed. As it rarely happens that these are exactly agreeable
to their standard, the merchant adjusts the price of his
goods, as well as he can, not to what those weights and
measures ought to be, but to what, upon an average, he finds
by experience they actually are. In consequence of a like
disorder in the coin, the price of goods comes, in the same
manner, to be adjusted, not to the quantity of pure gold or sil-
ver which the coin ought to contain, but to that which, upon
an average, it is found by experience it actually does contain.
By the money-price of goods, it is to be observed, I under-
stand always the quantity of pure gold or silver for which
they are sold, without any regard to the denomination of the
coin. Six shillings and eight-pence, for example, in the
time of Edward I., I consider as the same money-price with
a pound sterling in the present times; because it contained,
as nearly as we can judge, the same quantity of pure silver.
CHAPTER VI
Of the Component Parts of the Price of Commodities
IN that early and rude state of society which precedes
both the accumulation of stock and the appropriation of
land, the proportion between the quantities of labour
necessary for acquiring different objects seems to be the
only circumstance which can afford any rule for exchanging
them for one another. If among a nation of hunters, for
example, it usually costs twice the labour to kill a beaver
which it does to kill a deer, one beaver should naturally ex-
change for or be worth two deer. It is natural that what is
usually the produce of two days or two hours labour, should
be worth double of what is usually the produce of one day's
or one hour's labour.
If the one species of labour should be more severe than
the other, some allowance will naturally be made for this
superior hardship ; and the produce of one hour's labour in
the one way may frequently exchange for that of two hours
labour in the other.
Or if the one species of labour requires an uncommon
degree of dexterity and ingenuity, the esteem which men
have for such talents, will naturally give a value to their
produce, superior to what would be due to the time employed
about it. Such talents can seldom be acquired but in conse-
quence of long application, and the superior value of their
produce may frequently be no more than a reasonable com-
pensation for the time and labour which must be spent in
acquiring them. In the advanced state of society, allow-
ances of this kind, for superior hardship and superior skill,
are commonly made in the wages of labour; and something
of the same kind must probably have taken place in its
earliest and rudest period.
In this state of things, the whole produce of labour belongs
50
COMPONENT PARTS OF PRICE 51
to the labourer ; and the quantity of labour commonly em-
ployed in acquiring or producing any commodity, is the only
circumstance which can regulate the quantity of labour
which it ought commonly to purchase, command, or exchange
for.
As soon as stock has accumulated in the hands of particu-
lar persons, some of them will naturally employ it in setting
to work industrious people, whom they will supply with
materials and subsistence, in order to make a profit by the
sale of their work, or by what their labour adds to the value
of the materials. In exchanging the complete manufacture
either for money, for labour, or for other goods, over and
above what may be sufficient to pay the price of the ma-
terials, and the wages of the workmen, something must be
given for the profits of the undertaker of the work who
hazards his stock in this adventure. The value which the
workmen add to the materials, therefore, resolves itself in
this case into two parts, of which the one pays their wages,
the other the profits of their employer upon the whole stock
of materials and wages which he advanced. He could have
no interest to employ them, unless he expected from the sale
of their work something more than what was sufficient to
replace his stock to him; and he could have no interest to
employ a great stock rather than a small one, unless his
profits were to bear some proportion to the extent of his
stock.
The profits of stock, it may perhaps be thought, are only
a different name for the wages of a particular sort of labour,
the labour of inspection and direction. They are, however,
altogether different, are regulated by quite different prin-
ciples, and bear no proportion to the quantity, the hardship,
or the ingenuity of this supposed labour of inspection and
direction. They are regulated altogether by the value of the
stock employed, and are greater or smaller in proportion to
the extent of this stock. Let us suppose, for example, that ir
some particular place, where the common annual profits of
manufacturing stock are ten per cent, there are two differed
manufactures, in each of which twenty workmen are en»
ployed at the rate of fifteen pounds a year each, or at the
expence of three hundred a year in each manufactory. Let
52 WEALTH OF NATIONS
us suppose too, that the coarse materials annually wrought
up in the one cost only seven hundred pounds, while the
finer materials in the other cost seven thousand. The capi-
tal annually employed in the one will in this case amount
only to one thousand pounds ; whereas that employed in the
other will amount to seven thousand three hundred pounds.
At the rate of ten per cent, therefore, the undertaker of the
one will expect an yearly profit of about one hundred pounds
only; while that of the other will expect about seven hun-
dred and thirty pounds. But though their profits are so very
different, their labour of inspection and direction may be
either altogether or very nearly the same. In many great
works, almost the whole labour of this kind is committed to
some principal clerk. His wages properly express the value
of this labour of inspection and direction. Though in settling
them some regard is had commonly, not only to his labour
and skill, but to the trust which is reposed in him, yet they
never bear any regular proportion to the capital of which he
oversees the management ; and the owner of this capital,
though he is thus discharged of almost all labour, still ex-
pects that his profits should bear a regular proportion to his
capital. In the price of commodities, therefore, the profits
of stock constitute a component part altogether different
from the wages of labour, and regulated by quite different
principles.
In this state of things, the whole produce of labour does
not always belong to the labourer. He must in most cases
share it with the owner of the stock which employs him.
Neither is the quantity of labour commonly employed in
acquiring or producing any commodity, the only circum-
stance which can regulate the quantity which it ought com-
monly to purchase, command, or exchange for. An addi-
tional quantity, it is evident, must be due for the profits of
the stock which advanced the wages and furnished the ma-
terials of that labour.
As soon as the land of any country has all become private
property, the • landlords, like all other men, love to reap
where they never sowed, and demand a rent even for its
natural produce. The wood of the forest, the grass of the
field, and all the natural fruits of the earth, which, when
COMPONENT PARTS OF PRICE S3
land was in common, cost the labourer only the trouble of
gathering them, come, even to him, to have an additional
price fixed upon them. He must then pay for the licence to
gather them ; and must give up to the landlord a portion of
what his labour either collects or produces. This portion,
or, what comes to the same thing, the price of this portion,
constitutes the rent of land, and in the price of the greater
part of commodities makes a third component part.
The real value of all the different component parts of
price, it must be observed, is measured by the quantity of
labour which they can, each of them, purchase or command.
Labour measures the value not only of that part of price
which resolves itself into labour, but of that which resolves
itself into rent, and of that which resolves itself into
profit.
In every society the price of every commodity finally re-
solves itself into some one or other, or all of those three
parts ; and in every improved society, all the three enter
more or less, as component parts, into the price of the far
greater part of commodities.
In the price of corn, for example, one part pays the rent
of the landlord, another pays the wages or maintenance of
the labourers and labouring cattle employed in producing it,
and the third pays the profit of the farmer. These three
parts seem either immediately or ultimately to make up the
whole price of corn. A fourth part, it may perhaps be
thought, is necessary for replacing the stock of the farmer,
or for compensating the wear and tear of his labouring
cattle, and other instruments of husbandry. But it must
be considered that the price of any instrument of husbandry,
such as a labouring horse, is itself made up of the same three
parts ; the rent of the land upon which he is reared, the
labour of tending and rearing him, and the profits of the
farmer who advances both the rent of this land, and the
wages of this labour. Though the price of the corn, there-
fore, may pay the price as well as the maintenance of the
horse, the whole price still resolves itself either immediately
or ultimately into the same three parts of rent, labour, and
profit.
In the price of flour or meal, we must add to the price of
54 WEALTH OF NATIONS
the corn, the profits of the miller, and the wages of his
servants ; in the price of bread, the profits of the baker, and
the wages of his servants; and in the price of both, the
labour of transporting the corn from the house of the farmer
to that of the miller, and from that of the miller to that of
the baker, together with the profits of those who advance the
wages of that labour.
The price of flax resolves itself into the same three parts
as that of corn. In the price of linen we must add to this
price the wages of the flax-dresser, of the spinner, of the
weaver, of the bleacher, &c., together with the profits of
their respective employers.
As any particular commodity comes to be more manufac-
tured, that part of the price which resolves itself into wages
and profit, comes to be greater in proportion to that which
resolves itself into rent. In the progress of the manufacture,
not only the number of profits increase, but every subse-
quent profit is greater than the foregoing; because the capi-
tal from which it is derived must always be greater. The
capital which employs the weavers, for example, must be
greater than that which employs the spinners ; because it not
only replaces that capital with its profits, but pays, besides,
the wages of the weavers; and the profits must always bear
some proportion to the capital.
In the most improved societies, however, there are always
a few commodities of which the price resolves itself into two
parts only, the wages of labour, and the profits of stock; and
a still smaller number, in which it consists altogether in the
wages of labour. In the price of sea-fish, for example, one
part pays the labour of the fishermen, and the other the
profits of the capital employed in the fishery. Rent very
seldom makes any part of it, though it does sometimes, as I
shall shew hereafter. It is otherwise, at least through the
greater part of Europe, in river fisheries. A salmon fishery
pays a rent, and rent, though it cannot well be called the rent
of land, makes a part of the price of a salmon as well as
wages and profit. In some parts of Scotland a few poor
people make a trade of gathering, along the sea-shore, those
little variegated stones commonly known by the name of
Scotch Pebbles. The price which is paid to them by the
COMPONENT PARTS OF PRICE 55
stone-cutter is altogether the wages of their labour ; neither
rent nor profit make any part of it.
But the whole price of any commodity must still finally
resolve itself into some one or other, or all of those three
parts ; as whatever part of it remains after paying the rent
of the land, and the price of the whole labour employed in
raising, manufacturing, and bringing it to market, must
necessarily be profit to somebody.
As the price or exchangeable value of every particular com-
modity, taken separately, resolves itself into some one or
other, or all of those three parts ; so that of all the commodi-
ties which compose the whole annual produce of the labour
of every country, taken complexly, must resolve itself into
the same three parts, and be parcelled out among different
inhabitants of the country, either as the wages of their
labour, the profits of their stock, or the rent of their land.
The whole of what is annually either collected or produced
by the labour of every society, or what comes to the same
thing, the whole price of it, is in this manner originally dis-
tributed among some of its different members. Wages,
profit, and rent, are the three original sources of all revenue
as well as of all exchangeable value. All other revenue is
ultimately derived from some one or other of these.
Whoever derives his revenue from a fund which is his own,
must draw it either from his labour, from his stock, or from
his land. The revenue derived from labour is called wages.
That derived from stock, by the person who manages or em-
ploys it, is called profit. That derived from it by the person
who does not employ it himself, but lends it to another, is
called the interest or the use of money. It is the compensa-
tion which the borrower pays to the lender, for the profit
which he has an opportunity of making by the use of the
money. Part of that profit naturally belongs to the bor-
rower, who runs the risk and takes the trouble of employing
it; and part to the lender, who affords him the opportunity
of making this profit. The interest of money is always a
derivative revenue, which, if it is not paid from the profit
which is made by the use of the money, must be paid from
some other source of revenue, unless perhaps the borrower
is a spendthrift, who contracts a second debt in order
56 WEALTH OF NATIONS
to pay the interest of the first. The revenue which proceeds
altogether from land, is called rent, and belongs to the land-
lord. The revenue of the farmer is derived partly from his
labour, and partly from his stock. To him, land is only the
instrument which enables him to earn the wages of this
labour, and to make the profits of this stock. All taxes, and
all the revenue which is founded upon them, all salaries,
pensions, and annuities of every kind, are ultimately derived
from some one or other of those three original sources of
revenue, and are paid either immediately or mediately from
the wages of labour, the profits of stock, or the rent of land.
When those three different sorts of revenue belong to
different persons, they are readily distinguished: but when
they belong to the same they are sometimes confounded
with one another, at least in common language.
A gentleman who farms a part of his own estate, after
paying the expense of cultivation, should gain both the rent
of the landlord and the profit of the farmer. He is apt to
denominate, however, his whole gain, profit, and thus con-
founds rent with profit, at least in common language. The
greater part of our North American and West Indian
planters are in this situation. They farm, the greater part
of them, their own estates, and accordingly we seldom hear
of the rent of a plantation^ but frequently of its profit.
Common farmers seldom employ any overseer to direct the
general operations of the farm. They generally too work a
good deal with their own hands, as ploughmen, harrowers,
&c. What remains of the crop after paying the rent, there-
fore, should not only replace to them their stock employed
in cultivation, together with its ordinary profits, but pay
them the wages which are due to them, both as labourers
and overseers. Whatever remains, however, after paying
the rent and keeping up the stock, is called profit. But
wages evidently make a part of it. The farmer, by saving
these wages, must necessarily gain them. Wages, therefore,
are in this case confounded with profit.
An independent manufacturer, who has stock enough both
to purchase materials, and to maintain himself till he can
carry his work to market, should gain both the wages of a
journeyman who works under a master, and the profit which
COMPONENT PARTS OF PRICE 57
that master makes by the sale of the journeyman's work.
His whole gains, however, are commonly called profit, and
wages are, in this case too, confounded with profit.
A gardener who cultivates his own garden with his own
hands, unites in his own person the three different char-
acters, of landlord, farmer, and labourer. His produce,
therefore, should pay him the rent of the first, the profit of
the second, and the wages of the third. The whole, how-
ever, is commonly considered as the earnings of his labour.
Both rent and profit are, in this case, confounded with wages.
As in a civilized country there are but few commodities
of which the exchangeable value arises from labour only,
rent and profit contributing largely to that of the far greater
part of them, so the annual produce of its labour will always
be sufficient to purchase or command a much greater quan-
tity of labour than what was employed in raising, preparing,
and bringing that produce to market. If the society were
annually to employ all the labour which it can annually pur-
chase, as the quantity of labour would increase greatly every
year, so the produce of every succeeding year would be of
vastly greater value than that of the foregoing. But there
is no country in which the whole annual produce is employed
in maintaining the industrious. The idle every where con-
sume a great part of it; and according to the different pro-
portions in which it is annually divided between those two
different orders of people, its ordinary or average value must
either annually increase, or diminish, or continue the same
from one year to another.
CHAPTER VII
Of the Natural and Market Price of Commodities
THERE is in every society or neighbourhood an ordinary
or average rate both of wages and profit in every dif-
ferent employment of labour and stock. This rate is
naturally regulated, as I shall show hereafter, partly by the
general circumstances of the society, their riches or poverty,
their advancing, stationary, or declining condition; and
partly by the particular nature of each employment.
There is likewise in every society or neighbourhood an
ordinary or average rate of rent, which is regulated too, as
I shall shew hereafter, partly by the general circumstances
of the society or neighbourhood in which the land is situ-
ated, and partly by the natural or improved fertility of the
land.
These ordinary or average rates may be called the natural
rates of wages, profit, and rent, at the time and place in
which they commonly prevail.
When the price of any commodity is neither more nor less
than what is sufficient to pay the rent of the land, the wages
of the labour, and the profits of the stock employed in rais-
ing, preparing, and bringing it to market, according to their
natural rates, the commodity is then sold for what may be
called its natural price.
The commodity is then sold precisely for what it is worth,
or for what it really costs the person who brings it to mar-
ket; for though in common language what is called the prime
cost of any commodity does not comprehend the profit of the
person who is to sell it again, yet if he sells it at a price which
does not allow him the ordinary rate of profit in his neigh-
bourhood, he is evidently a loser by the trade ; since by em-
ploying his stock in some other way he might have made
that profit. His profit, besides, is his revenue, the proper
58
NATURAL AND MARKET PRICE 59
fund of his subsistence. As, while he is preparing and
bringing the goods to market, he advances to his workmen
their wages, or their subsistence; so he advances to himself,
in the same manner, his own subsistence, which is generally
suitable to the profit which he may reasonably expect from
the sale of his goods. Unless they yield him this profit,
therefore, they do not repay him what they may very prop-
erly be said to have really cost him.
Though the price, therefore, which leaves him this profit,
is not always the lowest at which a dealer may sometimes
sell his goods, it is the lowest at which he is likely to sell
them for any considerable time; at least where there is per-
fect liberty, or where he may change his trade as often as he
pleases.
The actual price at which any commodity is commonly sold
is called its market price. It may either be above, or below,
or exactly the same with its natural price.
The* market price of every particular commodity is regu-
lated by the proportion between the quantity which is ac-
tually brought to market, and the demand of those who are
willing to pay the natural price of the commodity, or the
whole value of the rent, labour, and profit, which must be
paid in order to bring it thither. Such people may be called
the effectual demanders, and their demand the effectual de-
mand; since it may be sufficient to effectuate the bringing of
the commodity to market. It is different from the absolute
demand. A very poor man may be said in some sense to
have a demand for a coach and six; he might like to have
it; but his demand is not an effectual demand, as the com-
modity can never be brought to market in order to satisfy it.
When the quantity of any commodity which is brought to
market falls short of the effectual demand, all those who
are willing to pay the whole value of the rent, wages, and
profit, which must be paid in order to bring it thither, can-
not be supplied with the quantity which they want. Rather
than want it altogether, some of them will be willing to give
more. A competition will immediately begin among them,
and the market price will rise more or less above the natural
price, according as either the greatness of the deficiency, or
the wealth and wanton luxury of the competitors, happen to
60 WEALTH OP NATIONS
animate more or less the eagerness of the competition.
Among competitors of equal wealth and luxury the same de-
ficiency will generally occasion a more or less eager com-
petition, according as the acquisition of the commodity hap-
pens to be of more or less importance to them. Hence the
exorbitant price of the necessaries of life during the block-
ade of a town or in a famine.
When the quantity brought to market exceeds the effectual
demand, it cannot be all sold to those who are willing to pay
the whole value of the rent, wages and profit, which must
be paid in order to bring it thither. Some part must be sold
to those who are willing to pay less, and the low price which
they give for it must reduce the price of the whole. The
market price will sink more or less below the natural price,
according as the greatness of the excess increases more or
less the competition of the sellers, or according as it happens
to be more or less important to them to get immediately rid
of the commodity. The same excess in the importation of
perishable, will occasion a much greater competition than
in that of durable commodities ; in the importation of or-
anges, for example, than in that of old iron.
When the quantity brought to market is just sufficient
to supply the effectual demand and no more, the market
price naturally comes to be either exactly, or as nearly as
can be judged of, the same with the natural price. The
whole quantity upon hand can be disposed of for this price,
and cannot be disposed of for more. The competition of
the different dealers obliges them all to accept of this price,
but does not oblige them to accept of less.
The quantity of every commodity brought to market nat-
urally suits itself to the effectual demand. It is the interest
of all those who employ their land, labour, or stock, in
bringing any commodity to market, that the quantity never
should exceed the effectual demand; and it is the interest of
all other people that it never should fall short of that
demand.
If at any time it exceeds the effectual demand, some of the
component parts of its price must be paid below their nat-
ural rate. If it is rent, the interest of the landlords will
immediately prompt them to withdraw a part of their land;
NATURAL AND MARKET PRICE 61
and if it is wages or profit, the interest of the labourers in
the one case, and of their employers in the other, will prompt
them to withdraw a part of their labour or stock from this
employment. The quantity brought to market will soon be
no more than sufficient to supply the effectual demand. All
the different parts of its price will rise to their natural rate,
and the whole price to its natural price.
If, on the contrary, the quantity brought to market should
at any time fall short of the effectual demand, some of the
component parts of its price must rise above their natural
rate. If it is rent, the interest of all other landlords will
naturally prompt them to prepare more land for the raising
of this commodity ; if it is wages or profit, the interest of all
other labourers and dealers will soon prompt them to employ
more labour and stock in preparing and bringing it to mar-
ket. The quantity brought thither will soon be sufficient to
supply the effectual demand. All the different parts of its
price will soon sink to their natural rate, and the whole price
to its natural price.
The natural price, therefore, is, as it were, the central
price, to which the prices of all commodities are continually
gravitating. Different accidents may sometimes keep them
suspended a good deal above it, and sometimes force them
down even somewhat below it. But whatever may be the
obstacles which hinder them from settling in this center of
repose and continuance, they are constantly tending
towards it.
The whole quantity of industry annually employed in order
to bring any commodity to market, naturally suits itself in
this manner to the effectual demand. It naturally aims at
bringing always that precise quantity thither which may be
sufficient to supply, and no more than supply, that demand.
But in some employments the same quantity of industry
will in different years produce very different quantities of
commodities; while in others it will produce always the
same, or very nearly the same. The same number of
labourers in husbandry will, in different years, produce very
different quantities of corn, wine, oil, hops, &c. But the
same number of spinners and weavers will every year pro-
duce the same or very nearly the same quantity of linen and
62 WEALTH OF NATIONS
woollen cloth. It is only the average produce of the one
species of industry which can be suited in any respect to the
effectual demand; and as its actual produce is frequently
much greater and frequently much less than its average prod-
uce, the quantity of the commodities brought to market will
sometimes exceed a good deal, and sometimes fall short a
good deal, of the effectual demand. Even though that de-
mand therefore should continue always the same, their mar-
ket price will be liable to great fluctuations, will sometimes
fall a good deal below, and sometimes rise a good deal above,
their natural price. In the other species of industry, the
produce of equal quantities of labour being always the same,
or very nearly the same, it can be more exactly suited to the
effectual demand. While that demand continues the same,
therefore, the market price of the commodities is likely to do
so too, and to be either altogether, or as nearly as can be
judged of, the same with the natural price. That the price
of linen and woollen cloth is liable neither to such frequent
nor to such great variations as the price of corn, every man's
experience will inform him. The price of the one species of
commodities varies only with the variations in the demand:
That of the other varies not only with the variations in the
demand, but with the much greater and more frequent vari-
ations in the quantity of what is brought to market in order
to supply that demand.
The occasional and temporary fluctuations in the market
price of any commodity fall chiefly upon those parts of its
price which resolve themselves into wages and profit. That
part which resolves itself into rent is less affected by them.
A rent certain in money is not in the least affected by them
either in its rate or in its value. A rent which consists
either in a certain proportion or in a certain quantity of the
rude produce, is no doubt affected in its yearly value by all
the occasional and temporary fluctuations in the market price
of that rude produce ; but it is seldom affected by them in its
yearly rate. In settling the terms of the lease, the landlord
and farmer endeavour, according to their best judgment, to
adjust that rate, not to the temporary and occasional, but to
the average and ordinary price of the produce.
Such fluctuations affect both the value and the rate either
NATURAL AND MARKET PRICE 63
of wages or of profit, according as the market happens to be
either over-stocked or under-stocked with commodities or
with labour ; with work done, or with work to be done. A
public mourning raises the price of black cloth (with which
the market is almost always under-stocked upon such occa-
sions), and augments the profits of the merchants who pos-
sess any considerable quantity of it. It has no effect upon
the wages of the weavers. The market is under-stocked
with commodities, not with labour ; with work done, not with
work to be done. It raises the wages of journeymen taylors.
The market is here under-stocked with labour. There is an
effectual demand for more labour, for more work to be done
than can be had It sinks the price of coloured silks and
cloths, and thereby reduces the profits of the merchants who
have any considerable quantity of them upon hand. It sinks
too the wages of the workmen employed in preparing such
commodities, for which all demand is stopped for six months,
perhaps for a twelvemonth. The market is here over-stocked
both with commodities and with labour.
But though the market price of every particular com-
modity is in this manner continually gravitating, if one may
say so, towards the natural price, yet sometimes particular
accidents, sometimes natural causes, and sometimes particu-
lar regulations of police, may, in many commodities, keep up
the market price, for a long time together, a good deal above
the natural price.
When by an increase in the effectual demand, the market
price of some particular commodity happens to rise a good
deal above the natural price, those who employ their stocks
in supplying that market are generally careful to conceal
this change. If it was commonly known, their great profit
would tempt so many new rivals to employ their stocks in
the same way, that, the effectual demand being fully supplied,
the market price would soon be reduced to the natural price,
and perhaps for some time even below it. If the market is
at a great distance from the residence of those who supply
it, they may sometimes be able to keep the secret for several
years together, and may so long enjoy their extraordinary
profits without any new* rivals. Secrets of this kind, how-
ever, it must be acknowledged, can seldom be long kept; and
64 WEALTH OF NATIONS
the extraordinary profit can last very little longer than they
are kept.
Secrets in manufactures are capable of being longer kept
than secrets in trade. A dyer who has found the means of
producing a particular colour with materials which cost only
half the price of those commonly made use of, may, with
good management, enjoy the advantage of his discovery as
long as he lives, and even leave it as a legacy to his pos-
terity. His extraordinary gains arise from the high price
which is paid for his private labour. They properly consist
in the high wages of that labour. But as they are repeated
upon every part of his stock, and as their whole amount
bears, upon that account, a regular proportion to it, they are
commonly considered as extraordinary profits of stock.
Such enhancements of the market price are evidently the
effects of particular accidents, of which, however, the opera-
tion may sometimes last for many years together.
Some natural productions require such a singularity of
soil and situation, that all the land in a great country, which
is fit for producing them, may not be sufficient to supply the
effectual demand. The whole quantity brought to market,
therefore, may be disposed of to those who are willing to
give more than what is sufficient to pay the rent of the land
which produced them, together with the wages of the labour,
and the profits of the stock which were employed in pre-
paring and bringing them to market, according to their nat-
ural rates. Such commodities may continue for whole cen-
turies together to be sold at this high price ; and that part of
it which resolves itself into the rent of land is in this case
the part which is generally paid above its natural rate. The
rent of the land which afifords such singular and esteemed
productions, like the rent of some vineyards in France of a
peculiarly happy soil and situation^ bears no regular propor-
tion to the rent of other equally fertile and equally well-cul-
tivated land in its neighbourhood. The wages of the labour
and the profits of the stock employed in bringing such com-
modities to market, on the contrary, are seldom out of their
natural proportion to those of the other employments of
labour and stock in their neighbourhood.
Such enhancements of the market price are evidently the
/
NATURAL AND MARKET PRICE 65
effect of natural causes which may hinder the effectual de-
mand from ever being fully supplied, and which may con-
tinue, therefore, to operate for ever.
A monopoly granted either to an individual or to a trad-
ing company has the same effect as a secret in trade or
manufactures. The monopolists, by keeping the market con-
stantly under-stocked, by never fully supplying the effectual
demand, sell their commodities much above the natural price,
and raise their emoluments, whether they consist in wages or
profit, greatly above their natural rate.
The price of monopoly is upon every occasion the highest
which can be got. The natural price, or the price of free
competition, on the contrary^ is the lowest which can be
taken, not upon every occasion indeed, but for any consid-
erable time together. The one is upon every occasion the
highest which can be squeezed out of the buyers, or which,
it is supposed, they will consent to give : The other is the
lowest which the sellers can commonly afford to take, and at
the same time continue their business.
The exclusive privileges of corporations, statutes of appren-
ticeship, and all those laws which restrain, in particular em-
ployments, the competition to a smaller number than might
otherwise go into them, have the same tendency, though in a
less degree. They are a sort of enlarged monopolies, and
may frequently, for ages together, and in whole classes of
employment*, keep up the market price of particular com-
modities above the natural price, and maintain both the
wages of the labour and the profits of the stock employed
about them somewhat above their natural rate.
Such enhancements of the market price may last as long
as the regulations of police which give occasion to them.
The market price of any particular commodity, though it
may continue long above, can seldom continue long below,
its natural price. Whatever part of it was paid below the
natural rate, the persons whose interest it affected would
immediately feel the loss, and would immediately withdraw
either so much land, or so much labour, or so much stock,
from being employed about it, that the quantity brought to
market would soon be no more than sufificient to supply the
effectual demand. Its market price, therefore, would soon
66 WEALTH OP NATIONS
rise to the natural price. This at least would be the case
where there was perfect liberty.
The same statutes of apprenticeship and other corporation
laws indeed, which, when a manufacture is in prosperity,
enable the workman to raise his wages a good deal above
their natural rate, sometimes oblige him, when it decays, to
let them down a good deal below it. As in the one case they
exclude many people from his employment, so in the other
they exclude him from many employments. The effect of
such regulations, however, is not near so durable in sinking
the workman's wages below, as in raising them above, their
natural rate. Their operation in the one way may endure
for many centuries, but in the other it can last no longer
than the lives of some of the workmen who were bred to the
business in the time of its prosperity. When they are gone,
the number of those who are afterwards educated to the
trade will naturally suit itself to the effectual demand. The
police must be as violent as that of Indostan or antient
Egypt (where every man was bound by a principle of re-
ligion to follow the occupation of his father, and was sup-
posed to commit the most horrid sacrilege if he changed it
for another), which can in any particular employment, and
for several generations together, sink either the wages of
labour or the profits of stock below their natural rate.
This is all that I think necessary to be observed at pres-
ent concerning the deviations, whether occasional or per-
manent, of the market price of commodities from the natural
price.
The natural price itself varies with the natural rate of
each of its component parts, of wages, profit, and rent; and
in every society this rate varies according to their circum-
stances, according to their riches or poverty, their advanc-
ing, stationary, or declining condition. I shall, in the four
following chapters, endeavour to explain, as fully and dis-
tinctly as I can, the causes of those different variations.
First, I shall endeavour to explain what are the circum-
stances which naturally determine the rate of wages, and in
what manner those circumstances are affected by the riches
or poverty, by the advancing, stationary, or declining state
of the society.
NATURAL AND MARKET PRICE 67
Secondly, I shall endeavour to shew what are the circum-
stances which naturally determine the rate of profit, and in
what manner too those circumstances are affected by the
like variations in the state of the society.
Though pecuniary wages and profits are very different in
the different employments of labour and stock; yet a certain
proportion seems commonly to take place between both the
pecuniary wages in all the different employments of labour,
and the pecuniary profits in all the different employments of
stock. This proportion, it will appear hereafter, depends
partly upon the nature of the different employments, and
partly upon the different laws and policy of the society in
which they are carried on. But though in many respects
dependent upon the laws and policy, this proportion seems to
be little affected by the riches or poverty of that society; by
its advancing, stationary, or declining condition; but to re-
main the same or very nearly the same in all those different
states. I shall, in the third place, endeavour to explain all
the different circumstances which regulate this proportion.
In the fourth and last place, I shall endeavor to show
what are the circumstances which regulate the rent of land,
and which either raise or lower the real price of all the
different substances which it produces.
CHAPTER VIII
Of the Wages of Labour
THE produce of labour constitutes the natural recom-
pence or wages of labour.
In that original state of things, which precedes both
the appropriation of land and the accumulation of stock, the
whole produce of labour belongs to the labourer. He has
neither landlord nor master to share with him.
Had this state continued, the wages of labour would have
augmented with all those improvements in its productive
powers, to which the division of labour gives occasion. All
things would gradually have become cheaper. They would
have been produced by a smaller quantity of labour; and as
the commodities produced by equal quantities of labour
would naturally in this state of things be exchanged for one
another, they would have been purchased likewise with the
produce of a smaller quantity.
But though all things would have become cheaper in reality,
in appearance many things might have become dearer than
before, or have been exchanged for a greater quantity of
other goods. Let us suppose, for example, that in the greater
part of employments the productive powers of labour had
been improved to tenfold, or that a day's labour could pro-
duce ten times the quantity of work which it had done orig-
inally ; but that in a particular employment they had been
improved only to double, or that a. day's labour could pro-
duce only twice the quantity of work which it had done
before. In exchanging the produce of a day's labour in the
greater part of employments, for that of a day's labour in
this particular one, ten times the original quantity of work
in them would purchase only twice the original quantity in
it. Any particular quantity in it, therefore, a pound weight,
68
WAGES OF LABOUR 69
for example, would appear to be five times dearer than be-
fore. In reality, however, it would be twice as cheap.
Though it required five times the quantity of other goods
to purchase it, it would require only half the quantity of
labour either to purchase or to produce it. The acquisi-
tion, therefore, would be twice as easy as before.
But this original state of things, in which the labourer en-
joyed the whole produce of his own labour, could not last
beyond the first introduction of the appropriation of land
and the accumulation of stock. It was at an end, therefore,
long before the most considerable improvements were made
in the productive powers of labour, and it would be to no
purpose to trace further what might have been its effects
upon the recompence or wages of labour.
As soon as land becomes private property, the landlord
demands a share of almost all the produce which the labourer
can either raise, or collect from it. His rent makes the
first deduction from the produce of the labour which is em-
ployed upon land.
It seldom happens that the person who tills the ground has
wherewithal to maintain himself till he reaps the harvest.
His maintenance is generally advanced to him from the stock
of a master, the farmer who employs him, and who would
have no interest to employ him, unless he was to share in
the produce of his labour, or unless his stock was to be re-
placed to him with a profit. This profit makes a second de-
duction from the produce of the labour which is employed
upon land.
The produce of almost all other labour is liable to the like
deduction of profit. In all arts and manufactures the greater
part of the workmen stand in need of a master to advance
them the materials of their work, and their wages and main-
tenance till it be compleated. He shares in the produce of
their labour, or in the value which it adds to the materials
upon which it is bestowed ; and in this share consists his
profit.
It sometimes happens, indeed, that a single independent
v/orkman has stock sufficient both to purchase the materials
of his work, and to maintain himself till it be compleated. He
is both master and workman, and enjoys the whole produce
70 WEALTH OF NATIONS
of his own labour, or the whole value which it adds to the
materials upon which it is bestowed. It includes what are
usually two distinct revenues, belonging to two distinct per-
sons, the profits of stock, and the wages of labour.
Such cases, however, are not very frequent, and in every
part of Europe, twenty workmen serve under a master for
one that is independent; and the wages of labour are every
where understood to be, what they usually are, when the
labourer is one person, and the owner of the stock which
employs him another.
What are the common wages of labour, depends every
where upon the contract usually made between those two
parties, whose interests are by no means the same. The
workmen desire to get as much, the masters to give as little
as possible. The former are disposed to combine in order
to raise, the latter in order to lower the wages of labour.
It is not, however, difficult to foresee which of the two
parties must, upon all ordinary occasions, have the advantage
in the dispute, and force the other into a compliance with
their terms. The masters, being fewer in number, can com-
bine much more easily; and the law, besides, authorises, or
at least does not prohibit their combinations, while it pro-
hibits those of the workmen. We have no acts of parliament
against combining to lower the price of work; but many
against combining to raise it. In all such disputes the mas-
ters can hold out much longer. A landlord, a farmer, a
master manufacturer, or merchant, though they did not em-
ploy a single workman, could generally live a year or two
upon the stocks which they have already acquired. Many
workmen could not subsist a week, few could subsist a
month, and scarce any a year without employment. In the
long-run the workman may be as necessary to his master as
his master is to him ; but the necessity is not so immediate.
We rarely hear, it has been said, of the combinations of
masters; though frequently of those of workmen. But who-
ever imagines, upon this account, that masters rarely com-
bine, is as ignorant of the world as of the subject. Masters
are always and every where in a sort of tacit, but constant
and uniform combination, not to raise the wages of labour
above their actual rate. To violate this combination is every
WAGES OF LABOUR 71
where a most unpopular action, and a sort of reproach to a
master among his neighbours and equals. We seldom, indeed,
hear of this combination, because it is the usual, and one may
say, the natural state of things which nobody ever hears of.
Masters too sometimes enter into particular combinations to
sink the wages of labour even below this rate. These are
always conducted with the utmost silence and secrecy, till
the moment of execution, and when the workmen yield, as
they sometimes do, without resistance, though severely felt
by them, they are never heard of by other people. Such
combinations, however, are frequently resisted by a contrary
defensive combination of the workmen ; who sometimes too,
without any provocation of this kind, combine of their own
accord to raise the price of their labour. Their usual pre-
tences are, sometimes the high price of provisions ; some-
times the great profit which their masters make by their
work. But whether their combinations be offensive or de-
fensive, they are always abundantly heard of. In order to
bring the point to a speedy decision, they have always re-
course to the loudest clamour, and sometimes to the most
shocking violence and outrage. They are desperate, and act
with the folly and extravagance of desperate men, who
must either starve, or frighten their masters into an imme-
diate compliance with their demands. The masters upon
these occasions are just as clamorous upon the other side,
and never cease to call aloud for the assistance of the civil
magistrate, and the rigorous execution of those laws which
have been enacted with so much severity against the combi-
nations of servants, labourers, and journeymen. The work-
men, accordingly, very seldom derive any advantage from
the violence of those tumultuous combinations, which, partly
from the interposition of the civil magistrate, partly from
the superior steadiness of the masters, partly from the
necessity which the greater part of the workmen are
under of submitting for the sake of present subsistence,
generally end in nothing, but the punishment or ruin of
the ringleaders.
But though in disputes with their workmen, masters must
generally have the advantage, there is however a certain
rate below which it seems impossible to reduce, for any con-
72 WEALTH OF NATIONS
siderable time, the ordinary wages even of the lowest species
of labour.
A man must always live by his work, and his wages must
at least be sufficient to maintain him. They must even upon
most occasions be somewhat more ; otherwise it would be im-
possible for him to bring up a family, and the race of such
workmen could not last beyond the first generation. Mr.
Cantillon seems, upon this account, to suppose that the lowest
species of common labourers must every where earn at least
double their own maintenance, in order that one with another
they may be enabled to bring up two children ; the labour of
the wife, on account of her necessary attendance on the
children, being supposed no more than sufficient to provide
for herself. But one-half the children born, it is computed,
die before the age of manhood. The poorest labourers,
therefore, according to this account, must, one with another,
attempt to rear at least four children, in order that two may
have an equal chance of living to that age. But the neces-
sary maintenance of four children, it is supposed, may be
nearly equal to that of one man. The labour of an able-
bodied slave, the same author adds, is computed to be worth
double his maintenance; and that of the meanest labourer,
he thinks, cannot be worth less than that of an able-bodied
slave. Thus far at least seems certain, that, in order to bring
up a family, the labour of the husband and wife together
must, even in the lowest species of common labour, be able to
earn something more than what is precisely necessary for
their own maintenance; but in what proportion, whether in
that above mentioned, or in any other, I shall not take upon
me to determine.
There are certain circumstances, however, which some-
times give the labourers an advantage, and enable them to
raise their wages considerably above this rate; evidently the
lowest which is consistent with common humanity.
When in any country the demand for those who live by
wages, labourers, journeymen, servants of every kind, is
continually increasing; when every year furnishes employ-
ment for a greater number than had been employed the
year before, the workmen have no occasion to combine in
order to raise their wages. The scarcity of hands occasions
WAGES OF LABOUR 73
a competition among masters, who bid against one another,
in order to get workmen, and thus voluntarily break through
the natural combination of masters not to raise wages.
The demand for those who live by wages, it is evident,
cannot increase but in proportion to the increase of the
funds which are destined for the payment of wages. These
funds are of two kinds; first, the revenue which is over and
above what is necessary for the maintenance; and, secondly,
the stock which is over and above what is necessary for the
employment of their masters.
When the landlord, annuitant, or monied man, has a greater
revenue than what he judges sufficient to maintain his own
family, he employs either the whole or a part of the surplus
in maintaining one or more menial servants. Increase this
surplus, and he will naturally increase the number of those
servants.
When an independent workman, such as a weaver or shoe-
maker, has got more stock than what is sufficient to purchase
the materials of his own work, and to maintain himself till
he can dispose of it, he naturally employs one or more
journeymen with the surplus, in order to make a profit by
their work. Increase this surplus, and he will naturally in-
crease the number of his journeymen.
The demand for those who live by wages, therefore, neces-
sarily increases with the increase of the revenue and stock
of every country, and cannot possibly increase without it.
The increase of revenue and stock is the increase of national
wealth. The demand for those who live by wages, therefore,
naturally increases with the increase of national wealth, and
cannot possibly increase without it.
It is not the actual greatness of national wealth, but its
continual increase, which occasions a rise in the wages of
labour. It is not, accordingly, in the richest countries, but
in the most thriving, or in those which are growing rich the
fastest, that the wages of labour are highest. England is
certainly, in the present times, a much richer country than
any part of North America. The wages of labour, however,
are much higher in North America than in any part of Eng-
land. In the province of New York, common labourers earn
three shillings and sixpence currency, equal to two shillings
74 WEALTH OF NATIONS
sterling, a day; ship carpenters, ten shillings and sixpence
currency, with a pint of rum worth sixpence sterling, equal
in all to six shillings and sixpence sterling; house carpenters
and bricklayers, eight shillings currency, equal to four shill-
ings and sixpence sterling; journeymen taylors, five shillings
currency, equal to about two shillings and tenpence sterling.
These prices are all above the London price; and wages are
said to be as high in the other colonies as in New York.
The price of provisions is every where in North America
much lower than in England. A dearth has never been
known there. In the worst seasons, they have always had a
sufficiency for themselves, though less for exportation. If
the money price of labour, therefore, be higher than it is
any where in the mother country, its real price, the real com-
mand of the necessaries and conveniencies of life which it
conveys to the labourer, must be higher in a still greater
proportion.
But though North America is not yet so rich as England,
it is much more thriving, and advancing with much greater
rapidity to the further acquisition of riches. The most de-
cisive mark of the prosperity of any country is the increase
of the number of its inhabitants. In Great Britain, and
most other European countries, they are not supposed to
double in less than five hundred years. In the British colo-
nies in North America, it has been found, that they double
in twenty or five-and-twenty years. Nor in the present times
is this increase principally owing to the continual importa-
tion of new inhabitants, but to the great multiplication of the
species. Those who live to old age, it is said, frequently
see there from fifty to a hundred, and sometimes many more,
descendants from their own body. Labour is there so well
rewarded that a numerous family of children, instead of
being a burthen is a source of opulence and prosperity to
the parents. The labour of each child, before it can leave
their house, is computed to be worth a hundred pounds clear
gain to them. A young widow with four or five young chil-
dren, who, among the middling or inferior ranks of people
in Europe, would have so little chance for a second husband,
is there frequently courted as a sort of fortune. The value
of children is the greatest of all encouragements to mar-
WAGES OF LABOUR 75
riage. We cannot, therefore, wonder that the people in
North America should generally marry very young. Not-
withstanding the great increase occasioned by such early
marriages, there is a continual complaint of the scarcity of
hands in North America. The demand for labourers, the
funds destined for maintaining them, increase, it seems, still
faster than they can find labourers to employ.
Though the wealth of a country should be very great, yet
if it has been long stationary, we must not expect to find
the wages of labour very high in it. The funds destined for
the payment of wages, the revenue and stock of its inhabitants,
may be of the greatest extent; but if they have continued for
several centuries of the same, or very nearly of the same ex-
tent, the number of labourers employed every year could easily
supply, and even more than supply, the number wanted the
following year. There could seldom be any scarcity of hands,
nor could the masters be obliged to bid against one another
in order to get them. The hands, on the contrary, would, in
this case, naturally multiply beyond their employment. There
would be a constant scarcity of employment, and the labour-
ers would be obliged to bid against one another in order to
get it. If in such a country the wages of labour had ever
been more than sufficient to maintain the labourer, and to
enable him to bring up a family, the competition of the
labourers and interest of the masters would soon reduce them
to this lowest rate which is consistent with common hu-
manity. China has been long one of the richest, that is, one
of the most fertile, best cultivated, most industrious, and
most populous countries in the world. It seems, however,
to have been long stationary. Marco Polo, who visited it
more than five hundred years ago, describes its cultivation,
industry, and populousness, almost in the same terms in
which they are described by travellers in the present times.
It had perhaps, even long before his time, acquired that full
complement of riches which the nature of its laws and insti-
tutions permits it to acquire. The accounts of all travellers,
inconsistent in many other respects, agree in the low wages
of labour, and in the difficulty which a labourer finds in
bringing up a family in China. If by digging the ground
a whole day he can get what will purchase a small quantity
76 WEALTH OF NATIONS
of rice in the evening, he is contented. The condition of
artificers is, if possible, still worse. Instead of waiting indo-
lently in their work-houses, for the calls of their customers,
as in Europe, they are continually running about the streets
with the tools of their respective trades offering their service,
and as it were begging employment. The poverty of the
lower ranks of people in China far surpasses that of the
most beggarly nations in Europe. In the neighbourhood of
Canton many hundreds, it is commonly said, many thousand
families have no habitation on the land, but live constantly
in little fishing boats upon the rivers and canals. The sub-
sistence which they find there is so scanty that they are eager
to fish up the nastiest garbage thrown overboard from any
European ship. Any carrion, the carcase of a dead dog or
cat, for example, though half putrid and stinking, is as
welcome to them as the most wholesome food to the peo-
ple of other countries. Marriage is encouraged in China,
not by the profitableness of children, but by the liberty
of destroying them. In all great towns several are every
night exposed in the street, or drowned like puppies in the
water. The performance of this horrid office is even
said to be the avowed business by which some people earn
their subsistence.
China, however, though it may perhaps stand still, does not
seem to go backwards. Its towns are no-where deserted by
their inhabitants. The lands which had once been cultivated
are no-where neglected. The same or very nearly the same
annual labour must therefore continue to be performed, and
the funds destined for maintaining it must not, consequently,
be sensibly diminished. The lowest class of labourers, there-
fore, notwithstanding their scanty subsistence, must some
way or another make shift to continue their race so far as
to keep up their usual numbers.
But it would be otherwise in a country where the funds
destined for the maintenance of labour were sensibly decay-
ing. Every year the demand for servants and labourers
would, in all the different classes of employments, be less
than it had been the year before. Many who had been bred
in the superior classes, not being able to find employment in
their own business, would be glad to seek it in the lowest.
WAGES OF LABOUR 77
The lowest class being not only overstocked with its own
workmen, but with the overflowings of all the other classes,
the competition for employment would be so great in it,
as to reduce the wages of labour to the most miserable and
scanty subsistence of the labourer. Many would not be able
to find employment even upon these hard terms, but would
either starve, or be driven to seek a subsistence either by
begging, or by the perpetration perhaps of the greatest enor-
mities. Want, famine, and mortality would immediately pre-
vail in that class, and from thence extend themselves to all
the superior classes, till the number of inhabitants in the
country was reduced to what could easily be maintained by
the revenue and stock which remained in it, and which had
escaped either the tyranny or calamity which had destroyed
the rest. This perhaps is nearly the present state of Bengal,
and of some other of the English settlements in the East
Indies. In a fertile country which had before been much
depopulated, where subsistence, consequently, should not be
very difficult, and where, notwithstanding, three or four
hundred thousand people die of hunger in one year, we may
be assured that the funds destined for the maintenance of the
labouring poor are fast decaying. The difference between
the genius of the British constitution which protects and
governs North America, and that of the mercantile company
which oppresses and domineers in the East Indies, cannot
perhaps be better illustrated than by the different state of
those countries.
The liberal reward of labour, therefore, as it is the neces-
sary effect, so it is the natural symptom of increasing na-
tional wealth. The scanty maintenance of the labouring poor,
on the other hand, is the natural symptom that things are at
a stand, and their starving condition that they are going fast
backwards.
In Great Britain the wages of labour seem, in the present
times, to be evidently more than what is precisely necessary
to enable the labourer to bring up a family. In order to
satisfy ourselves upon this point it will not be necessary to
enter into any tedious or doubtful calculation of what may
be the lowest sum upon which it is possible to do this. There
are many plain symptoms that the wages of labour are no-
78 WEALTH OF NATIONS
where in this country regulated by this lowest rate which is
consistent with common humanity.
First, in almost every part of Great Britain there is a dis-
tinction, even in the lowest species of labour, between sum-
mer and winter wages. Summer wages are always highest.
But on account of the extraordinary expence of fewel, the
maintenance of a family is most expensive in winter. Wages,
therefore, being highest when this expence is lowest, it
seems evident that they are not regulated by what is neces-
sary for this expence ; but by the quantity and supposed value
of the work. A labourer, it may be said indeed, ought to
save part of his summer wages in order to defray his winter
expence ; and that through the whole year they do not exceed
what is necessary to maintain his family through the whole
year. A slave, however, or one absolutely dependent on us
for immediate subsistence, would not be treated in this
manner. His daily subsistence would be proportioned to his
daily necessities.
Secondly, the wages of labour do not in Great Britain
fluctuate with the price of provisions. These vary every-
where from year to year, frequently from month to month.
But in many places the money price of labour remains uni-
formly the same sometimes for half a century together. If
in these places, therefore, the labouring poor can maintain
their families in dear years, they must be at their ease
in times of moderate plenty, and in affluence in those of
extraordinary cheapness. The high price of provisions dur-
ing these ten years past has not in many parts of the king-
dom been accompanied with any sensible rise in the money
price of labour. It has, indeed, in some; owing probably
more to the increase of the demand for labour than to that
of the price of provisions.
Thirdly, as the price of provisions varies more from year
to year than the wages of labour, so on the other hand, the
wages of labour vary more from place to place than the
price of provisions. The prices of bread and butcher's meat
are generally the same or very nearly the same through the
greater part of the united kingdom. These and most other
things which are sold by retail, the way in which the labour-
ing poor buy all things, are generally fully as cheap or
WAGES OF LABOUR 79
cheaper in great towns than in the remoter parts of the coun-
try, for reasons which I shall have occasion to explain here-
after. But the wages of labour in a great town and its
neighbourhood are frequently a fourth or a fifth part, twenty
or five-and-twenty per cent, higher than at a few miles dis-
tance. Eighteen pence a day may be reckoned the common
price of labour in London and its neighbourhood. At a few
miles distance it falls to fourteen and fifteen pence. Ten
pence may be reckoned its price in Edinburgh and its neigh-
bourhood. At a few miles distance it falls to eight pence,
the usual price of common labour through the greater part
of the low country of Scotland, where it varies a good deal
less than in England. Such a difference of prices, which it
seems is not always sufficient to transport a man from one
parish to another, would necessarily occasion so great a
transportation of the most bulky commodities, not only from
one parish to another, but from one end of the kingdom,
almost from one end of the world to the other, as would soon
reduce them more nearly to a level. After all that has been
said of the levity and inconstancy of human nature, it ap-
pears evidently from experience that a man is of all sorts of
luggage the most difficult to be transported. If the labouring
poor, therefore, can maintain their families in those parts
of the kingdom where the price of labour is lowest, they
must be in affluence where it is highest.
Fourthly, the variations in the price of labour not only do
not correspond either in place or time with those in the price
of provisions, but they are frequently quite opposite.
Grain, the food of the common people, is dearer in Scot-
land than in England, whence Scotland receives almost every
year very large supplies. But English corn must be sold
dearer in Scotland, the country to which it is brought, than
in England, the country from which it comes; and in pro-
portion to its quality it cannot be sold dearer in Scotland
than the Scotch corn that comes to the same market in com-
petition wiih it. The quality of grain depends chiefly upon
the quantity of flour or meal which it yields at the mill, and
in this respect English grain is so much superior to the
Scotch, that, though often dearer in appearance, or in pro-
portion to the measure of its bulk, it is generally cheaper in
80 WEALTH OF NATIONS
reality, or in proportion to its quality, or even to the measure
of its weight. The price of labour, on the contrary, is dearer
in England than in Scotland. If the labouring poor, there-
fore, can maintain their families in the one part of the united
kingdom, they must be in affluence in the other. Oatmeal
indeed supplies the common people in Scotland with the
greatest and the best part of their food, which is in general
much inferior to that of their neighbours of the same rank
in England. This difference, however, in the mode of their
subsistence is not the cause, but the effect, of the difference
in their wages; though, by a strange misapprehension, I
have frequently heard it represented as the cause. It is not
because one man keeps a coach while his neighbour walks
a- foot, that the one is rich and the other poor; but because
the one is rich he keeps a coach, and because the other is
poor he walks a-foot.
During the course of the last century, taking one year with
another, grain was dearer in both parts of the united king-
dom than during that of the present. This is a matter of
fact which cannot now admit of any reasonable doubt; and
the proof of it is, if possible, still more decisive with regard
to Scotland than with regard to England. It is in Scotland
supported by the evidence of the public fiars, annual valua-
tions made upon oath, according to the actual state of the
markets, of all the different sorts of grain in every different
county of Scotland. If such direct proof could require any
collateral evidence to confirm it, I would observe that this
has likewise been the case in France, and probably in most
other parts of Europe. With regard to France there is the
clearest proof. But though it is certain that in both parts
of the united kingdom grain was somewhat dearer in the
last century than in the present, it is equally certain that
labour was much cheaper. If the labouring poor, therefore,
could bring up their families then, they must be much more
at their ease now. In the last century, the most usual day
wages of common labour through the greater part of Scot-
land were sixpence in summer and fivepence in winter.
Three shillings a week, the same price very nearly, still con-
tinues to be paid in some parts of the Highlands and West-
ern Islands. Through the greater part of the low country
WAGES OF LABOUR 81
the most usual wages of common labour are now eight-pence
a day ; ten-pence, sometimes a shilHng about Edinburgh, in
the counties which border upon England, probably on ac-
count of that neighbourhood, and in a few other places where
there has lately been a considerable rise in the demand for
labour, about Glasgow, Carron, Ayr-shire, &c. In England
the improvements of agriculture, manufactures and com-
merce began much earlier than in Scotland. The demand
for labour, and consequently its price, must necessarily have
increased with those improvements. In the last century, ac-
cordingly, as well as in the present, the wages of labour
were higher in England than in Scotland. They have risen
too considerably since that time, though, on account of the
greater variety of wages paid there in different places, it is
more difficult to ascertain how much. In 1614, the pay of a
foot soldier was the same as in the present times, eight-pence
a day. When it was first established it would naturally be
regulated by the usual wages of common labourers, the rank
of people from which foot soldiers are commonly drawn.
Lord Chief Justice Hales, who wrote in the time of Charles
II., computes the necessary expence of a labourer's family,
consisting of six persons, the father and mother, two chil-
dren able to do something, and two not able, at ten shillings
a week, or twenty-six pounds a year. If they cannot earn
this by their labour, they must make it up, he supposes, either
by begging or stealing. He appears to have enquired very
carefully into this subject. In 1688, Mr. Gregory King,
whose skill in political arithmetic is so much extolled by
Doctor Davenant, computed the ordinary income of labour-
ers and out-servants to be fifteen pounds a year to a family,
which he supposed to consist, one with another, of three and
a half persons. His calculation, therefore, though different
in appearance, corresponding very nearly at bottom with that
of Judge Hales. Both suppose the weekly expence of such
families to be about twenty pence a head. Both the pecu-
niary income and expence of such families have increased
considerably since that time through the greater part of the
kingdom; in some places more, and in some less; though per-
haps scarce any where so much as some exaggerated accounts
of the present wages of labour have lately represented them
82 WEALTH OF NATIONS
to the public. The price of labour, it must be observed, can-
not be ascertained very accurately any where, different prices
being often paid at the same place and for the same sort of
labour, not only according to the different abilities of the
workmen, but according to the easiness or hardness of the
masters. Where wages are not regulated by law, all that we
can pretend to determine is what are the most usual ; and
experience seems to show that law can never regulate them
properly, though it has often pretended to do so.
The real recompence of labour, the real quantity of the
necessaries and conveniencies of life which it can procure
to the labourer, has, during the course of the present cen-
tury, increased perhaps in a still greater proportion than its
money price. Not only grain has become somewhat cheaper,
but many other things, from which the industrious poor de-
rive an agreeable and wholesome variety of food, have be-
come a great deal cheaper. Potatoes, for example, do not
at present, through the greater part of the kingdom, cost
half the price which they used to do thirty or forty years
ago. The same thing may be said of turnips, carrots, cab-
bages; things which were formerly never raised but by the
spade, but which are now commonly raised by the plough.
All sort of garden stuff too has become cheaper. The greater
part of apples and even of the onions consumed in Great
Britain were in the last century imported from Flanders.
The great improvements in the coarser manufactures of both
linen and woolen cloth furnish the labourers with cheaper
and better cloathing; and those in the manufactures of the
coarser metals, with cheaper and better instruments of trade,
as well as with many agreeable and convenient pieces of
houshold furniture. Soap, salt, candles, leather, and fer-
mented liquors, have, indeed, become a good deal dearer;
chiefly from the taxes which have been laid upon them. The
quantity of these, however, which the labouring poor are
under any necessity of consuming, is so very small, that the
increase in their price does not compensate the diminution in
that of so many other things. The common complaint that
luxury extends itself even to the lowest ranks of the people,
and that the labouring poor will not now be contented with
the same food, cloathing and lodging which satisfied them in
WAGES OF LABOUR 83
former times, may convince us that it is not the money price
of labour only, but its real recompence, which has augmented.
Is this improvement in the circumstances of the lower
ranks of the people to be regarded as an advantage or as an
inconveniency to the society ? The answer seems at first
sight abundantly plain. Servants, labourers and workmen of
different kinds, make up the far greater part of every great
political society. But what improves the circumstances of
the greater part can never be regarded as an inconveniency
to the whole. No society can surely be flourishing and
happy, of which the far greater part of the members are
poor and miserable. It is but equity, besides, that they who
feed, cloath and lodge the whole body of the people, should
have such a share of the produce of their own labour as to
be themselves tolerably well fed, cloathed and lodged.
Poverty, though it no doubt discourages, does not always
prevent marriage. It seems even to be favourable to genera-
tion. A half-starved Highland woman frequently bears more
than twenty children, while a pampered fine lady is often
incapable of bearing any, and is generally exhausted by two
or three. Barrenness, so frequent among women of fashion,
is very rare among those of inferior station. Luxury in the
fair sex, while it inflames perhaps the passion for enjoyment,
seems always to weaken, and frequently to destroy altogether,
the powers of generation.
But poverty, though it does not prevent the generation, is
extremely unfavourable to the rearing of children. The
tender plant is produced, but in so cold a soil, and so severe a
climate, soon withers and dies. It is not uncommon, I have
been frequently told, in the Highlands of Scotland for a
mother who has borne twenty children not to have two alive.
Several oflSicers of great experience have assured me, that so
far from recruiting their regiment, they have never been
able to supply it with drums and fifes from all the soldiers'
children that were born in it. A greater number of fine
children, however, is seldom seen any where than about a
barrack of soldiers. Very few of them, it seems, arrive at
the age of thirteen or fourteen. In some places one half
the children born die before they are four years of age; in
many places before they are seven; and in almost all places
84 WEALTH OF NATIONS
before they are nine or ten. This great mortality, however,
will every where be found chiefly among the children of the
common people, who cannot afford to tend them with the
same care as those of better station. Though their mar-
riages are generally more fruitful than those of people of
fashion, a smaller proportion of their children arrive at ma-
turity. In foundling hospitals, and among the children
brought up by parish charities, the mortality is still greater
than among those of the common people.
Every species of animals naturally multiplies in propor-
tion to the means of their subsistence, and no species can
ever multiply beyond it. But in civilized society it is only
among the inferior ranks of people that the scantiness of
subsistence can set limits to the further multiplication of the
human species ; and it can do so in no other way than by
destroying a great part of the children which their fruitful
marriages produce.
The liberal reward of labour, by enabling them to provide
better for their children, and consequently to bring up a
greater number, naturally tends to widen and extend those
limits. It deserves to be remarked too, that it necessarily
does this as nearly as possible in the proportion which the
demand for labour requires. If this demand is continually
increasing, the reward of labour must necessarily encourage
in such a manner the marriage and multiplication of labour-
ers, as may enable them to supply that continually increasing
demand by a continually increasing population. If the re-
ward should at any time be less than what was requisite for
this purpose, the deficiency of hands would soon raise it;
and if it should at any time be more, their excessive multi'
plication would soon lower it to this necessary rate. The
market would be so much under-stocked with labour in the
one case, and so much over-stocked in the other, as would
soon force back its price to that proper rate which the cir-
cumstances of the society required. It is in this manner that
the demand for men, like that for any other commodity,
necessarily regulates the production of men; quickens it
when it goes on too slowly, and stops it when it advances too
fast. It is this demand which regulates and determines the
state of propagation in all the different countries of the
WAGES OF LABOUR 85
world, in North America, in Europe, and in China ; which
renders it rapidly progressive in the first, slow and gradual
in the second, and altogether stationary in the last.
The wear and tear of a slave, it has been said, is at the ex-
pence of his master; but that of a free servant is at his own
expence. The wear and tear of the latter, however, is, in
reality, as much at the expence of his master as that of the
former. The wages paid to journeymen and servants of
every kind must be such as may enable them, one with an-
other, to continue the race of journeymen and servants, ac-
cording as the increasing, diminishing, or stationary demand
of the society may happen to require. But though the wear
and tear of a free servant be equally at the expence of his
master, it generally costs him much less than that of a slave.
The fund destined for replacing or repairing, if I may say
so, the wear and tear of the slave, is commonly managed by
a negligent master or careless overseer. That destined for
performing the same ofiice with regard to the free man, is
managed by the free man himself. The disorders which gen-
erally prevail in the economy of the rich, naturally introduce
themselves into the management of the former: The strict
frugality and parsimonious attention of the poor as naturally
establish themselves in that of the latter. Under such dif-
ferent management, the same purpose must require very
different degrees of expence to execute it. It appears, accord-
ingly, from the experience of all ages and nations, I believe,
that the work done by freemen comes cheaper in the end
than that performed by slaves. It is found to do so even at
Boston, New York, and Philadelphia, where the wages of
common labour are so very high.
The liberal reward of labour, therefore, as it is the effect
of increasing wealth, so it is the cause of increasing popula-
tion. To complain of it, is to lament over the necessary
effect and cause of the greatest public prosperity.
It deserves to be remarked, perhaps, that it is in the pro-
gressive state, while the society is advancing to the further
acquisition, rather than when it has acquired its full comple-
ment of riches, that the condition of the labouring poor, of
the great body of the people, seems to be the happiest and
the most comfortable. It is hard in the stationary, and
86 WEALTH OF NATIONS
miserable in the declining state. The progressive state is in
reality the cheerful and the hearty state to all the different
orders of the society. The stationary is dull ; the declining
melancholy.
The liberal reward of labour, as it encourages the propa-
gation, so it increases the industry of the common people.
The wages of labour are the encouragement of industry,
which, like every other human quality, improves in propor-
tion to the encouragement it receives. A plentiful subsistence
increases the bodily strength of the labourer, and the com-
fortable hope of bettering his condition, and of ending his
days perhaps in ease and plenty, animates him to exert that
strength to the utmost. \Vhere wages are high, accordingly,
we shall always find the workmen more active, diligent, and
expeditious, than where they are low; in England, for
example, than in Scotland; in the neighbourhood of great
towns, than in remote country places. Some workmen, in-
deed, when they can earn in four days what will maintain
them throttgh the week, will be idle the other three. This,
however, is by no means the case with the greater part.
Workmen, on the contrary, when they are liberally paid by
the piece, are very apt to over-work themselves, and to ruin
their health and constitution in a few years. A carpenter in
London, and in some other places, is not supposed to last
in his utmost vigour above eight years. Something of the
same kind happens in many other trades, in which the work-
men are paid by the piece ; as they generally are in manufac-
tures, and even in country labour, wherever wages are
higher than ordinary. Almost every class of artificers is
subject to some peculiar infirmity occasioned by excessive
application to their peculiar species of work. Ramuzzini,
an eminent Italian physician, has written a particular book
concerning such disease. We do not reckon our soldiers
the most industrious set of people among us. Yet when sol-
diers have been employed in some particular sorts of work,
and liberally paid by the piece, their officers have frequently
been obliged to stipulate with the undertaker, that they should
not be allowed to earn above a certain sum every day, ac-
cording to the rate at which they were paid. Till this stipu-
lation was made, mutual emulation and the desire of greater
WAGES OF LABOUR 87
gain, frequently prompted them to over-work themselves,
and to hurt their health by excessive labour. Excessive ap-
plication during four days of the week, is frequently the real
cause of the idleness of the other three, so much and so
loudly complained of. Great labour, either of mind or body,
continued for several days together, is in most men naturally
followed by a great desire of relaxation, which, if not re-
strained by force or by some strong necessity, is almost
irresistible. It is the call of nature, which requires to be re-
lieved by some indulgence, sometimes of ease only, but some-
times too of dissipation and diversion. If it is not complied
with, the consequences are often dangerous, and sometimes
fatal, and such as almost always, sooner or later, bring on
the peculiar infirmity of the trade. If masters would always
listen to the dictates of reason and humanity, they have fre-
quently occasion rather to moderate, than to animate the ap-
plication of many of their workmen. It will be found, I
believe, in every sort of trade, that the man who works so
moderately, as to be able to work constantly, not only pre-
serves his health the longest, but, in the course of the year,
executes the greatest quantity of work.
In cheap years, it is pretended, workmen are generally
more idle, and in dear ones more industrious than ordinary.
A plentiful subsistence therefore, it has been concluded, re-
laxes, and a scanty one quickens their industry. That a
little more plenty than ordinary may render some workmen
idle, cannot well be doubted ; but that it should have this
effect upon the greater part, or that men in general should
work better when they are ill fed than when they are well
fed, when they are disheartened than when they are in good
spirits, when they are frequently sick than when they are
generally in good health, seems not very probable. Years
of dearth, it is to be observed, are generally among the com-
mon people years of sickness and mortality, which cannot
fail to diminish the produce of their industry.
In years of plenty, servants frequently leave their masters
and trust their subsistence to what they can make by their
own industry. But the same cheapness of provisions, by in-
creasing the fund which is destined for the maintenance of
servants, encourages masters, farmers especially, to employ
88 WEALTH OF NATIONS
a greater number. Farmers upon such occasions expect
more profit from their corn by maintaining a few more
labouring servants, than by selling it at a low price in the
market. The demand for servants increases, while the num-
ber of those who offer to supply that demand diminishes.
The price of labour, therefore, frequently rises in cheap
years.
In years of scarcity, the difficulty and uncertainty of sub-
sistence make all such people eager to return to service. But
the high price of provisions, by diminishing the funds des-
tined for the maintenance of servants, disposes masters
rather to diminish than to increase the number of those they
have. In dear years too, poor independent workmen fre-
quently consume the little stocks with which they had used
to supply themselves with the materials of their work, and
are obliged to become journeymen for subsistence. More
people want employment than can easily get it ; many are
willing to take it upon lower terms than ordinary, and the
wages of both servants and journeymen frequently sink in
dear years.
Masters of all sorts, therefore, frequently make better bar-
gains with their servants in dear than in cheap years, and
find them more humble and dependent in the former than in
the latter. They naturally, therefore, commend the former
as more favourable to industry. Landlords and farmers,
besides, two of the largest classes of masters, have another
reason for being pleased with dear years. The rents of the
one and the profits of the other depend very much upon the
price of provisions. Nothing can be more absurd, however,
than to imagine that men in general should work less when
they work for themselves, than when they work for other
people. A poor independent workman will generally be more
industrious than even a journeyman who works by the piece.
The one enjoys the whole produce of his own industry; the
other shares it with his master. The one, in his separate
independent state, is less liable to the temptations of bad
company, which in large manufactories so frequently ruin
the morals of the other. The superiority of the independent
workman over those servants who are hired by the month or
by the year, and whose wages and maintenance are the same
WAGES OF LABOUR 89
whether they do much or do little, is likely to be still greater.
Cheap years tend to increase the proportion of independent
workmen to journeymen and servants of all kinds, and dear
years to diminish it.
A French author of great knowledge and ingenuity, Mr.
Messance, receiver of the tailles in the election of St. Etienne,
endeavours to show thai the poor do more work in cheap
than in dear years, by comparing the quantity and value of
the goods made upon those different occasions in three dif-
ferent manufactures; one of coarse woollens carried on at
Elbeuf ; one of linen, and another of silk, both which extend
through the whole generality of Rouen. It appears from his
account, which is copied from the registers of the public
offices, that the quantity and value of the goods made in all
those three manufactures has generally been greater in cheap
than in dear years; and that it has always been greatest in
the cheapest, and least in the dearest years. All the three
seem to be stationary manufactures, or which, though their
produce may vary somewhat from year to year, are upon
the whole neither going backwards nor forwards.
The manufacture of linen in Scotland, and that of coarse
woollens in the west riding of Yorkshire, are growing manu-
factures, of which the produce is generally, though with
some variations, increasing both in quantity and value. Upon
examining, however, the accounts which have been published
of their annual produce, I have not been able to observe that
its variations have had any sensible connection with the dear-
ness or cheapness of the seasons. In 1740, a year of great
scarcity, both manufactures, indeed, appear to have declined
very considerably. But in 1756, another year of great
scarcity, the Scotch manufacture made more than ordinary
advances. The Yorkshire manufacture, indeed, declined,
.and its produce did not rise to what it had been in 1755 till
1766, after the repeal of the American stamp act. In that
and the following year it greatly exceeded what it had ever
been before, and it has continued to advance ever since.
The produce of all great manufactures for distant sale
must necessarily depend, not so much upon the dearness or
cheapness of the seasons in the countries where they are
carried on, as upon the circumstances which affect the de-
90 ■ WEALTH OP NATIONS
mand in the countries where they are consumed; upon peace
or war, upon the prosperity or declension of other rival
manufactures, and upon the good or bad humour of their
principal customers. A great part of the extraordinary work,
besides, which is probably done in cheap years, never enters
the public registers of manufactures. The men servants who
leave their masters become independent labourers. The
women return to their parents, and commonly spin in order
to make cloaths for themselves and their families. Even
the independent workmen do not always work for public
sale, but are employed by some of their neighbours in manu-
factures for family use. The produce of their labour, there-
fore, frequently makes no figure in those public registers of
which the records are sometimes published with so much
parade, and from which our merchants and manufacturers
would often vainly pretend to announce the prosperity or
declension of the greatest empires.
Though the variations in the price of labour, not only do
not always correspond with those in the price of provisions,
but are frequently quite opposite, we must not, upon this ac-
count, imagine that the price of provisions has no influence
upon that of labour. The money price of labour is neces-
sarily regulated by two circumstances : the demand for labour,
and the price of the necessaries and conveniencies of life.
The demand for labour, according as it happens to be in-
creasing, stationary, or declining, or to require an increasing,
stationary, or declining population, determines the quantity
of the necessaries and conveniencies of life which must be
given to the labourer; and the money price of labour is de-
termined by what is requisite for purchasing this quantity.
Though the money price of labour, therefore, is sometimes
high where the price of provisions is low, it would be still
higher, the demand continuing the same, if the price of pro-
visions was high.
It is because the demand for labour increases in years of
sudden and extraordinary plenty, and diminishes in those of
sudden and extraordinary scarcity, that the money price of
labour sometimes rises in the one, and sinks in the other.
In a year of sudden and extraordinary plenty, there are
funds in the hands of many of the employers of industry,
WAGES OF LABOUR 91
sufficient to maintain and employ a greater number of indus-
trious people than had been employed the year before; and
this extraordinary number cannot always be had. Those
masters, therefore, who want more workmen, bid against one
another, in order to get them, which sometimes raises both
the real and the money price of their labour.
The contrary of this happens in a year of sudden and
extraordinary scarcity. The funds destined for employing
industry are less than they had been the year before. A
considerable number of people are thrown out of employ-
ment, who bid against one another, in order to get it, which
sometimes lowers both the real and the money price of
labour. In 1740, a year of extraordinary scarcity, many
people were willing to work for bare subsistence. In the
succeeding years of plenty, it was more difficult to get labour-
ers and servants.
The scarcity of a dear year, by diminishing the demand
for labour, tends to lower its price, as the high price of pro-
visions tends to raise it. The plenty of a cheap year, on the
contrary, by increasing the demand, tends to raise the price
of labour, as the cheapness of provisions tends to lower it.
In the ordinary variations of the price of provisions, those
two opposite causes seem to counterbalance one another;
which is probably in part the reason why the wages of labour
are every-where so much more steady and permanent than
the price of provisions.
The increase in the wages of labour necessarily increases
the price of many commodities, by increasing that part of it
which resolves itself into wages, and so far tends to diminish
their consumption both at home and abroad. The same
cause, however, which raises the wages of labour, the in-
crease of stock, tends to increase its productive powers, and
to make a smaller quantity of labour produce a greater quan-
tity of work. The owner of the stock which employs a great
number of labourers, necessarily endeavours, for his own
advantage, to make such a proper division and distribution
of employment, that they may be enabled to produce the
greatest quantity of work possible. For the same reason, he
endeavours to supply them with the best machinery which
either he or they can think of. What takes place among
92 WEALTH OF NATIONS
the labourers in a particular workhouse, takes place, for the
same reason, among those of a great society. The greater
their number, the more they naturally divide themselves into
different classes and subdivisions of employment. More
heads are occupied in inventing the most proper machinery
for executing the w^ork of each, and it is, therefore, more
likely to be invented. There are many commodities, there-
fore, w^hich, in consequence of these improvements, come to
be produced by so much less labour than before, that the
increase of its price is more than compensated by the diminu-
tion of its quantity.
CHAPTER IX
Of the Profits of Stock
THE rise and fall in the profits of stock depend Kpon
the same causes with the rise and fall in the wages of
labour, the increasing or declining state of the wealth
of the society; but those causes affect the one and the other
very differently.
The increase of stock, which raises wages, tends to lower
profit. When the stocks of many rich merchants are turned
into the same trade, their mutual competition naturally tends
to lower its profit ; and when there is a like increase of stock
in all the different trades carried on in the same society, the
lame competition must produce the same effect in them all.
It is not easy, it has already been observed, to ascertain
what are the average wages of labour even in a particular
place, and at a particular time. We can, even in this case,
seldom determine more than what are the most usual wages.
But even this can seldom be done with regard to the profits
of stock. Profit is so very fluctuating, that the person who
carries on a particular trade cannot always tell you himself
what is the average of his annual profit. It is affected, not
only by every variation of price in the commodities which he
deals in, but by the good or bad fortune both of his rivals
and of his customers, and by a thousand other accidents to
which goods when carried either by sea or by land, or even
when stored in a warehouse, are liable. It varies, therefore,
not only from year to year, but from day to day, and almost
from hour to hour. To ascertain what is the average profit
of all the different trades carried on in a great kingdom,
must be much more difficult ; and to judge of what it may
have been formerly, or in remote periods of time, with any
degree of precision, must be altogether impossible.
Btft though it may be impossible to determine with any de-
93
94 WEALTH OF NATIONS
gree of precision, what are or were the average profits of
stock, either in the present, or in ancient times, some notion
may be formed of them from the interest of money. It may
be laid down as a maxim, that wherever a great deal can
be made by the use of money, a great deal will commonly
be given for the use of it; and that wherever little can be
made by it, less will commonly be given for it. According,
therefore, as the usual market rate of interest varies in any
country, we may be assured that the ordinary profits of stock
must vary with it, must sink as it sinks, and rise as it rises.
The progress of interest, therefore, may lead us to form some
notion of the progress of profit.
By the 37th of Henry VIII. all interest above ten per cent.
was declared unlawful. More, it seems, had sometimes been
taken before that. In the reign of Edward VI. religious zeal
prohibited all interest. This prohibition, however, like all
others of the same kind, is said to have produced no effect,
and probably rather increased than diminished the evil of
usury. The statute of Henry VIII. was revived by the 13th
of Elizabeth, cap. 8. and ten per cent, continued to be the
legal rate of interest till the 21st of James I. when it was
restricted to eight per cent. It was reduced to six per cent,
soon after the restoration, and by the 12th of Queen Anne,
to five per cent. All these different statutory regulations
seem to have been made with great propriety. They seem
to have followed and not to have gone before the market
rate of interest, or the rate at which people of good credit
usually borrowed. Since the time of Queen Anne, five per
cent, seems to have been rather above than below the market
rate. Before the late war, the government borrowed at
three per cent. ; and people of good credit in the capital, and
in many other parts of the kingdom, at three and a half,
four, and four and a half per cent.
Since the time of Henry VIII. the wealth and revenue of
the country have been continually advancing, and, in the
course of their progress, their pace seems rather to have
been gradually accelerated than retarded. They seem, not
only to have been going on, but to have been going on faster
and faster. The wages of labour have been continually in-
creasing during the same period, and in the greater part of
PROFITS OF STOCK 95
the different branches of trade and manufacture the profits
of stock have been diminishing.
It generally requires a greater stock to carry on any sort
of trade in a great town than in a country village. The great
stocks employed in every branch of trade, and the number
of rich competitors, generally reduce the rate of profit in the
former below what it is in the latter. But the wages of
labour are generally higher in a great town than in a country
village. In a thriving town the people who have great stocks
to employ, frequently cannot get the number of workmen
they want, and therefore bid against one another in order to
get as many as they can, which raises the wages of labour,
and lowers the profits of stock. In the remote parts of the
country there is frequently not stock sufficient to employ all
the people, who therefore bid against one another in order
to get employment, which lowers the wages of labour, and
raises the profits of stock.
In Scotland, though the legal rate of interest is the same
as in England, the market rate is rather higher. People of
the best credit there seldom borrow under five per cent.
Even private bankers in Edinburgh give four per cent, upon
their promissory notes, of which payment either in whole or
in part may be demanded at pleasure. Private bankers in
London give no interest for the money which is deposited
with them. There are few trades which cannot be carried
on with a smaller stock in Scotland than in England. The
common rate of profit, therefore, must be somewhat greater.
The wages of labour, it has already been observed, are lower
in Scotland than in England. The country too is not only
much poorer, but the steps by which it advances to a better
condition, for it is evidently advancing, seem to be much
slower and more tardy.
The legal rate of interest in France has not, during the
course of the present century, been always regulated by the
market rate. In 1720 interest was reduced from the twentieth
to the fiftieth penny, or from five to two per cent. In 1724
it was raised to the thirtieth penny, or to 3 1-3 per cent. In
1725 it was again raised to the twentieth penny, or to five
per cent. In 1766, during the administration of Mr. Laverdy,
it was reduced to the twenty-fifth penny, or to four per cent.
96 WEALTH OF NATIONS
The Abbe Terray raised it afterwards to the old rate of five
per cent. The supposed purpose of many of those violent
reductions of interest was to prepare the way for reducing
that of the public debts ; a purpose which has sometimes been
executed. France is perhaps in the present times not so rich
a country as England ; and though the legal rate of interest
has in France frequently been lower than in England, the
market rate has generally been higher ; for there, as in other
countries, they have several very safe and easy methods of
evading the law. The profits of trade, I have been assured
by British merchants who had traded in both countries, are
higher in France than in England ; and it is no doubt upon
this account that many British subjects chuse rather to em-
ploy their capitals in a country where trade is in disgrace,
than in one where it is highly respected. The wages of
labour are lower in France than in England. When you go
from Scotland to England, the difference which you may re-
mark between the dress and countenance of the common
people in the one country and in the other, sufficiently indi-
cates the difference in their condition. The contrast is still
greater when you return from France. France, though no
doubt a richer country than Scotland, seems not to be going
forward so fast. It is a common and even a popular opinion
in the country, that it is going backwards; an opinion which,
I apprehend, is ill-founded even with regard to France, but
which nobody can possibly entertain with regard to Scot-
land, who sees the country now, and who saw it twenty or
thirty years ago.
The province of Holland, on the other hand, in proportion
to the extent of its territory and the number of its people, is
a richer country than England. The government there bor-
row at two per cent., and private people of good credit at
three. The wages of labour are said to be higher in Holland
than in England, and the Dutch, it is well known, trade upon
lower profits than any people in Europe. The trade of Hol-
land, it has been pretended by some people, is decaying, and
it may perhaps be true that some particular branches of it
are so. But these symptoms seem to indicate sufficiently that
there is no general decay. When profit diminishes, mer-
chants are very apt to complain that trade decays; though
PROFITS OF STOCK 97
the diminution of profit is the natural effect of its prosperity,
or of a greater stock being employed in it than before. Dur-
ing the late war the Dutch gained the whole carrying trade
of France, of which they still retain a very large share. The
great property which they possess both in the French and
English funds, about fort\- millions, it is said, in the latter
(in which I suspect, however, there is a considerable exag-
geration) ; the great sums which they lend to private people
in countries where the rate of interest is higher than in their
own, are circumstances which no doubt demonstrate the re-
dundancy of their stock, or that it has increased beyond what
they can employ with tolerable profit in the proper business
of their own country: but they do not demonstrate that that
business has decreased. As the capital of a private man,
though acquired by a particular trade, may increase beyond
what he can employ in it, and yet that trade continue to in-
crease too ; so may likewise the capital of a great nation.
In our North American and West Indian colonies, not only
the wages of labour, but the interest of money, and conse-
quently the profits of stock, are higher than in England. In
the different colonies both the legal and the market rate of
interest run from six to eight per cent. High wages of
labour and high profits of stock, however, are things, per-
haps, which scarce ever go together, except in the peculiar
circumstances of new colonies. A new colony must always
for some time be more under-stocked in proportion to the
extent of its territory, and more vmder-peopled in proportion
to the extent of its stock, than the greater part of other
coimtries. They have more land than they have stock to cul-
tivate. What they have, therefore, is applied to the cultiva-
tion only of what is most fertile and most favourably situ-
ated, the land near the sea shore, and along the banks of
navigable rivers. Such land too is frequently purchased at
a price below the value even of its natural produce. Stock
employed in the purchase and improvement of such lands
must yield a ven,- large profit, and consequently afford to pay
a verj- large interest. Its rapid accumulation in so profitable
an employment enables the planter to increase the number of
his hands faster than he can find them in a new settlement.
Those whom he can find, therefore, are very liberally re-
D HC X
98 WEALTH OF NATIONS
warded. As the colony increases, the profits of stock gradu-
ally diminish. When the most fertile and best situated lands
have been all occupied, less profit can be made by the culti-
vation of what is inferior both in soil and situation, and less
interest can be afforded for the stock which is so employed
In the greater part of our colonies, accordingly, both the
legal and the market rate of interest have been considerably
reduced during the course of the present century. As riches,
improvement, and population have increased, interest has
declined. The wages of labour do not sink with the profits
of stock. The demand for labour increases with the increase
of stock whatever be its profits; and after these are dimin-
ished, stock may not only continue to increase, but to increase
much faster than before. It is with industrious nations who
are advancing in the acquisition of riches, as with industrious
individuals. A great stock, though with small profits, gen-
erally increases faster than a small stock with great profits.
Money, says the proverb, makes money. When you have got
a little, it is often easy to get more. The great difficulty is
to get that little. The connection between the increase of
stock and that of industry, or of the demand for useful
labour, has partly been explained already, but will be ex-
plained more fully hereafter in treating of the accumulation
of stock.
The acquisition of new territory, or of new branches of
trade, may sometimes raise the profits of stock, and with
them the interest of money, even' in a country which is fast
advancing in the acquisition of riches. The stock of the
country not being sufficient for the whole accession of busi-
ness, which such acquisitions present to the different people
among whom it is divided, is applied to those particular
branches only which afford the greatest profit. Part of what
had before been employed in' other trades, is necessarily with-
drawn from them, and turned into some of the new and more
profitable ones. In all those old trades, therefore, the com-
petition comes to be less than before. The market comes to
be less fully supplied with many different sorts of goods.
Their price necessarily rises more or less, and yields a
greater profit to those who deal in them, who can, therefore,
afford to borrow at a higher interest. For some time after
PROFITS OF STOCK 99
the conclusion of the late war, not only private people of
the best credit, but some of the greatest companies in Lon-
don, commonly borrowed at five per cent, who before that
had not been used to pay more than four, and four and a half \
per cent. The great accession both of territory and trade,
by our acquisitions in North America and the West Indies,
will sufficiently account for this, without supposing any
diminution in the capital stock of the society. So great an
accession of new business to be carried on by the old stock,
must necessarily have diminished the quantity employed in a
great number of particular branches, in which the compe-
tition being less, the, profits must have been greater. I shall
hereafter have occasion to mention the reasons which dis-
pose me to believe that the capital stock of Great Britain
was not diminished even by the enormous expence of the
late war.
The diminution of the capital stock of the society, or of
the funds destined for the maintenance of industry, however,
as it lowers the wages of labour, so it raises the profits of
stock, and consequently the interest of money. By the wages
of labour being lowered, the owners of what stock remains
in the society can bring their goods at less expence to market
than before, and less stock being employed in supplying the
market than before, they can sell them dearer. Their goods
cost them less, and they get more for them. Their profits,
therefore, being augmented at both ends, can well afford a
large interest. The great fortunes so suddenly and so easily !
acquired in Bengal and the other British settlements in the
East Indies, may satisfy us that, as the wages of labour are
very low, so the profits of stock are very high in those ruined
countries. The interest of money is proportionably so. In
Bengal, money is frequently lent to the farmers at forty,
fifty, and sixty per cent, and the succeeding crop is mortgaged
for the payment. As the profits which can afford such an
interest must eat up almost the whole rent of the landlord,
so such enorm.ous usury must in its turn eat up the greater
part of those profits. Before the fall of the Roman republic,
a usury of the same* kind seems to have been com-
mon in the provinces, under the ruinous administration
of their proconsuls. The virtuous Brutus lent money in
100 WEALTH OF NATIONS
Cyprus at eight-and-forty per cent, as we learn from the
letters of Cicero.
In a country which had acquired that full complement of
riches which the nature of its soil and climate, and its situ-
ation with respect to other countries, allowed it to acquire;
which could, therefore, advance no further, and which was
not going backwards, both the wages of labour and the
profits of stock would probably be very low. In a country
fully peopled in proportion to what either its territory could
maintain or its stock employ, the competition for employ-
ment would necessarily be so great as to reduce the wages
of labour to what was barely sufficient to keep up the number
of labourers, and, the country being already fully peopled,
that number could never be augmented. In a country fully
stocked in proportion to all the business it had to transact,
as great a quantity of stock would be employed in every par-
ticular branch as the nature and extent of the trade would
admit. The competition, therefore, would every-where be
as great, and consequently the ordinary profit as low as
possible.
But perhaps no country has ever yet arrived at this degree
of opulence. China seems to have been long stationary, and
had probably long ago acquired that full complement of riches
which is consistent with the nature of its laws and institu-
tions. But this complement may be much inferior to what,
with other laws and institutions, the nature of its soil, cli-
mate, and situation might admit of. A country which neg-
lects or despises foreign commerce, and which admits the
vessels of foreign nations into one or two of its ports only,
cannot transact the same quantity of business which it might
do with different laws and institutions. In a country too,
where, though the rich or the owners of large capitals enjoy
a good deal of security, the poor or the owners of small
capitals enjoy scarce any, but are liable, under the pretence
of justice, to be pillaged and plundered at any time by the
inferior mandarines, the quantity of stock employed in all
the different branches of business transacted Vv^ithin it, can
never be equal to what the nature and extent of that business
might admit. In every different branch, the oppression of
ihe poor must establish the monopoly of the rich, who, by
PROFITS OF STOCK 101
engrossing the whole trade to themselves, will be able to
make very large profits. Twelve per cent, accordingly is
said to be the common interest of money in China, and the
ordinary profits of stock must be sufficient to afford this
large interest.
A defect in the law may sometimes raise the rate of in-
terest considerably above what the condition of the country,
as to wealth or poverty, would require. When the law does
not enforce the performance of contracts, it puts all bor-
rowers nearly upon the same footing with bankrupts or
people of doubtful credit in better regulated countries. The
uncertainty of recovering his money makes the lender exact
the same usurious interest which is usually required from
bankrupts. Among the barbarous nations who over-run the
western provinces of the Roman empire, the performance of
contracts was left for many ages to the faith of the con-
tracting parties. The courts of justice of their kings seldom
intermeddled in it. The high rate of interest which took
place in those ancient times may perhaps be partly accounted
for from this cause.
When the law prohibits interest altogether, it does not pre-
vent it. Many people must borrow, and nobody will lend
without such a consideration for the use of their money as is
suitable, not only to what can be made by the use of it, but to
the difficulty and danger of evading the law. The high rate
of interest among all Mahometan nations is accounted
for by Mr. Montesquieu, not from their poverty, but partly
from this, and partly from the difficulty of recovering the
money.
The lowest ordinary rate of profit must always be some-
thing more than what is sufficient to compensate the occa-
sional losses to which every employment of stock is ex-
posed. It is this surplus only which is neat or clear profit.
What is called gross profit comprehends frequently, not only
this surplus, but what is retained for compensating such
extraordinary losses. The interest which the borrower can
afford to pay is in proportion to the clear profit only.
The lowest ordinary . rate of interest must, in the same
manner, be something more than sufficient to compensate
the occasional losses to which lending, even with tolerable
102 WEALTH OF NATIONS
prudence, is exposed. Were it not more, charity or friend-
ship could be the only motives for lending.
In a country which had acquired its full complement of
riches, where in every particular branch of business there
was the greatest quantity of stock that could be employed in
it, as the ordinary rate of clear profit would be very small,
so the usual market rate of interest which could be afforded
out of it, would be so low as to render it impossible for any
but the very wealthiest people to live upon the interest of
their money. All people of small or middling fortunes would
be obliged to superintend themselves the employment of their
own stocks. It would be necessary that almost every man
should be a man of business, or engage in some sort of trade.
The province of Holland seems to be approaching near to this
state. It is there unfashionable not to be a man of business.
Necessity makes it usual for almost every man to be so, and
custom every where regulates fashion. As it is ridiculous
not to dress, so is it, in some measure, not to be employed,
like other people. As a man of a civil profession seems
awkward in a camp or a garrison, and is even in some danger
of being despised there, so does an idle man among men of
business.
The highest ordinary rate of profit may be such as, in the
price of the greater part of commodities, eats up the whole of
what should go to the rent of the land, and leaves only what
is sufficient to pay the labour of preparing and bringing them
to market, according to the lowest rate at which labour can
any-where be paid, the bare subsistence of the labourer. The
workman must always have been fed in some way or other
while he was about the work; but the landlord may not
always have been paid. The profits of the trade which the
servants of the East India Company carry on in Bengal may
not perhaps be very far from this rate.
The proportion which the usual market rate of interest
ought to bear to the ordinary rate of clear profit, necessarily
varies as profit rises or falls. Double interest is in Great
Britain reckoned, what the merchants call, a good, moderate,
reasonable profit; terms which I apprehend mean no more
than a common and usual profit. In a country where the
ordinary rate of clear profit is eight or ten per cent., it may
PROFITS OF STOCK 103
be reasonable that one half of it should go to interest,
wherever business is carried on with borrowed money. The
stock is at the risk of the borrower, who, as it were, insures
it to the lender ; and four or five per cent, may, in the greater
part of trades, be both a sufficient profit upon the risk of this
insurance, and a sufficient recompence for the trouble of
employing the stock. But the proportion between interest and
clear profit might not be the same in countries where the
ordinary rate of profit was either a good deal lower, or a
good deal higher. If it were a good deal lower, one half of
it perhaps could not be afforded for interest ; and more might
be afforded if it were a good deal higher.
In countries which are fast advancing to riches, the low
rate of profit may, in the price of many commodities, com-
pensate the high wages of labour, and enable those countries
to sell as cheap as their less thriving neighbours, among
whom the wages of labour may be lower.
In reality high profits tend much more to raise the price of
work than high wages. If in the linen manufacture, for ex-
ample, the wages of the different working people, the flax-
dressers, the spinners, the weavers, &c. should, all of them, be
advanced two pence a day ; it would be necessary to heighten
the price of a piece of linen only by a number of two pences
equal to the number of people that had been employed about
it, multiplied by the number of days during which they had
been so employed. That part of the price of the commodity
which resolved itself into wages would, through all the dif-
ferent stages of the manufacture, rise only in arithmetical
proportion to this rise of wages. But if the profits of all the
different employers of those working people should be raised
five per cent, that part of the price of the commodity which
resolved itself into profit, would, through all the different
stages of the manufacture, rise in geometrical proportion to
this rise of profit. The employer of the flax-dressers would
in selling his flax require an additional five per cent, upon the
whole value of the materials and wages would be advanced
to his workmen. The employer of the spinners would require
an additional five per cent, both upon the advanced price of
the flax and upon the wages of the spinners. And the em-
ployer of the weavers would require a like five per cent, both
104 WEALTH OF NATIONS
upon the advanced price of the linen yarn and upon the wages
of the weavers. In raising the price of commodities the rise
of wages operates in the same manner as simple interest does
in the accumulation of debt. The rise of profit operates like
compound interest. Our merchants and master-manufac-
turers complain much of the bad effects of high wages in
raising the price, and thereby lessening the sale of their goods
both at home and abroad. They say nothing concerning the
bad effects of high profits. They are silent with regard to the
pernicious effects of their own gains. They complain only
of those of other people.
CHAPTER X
Of Wages and Profit in the Different Employments of
Labour and Stock
THE whole of the advantages and disadvantages of the
different employments of labour and stock must, in the
same neighbourhood, be either perfectly equal or con-
tinually tending to equality. If in the same neighbourhood,
there was any employment evidently either more or less ad-
vantageous than the rest, so many people would crowd into it
in the one case, and so many would desert it in the other,
that its advantages would soon return to the level of other
employments. This at least would be the case in a society
where things were left to follow their natural course, where
there was perfect liberty, and where every man was perfectly
free both to chuse what occupation he thought proper, and to
change it as often as he thought proper. Every man's inter-
est would prompt him to seek the advantageous, and to shun
the disadvantageous employment.
Pecuniary wages and profit, indeed, are every-where in
Europe extremely different according to the different employ-
ments of labour and stock. But this difference arises partly
from certain circumstances in the employments themselves,
which, either really, or at least in the imaginations of men,
make up for a small pecuniary gain in some, and counter-
balance a great one in others; and partly from the policy of
Europe, which no-where leaves things at perfect liberty.
The particular consideration of those circumstances and of
that policy will divide this chapter into two parts.
105
106 WEALTH OF NATIONS
PART I
Inequalities arising from the Nature of the Employments
themselves
The five following are the principal circumstances which,
so far as I have been able to observe, make up for a small
pecuniary gain in some employments, and counter-balance
a great one in others; first, the agreeableness or disagree-
ableness of the employments themselves ; secondly, the easi-
ness and cheapness, or the difficulty and expence of learning
them ; thirdly, the constancy or inconstancy of employment
in them ; fourthly, the small or great trust which must be
reposed in those who exercise them ; and fifthly, the prob-
ability or improbability of success in them.
First, The wages of labour vary with the ease or hardship,
the cleanliness or dirtiness, the honourableness or dishonour-
ableness of the employment. Thus in most places, take the
year round, a journeyman taylor earns less than a journey-
man weaver. His work is much easier. A journeyman
weaver earns less than a journeyman smith. His work is
not always easier, but it is much cleanlier. A journeyman
blacksmith, though an artificer, seldom earns so much in
twelve hours as a collier, who is only a labourer, does in
eight. His work is not quite so dirty, is less dangerous, and
is carried on in day-light, and above ground. Honour makes
a great part of the reward qf all honourable professions. In
point of pecuniary gain^ all things considered, they are gen-
erally under-recompensed, as I shall endeavour to show by
and by. Disgrace has the contrary effect. The trade of the
butcher is a brutal and an odious business; but it is in most
places more profitable than the greater part of common
trades. The most detestable of all employments, that of
public executioner, is, in proportion to the quantity of work
done, better paid than any common trade whatever.
Hunting and fishing, the most important employments of
mankind in the rude state of society, become in its advanced
state their most agreeable amusements, and they pursue for
pleasure what they once followed from necessity. In the
advanced state of society, therefore, they are all very poor
people who follow as a trade, what other people pursue as a
NATURAL INEQUALITIES 107
pastime. Fishermen have been so since the time of The-
ocritus. A poacher is every-where a very poor man in Great
Britain. In countries where the rigour of the law suffers
no poachers, the Hcensed hunter is not in a much better con-
dition. The natural taste for those employments makes more
people follow them than can live comfortably by them, and
the produce of their labour, in proportion to its quantity,
comes always too cheap to market to afford anything but the
most scanty subsistence to the labourers.
Disagreeableness and disgrace affect the profits of stock in
the same manner as the wages of labour. The keeper of an
inn or tavern, who is never master of his own house, and
who is exposed to the brutality of every drunkard, exercises
neither a very agreeable nor a very creditable business. But
there is scarce any common trade in which a small stock
yields so great a profit.
Secondly, The wages of labour vary with the easiness and
cheapness, or the difficulty and expence of learning the
business.
When any expensive machine is erected, the extraordinary
work to be performed by it before it is worn out, it must be
expected, will replace the capital laid out upon it, with at
least the ordinary profits. A man educated at the expence
of much labour and time to any of those employments which
require extraordinary dexterity and skill, may be compared
to one of those expensive machines. The work which he
learns to perform, it must be expected, over and above the
usual wages of common labour, will replace to him the whole
expence of his education, with at least the ordinary profits of
an equally valuable capital. It must do this too in a reason-
able time, regard being had to the very uncertain duration of
human life, in the same manner as to the more certain dura-
tion of the machine.
The difference between the wages of skilled labour and
those of common labour, is founded upon this principle.
The policy of Europe considers the labour of all mechanics,
artificers, and manufacturers, as skilled labour; and that of
all country labourers as common laljour. It seems to suppose
that of the former to be of a more nice and delicate nature
than that of the latter. It is so perhaps in some cases; but
108 WEALTH OF NATIONS
in the greater part it is quite otherwise, as I shall endeavour
to shew by and by. The laws and customs of Europe, there-
fore, in order to qualify any person for exercising the one
species of labour, impose the necessity of an apprenticeship,
though with different degrees of rigour in different places.
They leave the other free and open to every body. During
the continuance of the apprenticeship, the whole labour of the
apprentice belongs to his master. In the mean time he must,
in many cases, be maintained by his parents or relations, and
in almost all cases must be cloathed by them. Some money
too is commonly given to the master for teaching him his
trade. They who cannot give money, give time, or become
bound for more than the usual number of years ; a considera-
tion which, though it is not always advantageous to the
master, on account of the usual idleness of apprentices, is
always disadvantageous to the apprentice. In country labour,
on the contrary, the labourer, while he is employed about the
easier, learns the more difificult parts of his business, and his
own labour maintains him through all the different stages of
his employment. It is reasonable, therefore, that in Europe
the wages of mechanics, artificers, and manufacturers, should
be somewhat higher than those of common labourers. They
are so accordingly, and their superior gains make them in
most places be considered as a superior rank of people. This
superiority, however, is generally very small ; the daily or
weekly earnings of journeymen in the more common sorts
of manufactures, such as those of plain linen and woollen
cloth, computed at an average, are, in most places, very little
more than the day wages of common labourers. Their em-
ployment, indeed, is more steady and uniform, and the su-
periority of their earnings, taking the whole year together,
may be somewhat greater. It seems evidently, however, to
be no greater than what is sufificient to compensate the su-
perior expence of their euUcation.
Education in the ingenious arts and in the liberal profes-
sions, is still more tedious and expensive. The pecuniary
recompence, therefore, of painters and sculptors, of lawyers
and physicians, ought to be much more liberal: and it is so
accordingly.
The profits of stock seem to be very little affected by the
NATURAL INEQUALITIES 109
easiness or difficulty of learning the trade in which it is em-
ployed. All the different ways in which stock is commonly
employed in great towns seem, in reality, to be almost equally
easy and equally difficult to learn. One branch either of
foreign or domestic trade, cannot well be a much more intri-
cate business than another.
Thirdly, The wages of labour in different occupations vary
with the constancy or inconstancy of employment.
Employment is much more constant in some trades than
in others. In the greater part of manufactures, a journey-
man may be pretty sure of employment almost every day in
the year that he is able to work. A mason or bricklayer, on
the contrary, can work neither in hard frost nor in foul
weather, and his employment at all other times depends upon
the occasional calls of his customers. He is liable, in conse-
quence, to be frequently without any. What he earns, there-
fore, while he is employed, must not only maintain him while
he is idle, but make him some compensation for those anxious
and desponding moments which the thought of so precarious
a situation must sometimes occasion. Where the computed
earnings of the greater part of manufacturers, accordingly,
are nearly upon a level with the day wages of common la-
bourers, those of masons and bricklayers are generally from
one half more to double those wages. Where common
labourers earn four and five shillings a week, masons and
bricklayers frequently earn seven and eight ; where the former
earn six, the latter often earn nine and ten, and where the
former earn nine and ten, as in London, the latter commonly
earn fifteen and eighteen. No species of skilled labour, how-
ever, seems more easy to learn than that of masons and
bricklayers. Chairmen in London, during the summer season,
are said sometimes to be employed as bricklayers. The high
wages of those workmen, therefore, are not so much the
recompence of their skill, as the compensation for the incon-
stancy of their employment.
A house carpenter seems to exercise rather a nicer
and more ingenious trade than a mason. In most places
however, for it is not universally so, his day-wages
are somewhat lower. His employment, though it depends
much, does not depend so entirely upon the occasional
no WEALTH OF NATIONS
calls of his customers ; and it is not liable to be interrupted
by the weather.
When the trades which generally afford constant employ-
ment, happen in a particular place not to do so, the wages
of the workmen always rise a good deal above their ordinary
proportion to those of common labour. In London almost all
journeymen artificers are liable to be called upon and dis-
missed by their masters from day to day, and from week to
week, in the same manner as day-labourers in other places.
The lowest order of artificers, journeymen taylors, accord-
ingly, earn there half a crown a day, though eighteen pence
may be reckoned the wages of common labour. In small
towns and country villages, the wages of journeymen taylors
frequently scarce equal those of common labour; but in
London they are often many weeks without employment, par-
ticularly during the summer.
When the inconstancy of employment is combined with the
hardship, disagreeableness, and dirtiness of the work, it some-
times raises the wages of the most common labour above
those of the most skilful artificers. A collier working by the
piece is supposed, at Newcastle, to earn commonly about
double, and in many parts of Scotland about three times the
wages of common labour. His high wages arise altogether
from the hardship, disagreeableness, and dirtiness of his
work. His employment may, upon most occasions, be as con-
stant as he pleases. The coal-heavers in London exercise a
trade which in hardship, dirtiness, and disagreeableness,
almost equals that of colliers ; and from the unavoidable
irregularity in the arrivals of coal-ships, the employment of
the greater part of them is necessarily very inconstant. If
colliers, therefore, commonly earn double and triple the
wages of common labour, it ought not to seem unreasonable
that coal-heavers should sometimes earn four and five times
those wages. In the enquiry made into their condition a
few years ago, it was found that at the rate at which they
were then paid, they could earn from six to ten shillings a
day. Six shillings are about four times the wages of com-
mon labour in London, and in every particular trade, the
lowest common earnings may always be considered as those
of the far greater number. How extravagant soever those
NATURAL INEQUALITIES Hi
earnings may appear, if they were more than sufficient to
compensate all the disagreeable circumstances of the business,
there would soon be so great a number of competitors as, in a
trade which has no exclusive privilege, would quickly reduce
them to a lower rate.
The constancy or inconstancy of employment cannot effect
the ordinary profits of stock in any particular trade. Whether
the stock is or is not constantly employed depends, not upon
the trade, but the trader.
Fourthly, The wages of labour vary according to the small
or great trust which must be reposed in the workmen.
The wages of goldsmiths and jewellers are every-where
superior to those of many other workmen, not only of equal,
but of much superior ingenuity ; on account of the precious
materials with which they are intrusted.
We trust our health to the physician ; our fortune and
sometimes our life and reputation to the lawyer and attorney.
Such confidence could not safely be reposed in people of a
very mean or low condition. Their reward must be such,
therefore, as may give them that rank in the society which
so important a trust requires. The long time and the great
expence which must be laid out in their education, when
combined with this circumstance, necessarily enhance still
further the price of their labour.
When a person employs only his own stock in trade, there
is no trust ; and the credit which he may get from other
people, depends, not upon the nature of his trade, but upon
their opinion of his fortune, probity, and prudence. The
different rates of profit, therefore, in the dift'erent branches
of trade, cannot arise from the different degrees of trust re-
posed in the traders.
Fifthly, The wages of labour in different employments
vary according to the probability or improbability of success
in them.
The probability that any particular person shall ever be
qualified for the employment to which he is educated, is very
different in different occupations. In the greater part of
mechanic trades, success is almost certain ; but very uncer-
tain in the liberal professions. Put your son apprentice to a
shoemaker, there is little doubt of his learning to make a
312 WEALTH OF NATIONS
pair of shoes : But send him to study law, it is at least twentj
to one if ever he makes such proficiency as will enable him to
live by the business. In a perfectly fair lottery, those who
drav*^ the prizes ought to gain all that is lost by those who
draw the blanks. In a profession where twenty fail for one
that succeeds, that one ought to gain all that should have
been gained by the unsuccessful twenty. The counsellor at
law who, perhaps, at near forty years of age, begins to make
something by his profession, ought to receive the retribution,
not only of his own so tedious and expensive education, but
of that of more than twenty others who are never likely to
make any thing by it. How extravagant soever the fees
of counsellors at law may sometimes appear, their real retri-
bution is never equal to this. Compute in any particular
place, what is likely to be annually gained, and what is likely
to be annually spent, by all the different workmen in any
common trade, such as that of shoemakers or weavers, and
you will find that the former sum will generally exceed the
latter. But make the same computation with regard to all the
counsellors and students of law, in all the different inns of
court, and you will find that their annual gains bear but a
very small proportion to their annual expence, even though
you rate the former as high, and the latter as low, as can well
be done. The lottery of the law, therefore, is very far from
being a perfectly fair lottery ; and that, as well as many other
liberal and honorable professions, is, in point of pecuniary
gain, evidently under-recompenced.
Those professions keep their level, however, with other
occupations and, notwithstanding these discouragements, all
the most generous and liberal spirits are eager to crowd into
them. Two different causes contribute to recommend them.
First, the desire of the reputation which attends upon su-
perior excellence in any of them; and, secondly, the natural
confidence which every man has more or less, not only in his
own abilities, but in his own good fortune.
To excel in any profession, in which but few arrive at
mediocrity, is the most decisive mark of what is called genius
or superior talents. The public admiration which attends
upon such distinguished abilities, makes always a part of
their reward; a greater or smaller in proportion as it is
NATURAL INEQUALITIES 113
higher or lower in degree. It makes a considerable part of
that reward in the profession of physic ; a still greater per-
haps in that of law; in poetry and philosophy it makes
almost the whole.
There are some very agreeable and beautiful talents of
which the possession commands a certain sort of admiration;
but of which the exercise for the sake of gain is considered,
whether from reason or prejudice, as a sort of public prosti-
tution. The pecuniary recompence, therefore, of those who
exercise them in this manner, must be sufficient, not only to
pay for the time, labour and expence of acquiring the talents,
but for the discredit which attends the employment of them
as a means of subsistence. The exorbitant rewards of play-
ers, opera-singers, opera-dancers, &c. are founded upon those
two principles ; the rarity and beauty of the talents, and the
discredit of employing them in this manner. It seems absurd
at first sight that we should despise their persons, and yet
reward their talents with the most profuse liberality. While
we do the one, however, we must of necessity do the other.
Should the public opinion or prejudice ever alter with regard
to such occupations, their pecuniary recompence would
quickly diminish. More people would apply to them, and the
competition would quickly reduce the price of their labour.
Such talents, though far from being common, are by no
means so rare as is imagined. Many people possess them in
great perfection, who disdain to make use of them; and many
more are capable of acquiring them, if any thing could be
made honourably by them.
The over-w^eening conceit which the greater part of men
have of their ow-n abilities, is an ancient evil remarked by
the philosophers and moralists of all ages. Their absurd pre-
sumption in their own good fortune, has been less taken
notice of. It is, however, if possible, still more universal.
There is no man living who, when in tolerable health and
spirits, has not some share of it. The chance of gain is by
every man more or less over-valued, and the chance of loss
is by most men under-valued, and by scarce any man, who
is in tolerable health and spirits, valued more than it is worth.
That the chance of gain is naturally over-valued, we may
learn from the universal success of lotteries. The world
114 WEALTH OF NATIONS
neither ever saw^ nor ever will see, a perfectly fair lottery;
or one in which the whole gain compensated the whole loss;
because the undertaker could make nothing by it. In the
state lotteries the tickets are really not worth the price which
is paid by the original subscribers, and yet commonly sell in
the market for twenty, thirty, and sometimes forty per cent,
advance. The vain hope of gaining some of the great prizes
is the sole cause of this demand. The soberest people scarce
look upon it as a folly to pay a small sum for the chance of
gaining ten or twenty thousand pounds; though they know
that even that small sum is perhaps twenty or thirty per cent,
more than the chance is worth. In a lottery in which no
prize exceeded twenty pounds, though in other respects it
approached much nearer to a perfectly fair one than the
common state lotteries, there would not be the same demand
for tickets. In order to have a better chance for some of the
great prizes, some people purchase several tickets, and
others, small shares in a still greater number. There is not,
however, a more certain proposition in mathematics, than
that the more tickets you adventure upon, the more likely
you are to be a loser. Adventure upon all the tickets in the
lottery, and you lose for certain ; and the greater the number
of your tickets the nearer you approach to this certainty.
That the chance of loss is frequently undervalued, and
scarce ever valued more than it is worth, we may learn from
the very moderate profit of insurers. In order to make in-
surance, either from fire or sea-risk, a trade at all, the com-
mon premium must be sufficient to compensate the common
losses, to pay the expence of management, and to afford such
a profit as might have been drawn from an equal capital em-
ployed in any common trade. The person who pays no more
than' this, evidently pays no more than the real value of the
risk, or the lowest price at which he can reasonably expect
to insure it. But though many people have made a little
money by insurance, very few have made a great fortune;
and from this consideration alone, it seems evident enough,
that the ordinary balance of profit and loss is not more ad-
vantageous in this, than in other common trades by which
so many people make fortunes. Moderate, however, as the
premium of insurance commonly is, many people despise the
NATURAL INEQUALITIES 115
risk too much to care to pay it. Taking the whole kingdom
at an average, nineteen houses in twenty, or rather, perhaps,
ninety-nine in a hundred, are not insured from fire. Sea-risk
is more alarming to the greater part of people, and the pro-
portion of ships insured to those not insured is much greater.
Many sail, however, at all seasons, and even in time of war,
without any insurance. This may sometimes perhaps be done
without any imprudence. When a great company, or even a
great merchant, has twenty or thirty ships at sea, they may,
as it were, insure one another. The premium saved upon
them all, may more than compensate such losses as they are
likely to meet with in the common course of chances. The
neglect of insurance upon shipping, however, in the same
manner as upon houses is, in most cases, the effect of no
such nice calculation, but of mere thoughtless rashness and
presumptuous contempt of the risk.
The contempt of risk and the presumptuous hope of suc-
cess, are in no period of life more active than at the age at
which young people chuse their professions. How little the
fear of misfortune is then capable of balancing the hope
of good luck, appears still more evidently in the readiness
of the common people to enlist as soldiers, or to go to sea,
than in the eagerness of those of better fashion to enter into
what are called the liberal professions.
What a common soldier may lose is obvious enough. With-
out regarding the danger, however, young volunteers never
enlist so readily as at the beginning of a new war ; and though
they have scarce any chance of preferment, they figure to
themselves, in their youthful fancies, a thousand occasions
of acquiring honour and distinction which never occur. These
romantic hopes make the whole price of their blood. Their
pay is less than that of common laborers, and in actual serv-
ice their fatigues are much greater.
The lottery of the sea is not altogether so disadvantageous
as that of the army. The son of a creditable labourer or
artificer may frequently go to sea with his father's consent;
but if he enlists as a soldier, it is always without it. Other
people see some chance of his making something by the one
trade; nobody but himself sees any of his making any thing
by the other. The great admiral is less the object of public
116 WEALTH OF NATIONS
admiration than the great general, and the highest success
in the sea service promises a less brilliant fortune and repu-
tation than equal success in the land. The same difference
runs through all the inferior degrees of preferment in both.
By the rules of precedency a captain in the navy ranks with
a colonel in the army : but he does not rank vi^ith him in the
common estimation. As the great prizes in the lottery are
less, the smaller ones must be more numerous. Common
sailors, therefore, more frequently get some fortune and pre-
ferment than common soldiers; and the hope of those prizes
is what principally recommends the trade. Though their
skill and dexterity are much superior to that of almost any
artificer's, and though their whole life is one continual scene
of hardship and danger, yet for all this dexterity and skill,
for all those hardships and dangers, while they remain in
the condition of common sailors, they receive scarce any
other recompence but the pleasure of exercising the one and
of surmounting the other. Their wages are not greater than
those of common laborers at the port which regulates the
rate of seamen's wages. As they are continually going from
port to port, the monthly pay of those who sail from all the
different ports of Great Britain, is more nearly upon a level
than that of any other workmen in those different places;
and the rate of the port to and from which the greatest
number sail, that is the port, of London, regulates that of
all the rest. At London the wages of the greater part o£
the different classes of workmen are about double those of
the same classes at Edinburgh. But the sailors who sail from
the port of London seldom earn above three or four shil-
lings a month more than those who sail from the port of
Leith, and the difference is frequently not so great, hi time
of peace, and in the merchant service, the London price is
from a guinea to about seven-and-twenty shillings the cal-
endar month. A com.mon labourer in London, at the rate
of nine or ten shillings a month, may earn in the calendar
month from forty to five-and-forty shillings. The sailor,
indeed, over and above his pay, is supplied with provisions.
Their value, however, may not perhaps always exceed the
difference between his pay and that of the common labourer;
and though it sometimes should, the excess will not be clear
NATURAL INEQUALITIES 117
gain to the sailor, because he cannot share it with his wife
and family, whom he must maintain out of his wages at home.
The dangers and hair-breadth escapes of a Hfe of adven-
tures, instead of disheartening young people, seem frequently
to recommend a trade to them. A tender mother, among the
inferior ranks of people, is often afraid to send her son to
school at a sea-port town, lest the sight of the ships and
the conversation and adventures of the sailors should entice
him to go to sea. The distant prospect of hazards, from
which we can hope to extricate ourselves by courage and
address, is not disagreeable to us, and does not raise the
wages of labour in any employment. It is otherwise with
those in which courage and address can be of no avail. In
trades which are known to be very unwholesome, the wages
of labour are always remarkably high. Unwholesomeness is
a species of disagreeableness, and its effects upon the wages
of labour are to be ranked under that general head.
In all the different employments of stock, the ordinary
rate of profit varies more or less with the certainty or un-
certainty of the returns. These are in general less uncertain
in the inland than in the foreign trade, and in some branches
of foreign trade than others; in the trade to North America,
for example, than in that to Jamaica. The ordinary rate of
profit always rises more or less with the risk. It does not,
however, seem to rise in proportion to it, or so as to com-
pensate it completely. Bankruptcies are most frequent in
the most hazardous trades. The most hazardous of all trades,
that of a smuggler, though when the adventure succeeds it
is likewise the most profitable, is the infallible road to bank-
ruptcy. The presumptuous hope of success seems to act here
as upon all other occasions, and to entice so many adven-
turers into those hazardous trades, that their competition
reduces the profit below what is sufficient to compensate the
risk. To compensate it completely, the common returns
ought, over and above the ordinary profits of stock, not only
to make up for all occasional losses, but to afford a surplus
profit to the adventurers of the same nature with the profit
of insurers. But if the common returns were sufficient for
all this, bankruptcies would not be more frequent in these
than in other trades.
118 WEALTH OF NATIONS
Of the five circumstances, therefore, which vary the wages
of labour, two only affect the profits of stock; the agree-
ableness or disagreeableness of the business, and the risk or
security with which it is attended. In point of agreeableness
or disagreeableness, there is little or no difference in the far
greater part of the different employments of stock ; but a
great deal in those of labour; and the ordinary profit of
stock, though it rises with the risk, does not always seem
to rise in proportion to it. It should follow from all this,
that, in the same society or neighborhood, the average and
ordinary rates of profit in the different employments of stock
should be more nearly upon a level than the pecuniary wages
of the different sorts of labour. They are so accordingly.
The difference between the earnings of a common labourer
and those of a well employed lawyer or physician, is evi-
dently much greater than that between the ordinary profits
in any two different branches of trade. The apparent dif-
ference, besides, in the profits of different trades, is generally
a deception arising from our not always distinguishing what
ought to be considered as wages, from what ought to be con-
sidered as profit.
Apothecaries' profit is become a bye-word, denoting some-
thing uncommonly extravagant. This great apparent profit,
however, is frequently no more than the reasonable wages
of labour. The skill of an apothecary is a much nicer and
more delicate matter than that of any artificer whatever;
and the trust which is reposed in him is of much greater
importance. He is the physician of the poor in all cases,
and of the rich when the distress or danger is not very great.
His reward, therefore, ought to be suitable to his skill and
his trust, and it arises generally from the price at which he
sells his drugs. But the whole drugs which the best em-
ployed apothecary, in a large market town, will sell in a
year, may not perhaps cost him above thirty or forty pounds.
Though he should sell them, therefore, for three or four
hundred, or at a thousand per cent, profit, this may frequently
be no more than the reasonable wages of his labour charged,
in the only way in which he can charge them, upon the price
of his drugs. The greater part of the apparent profit is real
wages disguised in the garb of profit.
NATURAL INEQUALITIES 119
In a small sea-port town, a little grocer will make forty
or fifty per cent, upon a stock of a single hundred pounds,
while a considerable wholesale merchant in the same place
will scarce make eight or ten per cent, upon a stock of ten
thousand. The trade of the grocer may be necessary for
the conveniency of the inhabitants, and the narrowness of
the market may not admit the employment of a larger cap-
ital in the business. The man, however, must not only live
by his trade, but live by it suitably to the qualifications which
it requires. Besides possessing a little capital, he must be
able to read, write, and account, and must be a tolerable
judge too of, perhaps, fifty or sixty different sorts of goods,
their prices, qualities, and the markets where they are to be
had cheapest. He must have all the knowledge, in short,
that is necessary for a great merchant, which nothing hinders
him from becoming but the want of sufficient capital. Thirty
or forty pounds a year cannot be considered as too great a
recompence for the labour of a person so accomplished. De-
duct this from the seemingly great profits of his capital, and
little more will remain, perhaps, than the ordinary profits
of stock. The greater part of the apparent profit is, in this
case too, real wages.
The difference between the apparent profit of the retail
and that of the wholesale trade, is much less in the capital
than in small towns and country villages. Where ten thou-
sand pounds can be employed in the grocery trade, the wages
of the grocer's labour make but a very trifling addition to
the real profits of so great a stock. The apparent profits of
the wealthy retailer, therefore, are there more nearly upon a
level with those of the wholesale merchant. It is upon this
account that goods sold by retail are generally as cheap and
frequently much cheaper in the capital than in small towns
and country villages. Grocery goods, for example, are gen-
erally much cheaper ; bread and butcher's meat frequently as
cheap. It costs no more to bring grocery goods to the great
town than to the country village; but it costs a great deal
more to bring corn and cattle, as the greater part of them
must be brought from a much greater distance. The prime
cost of grocery goods, therefore, being the same in both
places, they are cheapest where the least profit is charged
120 WEALTH OF NATIONS
upon them. The prime cost of bread and butcher's meat is
greater in the great town than in the country village; and
though the profit is less, therefore they are not always
cheaper there, but often equally cheap. In such articles as
bread and butcher's meat, the same cause, which diminishes
apparent profit, increases prime cost. The extent of the
market, by giving employment to greater stocks, diminishes
apparent profit ; but by requiring supplies from a greater dis-
tance, it increases prime cost. This diminution of the one
and increase of the other seem, in most cases, nearly to
counter-balance one another; which is probably the reason
that, though the prices of corn and cattle are commonly very
different in different parts of the kingdom, those of bread
and butcher's meat are generally very nearly the same
through the greater part of it.
Though the profits of stock both in the wholesale and re-
tail trade are generally less in the capital than in small towns
and country villages, yet great fortunes are frequently ac-
quired from small beginnings in the former, and scarce ever
in the latter. In small towns and country villages, on account
of the narrowness of the market, trade cannot always be ex-
tended as stock extends. In such places, therefore, though
the rate of a particular person's profits may be very high, the
sum or amount of them can never be very great, nor conse-
quently that of his annual accumulation. In great towns, on
the contrary, trade can be extended as stock increases, and
the credit of a frugal and thriving man increases much faster
than his stock. His trade is extended in proportion to the
amount of both, and the sum or amount of his profits is in
proportion to the extent of his trade, and his annual accumu-
lation in proportion to the amount of his profits. It seldom
happens, however, that great fortunes are made even in
great towns by any one regular, established, and well-known
branch of business, but in consequence of a long life of in-
dustry, frugality, and attention. Sudden fortunes, indeed,
are sometimes made in such places by what is called the
trade of speculation. The speculative merchant exercises
no one regular, established, or well-known branch of business.
He is a corn merchant this year, and a wine merchant the
next, and a sugar, tobacco, or tea merchant the year after.
NATURAL INEQUALITIES 121
He enters into every trade when he foresees that it is likely
to be more than commonly profitable, and he quits it when
he foresees that its profits are likely to return to the level
of other trades. His profi.ts and losses, therefore, can bear
no regular proportion to those of any one established and
well-known branch of business. A bold adventurer may
sometimes acquire a considerable fortune by two or three
successful speculations; but is just as likely to lose one by
two or three unsuccessful ones. This trade can be carried
on no where but in great towns. It is only in places of the
most extensive commerce and correspondence that the intel-
ligence requisite for it can be had.
The five circumstances above mentioned, though they occa-
sion considerable inequalities in the wages of labour and
profits of stock, occasion none in the whole of the advantages
and disadvantages, real or imaginary, of the different em-
ployments of either. The nature of those circumstances is
such, that they make up for a small pecuniary gain in some,
and counter-balance a great one in others.
In order, however, that this equality may take place in the
whole of their advantages or disadvantages, three things are
requisite even where there is the most perfect freedom.
First, the employments must be well known and long estab-
lished in the neighborhood ; secondly, they must be in their
ordinary, or what may be called their natural state ; and,
thirdly, they must be the sole or principal employments of
those who occupy them.
First, this equality can take place only in those employ-
ments which are well known, and have been long established
in the neighbourhood.
Where all other circumstances are equal, wages are gen-
erally higher in new than in old trades. When a projector
attempts to establish a new manufacture, he must at first
entice his workmen from other employments by higher wages
than they can either earn in their own trades, or than the
nature of his work would otherwise require, and a consid-
erable time must pass away before he can venture to reduce
them to the common level. Manufactures for which the
demand arises altogether from fashion and fancy, are con-
tinually changing, and seldom last long enough to be con-
122 WEALTH OF NATIONS
sidered as old established manufactures. Those, on the con-
trary, for which the demand arises chiefly from use or
necessity, are less liable to change, and the same form or
fabric may continue in demand for whole centuries to-
gether. The wages of labour, therefore, are likely to be
higher in manufactures of the former, than in those of
the latter kind. Birmingham deals chiefly in manu-
factures of the former kind ; Sheffield in those of the latter ;
and the wages of labour in those two different places, are
said to be suital)le to this difference in the nature of their
manufactures.
The establishment of any new manufacture, of any new
branch of commerce, or of any new practice in agriculture,
is always a speculation, from which the projector promises
himself extraordinary profits. These profits sometimes are
very great, and sometimes, more frequently, perhaps, they
are quite otherwise ; but in general they bear no regular
proportion to those of other old trades in the neighbourhood.
If the project succeeds, they are commonly at first very high.
When the trade or practice becomes thoroughly established
and well known, the competition reduces them to the level
of other trades.
Secondly, This equality in the whole of the advantages and
disadvantages of the different employments of labour and
stock, can take place only in the ordinary, or what may be
called the natural state of those employments.
The demand for almost every dift'erent species of labour
is sometimes greater and sometimes less than usual. In the
one case the advantages of the employment rise above, in
the other they fall below the common level. The demand
for country labour is greater at hay-time and harvest, than
during the greater part of the year; and wages rise with the
demand. In time of war, when forty or fifty thousand sailors
are forced from the merchant service into that of the king,
the demand for sailors to merchant ships necessarily rises
with their scarcity, and their wages upon such occasions
commonly rise from a guinea and seven-and-twenty shillings,
to forty shillings and three pounds a month. In a decaying
manufacture, on the contrary, many workmen, rather than
quit their old trade, are contented with smaller wages than
NATURAL INEQUALITIES 123
would otherwise be suitable to the nature of their employ-
ment.
The profits of stock vary with the price of the commodities
in which it is employed. As the price of any commodity
rises above the ordinary or average rate, the profits of at
least some part of the stock that is employed in bringing it
to market, rise above their proper level, and as it falls they
sink below it. All commodities are more or less liable to
variations of price, but some are much more so than others.
In all commodities which are produced by human industry,
the quantity of industry annually employed is necessarily reg-
ulated by the annual demand, in such a manner that the
average annual produce may, as nearly as possible, be equal
to the average annual consumption. In some employments,
it has already been observed, the same quantity of industry
will always produce the same, or very nearly the same quan-
tity of commodities. In the linen or woollen manufactures,
for example, the same number of hands will annually work
up very nearly the same quantity of linen and woollen cloth.
The variations in the market price of such commodities,
therefore, can arise only from some accidental variation in
the demand. A public mourning raises the price of black
cloth. But as the demand for most sorts of plain linen and
woollen cloth is pretty uniform, so is likewise the price. But
there are other employments in which the same quality of
industry will not always produce the same quantity of com-
modities. The same quantity of industry, for example, will,
in different years, produce very different quantities of corn,
wine, hops, sugar, tobacco, &c. The price of such commodi-
ties, therefore, varies not only with the variations of demand,
but with the much greater and more frequent variations of
quantity, and is consequently extremely fluctuating. But the
profit of some of the dealers must necessarily fluctuate with
the price of the commodities. The operations of the specu-
lative merchant are principally employed about such com-
modities. He endeavours to buy them up when he foresees
that their price is likely to rise, and to sell them when it is
likely to fall.
Thirdly, This equality in the whole of the advantages and
disadvantages of the different employments of labour and
124 WEALTH OF NATIONS
stock, can take place only in such as are the sole or principal
employments of those who occupy them.
When a person derives his subsistence from one employ-
ment, which does not occupy the greater part of his time ; in
the intervals of his leisure he is often willing to work at an-
other for less wages than would otherwise suit the nature
of the employment.
There still subsists in many parts of Scotland a set of
people called Cotters or Cottagers, though they were more
frequent some years ago than they are now. They are a
sort of out-servants of the landlords and farmers. The usual
reward which they receive from their masters is a house, a
small garden for pot herbs, as much grass as will feed a
cow, and, perhaps, an acre or two of bad arable land. When
their master has occasion for their labour, he gives them,
besides, two pecks of oatmeal a week, worth about sixteen
pence sterling. During a great part of the year he has little
or no occasion for their labour, and the cultivation of their
own little possession is not sufficient to occupy the time
which is left at their own disposal. When such occupiers
were more numerous than they are at present, they are said
to have been willing to give their spare time for a very small
recompence to any body, and to have wrought for less wages
than other labourers. In ancient times they seem to have
been common all over Europe. In countries ill cultivated
and worse inhabited, the greater part of landlords and
farmers could not otherwise provide themselves with the
extraordinary number of hands, which country labour re-
quires at certain seasons. The daily or weekly recompence
which such labourers occasionally received from their
masters, was evidently not the whole price of their labour.
Their small tenement made a considerable part of it. This
daily or weekly recompence, however, seems to have been
considered as the whole of it, by many writers who have
collected the prices of labour and provisions in ancient times,
and who have taken pleasure in representing both as wonder-
fully low.
The produce of such labour comes frequently cheaper to
market than would otherwise be suitable to its nature. Stock-
ings in many parts of Scotland are knit much cheaper than
NATURAL INEQUALITIES 125
they can any-where be wrought upon the loom. They are
the work of servants and labourers, who derive the principal
part of their subsistence from some other employment. More
than a thousand pair of Shetland stockings are annually im-
ported into Leith, of which the price is from five pence to
seven pence a pair. At Learwick, the small capital of the
Shetland islands, ten pence a day, I have been assured, is a
common price of common labour. In the same islands they
knit worsted stockings to the value of a guinea a pair and
upwards.
The spinning of linen yarn is carried on in Scotland nearly
in the same way as the knitting of stockings, by servants who
are chiefly hired for other purposes. They earn but a very
scanty subsistence, who endeavour to get their whole liveli-
hood by either of those trades. In most parts of Scotland
she is a good spinner who can earn twenty pence a week.
In opulent countries the market is generally so extensive,
that any one trade is sufficient to employ the whole labour
and stock of those who occupy it. Instances of people's
living by one employment, and at the same time deriving
some little advantage from another, occur chiefly in poor
countries. The following instance, however, of something
of the same kind is to be found in the capital of a very rich
one. There is no city in Europe, I believe, in which house-
rent is dearer than in London, and yet I know no capital
in which a furnished apartment can be hired so cheap. Lodg-
ing is not only much cheaper in London than in Paris; it is
much cheaper than in Edinburgh of the same degree of good-
ness ; and what may seem extraordinary, the dearness of
house-rent is the cause of the cheapness of lodging. The
dearness of house-rent in London arises, not only from those
causes which render it dear in all great capitals, the dearness
of labour, the dearness .of all the materials of building, which
must generally be brought from a great distance, and above
all the dearness of ground-rent, every landlord acting the
part of a monopolist, and frequently exacting a higher rent
for a single acre of bad land in a town, than can be had
for a hundred of the be.^t in the country; but it arises in
part from the peculiar manners and customs of the people
which oblige every master of a family to hire a whole house
126 WEALTH OF NATIONS
from top to bottom. A dwelling-house in England means
every thing that is contained under the same roof. In France,
Scotland, and many other parts of Europe, it frequently
means no more than a single story. A tradesman in London
is obliged to hire a whole house in that part of the town
where his customers live. His shop is upon the ground-floor,
and he and his family sleep in the garret; and he endeavours
to pay a part of his house-rent by letting the two middle
stories to lodgers. He expects to maintain his family by his
trade, and not by his lodgers. Whereas, at Paris and Edin-
burgh, the people who let lodgings have commonly no other
means of subsistence ; and the price of the lodging must
pay, not only the rent of the house, but the whole expence
of the family.
PART II
Inequalities occasioned bv the Policy of Europe
Such are the inequalities in the whole of the advantages
and disadvantages of the different employments of labour
and stock, which the defect of any of the three requisites
above-mentioned must occasion, even where there is the most
perfect liberty. But the policy of Europe, by not leaving
things at perfect liberty, occasions other inequalities of much
greater importance.
It does this chiefly in the three following ways. First, by
restraining the competition in some employments to a smaller
number than would otherwise be disposed to enter into them ;
secondly, by increasing it in others beyond what it naturally
would be ; and, thirdly, by obstructing the free circulation of
labour and stock, both from employment to employment and
from place to place.
First, The Policy of Europe occasions a very important
inequality in the whole of the advantages and disadvantages
of the different employments of labour and stock, by restrain-
ing the competition in some employments to a smaller num-
ber than might otherwise be disposed to enter into them.
The exclusive privileges of corporations are the principal
means it makes use of for this purpose.
The exclusive privilege of an incorporated trade neces-
POLITICAL INEQUALITIES 127
sarily restrains the competition, in the town where it is
established, to those who are free of the trade. To have
served an apprenticeship in the town under a master properly
qualified, is commonly the necessary requisite for obtaining
this freedom. The bye-laws of the corporation regulate
sometimes the number of apprentices which any master is
allowed to have, and almost always the number of years
which each apprentice is obliged to serve. The intention of
both regulations is to restrain the competition to a much
smaller number than might otherwise be disposed to enter
into the trade. The limitation of the number of apprentices
restrains it directly. A long term of apprenticeship restrains
it more indirectly, but as effectually, by increasing the ex-
pence of education.
In Sheffield no master cutler can have more than one ap-
prentice at a time, by a bye-law of the corporation. In
Norfolk and Norwich no master weaver can have more
than two apprentices, under pain of forfeiting five pounds
a month to the king. No master hatter can have more than
two apprentices any-where in England, or in the English
plantations, under pain of forfeiting five pounds a month,
half to the king, and half to him who shall sue in any court
of record. Both these regulations, though they have been
confirmed by a public law of the kingdom, are evidently
dictated by the same corporation spirit which enacted the
bye-law of Sheffield. The silk weavers in London had
scarce been incorporated a year when they enacted a bye-
law, restraining any master from having more than two
apprentices at a time. It required a particular act of par-
liament to rescind this bye-law.
Seven years seem anciently to have been, all over Europe,
the usual term established for the duration of apprentice-
ships in the greater part of incorporated trades. All
such incorporations were anciently called universities; which
indeed is the proper Latin name for any incorporation what-
ever. The university of smiths, the university of taylors, &c.
are expressions which we commonly meet with in the old
charters of ancient towns. " When those particular incorpora-
tions which are now peculiarly called universities were first
established, the term of years which it was necessary to
128 WEALTH OF NATIONS
study, in order to obtain the degree of master of arts, ap-
pears evidently to have been copied from the term of ap-
prenticeship in common trades, of which the incorporations
were much more ancient. As to have wrought seven years
under a master properly qualified, was necessary, in order
to entitle any person to become a master, and to have him-
self apprentices in a common trade; so to have studied seven
years under a master properly qualified, was necessary to
entitle him to become a master, teacher, or doctor (words
anciently synonimous) in the liberal arts, and to have schol-
ars or apprentices (words likewise originally synonimous)
to study under him.
By the 5th of Elizabeth, commonly called the Statute
of Apprenticeship, it was enacted, that no person should
for the future exercise any trade, craft, or mastery at
that time exercised in England, unless he had previously
served to it an apprenticeship of seven years at least ; and
what before had been the bye-law of many particular cor-
porations, became in England the general and public law of
all trades carried on in market towns. For though the words
of the statute are very general, and seem plainly to include
the whole kingdom, by interpretation its operation has been
limited to market towns, it having been held that in country
villages a person may exercise several different trades,
though he has not served a seven years' apprenticeship to
each, they being necessary for the conveniency of the inhabi-
tants, and the number of people frequently not being sufficient
to supply each with a particular set of hands.
By a strict interpretation of the words, too, the operation
of this statute has been limited to those trades which were
established in England before the 5th of Elizabeth, and has
never been extended to such as have been introduced since
that time. This limitation has given occasion to several dis-
tinctions which, considered as rules of police, appear as fool-
ish as can well be imagined. It has been adjudged, for ex-
ample, that a coach-maker can neither himself make nor
employ journeymen to make his coach-wheels; but must buy
them of a master wheel-wright ; this latter trade having been
exercised in England before the 5th of Elizabeth. But a
wheel-wright, though he has never served an apprenticeship
POLITICAL INEQUALITIES 129
to a coach-maker, may either himself make or employ jour-
neymen to make coaches; the trade of a coach-maker not
being within the statute, because not exercised in England
at the time when it was made. The manufactures of Man-
chester, Birmingham, and Wolverhampton, are many of them,
upon this account, not within the statute ; not having been
exercised in England before the 5th of Elizabeth.
In France, the duration of apprenticeships is different in
different towns and in different trades. In Paris, five years
is the term required in a great number; but before any per-
son can be qualified to exercise the trade as a master, he
must, in many of them, serve five years more as a journey-
man. During this latter term he is called the companion of
his master, and the term itself is called his companionship.
In Scotland there is no general law which regulates uni-
versally the duration of apprenticeships. The term is dif-
ferent in different corporations. Where it is long, a part of
it may generally be redeemed by paying a small fine. In most
towns, too, a very small fine is sufficient to purchase the free-
dom of any corporation. The weavers of linen and hempen
cloth, the principal manufactures of the country, as well as
all other artificers subservient to them, wheel-makers, reel-
makers, &c. may exercise their trades in any town corporate
without paying any fine. In all towns corporate all persons
are free to sell butcher's meat upon any lawful day of the
week. Three years is in Scotland a common term of appren-
ticeship, even in some very nice trades ; and in general I
know of no country in Europe in which corporation laws are
so little oppressive.
The property which every man has in his own labour, as it
is the original foundation of all other property, so it is the
most sacred and inviolable. The patrimony of a poor man
lies in the strength and dexterity of his hands; and to hinder
him from employing this strength and dexterity in what
manner he thinks proper without injury to his neighbour, is
a plain violation of this most sacred property. It is a mani-
fest encroachment upon the just liberty both of the work-
man, and of those who might be disposed to employ him. As
it hinders the one from working at what he thinks proper,
so it hinders the others from employing whom they think
130 WEALTH OF NATIONS
proper. To judge whether he is fit to be employed, may
surely be trusted to the discretion of the employers whose
interest it so much concerns. The affected anxiety of the
law-giver lest they should employ an improper person, is evi-
dently as impertinent as it is oppressive.
The institution of long apprenticeships can give no secur-
ity that insufficient workmanship shall not frequently be ex-
posed to public sale. When this is done it is generally the
effect of fraud, and not of inability; and the longest appren-
ticeship can give no security against fraud. Quite different
regulations are necessary to prevent this abuse. The sterling
mark upon plate, and the stamps upon linen and woollen
cloth, give the purchaser much greater security than any
statute of apprenticeship. He generally looks at these, but
never thinks it worth while to enquire whether the workmen
had served a seven years' apprenticeship.
The institution of long apprenticeships has no tendency to
form young people to industry. A journeyman who works
by the piece is likely to be industrious, because he derives a
benefit from every exertion of his industry. An apprentice
is likely to be idle, and almost always is so, because he has
no immediate interest to be otherwise. In the inferior em-
ployments, the sweets of labour consist altogether in the
recompence of labour. They who are soonest in a condition
to enjoy the sweets of it, are likely soonest to conceive a
relish for it, and to acquire the early habit of industry. A
young man naturally conceives an aversion to labour, when
for a long time he receives no benefit from it. The boys who
are put out apprentices from public charities are generally
bound for more than the usual number of years, and they
generally turn out very idle and worthless.
Apprenticeships were altogether unknown to the ancients.
The reciprocal duties of master and apprentice make a con-
siderable article in every modern code. The Roman law is
perfectly silent with regard to them. I know no Greek or
Latin word (I might venture, I believe, to assert that there
is none) which expresses the idea we now annex to the word
Apprentice, a servant bound to work at a particular trade for
the benefit of a master, during a term of years, upon condi-
tion that the master shall teach him that trade.
POLITICAL INEQUALITIES 131
Long apprenticeships are altogether unnecessary. The
arts, which are much superior to common trades, such as
those of making clocks and watches, contain no such mystery
as to require a long course of instruction. The first inven-
tion of such beautiful machines, indeed, and even that of
some of the instruments employed in making them, must, no
doubt, have been the work of deep thought and long time,
and may justly be considered as among the happiest efforts
of human ingenuity. But when both have been fairly in-
vented and are well understood, to explain to any young man,
in the completest manner, how to apply the instruments and
how to construct the machines, cannot well require more
than the lessons of a few weeks : perhaps those of a few days
might be sufficient. In the common mechanic trades, those
of a few days might certainly be sufficient. The dexterity
of hand, indeed, even in common trades, cannot be acquired
without much practice and experience. But a young man
would practise with much more diligence and attention, if
from the beginning he wrought as a journeyman, being paid
in proportion to the little work which he could execute, and
paying in his turn for the materials which he might some-
times spoil through awkwardness and inexperience. His
education would generally in this way be more effectual,
and always less tedious and expensive. The master, indeed,
would be a loser. He would lose all the wage of the appren-
tice, which he now saves, for seven years together. In the
end, perhaps, the apprentice himself would be a loser. In a
trade so easily learnt he would have more competitors, and
his wages, when he came to be a complete workman, would
be much less than at present. The same increase of com-
petition would reduce the profits of the masters as well as
the wages of the workmen. The trades, the crafts, the mys-
teries, would all be losers. But the public would be a gainer,
the work of all artificers coming in this way much cheaper
to market.
It is to prevent this reduction of price, and consequently
of wages and profit, by restraining that free competition
which would most certainly occasion it, that all corporations,
and the greater part of corporation laws, have been estab-
lished. In order to erect a corporation, no other authority in
132 WEALTH OF NATIONS
ancient times was requisite in many parts of Europe, but that
of the town corporate in which it was estabhshed. In Eng-
land, indeed, a charter from the king was likewise necessary.
But this prerogative of the crown seems to have been re-
served rather for extorting money from the subject, than for
the defence of the common liberty against such oppressive
monopolies. Upon paying a fine to the king, the charter
seems generally to have been readily granted ; and when any
particular class of artificers or traders thought proper to act
as a corporation without a charter, such adulterine guilds,
as they were called, were not always disfranchised upon that
account, but obliged to fine annvtally to the king for permis-
sion to exercise their usurped privileges. The immediate in-
spection of all corporations, and of the bye-laws which they
might think proper to enact for their own government, be-
longed to the town corporate in which they were established ;
and whatever discipline was exercised over them, proceeded
commonly, not from the king, but from that greater incor-
poration of which those subordinate ones were only parts
or members.
The government of towns corporate was altogether in the
hands of traders and artificers ; and it was the manifest in-
terest of every particular class of them, to prevent the mar-
ket from being over-stocked, as they commonly express it,
with their own particular species of industry ; which is in
reality to keep it always under-stocked. Each class was
eager to establish regulations proper for this purpose, and,
provided it was allowed to do so, was willing to consent that
every other class should do the same. In consequence of
such regulations, indeed, each class was obliged to buy the
goods they had occasion for from every other within the
town, somewhat dearer than they otherwise might have done.
But in recompence, they were enabled to sell their own just
as much dearer ; so that so far it was as broad as long, as
they say ; and in the dealings of the different classes within
the town with one another, none of them were losers by these
regulations. But in their dealings with the country they
were all great gainers ; and in these latter dealings consists
the whole trade which supports and enriches every town.
Every town draws its whole subsistence, and all the ma-
POLITICAL INEQUALITIES 133
terials of its industry, from the country. It pays for these
chiefly in two ways : first, by sending back to the country a
part of those materials wrought up and manufactured; in
which case their price is augmented by the wages of the
workmen, and the profits of their masters or immediate em-
ployers : secondly, by sending to it a part both of the rude
and manufactured produce, either of other countries, or of
distant parts of the same country, imported into the town;
in which case too the original price of those goods is aug-
mented by the wages of the carriers or sailors, and by the
profits of the merchants who employ them. In what is
gained upon the first of those two branches of commerce, con-
sists the advantage which the town makes by its manufac-
tures; in what is gained upon the second, the advantage of its
inland and foreign trade. The wages of the workmen, and
the profits of their different employers, make up the whole
of what is gained upon both. Whatever regulations, there-
fore, tend to increase those wages and profits beyond what
they otherwise would be, tend to enable the town to pur-
chase, with a smaller quantity of its labour, the produce of
a greater quantity of the labour of the country. They give
the traders and artificers in the town an advantage over the
landlords, farmers, and labourers in the country, and break
down that natural equality which would otherwise take place
in the commerce which is carried on between them. The
whole annual produce of the labour of the society is annually
divided between those two different sets of people. By
means of those regulations a greater share of it is given to
the inhabitants of the town than would otherwise fall to
them ; and a less to those of the country.
The price which the town really pays for the provisions
and materials annually imported into it, is the quantity of
manufactures and other goods annually exported from it.
The dearer the latter are sold, the cheaper the former are
bought. The industry of the town becomes more, and that
of the country less advantageous.
That the industry which is carried on in towns is, every-
where in Europe, more advantageous than that which is car-
ried on in the country, without entering into any very nice
computations, we may satisfy ourselves by one very simple
134 WEALTH OF NATIONS
and obvious observation. In every country of Europe wc
find, at least, a hundred people who have acquired great for-
tunes from small beginnings by trade and manufactures, the
industry which properly belongs to towns, for one who has
done so by that which properly belongs to the country, the
raising of rude produce by the improvement and cultivation
of land. Industry, therefore, must be better rewarded, the
wages of labour and the profits of stock must evidently be
greater in the one situation than in the other. But stock and
labour naturally seek the most advantageous employment.
They naturally, therefore, resort as much as they can to the
town, and desert the country.
The inhabitants of a town, being collected into one place,
can easily combine together. The most insignificant trades
carried on in towns have accordingly, in some place or other,
been incorporated; and even where they have never been in-
corporated, yet the corporation spirit, the jealousy of
strangers, the aversion to take apprentices, or to communi-
cate the secret of their trade, generally prevail in them, and
often teach them, by voluntary associations and agreements,
to prevent that free competition which they cannot prohibit
by bye-laws. The trades which employ but a small number
of hands, run most easily into such combinations. Half a
dozen wool-combers, perhaps, are necessary to keep a thou-
sand spinners and weavers at work. By combining not to
take apprentices they can not only engross the employment,
but reduce the whole manufacture into a sort of slavery to
themselves, and raise the price of their labour above what is
due to the nature of their work.
The inhabitants of the country, dispersed in distant places,
cannot easily combine together. They have not only never
been incorporated, but the corporation spirit never has pre-
vailed among them. No apprenticeship has ever been
thought necessary to qualify for husbandry, the great trade
of the country. After what are called the fine arts, and the
liberal professions, however, there is perhaps no trade which
requires so great a variety of knowledge and experience.
The innumerable volumes which have been written upon it
in all languages, may satisfy us, that among the wisest and
most learned nations, it has never been regarded as a matter
POLITICAL INEQUALITIES 135
very easily understood. And from all those volumes we
shall in vain attempt to collect that knowledge of its various
and complicated operations, which is commonly possessed
even by the common farmer; how contemptuously soever
the very contemptible authors of some of them may some-
times affect to speak of him. There is scarce any common
mechanic trade, on the contrary, of which all the operations
may not be as completely and distinctly explained in a pam-
phlet of a very few pages, as it is possible for words illus-
trated by figures to explain them. In the history of the
arts, now publishing by the French academy of sciences,
several of them are actually explained in this manner. The
direction of operations, besides, which must be varied with
every change of the weather, as well as with many other
accidents, requires much more judgment and discretion, than
of those which are always the same or very nearly the same.
Not only the art of the farmer, the general direction of
the operations of husbandry, but many inferior branches of
country labour, require much more skill and experience than
the greater part of mechanic trades. The man who works
upon brass and iron, works with instruments and upon ma-
terials of which the temper is always the same, or very
nearly the same. But the man who ploughs the ground
with a team of horses or oxen, works with instruments of
which the health, strength, and temper, are very different
upon different occasions. The condition of the materials
which he works upon too is as variable as that of the in-
struments which he works with, and both require to be man-
aged with much judgment and discretion. The common plough-
man, though generally regarded as the pattern of stupidity
and ignorance, is seldom defective in this judgment and dis-
cretion. He is less accustomed, indeed, to social intercourse
than the mechanic who lives in a town. His voice and lan-
guage are more uncouth and more difficult to be understood
by those who are not used to them. His understanding,
however, being accustomed to consider a greater variety of
objects, is generally much superior to that of the other, whose
whole attention from morning till night is commonly occu-
pied in performing one or two very simple operations. How
much the lower ranks of people in the country are really
136 WEALTH OF NATIONS
superior to those of the town, is well known to every man
whom either business or curiosity has led to converse with
both. In China and Indostan accordingly both the rank and
the wages of country labourers are said to be superior to
those of the greater part of artificers and manufacturers.
They would probably be so every-where, if corporation laws
and the corporation spirit did not prevent it.
The superiority which the industry of the towns has every-
where in Europe over that of the country, is not altogether
owing to corporations and corporation laws. It is sup-
ported by many other regulations. The high duties upon
foreign manufactures and upon all goods imported by alien
merchants, all tend to the same purpose. Corporation laws
enable the inhabitants of towns to raise their prices, with-
out fearing to be under-sold by the free competition of their
own countrymen. Those other regulations secure them
equally against that of foreigners. The enhancement of
price occasioned by both is every-where finally paid by the
landlords, farmers, and labourers of the country, who have
seldom opposed the establishment of such monopolies. They
have commonly neither inclination nor fitness to enter into
combinations ; and the clamour and sophistry of merchants
and manufacturers easily persuade them that the private in-
terest of a part, and of a subordinate part of the society, is
the general interest of the whole.
In Great Britain the superiority of the industry of the
towns over that of the country, seems to have been greater
formerly than in the present times. The wages of country
labour approach nearer to those of manufacturing labour,
and the profits of stock employed in agriculture to those of
trading and manufacturing stock, than they are said to have
done in the last century, or in the beginning of the present.
This change may be regarded as the necessary, though very
late consequence of the extraordinary encouragement given
to the industry of the towns. The stock accumulated in
them comes in time to be so great, that it can no longer be
employed with the ancient profit in that species of industry
which is peculiar to them. That industry has its limits like
every other; and the increase of stock, by increasing the
competition, necessarily reduces the profit. The lowering of
POLITICAL INEQUALITIES 137
profit in the town forces out stock to the country, where, by
creating a new demand for country labour, it necessarily
raises its wages. It then spreads itself, if I may say so,
over the face of the land, and by being employed in agricul-
ture is in part restored to the country, at the expence of
which, in a great measure, it had originally been accumu-
lated in the town. That every-where in Europe the great-
est improvements of the country have been owing to such
overflowings of the stock originally accumulated in the towns,
I shall endeavour to show hereafter; and at the same time
to demonstrate, that though some countries have by this
course attained to a considerable degree of opulence, it is in
itself necessarily slow, uncertain, liable to be disturbed and
interrupted by innumerable accidents, and in every respect
contrary to the order of nature and of reason. The inter-
ests, prejudices, laws and customs which have given occa-
sion to it, I shall endeavour to explain as fully and distinctly
as I can in the third and fourth books of this inquiry.
People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a con-
spiracy against the public, or in some contrivance to raise
prices. It is impossible indeed to prevent such meetings, by
any law which either could be executed, or would be con-
sistent with liberty and justice. But though the law cannot
hinder people of the same trade from sometimes assembling
together, it ought to do nothing to facilitate such assembhes ;
much less to render them necessary.
A regulation which obliges all those of the same trade in a
particular town to enter their names and places of abode in
a public register, facilitates such assemblies. It connects
individuals who might never otherwise be known to one an-
other, and gives every man of the trade a direction where to
find every other man of it.
A regulation which enables those of the same trade to tax
themselves in order to provide for their poor, their sick,
their widows and orphans, by giving them a common interest
to manage, renders such assemblies necessary.
An incorporation not only renders them necessary, but
makes the act of the majority binding upon the whole. In a
free trade an effectual combination cannot be established
138 WEALTH OF NATIONS
but by the unanimous consent of every single trader, and it
cannot last longer than every single trader continues of the
same mind. The majority of a corporation can enact a bye-
law with proper penalties, which will limit the competition
more effectually and more durably than any voluntary com-
bination whatever.
The pretence that corporations are necessary for the better
government of the trade, is without any foundation. The
real and effectual discipline which is exercised over a work-
man is not that of his corporation, but that of his cus-
tomers. It is the fear of losing their employment which
restrains his frauds and corrects his negligence. An exclu-
sive corporation necessarily weakens the force of this dis-
cipline. A particular set of workmen must then be em-
ployed, let them behave well or ill. It is upon this account
that in many large incorporated towns no tolerable work-
men are to be found, even in some of the most necessary
trades. If you would have your work tolerably executed, it
must be done in the suburbs, where the workmen, having
no exclusive privilege, have nothing but their character to
depend upon, and you must then smuggle it into the town as
well as you can.
It is in this manner that the policy of Europe, by restrain-
ing the competition in some employments to a smaller num-
ber than would otherwise be disposed to enter into them,
occasions a very important inequality in the whole of the
advantages and disadvantages of the different employments
of labour and stock.
Secondly, The policy of Europe, by increasing the com-
petition in some employments beyond what it naturally would
be, occasions another inequality of an opposite kind in the
whole of the advantages and disadvantages of the different
employments of labour and stock.
It has been considered as of so much importance that a
proper number of young people should be educated for cer-
tain professions, that, sometimes the public, and sometimes
the piety of private founders have established many pen-
sions, scholarships, exhibitions, bursaries, &c., for this pur-
pose, which draw many more people into those trades than
could otherwise pretend to follow them. In all christian
POLITICAL INEQUALITIES 139
countries, I believe, the education of the greater part of
churchmen is paid for in this manner. Very few of them are
educated altogether at their own expence. The long, tedious,
and expensive education, therefore, of those who are, will
not always procure them a suitable reward, the church being
crowded with people who, in order to get employment, are
willing to accept of a much smaller recompence than what
such an education would otherwise have entitled them to ;
and in this manner the competition of the poor takes away
the reward of the rich. It would be indecent, no doubt, to
compare either a curate or a chaplain with a journeyman
in any common trade. The pay of a curate or chaplain, how-
ever, may very properly be considered as of the same nature
with the wages of a journeyman. They are, all three, paid
for their work according to the contract which they may
happen to make with their respective superiors. Till after
the middle of the fourteenth century, five merks, containing
about as much silver as ten pounds of our present money,
was in England the usual pay of a curate or stipendiary
parish priest, as we find it regulated by the decrees of several
different national councils. At the same period four pence
a day, containing the same quantity of silver as a shilling of
our present money, was declared to be the pay of a master
mason, and three pence a day, equal to nine pence of our
present money, that of a journeyman mason. The wages of
both these labourers, therefore, supposing them to have been
constantly employed, were much superior to those of the
curate. The wages of the master mason, supposing him to
have been without employment one third of the year, would
have fully equalled them. By the I2th of Queen Anne, c. 12,
it is declared, "That whereas for want of sufficient mainte-
nance and encouragement to curates, the cures have in
several places been meanly supplied, the bishop is, there-
fore, empowered to appoint by writing under his hand and
seal a sufficient certain stipend or allowance, not exceeding
fifty and not less than twenty pounds a year." Forty
pounds a year is reckoned at present very good pay for a
curate, and notwithstanding this act of parliament, there are
many curacies under twenty pounds a year. There are jour-
neymen shoemakers in London who can earn forty pounds a
140 WEALTH OF NATIONS
year, and there is scarce an industrious workman of any kind
in that metropolis who does not earn more than twenty.
This last sum indeed does not exceed what is frequently
earned by common labourers in many country parishes.
Whenever the law has attempted to regulate the wages of
workmen, it has always been rather to lower them than to
raise them. But the law has upon many occasions attempted
to raise the wages of curates, and for the dignity of the
church, to oblige the rectors of parishes to give them more
than the wretched maintenance which they themselves might
be willing to accept of. And in both cases the law seems
to have been equally ineffectual, and has never either been
able to raise the wages of curates, or to sink those of labourers
to the degree that was intended : because it has never been
able to hinder either the one from being willing to accept of
less than the legal allowance, on account of the indigence of
their situation and the multitude of their competitors; or
the other from receiving more, on account of the contrary
competition of those who expected to derive either profit or
pleasure from employing them.
The great benefices and other ecclesiastical dignities sup-
port the honour of the church, notwithstanding the mean
circumstances of some of its inferior members. The respect
paid to the profession too makes some compensation even to
them for the meanness of their pecuniary recompence. In
England, and in all Roman Catholic countries, the lottery of
the church is in reality much more advantageous than is
necessary. The example of the churches of Scotland, of
Geneva, and of several other protestant churches, may sat-
isfy us, that in so creditable a profession, in which educa-
tion is so easily procured, the hopes of much more moderate
benefices will draw a sufficient number of learned, decent,
and respectable men into holy orders.
In professions in which there are no benefices, such as
law and physic, if an equal proportion of people were edu-
cated at the public expence, the competition would soon be
so great, as to sink very much their pecuniary reward. It
might then not be worth any man's while to educate his son
to either of those professions at his own expence. They
would be entirely abandoned to such as had been educated by
POLITICAL INEQUALITIES 141
those public charities, whose numbers and necessities would
oblige them in general to content themselves with a very
miserable recompence, to the entire degradation of the now
respectable professions of law and physic.
That unprosperous race of men commonly called men of
letters, are pretty much in the situation which lawyers and
physicians probably would be in upon the foregoing suppo-
sition. In every part of Europe the greater part of them
have been educated for the church, but have been hindered
by different reasons from entering into holy orders. They
have generally, therefore, been educated at the public ex-
pence, and their numbers are every-where so great as com-
monly to reduce the price of their labour to a very paultry
recompence.
Before the invention of the art of printing, the only em-
ployment by which a man of letters could make any thing
by his talents, was that of a public or private teacher, or by
communicating to other people the curious and useful knowl-
edge which he had acquired himself : And this is still surely
a more honourable, a more useful, and in general even a
more profitable employment than that other of writing for a
bookseller, to which the art of printing has given occasion.
The time and study, the genius, knowledge, and application
requisite to qualify an eminent teacher of the sciences, are
at least equal to what is necessary for the greatest prac-
titioners in law and physic. But the usual reward of the
eminent teacher bears no proportion to that of the lawyer or
physician ; because the trade of the one is crowded with in-
digent people who have been brought up to it at the public
expence ; whereas those of the other two are incumbered
with very few who have not been educated at their own.
The usual recompence, however, of public and private
teachers, small as it may appear, would undoubtedly be less
than it is, if the competition of those yet more indigent men
of letters who write for bread was not taken out of the
market. Before the invention of the art of printing, a
scholar and a beggar seem to have been terms very nearly
synonymous. The different governors of the universities
before that time appear to have often granted licences to
their scholars to beg.
142 WEALTH OF NATIONS
In ancient times, before any charities of this kind had been
established for the education of indigent people to the learned
professions, the rewards of eminent teachers appear to have
be^n much more considerable. Isocrates, in what is called
his discourse against the sophists, reproaches the teachers of
his own times with inconsistency. "They make the most
magnificent promises to their scholars, says he, and under-
take to teach them to be wise, to be happy, and to be just,
and in return for so important a service they stipulate the
paultry reward of four or five minae. They who teach wis-
' dom, continues he, ought certainly to be wise themselves;,
but if any man were to sell such a bargain for such a price,
he would be convicted of the most evident folly." He cer-
tainly does not mean here to exaggerate the reward, and we
may be assured that it was not less than he represents it.
Four minae were equal to thirteen pounds six shillings and
eight pence : five minae to sixteen pounds thirteen shillings
and four pence. Something not less than the largest of
those two sums, therefore, must at that time have been
usually paid to the most eminent teachers at Athens. Isoc-
rates himself demanded ten minae, or thirty-three pounds
six shillings and eight pence, from each scholar. When he
taught at Athens, he is said to have had an hundred scholars.
I understand this to be the number whom he taught at one
time, or who attended what we would call one course of
lectures, a number which will not appear extraordinary from
so great a city to so famous a teacher, who taught too what
was at that time the most fashionable of all sciences, rhetoric.
He must have made, therefore, by each course of lectures, a
thousand minae, or 3,333l- 6s. 8d. A thousand minae, accord-
ingly, is said by Plutarch in another place, to have been his
Didactron, or usual price of teaching. Many other eminent
teachers in those times appear to have acquired great for-
tunes. Gorgias made a present to the temple of Delphi of
his own statue in solid gold. We must not, I presume, sup-
pose that it was as large as the life. His way of living, as
well as that of Hippias and Protagoras, two other eminent
teachers of those times, is represented by Plato as splendid
even to ostentation. Plato himself is said to have lived with
a good deal of magnificence. Aristotle, after having been
POLITICAL INEQUALITIES 143
tutor to Alexander, and most munificently rewarded, as it is
universally agreed, both by him and his father Philip, thought
it worth while, notwithstanding, to return to Athens, in order
to resume the teaching of his school. Teachers of the sci-
ences were probably in those times less common than they
came to be in an age or two afterwards, when the compe-
tition had probably somewhat reduced both the price of their
labour and the admiration for their persons. The most emi-
nent of them, however, appear always to have enjoyed a
degree of consideration much superior to any of the like pro-
fession in the present times. The Athenians sent Carneades
the academic, and Diogenes the stoic, upon a solemn em-
bassy to Rome ; and though their city had then declined from
its former grandeur, it was still an independent and con-
siderable republic. Carneades too was a Babylonian by
birth, and as there never was a people more jealous of ad-
mitting foreigners to public offices than the Athenians, their
consideration for him must have been very great.
This inequality is upon the whole, perhaps, rather advan-
tageous than hurtful to the public. It may somewhat de-
grade the profession of a public teacher ; but the cheapness
of literary education is surely an advantage which greatly
over-balances this trifling inconveniency. The public too
might derive still greater benefit from it, if the constitution
of those schools and colleges, in which education is carried
on, was more reasonable than it is at present through the
greater part of Europe.
Thirdly, The policy of Europe, by obstructing the free cir-
culation of labour and stock both from employment to em-
ployment, and from place to place, occasions in some cases
a very inconvenient inequality in the whole of the advantages
and disadvantages of their different employments.
The statute of apprenticeship obstructs the free circula-
tion of labour from one employment to another, even in the
same place. The exclusive privileges of corporations ob-
struct it from one place to another, even in the same em-
ployment.
It frequently happens that while high wages are given to
the workmen in one manufacture, those in another are
obliged to content themselves with bare subsistence. The
144 WEALTH OF NATIONS
one is in an advancing state, and has, therefore, a continual
demand for new hands : The other is in a declining state,
and the super-abundance of hands is continually increasing.
Those two manufactures may sometimes be in the same town,
and sometimes in the same neighbourhood, without being
able to lend the least assistance to one another. The statute
of apprenticeship may oppose it in the one case, and both
that and an exclusive corporation in the other. In many
different manufactures, however, the operations are so much
alike, that the workmen could easily change trades with one
another, if those absurd laws did not hinder them. The arts
of weaving plain linen and plain silk, for example, are almost
entirely the same. That of weaving plain woollen is some-
what different; but the difference is so insignificant, that
either a linen or a silk weaver might become a tolerable
workman in a very few days. If any of those three capital
manufactures, therefore, were decaying, the workmen might
find a resource in one of the other two which was in a more
prosperous condition ; and their wages would neither rise too
high in the thriving, nor sink too low in the decaying manu-
facture. The linen manufacture indeed is, in England, by a
particular statute, open to every body; but as it is not much
cultivated through the greater part of the country, it can
afford no general resource to the workmen of other decaying
manufactures, who, wherever the statute of apprenticeship
takes place, have no other choice but either to come upon the
parish, or to work as common labourers, for which, by their
habits, they are much worse qualified than for any sort of
manufacture that bears any resemblance to their own. They
generally, therefore, chuse to come upon the parish.
Whatever obstructs the free circulation of labour from one
employment to another, obstructs that of stock likewise; the
quantity of stock which can be employed in any branch of
business depending very much upon that of the labour which
can be employed in it. Corporation laws, however, give less
obstruction to the free circulation of stock from one place to
another than to that of labour. It is everywhc-e much
easier for a wealthy merchant to obtain the privilege of trad-
ing in a town corporate, than for a poor artificer to obtain
that of working in it.
POLITICAL INEQUALITIES 145
The obstruction which corporation laws give to the free
circulation of labour is common, I believe, to every part of
Europe. That which is given to it by the poor laws is. so
far as I know, peculiar to England. It consists in the diffi-
culty which a poor man finds in obtaining a settlement, or
even in being allowed to exercise his industry in any parish but
that to which he belongs. It is the labour of artificers and
manufacturers only of which the free circulation is obstructed
by corporation laws. The difficulty of obtaining settlements
obstructs even that of common labour. It may be worth
while to give some account of the rise, progress, and present
state of this disorder, the greatest perhaps of any in the police
of England.
\\'hen by the destruction of monasteries the poor had been
deprived of the charity of those religious houses, after some
other ineffectual attempts for their relief, it was enacted by
the 43d of Elizabeth, c. 2. that every parish should be bound
to provide for .its own poor ; and that overseers of the poor
should be annually appointed, who, with the churchwardens,
should raise, by a parish rate, competent sums for this
purpose.
By this statute the necessity of providing for their own
poor was indispensably imposed upon every parish. Who
were to be considered as the poor of each parish, became,
therefore, a question of some importance. This question,
after some variation, was at last determined by the 13th and
14th of Charles II. when it was enacted, that forty days un-
disturbed residence should gain any person a settlement in
any parish ; but that within that time it should be lawful for
two justices of the peace, upon complaint made by the church-
wardens or overseers of the poor, to remove any new in-
habitant to the parish where he was last legally settled ; un-
less he either rented a tenement of ten pounds a year, or
could give such security for the discharge of the parish
where he was then living, as those justices should judge
sufficient.
Some frauds, it is said, were committed in consequence of
this statute; parish officers sometimes bribing their own poor
to go clandestinely to another parish, and by keeping them-
selves concealed for forty days to gain a settlement there, to
146 WEALTH OF NATIONS
the discharge of that to which they properly belonged. It
was enacted, therefore, by the ist of James II. that the forty
days undisturbed residence of any person necessary to gain
a settlement, should be accounted only from the time of his
delivering notice in writing, of the place of his abode and
the number of his family, to one of the churchwardens or
overseers of the parish where he came to dwell.
But parish officers, it seems, were not always more honest
with regard to their own, than they had been with regard
to other parishes, and sometimes connived at such intrusions,
receiving the notice, and taking no proper steps in conse-
quence of it. As every person in a parish, therefore, was
supposed to have an interest to prevent as much as possible
their being burdened by such intruders, it was further en-
acted by the 3d of William III. that the forty days residence
should be accounted only from the publication of such notice
in writing on Sunday in the church, immediately after divine
service.
"After all," says Doctor Burn, "this kind of settlement, by
continuing forty days after publication of notice in writing,
is very seldom obtained ; and the design of the acts is not
so much for gaining of settlements, as for the avoiding of
them by persons coming into a parish clandestinely : for
the giving of notice is only putting a force upon the parish
to remove. But if a person's situation is such, that it is
doubtful whether he is actually removeable or not, he shall
by giving of notice compel the parish either to allow him a
settlement uncontested, by suffering him to continue forty
days ; or, by removing him, to try the right."
This statute, therefore, rendered it almost impracticable
for a poor man to gain a new settlement in the old way, by
forty days inhabitancy. But that it might not appear to pre-
clude altogether the common people of one parish from ever
establishing themselves with security in another, it appointed
four other ways by which a settlement might be gained with-
out any notice delivered or published. The first was, by
being taxed to parish rates and paying them; the second
by being elected into an annual parish office, and serv-
ing in it a year; the third, by serving an apprenticeship in
the parish ; the fourth, by being hired into service there for a
POLITICAL INEQUALITIES 147
year, and continuing in the same service during the whole
of it.
Nobody can gain a settlement by either of the two first
ways, but by the public deed of the whole parish, who are
too well aware of the consequences to adopt any new-comer
who has nothing but his labour to support him, either by tax-
ing him to parish rates, or by electing him into a parish office.
No married man can well gain any settlement in either of
the two last ways. An apprentice is scarce ever married;
and it is expressly enacted, that no married servant shall
gain any settlement by being hired for a year. The prin-
cipal effect of introducing settlement by service, has been to
put out in a great measure the old fashion of hiring for a
year, which before had been so customary in England, that
even at this day, if no particular term is agreed upon, the law
intends that every servant is hired for a year. But masters
are not always willing to give their servants a settlement by
hiring them in this manner ; and servants are not always will-
ing to be so hired, because, as every last settlement dis-
charges all the foregoing, they might thereby lose their
original settlement in the places of their nativity, the habita-
tion of their parents and relations.
No independent workman, it is evident, whether labourer
or artificer, is likely to gain any new settlement either by
apprenticeship or by service. When such a person, there-
fore, carried his industry to a new parish, he was liable to
be removed, how healthy and industrious soever, at the
caprice of any churchwarden or overseer, unless he either
rented a tenement of ten pounds a year, a thing impossible
for one who has nothing but his labour to live by ; or could
give such security for the discharge of the parish as two
justices of the peace should judge sufficient. What security
they shall require, indeed, is left altogether to their discre-
tion; but they cannot well require less than thirty pounds,
it having been enacted, that the purchase even of a freehold
estate of less than thirty pounds value, shall not gain any
person a settlement, as not being sufficient for the discharge
of the parish. But this is a security which scarce any man
who lives by labour can give ; and much greater security is
frequently demanded.
148 WEALTH OF NATIONS
In order to restore in some measure that free circulation
of labour which those different statutes had almost entirely
taken away, the invention of certificates was fallen upon.
By the 8th or 9th of William III. it was enacted, that if any
person should bring a certificate from the parish where he
was at last legally settled, subscribed by the churchwardens
and overseers of the poor, and allowed by two justices of
the peace, that every other parish should be obliged to re-
ceive him ; that he should not be removeable merely upon
account of his being likely to become chargeable, but only
upon his becoming actually chargeable, and that then the
parish which granted the certificate should be obliged to pay
the expence both of his maintenance and of his removal.
And in order to give the most perfect security to the parish
where such certificated man should come to reside, it was
further enacted by the same statute, that he should gain no
settlement there by any means whatever, except either by
renting a tenement of ten pounds a year, or by serving upon
his own account in an annual parish office for one whole
year ; and consequently neither by notice, nor by service, nor
by apprenticeship, nor by paying parish rates. By the 12th
of Queen Anne too, stat. 1. c. 18. it was further enacted,
that neither the servants nor apprentices of such certificated
man should gain any settlement in the parish where he
resided under such certificate.
How far this invention has restored that free circulation
of labour which the preceding statutes had almost entirely
taken away, we may learn from the following very judicious
observation of Doctor Burn. "It is obvious," says he, "that
there are divers good reasons for requiring certificates
with persons coming to settle in any place; namely, that
persons residing under them can gain no settlement, neither
by apprenticeship, nor by service, nor by giving notice, nor
by paying parish rates; that they can settle neither appren-
tices nor servants ; that if they become chargeable, it is cer-
tainly known whither to remove them, and the parish shall
be paid for the removal, and for their maintenance in the
mean time; and that if they fall sick, and cannot be re
moved, the parish which gave the certificate must maintain
them: none of which can be without a certificate. Which
POLITICAL INEQUALITIES 149
reasons will hold proportionably for parishes not granting
certificates in ordinary cases ; for it is far more than an
equal chance, but that they will have the certificated persons'
again, and in a worse condition." The moral of this ob-
servation seems to be, that certificates ought always to be
required by the parish where any poor man comes to reside,
and that they ought very seldom to be granted by that which
he proposes to leave. "There is somewhat of hardship in
this matter of certificates," says the same very intelligent
Author, in his History of the Poor Laws, "by putting it in
the power of a parish officer, to imprison a man as it were
for life ; however inconvenient it may be for him to continue
at that place where he has had the misfortune to acquire
what is called a settlement, or whatever advantage he may
propose to himself by living elsewhere."
Though a certificate carries along with it no testimonial
of good behaviour, and certifies nothing but that the person
belongs to the parish to which he really does belong, it is
altogether discretionary in the parish officers either to grant
or to refuse it. A mandamus was once moved for, says
Doctor Burn, to compel the churchwardens and overseers to
sign a certificate; but the court of King's Bench rejected the
motion as a very strange attempt.
The very unequal price of labour which we frequently find
in England in places at no great distance from one another,
is probably owing to the obstruction which the law of settle-
ments gives to a poor man who would carry his industry
from one parish to another without a certificate. A single
man, indeed, who is healthy and industrious, may sometimes
reside by sufferance without one ; but a man with a wife and
family who should attempt to do so, would in most parishes
be sure of being removed, and if the single man should after-
wards marry, he would generally be removed likewise. The
scarcity of hands in one parish, therefore, cannot always be
relieved by their super-abundance in another, as it is con-
stantly in Scotland, and, I believe, in all other countries
where there is no difficulty of settlement. In such countries,
though wages may sometimes rise a little in the neighbour-
hood of a great town, or wherever else there is an extra-
ordinary demand for labour, and sink gradually as the dis-
150 WEALTH OF NATIONS
tance from such places increases, till they fall back to the
common rate of the country; yet we never meet with those
sudden and unaccountable differences in the wages of neigh-
bouring places which we sometimes find in England, where
it is often more difficult for a poor man to pass the artificial
boundary of a parish, than an arm of the sea or a ridge of
high mountains, natural boundaries which sometimes sep-
arate very distinctly different rates of wages in other
countries.
To remove a man who has committed no misdemeanour
from the parish where he chuses to reside, is an evident
violation of natural liberty and justice. The common people
of England, however, so jealous of their liberty, but like the
common people of most other countries never rightly under-
standing wherein it consists, have now for more than a cen-
tury together suffered themselves to be exposed to this op-
pression without a remedy. Though men of reflection too
have sometimes complained of the law of settlements as a
public grievance; yet it has never been the object of any
general popular clamour, such as that against general war-
rants, an abusive practice undoubtedly, but such a one as
was not likely to occasion any general oppression. There
is scarce a poor man in England of forty years of age, I will
venture to say, who has not in some part of his life felt him-
self most cruelly oppressed by this ill-contrived law of settle-
ments.
I shall conclude this long chapter with observing, that
though anciently it was usual to rate wages, first by general
laws extending over the whole kingdom, and afterwards by
particular orders of the justices of peace in every particular
county, both these practices have now gone entirely into dis-
use. "By the experience of above four hundred years," says
Doctor Burn, "it seems time to lay aside all endeavours to
bring under strict regulations, what in its own nature seems
incapable of minute limitation : for if all persons in the same
kind of work were to receive equal wages, there would be
no emulation, and no room left for industry or ingenuity."
Particular acts of parliament, however, still attempt some-
times to regulate wages in particular trades and in particu-
lar places. Thus the 8th of George III. prohibits under
POLITICAL INEQUALITIES 151
heavy penalties all master taylors in London, and five miles
round it, from giving, and their workmen from accepting,
more than two shillings and sevenpence halfpenny a day,
except in the case of a general mourning. Whenever the
legislature attempts to regulate the differences between mas-
ters and their workmen, its counsellors are always the mas-
ters. When the regulation, therefore, is in favour of the
workmen, it is always just and equitable; but it is sometimes
otherwise when in favour of the masters. Thus the law
which obliges the masters in several different trades to pay
their workmen in money and not in goods, is quite just and
equitable. It imposes no real hardship upon the masters. It
only obliges them to pay that value in money, which they pre-
tended to pay, but did not always really pay, in goods. This
law is in favour of the workmen ; but the 8th of George III.
is in favour of the masters. When masters combine together
in order to reduce the wages of their workmen, they com-
monly enter into a private bond or agreement, not to give
more than a certain wage under a certain penalty. Were
the workmen to enter into a contrary combination of the
same kind, not to accept of a certain wage under a certain
penalty, the law would punish them very severely ; and if it
dealt impartially, it would treat the masters in the same man-
ner. But the 8th of George III. enforces by law that very
regulation which masters sometimes attempt to establish by
such combinations. The complaint of the workmen, that it
puts the ablest and most industrious upon the same footing
with an ordinary workman, seems perfectly well founded.
In ancient times too it was usual to attempt to regulate
the profits of merchants and other dealers, by rating the
price both of provisions and other goods. The assize of
bread is, so far as I know, the only remnant of this ancient
usage. Where there is an exclusive corporation, it may per-
haps be proper to regulate the price for the first necessary of
life. But where there is none, the competition will regulate
it much better than any assize. The method of fixing the
assize of bread established by the 31st of George II. could
not be put in practice in Scotland, on account of a defect in
the law; its execution depending upon the office of clerk of
the market, which does not exist there. This defect was not
152 WEALTH OF NATIONS
remedied till the 3d of George III. The want of an assize
occasioned no sensible inconveniency, and the establishment
of one in the few places where it has yet taken place, has
produced no sensible advantage. In the greater part of the
towns of Scotland, however, there is an incorporation of
bakers who claim exclusive privileges, though they are not
very strictly guarded.
The proportion between the different rates both of wages
and profit in the different employments of labour and stock,
seems not to be much affected, as has already been observed,
by the riches or poverty, the advancing, stationary, or de-
clining state of the society. Such revolutions in the public
welfare, though they affect the general rates both of wages
and profit, must in the end affect them equally in all different
employments. The proportion between them, therefore, must
remain the same, and cannot well be altered, at least for any
considerable time, by any such revolutions.
CHAPTER XI
Of the Rent of Land
RENT, considered as the price paid for the use of land,
is naturally the highest which the tenant can afford to
' pay in the actual circumstances of the land. In ad-
justing the terms of the lease, the landlord endeavours to
leave him no greater share of the produce than what is suffi-
cient to keep up the stock from which he furnishes the seed,
pays the labour, and purchases and maintains the cattle and
other instruments of husbandry, together with the ordinary
profits of farming stock in the neighbourhood. This is evi-
dently the smallest share with which the tenant can content
himself without being a loser, and the landlord seldom means
to leave him any more. Whatever part of the produce, or,
what is the same thing, whatever part of its price, is over
and above this share, he naturally endeavours to reserve to
himself as the rent of his land, which is evidently the highest
the tenant can afford to pay in the actual circumstances of
the land. Sometimes, indeed, the liberality, more frequently
the ignorance of the landlord, makes him accept of some-
what less than this portion: and sometimes too, though more
rarely, the ignorance of the tenant makes him undertake to
pay somewhat more, or to content himself with somewhat
less, than the ordinary profits of farming stock in the neigh-
bourhood. This portion, however, may still be considered as
the natural rent of land, or the rent for which it is naturally
meant that land should for the most part be let.
The rent of land, it may be thought, is frequently no more
than a reasonable profit or interest for the stock laid out by
the landlord upon its improvement. This, no doubt, may be
partly the case upon some occasions; for it can scarce ever
be more than partly the case. The landlord demands a rent
even for unimproved land, and the supposed interest or profit
153
154 WEALTH OF NATIONS
upon the expence of improvement is generally an addition
to this original rent. Those improvements, besides, are not
always made by the stock of the landlord, but some-
times by that of the tenant. When the lease comes
to be renewed, however, the landlord commonly demands
the same augmentation of rent, as if they had been all
made by his own.
He sometimes demands rent for what is altogether inca-
pable of human improvement. Kelp is a species of sea-weed,
which, when burnt, yields an alkaline salt, useful for making
glass, soap, and for several other purposes. It grows in sev-
eral parts of Great Britain, particularly in Scotland, upon
such rocks only as lie within the high water mark, which are
twice every day covered with the sea, and of which the prod-
uce, therefore, was never augmented by human industry.
The landlord, however, whose estate is bounded by a kelp
shore of this kind, demands a rent for it as much as for his
corn fields.
The sea in the neighbourhood of the islands of Shetland is
more than commonly abundant in fish, which makes a great
part of the subsistence of their inhabitants. But in order
to profit by the produce of the water, they must have a habi-
tation upon the neighbouring land. The rent of the landlord
is in proportion, not to what the farmer can make by the
land, but to what he can make both by the land and by the
water. It is partly paid in sea-fish ; and one of the very few
instances in which rent makes a part of the price, of that
commodity, is to be found in that country.
The rent of land, therefore, considered as the price
paid for the use of the land, is naturally a monopoly price.
It is not at all proportioned to what the landlord may have
laid out upon the improvement of the land, or to what he
can afford to take ; but to what the farmer can afford to give.
Such parts only of the produce of land can commonly be
brought to market of which the ordinary price is sufficient
to replace the stock which must be employed in bringing them
thither, together with its ordinary profits. If the ordinary
price is more than this, the surplus part of it will naturally
go to the rent of the land. If it is not more, though the
commodity may be brought to market, it can afford no rent
RENT OF LAND FROM HUMAN BLOOD 155
to the landlord. Whether the price is, or is not more, de-
pends upon the demand.
There are some parts of the produce of land for which
the demand must always be such as to afford a greater price
than what is sufficient to bring them to market; and there
are others for which it either may or may not be such as to
afford this greater price. The former must always afford
a rent to the landlord. The latter sometimes may, and some-
times may not, according to different circumstances.
Rent, it is to be observed, therefore, enters into the com-
position of the price of commodities in a different way from
wages and profit. High or low wages and profit, are the
causes of high or low price ; high or low rent is the effect
of it. It is because high or low wages and profit must be
paid, in order to bring a particular commodity to market,
that its price is high or low. But it is because its price is
high or low; a great deal more, or very little more, or no
more, than what is sufficient to pay those wages and profit,
that it affords a high rent, or a low rent, or no rent at all.
The particular consideration, first, of those parts of the
produce of land which always afford some rent; secondly, of
those which sometimes may and sometimes may not afford
rent; and, thirdly, of the variations which, in the different
periods of improvement, naturally take place, in the relative
value of those two different sorts of rude produce, when
compared both with one another and with manufactured com-
modities, will divide this chapter into three parts.
PART I
Of the Produce of Land which Always Affords Rent
As men, like all other animals, naturally multiply in
proportion to the means of their subsistence, food is always,
more or less, in demand. It can always purchase or
command a greater or smaller quantity of labour, and
somebody can always be found who is willing to do some-
thing in order to obtain it. The quantity of labour,
indeed, which it can purchase, is not always equal to what
it could maintain, if managed in the most ceconomical man-
156 WEALTH OF NATIONS
ner, on account of the high wages which are sometimes given
to labour. But it can always purchase such a quantity of
labour as it can maintain, according to the rate at which that
sort of labour is commonly maintained in the neighbourhood.
But land, in almost any situation, produces a greater quan-
tity of food than what is sufficient to maintain all the labour
necessary for bringing it to market, in the most liberal way
in which that labour is ever maintained. The surplus too is
always more than sufficient to replace the stock which em-
ployed that labour, together with its profits. Something,
therefore, always remains for a rent to the landlord.
The most desert moors in Norway and Scotland produce
some sort of pasture for cattle, of which the milk and the
increase are always more than sufficient, not only to main-
tain all the labour necessary for tending them, and to pay
the ordinary profit to the farmer or owner of the herd or
flock; but to afford some small rent to the landlord. The
rent increases in proportion to the goodness of the pasture.
The same extent of ground not only maintains a greater
number of cattle, but as they are brought within a smaller
compass, less labour becomes requisite to tend them, and to
collect their produce. The landlord gains both ways ; by the
increase of the produce, and by the diminution of the labour
which must be maintained out of it.
The rent of land not only varies with its fertility, what-
ever be its produce, but with its situation, whatever be its
fertility. Land in the neighbourhood of a town gives a
greater rent than land equally fertile in a distant part of the
country. Though it may cost no more labour to cultivate
the one than the other, it must always cost more to bring the
produce of the distant land to market. A greater quantity
of labour, therefore, must be maintained out of it; and the
surplus, from which are drawn both the profit of the farmer
and the rent of the landlord, must be diminished. But in re-
mote parts of the country the rate of profits, as has already
been shown, is generally higher than in the neighbourhood
of a large town. A smaller proportion of this diminished
surplus, therefore, must belong to the landlord.
Good roads, canals, and navigable rivers, by diminishing
the expence of carriage, put the remote parts of the country
RENT OF LAND FROM HUMAN BLOOD 157
more nearly upon a level with those in the neighbourhood of
the town. They are upon that account the greatest of all
improvements. They encourage the cultivation of the re-
mote, which must always be the most extensive circle of the
country. They are advantageous to the town, by breaking
down the monopoly of the country in its neighbourhood.
They are advantageous even to that part of the country.
Though they introduce some rival commodities into the old
market, they open many new markets to its produce. Mo-
nopoly, besides, is a great enemy to good management, which
can never be universally established but in consequence of
that free and universal competition which forces everybody
to have recourse to it for the sake of self-defence. It is not
more than fifty years ago, that some of the counties in the
neighbourhood of London petitioned the parliament against
the extension of the turnpike roads into the remoter counties.
Those remote counties, they pretended, from the cheapness
of labour, would be able to sell their grass and corn cheaper
in the London market than themselves, and would thereby
reduce their rents, and ruin their cultivation. Their rents,
however, have risen, and their cultivation has been improved
since that time.
A corn field of moderate fertility produces a much greater
quantity of food for man, than the best pasture of equal ex-
tent. Though its cultivation requires much more labour, yet
the surplus which remains after replacing the seed and main-
taining all that labour, is likewise much greater. If a pound
of butcher's-meat, therefore, was never supposed to be worth
more than a pound of bread, this greater surplus would
every-where be of greater value, and constitute a greater
fund both for the profit of the farmer and the rent of the
landlord. It seems to have done so universally in the rude
beginnings of agriculture.
But the relative values of those two different species of
food, bread, and butcher's-meat, are very different in the
different periods of agriculture. In its rude beginnings, the
unimproved wilds, which then occupy the far greater part
of the country, are all abandoned to cattle. There is more
butcher's-meat than bread, and bread, therefore, is the food
for which there is the greatest competition, and which con-
158 WEALTH OF NATIONS
sequently brings the greatest price. At Buenos Ayres, we
are told by Ulloa, four reals, one-and-twenty pence half-
penny sterling, was, forty or fifty years ago, the ordinary
price of an ox, chosen from a herd of two or three hundred.
He says nothing of the price of bread, probably because he
found nothing remarkable about it. An ox there, he says,
costs little more than the labour of catching him. But corn
can no-where be raised without a great deal of labour, and
in a country which lies upon the river Plate, at that time
the direct road from Europe to the silver mines of Potosi,
the money price of labour could not be very cheap. It is
otherwise when cultivation is extended over the greater part
of the country. There is then more bread than butcher's-
meat. The competition changes its direction, and the price
of butcher's-meat becomes greater than the price of bread.
By the extension besides of cultivation the unimproved
wilds become insufficient to supply the demand for butcher's-
meat. A great part of the cultivated lands must be employed
in rearing and fattening cattle, of which the price, therefore,
must be sufficient to pay, not only the labour necessary for
tending them, but the rent which the landlord and the profit
which the farmer could have drawn from such land em-
ployed in tillage. The cattle bred upon the most uncultivated
moors, when brought to the same market, are, in proportion
to their weight or goodness, sold at the same price as those
which are reared upon the most improved land. The pro-
prietors of those moors profit by it, and raise the rent of
their land in proportion to the price of their cattle. It is not
more than a century ago that in many parts of the highlands
of Scotland, butcher's-meat was as cheap or cheaper than
even bread made of oat-meal. The union opened the market
of England to the highland cattle. Their ordinary price is
at present about three times greater than at the beginning
of the century, and the rents of many highland estates have
been tripled and quadrupled in the same time. In almost
every part of Great Britain a pound of the best butcher's-
meat is, in the present times, generally worth more than two
pounds of the best white bread; and in plentiful years it is
sometimes worth three or four pounds.
It is thus that in the progress of improvement the rent and
RENT OF LAND FROM HUMAN BLOOD 159
profit of unimproved pasture come to be regulated in some
measure by the rent and profit of what is improved, and
these again by the rent and profit of corn. Corn is an annual
crop. Butcher's-meat, a crop which requires four or five
years to grow. As an acre of land, therefore, will produce
a much smaller quantity of the one species of food than of
the other, the inferiority of the quantity must be compen-
sated by the superiority of the price. If it was more than
compensated, more corn land would be turned into pasture;
and if it was not compensated, part of what was in pasture
would be brought back into corn.
This equality, however, between the rent and profit of
grass and those of corn ; of the land of which the immediate
produce is food for cattle, and of that of which the imme-
diate produce is food for men ; must be understood to take
place only through the greater part of the improved lands of
a great country. In some particular local situations it is
quite otherwise, and the rent and profit of grass are much
superior to what can be made by corn.
Thus in the neighbourhood of a great town, the demand
for milk and for forage to horses, frequently contribute, to-
gether with the high price of butcher's-meat, to raise the
value of grass above what may be called its natural propor-
tion to that of corn. This local advantage, it is evident,
cannot be communicated to the lands at a distance.
Particular circumstances have sometimes rendered some
countries so populous, that the whole territory, like the lands
in the neighbourhood of a great town, has not been sufficient
to produce both the grass and the corn necessary for the
subsistence of their inhabitants. Their lands, therefore,
have been principally employed in the production of grass,
the more bulky commodity, and which cannot be so easily
brought from a great distance ; and corn, the food of the
great body of the people, has been chiefly imported from
foreign countries. Holland is at present in this situation,
and a considerable part of ancient Italy seems to have been
so during the prosperity of the Romans. To feed well, old
Cato said, as we are told by Cicero, was the first and most
profitable thing in the management of a private estate; to
feed tolerably well, the second ; and to feed ill, the third. To
160 WEALTH OF NATIONS
plough, he ranked only in the fourth place of profit and ad-
vantage. Tillage, indeed, in that part of ancient Italy which
lay in the neighbourhood of Rome, must have been very much
discouraged by the distributions of corn which were fre-
quently made to the people, either gratuitously, or at a very
low price. This corn was brought from the conquered prov-
inces, of which several, instead of taxes, were obliged to
furnish a tenth part of their produce at a stated price, about
sixpence a peck, to the republic. The low price at which this
corn was distributed to the people, must necessarily have
sunk the price of what could be brought to the Roman market
from Latiura, or the ancient territory of Rome, and must
have discouraged its cultivation in that country.
In an open country- too, of which the principal produce is
corn, a well-enclosed piece of grass will frequently rent
higher than any corn field in its neighbourhood. It is con-
venient for the maintenance of the cattle employed in the
cultivation of the corn, and its high rent is, in this case, not
so properly paid from the value of its own produce, as from
that of the corn lands which are cultivated by means of it.
It is likely to fall, if ever the neighbouring lands are com-
pletely enclosed. The present high rent of enclosed land in
Scotland seems owing to the scarcity of enclosure, and will
probably last no longer than that scarcity. The advantage
of enclosure is greater for pasture than for corn. It saves
the labour of guarding the cattle, which feed better too when
they are not liable to be disturbed by their keeper or his dog.
But where there is no local advantage of this kind, the
rent and profit of corn, or whatever else is the common vege-
table food of the people, must naturally regulate, upon the
land which is fit for producing it, the rent and profit of
pasture.
The use of the artificial grasses, of turnips, carrots, cab-
bages, and the other expedients which have been fallen upon
to make an equal quantity of land feed a greater number of
cattle than when in natural grass, should somewhat reduce, it
might be expected, the superiority which, in an improved
country, the price of butcher's-meat naturally has over that
of bread. It seems accordingly to have done so ; and there
is some reason for believing that, at least in the London
RENT OF LAND FROM HUMAN BLOOD 161
market, the price of butcher's-meat in proportion to the price
of bread, is a good deal lower in the present times than it
was in the beginning of the last century.
In the appendix to the Life of Prince Henry, Doctor Birch
has given us an account of the prices of butcher's-meat as
commonly paid by that prince. It is there said that the four
quarters of an ox weighing six hundred pounds usually cost
him nine pounds ten shillings, or thereabouts ; that is, thirty-
one shillings and eight pence per hundred pounds weight.
Prince Henry died on the 6th of November 1612, in the nine-
teenth year of his age.
In March 1764, there was a parliamentary inquiry into the
causes of the high price of provisions at that time. It was
then, among other proof to the same purpose, given in evi-
dence by a Virginia merchant, that in March 1763, he had
victualled his ships for twenty-four or twenty-five shillings
the hundred weight of beef, which he considered as the
ordinary price; whereas, in that dear year, he had paid
twenty-seven shillings for the same weight and sort. This
high price in 1764 is, however, four shillings and eight pence
cheaper than the ordinary price paid by prince Henry ; and '
it is the best beef only, it must be observed, which is fit to
be salted for those distant voyages.
The price paid by prince Henry amounts to 3 4-51^. per
pound weight of the whole carcase, coarse and choice pieces
taken together ; and at that rate the choice pieces could not
have been sold by retail for less than 43/2C/. or c^d. the pound.
In the parliamentary inquiry in 1764, the witnesses stated
the price of the choice pieces of the best beef to be to the
consumer 4c/. and 4^rf. the pound; and the coarse pieces in
general to be from seven farthings to 2^/2^. and 2}id. ; and
this they said was in general one half-penny dearer than the
same sort of pieces had usually been sold in the month of
March. But even this high price is still a good deal cheaper
than what we can well suppose the ordinary retail price to
have been in the time of prince Henry.
During the twelve first years of the last century, the aver-
age price of the best wheat at the Windsor market was
l/. iSs. 3 i-6d. the quarter of nine Winchester bushels.
But in the twelve years preceding 1764, including that year.
162 WEALTH OF NATIONS
the average price of the same measure of the best wheat at
the same market was 2/. i^. 9>^rf.
In the twelve first years of the last century, therefore,
wheat appears to have been a good deal cheaper, and
butcher's-meat a good deal dearer, than in the twelve years
preceding 1764, including that year.
In all great countries the greater part of the cultivated
lands are employed in producing either food for men or food
for cattle. The rent and profit of these regulate the rent and
profit of all other cultivated land. If any particular produce
afforded less, the land would soon be turned into corn or
pasture; and if any afforded more, some part of the lands
in corn and pasture would soon be turned to that produce.
Those productions, indeed, which require either a greater
original expence of improvement, or a greater annual ex-
pence of cultivation, in order to fit the land for them, appear
commonly to afford, the one a greater rent, the other a
greater profit than corn or pasture. This superiority, how-
ever, will seldom be found to amount to more than a reason-
able interest or compensation for this superior expence.
In a hop garden, a fruit garden, a kitchen garden, both the
rent of the landlord, and the profit of the farmer, are gen-
erally greater than in a corn or grass field. But to bring the
ground into this condition requires more expence. Hence a
greater rent becomes due to the landlord. It requires too a
more attentive and skilful management. Hence a greater
profit becomes due to the farmer. The crop too, at least in
the hop and fruit garden, is more precarious. Its price,
therefore, besides compensating all occasional losses, must
afford something like the profit of insurance. The circum-
stances of gardeners, generally mean, and always moderate,
may satisfy us that their great ingenuity is not commonly
over-recompenced. Their delightful art is practised by so
many rich people for amusement, that little advantage is to
be made by those who practise it for profit; because the per-
sons who should naturally be their best customers, supply
themselves with all their most precious productions.
The advantage which the landlord derives from such im-
provements seems at no time to have been greater than what
was sufficient to compensate the original expence of making
RENT OF LAND FROM HUMAN BLOOD 163
them. In the ancient husbandry, after the vineyard, a well-
watered kitchen garden seems to have been the part of the
farm which was supposed to yield the most valuable produce.
But Democritus, who wrote upon husbandry about two thou-
sand years ago, and who was regarded by the ancients as one
of the fathers of art, thought they did not act wisely who en-
closed a kitchen garden. The profit, he said, would not com-
pensate the expence of a stone wall; and bricks (he meant,
I suppose, bricks baked in the sun) mouldered with the rain,
and the winter storm, and required continual repairs. Colu-
mella, who reports this judgment of Democritus, does not
controvert it, but proposes a very frugal method of enclosing
with a hedge of brambles and briars, which, he says, he had
found by experience to be both a lasting and an impene-
trable fence; but which, it seems, was not commonly known
in the time of Democritus. Palladius adopts the opinion of
Columella, which had before been recommended by Varro.
In the judgment of those ancient improvers, the produce of
a kitchen garden had, it seems, been little more than suffi-
cient to pay the extraordinary culture and the expence of
watering; for in countries so near the sun, it was thought
proper, in those times as in the present, to have the command
of a stream of water, which could be conducted to every bed
in the garden. Through the greater part of Europe, a kitchen
garden is not at present supposed to deserve a better en-
closure than that recommended by Columella. In Great
Britain, and some other northern countries, the finer fruits
cannot be brought to perfection but by the assistance of a
wall. Their price, therefore, in such coimtries, must be suffi-
cient to pay the expence of building and maintaining what
they cannot be had without. The fruit-wall frequently sur-
rounds the kitchen garden, which thus enjoys the benefit of
an enclosure which its own produce could seldom pay for.-
That the vineyard, when properly planted and brought to
perfection, was the most valuable part of the farm, seems
to have been an undoubted maxim in the ancient agriculture,
as it is in the modern Arough all the wine countries. But
whether it was advantageous to plant a new vineyard, was
a matter of dispute among the ancient Italian husbandmen,
as we learn from Columella. He decides, like a true lover
164 WEALTH OF NATIONS
of all curious cultivation, in favour of the vineyard, and en-
deavours to show, by a comparison of the profit and expense,
that it was a most advantageous improvement. Such com-
parisons, however, between the profit and expense of new
projects, are commonly very fallacious; and in nothing more
so than in agriculture. Had the gain actually made by such
plantations been commonly as great as he imagined it might
have been, there could have been no dispute about it. The
same point is frequently at this day a matter of controversy
in the wine countries. Their writers on agriculture, indeed,
the lovers and promoters of high cultivation, seem generally
disposed to decide with Columella in favour of the vineyard.
In France the anxiety of the proprietors of the old vineyards
to prevent the planting of any new ones, seems to favour
their opinion, and to indicate a consciousness in those who
must have the experience, that this species of cultivation is
at present in that country more profitable than any other.
It seems at the same time, however, to indicate another
opinion, that this superior profit can last no longer than the
laws which at present restrain the free cultivation of the
vine. In 1731, they obtained an order of council, prohibiting
both the planting of new vineyards, and the renewal of those
old ones, of which the cultivation had been interrupted for
two years, without a particular permission from the king, to
be granted only in consequence of an information from the
intendant of the province, certifying that he had examined
the land, and that it was incapable of any other culture. The
pretence of this order was the scarcity of corn and pasture,
and the super-abundance of wine. But had this super-abun-
dance been real, it would, without any order of council, have
effectually prevented the plantation of new vineyards, by re-
ducing the profits of this species of cultivation below their
natural proportion to those of corn and pasture. With re-
gard to the supposed scarcity of corn occasioned by the mul-
tiplication of vineyards, corn is nowhere in France more
carefully cultivated than in the wine provinces, where the
land is fit for producing it; as in Burgundy, Guienne. and the
Upper Languedoc. The numerous hands employed in the
one species of cultivation necessarily encourage the other,
by affording a ready market for its produce. To diminish
RENT OF LAND FROM HUMAN BLOOD 165
the number of those who are capable of paying for it, is
surely a most unpromising expedient for encouraging the cul-
tivation of corn. It is like the policy which would promote
agriculture by discouraging manufactures.
The rent and profit of those productions, therefore, which
require either a greater original annual expence of improve-
ment in order to fit the land for them, or a greater annual
expence of cultivation, though often much superior to those
of corn and pasture, yet when they do no more than com-
pensate such extraordinary expence, are in reality regulated
by the rent and profit of those common crops.
It sometimes happens, indeed, that the quantity of land
which can be fitted for some particular produce, is too small
to supply the effectual demand. The whole produce can be
disposed of to those who are willing to give somewhat more
than what is sufficient to pay the whole rent, wages and profit
necessary for raising and bringing it to market, according to
their natural rates, or according to the rates at which they
are paid in the greater part of other cultivated land. The
surplus part of the price which remains after defraying the
whole expence of improvement and cultivation may com-
monly, in this case, and in this case only, bear no regular
proportion to the like surplus in corn or pasture, but may
exceed it in almost any degree; and the greater part of this
excess naturally goes to the rent of the landlord.
The usual and natural proportion, for example, between
the rent and profit of wine and those of corn and pasture,
must be understood to take place only with regard to those
vineyards which produce nothing but good common wine,
such as can be raised almost any-where, upon any light,
gravelly, or sandy soil, and which has nothing to recommend
it but its strength and wholesomeness. It is with such vine-
yards only that the common land of the country can be
brought into competition ; for with those of a peculiar quality
it is evident that it cannot.
The vine is more affected by the difference of soils than
any other fruit tree. From some it derives a flavour which
no culture or management can equal, it is supposed, upon
any other. This flavour, real or imaginary, is sometimes
peculiar to the produce of a few vineyards; sometimes it
166 WEALTH OF NATIONS
extends through the greater part of a small district, and
sometimes through a considerable part of a large province.
The whole quantity of such wines that is brought to market
falls short of the effectual demand, or the demand of those
who would be willing to pay the whole rent, profit and wages
necessary for preparing and bringing them thither, according
to the ordinary rate, or according to the rate at which they
are paid in common vineyards. The whole quantity, there-
fore, can be disposed of to those who are willing to pay
more, which necessarily raises the price above that of com-
mon wine. The difference is greater or less, according as
the fashionableness and scarcity of the wine render the com-
petition of the buyers more or less eager. Whatever it be,
the greater part of it goes to the rent of the landlord.
For though such vineyards are in general more carefully
cultivated than most others, the high price of the wine
seems to be, not so much the effect, as the cause of this
careful cultivation. In so valuable a produce the loss occa-
sioned by negligence is so great as to force even the most
careless to attention. A small part of this high price, there-
fore, is sufficient to pay the wages of the extraordinary labour
bestowed upon their cultivation, and the profits of the
extraordinary stock which puts that labour into motion.
The sugar colonies possessed by the European nations in
the West Indies, may be compared to those precious vine-
yards. Their whole produce falls short of the effectual de-
mand of Europe, and can be disposed of to those who are
willing to give more than what is sufficient to pay the whole
rent, profit and wages necessary for preparing and bringing
it to market, according to the rate at which they are com-
monly paid by any other produce. In Cochin-china the finest
white sugar commonly sells for three piastres the quintal,
about thirteen shillings and sixpence of our money, as we are
told by Mr. Poivre, a very careful observer of the agricul-
ture of that country. What is there called the quintal weighs
from a hundred and fifty to two hundred Paris pounds, or a
hundred and seventy-five Paris pounds at a medium, which
reduces the price of the hundred weight English to about
eight shillings sterling, not a fourth part of what is com-
monly paid for the brown or muskavada sugars imported
RENT OF LAND FROM HUMAN BLOOD 167
from our colonies, and not a sixth part of what is paid for
the finest white sugar. The greater part of the cultivated
lands in Cochin-china are employed in producing corn and
rice, the food of the great body of the people. The respec-
tive prices of corn, rice, and sugar, are there probably in the
natural proportion, or in that which naturally takes place
in the different crops of the greater part of cultivated land,
and which recompences the landlord and farmer, as nearly
as can be computed, according to what is usually the original
expence of improvement and the annual expence of cultiva-
tion. But in our sugar colonies the price of sugar bears no
such proportion to that of the produce of a rice or corn field
either in Europe or in America. It is commonly said, that
a sugar planter expects that the rum and the molasses should
defray the whole expence of his cultivation, and that his
sugar should be all clear profit. If this be true, for I pretend
not to afiirm it, it is as if a corn farmer expected to defray
the expence of his cultivation with the chaff and the straw,
and that the grain should be all clear profit. We see fre-
quently societies of merchants in London and other trading
towns, purchase waste lands in our sugar colonies, which
they expect to improve and cultivate with profit by means of
factors and agents; notwithstanding the great distance and
the uncertain returns, from the defective administration of
justice in those countries. Nobody will attempt to improve
and cultivate in the same manner the most fertile lands of
Scotland, Ireland, or the corn provinces of North America,
though from the more exact administration of justice in
these countries, more regular returns might be expected.
In Virginia and Maryland the cultivation of tobacco is
preferred, as more profitable, to that of corn. Tobacco might
be cultivated with advantage through the greater part of
Europe ; but in almost every part of Europe it has become
a principal subject of taxation, and to collect a tax from
every different farm in the country where this plant might
happen to be cultivated, would be more difficult, it has been
supposed, than to levy one upon its importation at the cus-
tom-house. The cultivation of tobacco has upon this account
been most absurdly prohibited through the greater part of
Europe, which necessarily gives a sort of monopoly to the
168 WEALTH OF NATIONS
countries where it is allowed; and as Virginia and Maryland
produce the greatest quantity of it, they sliare largely, though
with some competitors, in the advantage of this monopoly.
The cultivation of tobacco, however, seems not to be so ad-
vantageous as that of sugar. I have never even heard of any
tobacco plantation that was improved and cultivated by the
capital of merchants who resided in Great Britain, and our
tobacco colonies send us home no such wealthy planters as
we see frequently arrive from our sugar islands. Though
from the preference given in those colonies to the cultivation
of tobacco above that of corn, it would appear that the ef-
fectual demand of Europe for tobacco is not completely sup-
plied, it probably is more nearly so than that for sugar: And
though the present price of tobacco is probably more than
sufficient to pay the whole rent, wages and profit necessary
for preparing and bringing it to market, according to the
rate at which they are commonly paid in corn land; it must
not be so much more as the present price of sugar. Our
tobacco planters, accordingly, have shewn the same fear of
the super-abundance of tobacco, which the proprietors of the
old vineyards in France have of the super-abundance of
wine. By act of assembly they have restrained its cultivation
to six thousand plants, supposed to yield a thousand weight
of tobacco, for every negro between sixteen and sixty years
of age. Such a negro, over and above this quantity of to-
bacco, can manage, they reckon, four acres of Indian corn.
To prevent the market from being overstocked too, they have
sometimes, in plentiful years, we are told by Dr. Douglas,
(I suspect he has been ill informed) burnt a certain quantity
of tobacco for every negro, in the same manner as the Dutch
are said to do of spices. If such violent methods are neces-
sary to keep up the present price of tobacco, the superior ad-
vantage of its culture over that of corn, if it still has any,
will not probably be of long continuance.
It is in this manner that the rent of the cultivated land, of
which the produce is human food, regulates the rent of the
greater part of other cultivated land. No particular produce
can long afford less ; because the land would immediately be
turned to another use: And if any particular produce com-
monly affords more, it is because the quantity of land which
RENT OF LAND FROM HUMAN BLOOD 169
can be fitted for it is loo small to supply the effectual
demand.
In Europe corn is the principal produce of land which
serves immediately for human food. Except in particular
situations, therefore, the rent of corn land regulates in
Europe that of all other cultivated land. Britain need envy
neither the vineyards of France nor the olive plantations of
Italy. Except in particular situations, the value of these
is regulated by that of corn, in which the fertility of Britain
is not much inferior to that of either of those two countries.
If in any country the common and favorite vegetable food
of the people should be drawn from a plant of which the
most common land, with the same or nearly the same culture,
produced a much greater quantity than the most fertile does
of corn, the rent of the landlord, or the surplus quantity of
food which would remain to him, after paying the labour and
replacing the stock of the farmer together with its ordinary
profits, would necessarily be much greater. Whatever was
the rate at which labour was commonly maintained in that
country, this greater surplus could always maintain a greater
quantity of it, and consequently enable the landlord to pur-
chase or command a greater quantityof it. The real valueof his
rent, his real power and authority, his command of the neces-
saries and conveniencies of life with which the labor of other
people could supply him, would necessarily be much greater.
A rice field produces a much greater quantity of food than
the most fertile corn field. Two crops in the year from thirty
to sixty bushels each, are said to be the ordinary produce of
an acre. Though its cultivation, therefore, requires more
labour, a much greater surplus remains after maintaining
all that labour. In those rice countries, therefore, where
rice is the common and favourite vegetable food of the
people, and where the cultivators are chiefly maintained
with it, a greater share of this greater surplus should belong
to the landlord than in corn countries. In Carolina, where
the planters, as in other British colonies, are generally both
farmers and landlords, and where rent consequently is con-
founded with profit, the cultivation of rice is found to be
more profitable than that of corn, though their fields produce
only one crop in the year, and though, from the prevalence
170 WEALTH OF NATIONS
of the customs of Europe, rice is not there the common and
favourite vegetable food of the people.
A good rice field is a bog at all seasons, and at one season
a bog covered w^ith water. It is unfit either for corn, or
pasture, or vineyard, or, indeed, for any other vegetable prod-
uce that is very useful to men : And the lands which are lit
for those purposes, are not fit for rice. Even in the rice
countries, therefore, the rent of rice lands cannot regulate
the rent of the other cultivated land which can never be
turned to that produce.
The food produced by a field of potatoes is not inferior in
quantity to that produced by a field of rice, and much su-
perior to what is produced by a field of wheat. Twelve thou-
sand weight of potatoes from an acre of land is not a greater
produce than two thousand weight of wheat. The food or
solid nourishment, indeed, which can be drawn from each
of those two plants, is not altogether in proportion to their
weight, on account of the watery nature of potatoes. Allow-
ing, however, half the weight of this root to go to water, a
very large allowance, such an acre of potatoes will still pro-
duce six thousand weight of solid nourishment, three times
the quantity produced by the acre of wheat. An acre of po
tatoes is cultivated with less expence than an acre of wheat;
the fallow, which generally precedes the sowing of wheat,
more than compensating the hoeing and other extraordinary
culture which is always given to potatoes. Should this root
ever become in any part of Europe, like rice in some rice
countries, the common and favourite vegetable food of the
people, so as to occupy the same proportion of the land in
tillage which wheat and other sorts of grain for human food
do at present, the same quantity of cultivated land would
maintain a much greater number of people, and the labourers
being generally fed with potatoes, a greater surplus would
remain after replacing all the stock and maintaining all the
labour employed in cultivation. A greater share of this sur-
plus too would belong to the landlord. Population would
increase, and rents would rise much beyond what they are
at present.
The land which is fit for potatoes, is fit for almost every
other useful vegetable. If they occupied the same proportion
RENT OF LAND FROM MATERIALS 171
of cultivated land which corn does at present, they would
regulate, in the same manner, the rent of the greater part of
other cultivated land.
In some parts of Lancashire it is pretended, I have been
told, that bread of oatmeal is a heartier food for labouring
people than wheaten bread, and I have frequently heard the
same doctrine held in Scotland. I am, however, somewhat
doubtful of the truth of it. The common people in Scotland,
who are fed with oatmeal, are in general neither so strong
nor so handsome as the same rank of people in England, who
are fed with wheaten bread. They neither work so well,
nor look so well ; and as there is not the same difference be-
tween the people of fashion in the two countries, experience
would seem to show, that the food of the common people in
Scotland is not so suitable to the human constitution as that
of their neighbours of the same rank in England. But it
seems to be otherwise with potatoes. The chairmen, porters,
and coal-heavers in London, and those unfortunate women
who live by prostitution, the strongest men and the most
beautiful women perhaps in the British dominions, are said
to be, the greater part of them, from the lowest rank of
people in Ireland, who are generally fed with this root. No
food can afford a more decisive proof of its nourishing
quality, or of its being peculiarly suitable to the health of the
human constitution.
It is difficult to preserve potatoes through the year, and
impossible to store them like corn, for two or three years
together. The fear of not being able to sell them before they
rot, discourages their cultivation, and is, perhaps, the chief
obstacle to their ever becoming in any great country, like
bread, the principal vegetable food of all the different ranks
of the people.
PART II
Of the Produce of Land which sometimes does and sometimes
DOES not, afford Rent
Human food seems to be the only produce of land
which always and necessarily affords some rent to
the landlord. Other sorts of produce sometimes may and
sometimes may not, according to different circumstances.
172 WEALTH OF NATIONS
After food, cloathing and lodging are the two great wants
of mankind.
Land in its original rude state can afford the materials of
cloathing and lodging to a much greater number of people
than it can feed. In its improved state it can sometimes feed
a greater number of people than it can supply with those ma-
terials; at least in the way in which they require them, and
are willing to pay for them. In the one state, therefore, there
is always a super-abundance of those materials, which are
frequently, upon that account, of little or no value. In the
other there is often a scarcity, which necessarily augments
their value. In the one state a great part of them is thrown
away as useless, and the price of what is used is considered
as equal only to the labour and expence of fitting it for use,
and can, therefore, afford no rent to the landlord. In the
other they are all made use of, and there is frequently a de-
mand for more than can be had. Somebody is always will-
ing to give more for every part of them than what is suffi-
cient to pay the expence of bringing them to market. Their
price, therefore, can always aft'ord some rent to the landlord.
The skins of the larger animals were the original materials
of cloathing. Among nations of hunters and shepherds,
therefore, whose food consists chiefly in the flesh of those
animals, every man, by providing himself with food, pro-
vides himself with the materials of more cloathing than he
can wear. If there was no foreign commerce, the greater
part of them would be thrown away as things of no value.
This was probably the case among the hunting nations of
North America, before their country was discovered by the
Europeans, with whom they now exchange their surplus
peltry, for blankets, fire-arms, and brandy, which gives it
some value. In the present commercial state of the known
world, the most barbarous nations, I believe, among whom
land property is established, have some foreign commerce
of this kind, and find among their wealthier neighbours such
a demand for all the materials of cloathing, which their land
produces, and which can neither be wrought up nor consumed
at home, as raises their price above what it costs to send
them to those wealthier neighbours. It affords, therefore,
some rent to the landlord. When the greater part of the
RENT OF LAND FROM MATERIALS 173
highland cattle were consumed on their own hills, the expor-
tation of their hides made the most considerable article of
the commerce of that country, and what they were exchanged
for afforded some addition to the rent of the highland es-
tates. The wool of England, which in old times could
neither be consumed nor wrought up at home, found a mar-
ket in the then wealthier and more industrious country of
Flanders, and its price afforded something to the rent of the
land which produced it. In countries not better cultivated
than England was then, or than the highlands of Scotland
are now, and which had no foreign commerce, the materials
of cloathing would evidently be so super-abundant, that a
great part of them would be thrown away as useless, and no
part could afford any rent to the landlord.
The materials of lodging cannot always be transported to
so great a distance as those of cloathing, and do not so
readily become an object of foreign commerce. When they
are super-abundant in the country which produces them, it
frequently happens, even in the present commercial state of
the world, that they are of no value to the landlord. A good
stone quarry in the neighbourhood of London would afford
a considerable rent. In many parts of Scotland and Wales
it affords none. Barren timber for building is of great value
in a populous and well-cultivated country, and the land which
produces it affords a considerable rent. But in many parts
of North America the landlord would be much obliged to any
body who would carry away the greater part of his large
trees. In some parts of the highlands of Scotland the bark
is the only part of the wood which, for want of roads and
water-carriage, can be sent to market. The timber is left
to rot upon the ground. When the materials of lodging are
so super-abundant, the part made use of is worth only the
labour and expcnce of fitting it for that use. It affords no
rent to the landlord, who generally grants the use of it to
whoever takes the trouble of asking it. The demand of
wealthier nations, however, sometimes enables him to get a
rent for it. The paving of the streets of London has enabled
the owners of some barren rocks on the coast of Scotland to
draw a rent from what never afforded any before. The
woods of Norway and of the coasts of the Baltic, find a
174 WEALTH OF NATIONS
market in many parts of Great Britain which they could not
find at home, and thereby afford some rent to their pro-
prietors.
Countries are populous, not in proportion to the number of
people whom their produce can cloath and lodge, but in pro-
portion to that of those whom it can feed. When food is
provided, it is easy to find the necessary cloathing and lodg-
ing. But though these are at hand, it may often be difficult
to find food. In some parts even of the British dominions
what is called A House, may be built by one day's labour
of one man. The simplest species of cloathing, the skins of
animals, require somewhat more labour to dress and prepare
them for use. They do not, however, require a great deal.
Among savages and barbarous nations, a hundredth or little
more than a hundredth part of the labour of the whole year,
will be sufficient to provide them with such cloathing and
lodging as satisfy the greater part of the people. All the
other ninety-nine parts are frequently no more than enough
to provide them with food.
But when by the improvement and cultivation of land the
labour of one family can provide food for two, the labour of
half the society becomes sufficient to provide food for the
whole. The other half, therefore, or at least the greater part
of them, can be employed in providing other things, or in
satisfying the other wants and fancies of mankind. Cloath-
ing and lodging, houshold furniture, and what is called
Equipage, are the principal objects of the greater part of
those wants and fancies. The rich man consumes no more
food than his poor neighbour. In quality it may be very
different, and to select and prepare it may require more
labour and art ; but in quantity it is very nearly the same.
But compare the spacious palace and great wardrobe of the
one, with the hovel and the few rags of the other, and you
will be sensible that the difference between their cloathing,
lodging, and houshold furniture, is almost as great in quan-
tity as it is in quality. The desire of food is limited in every
man by the narrow capacity of the human stomach ; but the
desire of the conveniencics and ornaments of building, dress,
equipage, and houshold furniture, seems to have no limit or
certain boundary. Those, therefore, who have the command
RENT OF LAND FROM MATERIALS 175
of more food than they themselves can consume, are always
willing to exchange the surplus, or, what is the same thing,
the price of it, for gratifications of this other kind. What is
over and above satisfying the limited desire, is given for the
amusement of those desires which cannot be satisfied, but
seem to be altogether endless. The poor, in order to obtain
food, exert themselves to gratify those fancies of the rich,
and to obtain it more certainly, they vie with one another in
the cheapness and perfection of their work. The number
of workmen increases with the increasing quantity of food,
or with the growing improvement and cultivation of the
lands and as the nature of their business admits of the ut-
most subdivisions of labour, the quantity of materials which
they can work up, increases in a much greater proportion
than their numbers. Hence arises a demand for every sort
of material which human invention can employ, either use-
fully or ornamentally, in building, dress, equipage, or hous-
hold furniture; for the fossils and minerals contained in the
bowels of the earth, the precious metals, and the precious
stones.
Food is in this manner, not only the original source of
rent, but every other part of the produce of land which after-
wards affords rent, derives that part of its value from the
improvement of the powers of labour in producing food by
means of the improvement and cultivation of land.
Those other parts of the produce of land, however, which
afterwards afford rent, do not afford it always. Even in im-
proved and cultivated countries, the demand for them is not
always such as to afford a greater price than what is suffi-
cient to pay the labour, and replace, together with its ordi-
nary profits, the stock which must be employed in bringing
them to market. Whether it is or is not such, depends upon
different circumstances.
Whether a coal-mine, for example, can afford any rent, de-
pends partly upon its fertility, and partly upon its situation.
A mine of any kind may be said to be either fertile or
barren, according as the quantity of mineral which can be
brought from it by a certain quantity of labour, is greater or
less than what can be brought by an equal quantity from
the greater part of other mines of the same kind.
176 WEALTH OF NATIONS
Some coal-mines advantageously situated, cannot be
wrought on account of their barrenness. The produce does
not pay the expence. They can afford neither profit nor rent.
There are some of which the produce is barely sufficient
to pay the labour, and replace, together with its ordinary
profits, the stock employed in working them. They afford
some profit to the undertaker of the work, but no rent to the
landlord. They can be wrought advantageously by nobody
but the landlord, who being himself undertaker of the work,
gets the ordinary profit of the capital which he employs in it.
Many coal-mines in Scotland are wrought in this manner,
and can be wrought in no other. The landlord will allow
nobody else to work them without paying some rent, and
nobody can afford to pay any.
Other coal-mines in the same country sufficiently fertile,
cannot be wrought on account of their situation. A quantity
of mineral sufficient to defray the expence of working, could
be brought from the mine by the ordinary, or even less than
the ordinary quantity of labour: But in an inland country,
thinly inhabited, and without either good roads or water-
carriage, this quantity could not be sold.
Coals are a less agreeable f ewel than wood : they are said
too to be less wholesome. The expence of coals, therefore,
at the place where they are consumed, must generally be
somewhat less than that of wood.
The price of wood again varies with the state of agricul-
ture, nearly in the same manner, and exactly for the same
reason, as the price of cattle. In its rude beginnings the
greater part of every country is covered with wood, which is
then a mere incumbrance of no value to the landlord, who
would gladly give it to any body for the cutting. As agricul-
ture advances, the woods are partly cleared by the progress
of tillage, and partly go to decay in consequence of the in-
creased number of cattle. These, though they do not in-
crease in the same proportion as corn, which is altogther
the acquisition of human industry, yet multiply under the
care and protection of men ; who store up in the season of
plenty what may maintain them in that of scarcity, who
through the whole year furnish them with a greater quantity
of food than uncultivated nature provides for them, and who
RENT OF LAND FROM MATERIALS 177
by destroying and extirpating their enemies, secure them in
the free enjoyment of all that she provides Numerous herds
of cattle, when allowed to wander through the woods, though
they do not destroy the old trees, hinder any young ones from
coming up, so that in the course of a century or two the
whole forest goes to ruin. The scarcity of wood then raises
its price. It affords a good rent, and the landlord sometimes
finds that he can scarce employ his best lands more advan^
tageously than in growing barren timber, of which the great-
ness of the profit often compensates the lateness of the re-
turns. This seems in the present times to be nearly the state
of things in several parts of Great Britain, where the profit
of planting is found to be equal to that of either corn or
pasture. The advantage which the landlord derives from
planting, can no-where exceed, at least for any considerable
time, the rent which these could afford him; and in an inland
country which is highly cultivated, it will frequently not fall
much short of this rent Upon the sea-coast of a well-
improved country, indeed, if coals can conveniently be had
for fewel, it may sometimes be cheaper to bring barren tim-
ber for building from less cultivated foreign countries, than
to raise it at home. In the new town of Edinburgh, built
within these few years, there is not, perhaps, a single stick
of Scotch timber.
Whatever may be the price of wood, if that of coals is
such that the expence of a coal-fire is nearly equal to that of
a wood one, we may be assured, that at that place, and in
these circumstances, the price of coals is as high as it can be.
It seems to be so in some of the inland parts of England,
particularly in Oxfordshire, where it is usual, even in the
fires of the common people, to mix coals and wood together,
and where the difference in the expence of those two sorts
of fewel cannot, therefore, be very great.
Coals, in the coal countries, are every-where much below
this highest price. If they were not, they could not bear
the expence of a distant carriage, either by land or by
water. A small quantity only could be sold, and the coal
masters and coal proprietors find it more for their interest
to sell a great quantity at a price somewhat above the lowest,
than a small quantity at the highest. The most fertile coal-
178
WEALTH OF NATIONS /
mine too, regulates the price of coals at all the other mines
in its neighbourhood. Both the proprietor and the under-
taker of the work find, the one that he can get a greater rent,
the other that he can get a greater profit, by somewhat under-
selling all their neighbours. Their neighbours are soon
obliged to sell at the same price, though they cannot so well
afford it, and though it always diminishes, and sometimes
takes away altogether both their rent and their profit. Some
works are abandoned altogether ; others can afford no rent,
and can be wrought only by the proprietor.
The lowest price at which coals can be sold for any consid-
erable time, is, like that of all other commodities, the price
which is barely sufficient to replace, together with its ordi-
nary profits, the stock which must be employed in bringing
them to market. At a coal-mine for which the landlord can
get no rent, but which he must either work himself or let it
alone altogether, the price of coals must generally be nearly
about this price.
Rent, even where coals afford one, has generally a smaller
share in their price than in that of most other parts of the
rude produce of land. The rent of an estate above ground,
commonly amounts to what is supposed to be a third of the
gross produce ; and it is generally a rent certain and inde-
pendent of the occasional variations in the crop. In coal-
mines a fifth of the gross produce is a very great rent; a
tenth the common rent, and it is seldom a rent certain, but
depends upon the occasional variations in the produce. These
are so great, that in a country where thirty years purchase
is considered as a moderate price for the property for a
landed estate, ten years purchase is regarded as a good price
for that of a coal-mine.
The value of a coal-mine to the proprietor frequently de-
pends as much upon its situation as upon its fertility. That
of a metallic mine depends more upon its fertility, and less
upon its situation. The coarse, and still more the preciou?
metals, when separated from the ore, are so valuable that
they can generally bear the expence of a very long land,
and of the most distant sea carriage. Their market is not
confined to the countries in the neighbourhood of the mine,
but extends to the whole world. The copper of Japan makes
RENT OF LAND FROM MATERIALS 179
an article of commerce in Europe ; the iron of Spain in that
of Chili and Peru. The silver of Peru finds its way, not
only to Europe, but from Europe to China.
The price of coals in Westmorland or Shropshire can
have little effect on their price at Newcastle ; and their price
in the Lionnois can have none at all. The productions of such
distant coal-mines can never be brought into competition
W'ith one another. But the productions of the most distant
metallic mines frequently may, and in fact commonly are.
The price, therefore, of the coarse, and still more that of the
precious metals, at the most fertile mines in the world, must
necessaril)' more or less affect their price at every other in it.
The price of copper in Japan must have some influence upon
its price at the copper mines in Europe. The price of silver
in Peru, or the quantity either of labour or of other goods
which it will purchase there, must have some influence on its
price, not only at the silver mines of Europe, but at those of
China. After the discovery of the mines of Peru, the silver
mines of Europe were, the greater part of them, abandoned.
The value of silver was so much reduced that their produce
could no longer pay the expence of working them, or replace,
with a profit, the food, cloaths, lodging and other necessaries
which were consumed in that operation. This was the case
too with the mines of Cuba and St. Domingo, and even with
the ancient mines of Peru, after the discovery of those of
Potosi.
The price of every metal at every mine, therefore, being
regulated in some measure by its price at the most fertile
mine in the world that is actually wrought, it can at the
greater part of mines do very little more than pay the ex-
pence of working, and can seldom aft'ord a very high rent
to the landlord. Rent, accordingly, seems at the greater
part of mines to have but a small share in the price of the
coarse, and a still smaller in that of the precious metals.
Labour and profit make up the greater part of both.
A sixth part of the gross produce may be reckoned the
average rent of the tin mines of Cornwall, the most fertile
that are known in the world, as we are told by the Rev. Mr.
Borlace, vice-warden of the stannaries. Seme, he says, af-
ford more, and some do not afford so much, A sixth part
180 WEALTH OF NATIONS
of the gross produce is the rent too of several very fertile
lead mines in Scotland.
In the silver mines of Peru, wc are told by Frezier and
Ulloa, the proprietor frequently exacts no other acknowl-
edgment from the undertaker of the mine, but that he will
grind the ore at his mill, paying him the ordinary multure or
price of grinding. Till 1736, indeed, the tax of the king of
Spain amounted to one-fifth of the standard silver, which till
then might be considered as the real rent of the greater part
of the silver mines of Peru, the richest which have been
known in the world. If there had been no tax, this fifth
would naturally have belonged to the landlord, and many
mines might have been wrought which could not then be
wrought, because they could not afford this tax. The tax of
the duke of Cornwall upon tin is supposed to amount to more
than five per cent, or one-twentieth part of the value ; and
whatever may be his proportion, it would naturally too belong
to the proprietor of the mine, if tin was duty free. But if
you add one-twentieth to one-sixth, you will find that the
whole average rent of the tin mines of Cornwall, was to the
whole average rent of the silver mines of Peru, as thirteen
to twelve. But the silver mines of Peru are not now able
to pay even this low rent, and the tax upon silver was, in
1736, reduced from one-fifth to one-tenth. Even this tax
upon silver too gives more temptation to smuggling than the
tax of one-twentieth upon tin ; and smuggling must be much
easier in the precious than in the bulky commodity. The
tax of the king of Spain accordiiigly is said to be very ill
paid, and that of the duke of Cornwall very well. Rent,
therefore, it is probable, makes a greater part of the price
of tin at the most fertile tin mines, than it does of silver at
the most fertile silver mines in the world. After replacing
the stock employed in working those different mines, together
with its ordinary profits, the residue which remains to the
proprietor, is greater it seems in the coarse, than in the
precious metal.
Neither are the profits of the undertakers of silver mines
commonly very great in Peru. The same most respectable
and well informed authors acquaint us, that when any person
undertakes to work a new mine in Peru, he is universally
RENT OF LAND FROM MATERIALS 181
looked upon as a man destined to bankruptcy and ruin, and
is upon that account shunned and avoided by every body.
Mining, it seems, is considered there in the same hght as
here, as a lottery, in which the prizes do not compensate the
blanks, though the greatness of some tempts many adven-
turers to throw away their fortunes in such unprosperous
projects.
As the sovereign, however, derives a considerable part of
his revenue from the produce of silver mines, the law in
Peru gives every possible encouragement to the discovery
and working of new ones. Whoever discovers a new mine,
is entitled to measure off two hundred and forty-six feet in
length, according to what he supposes to be the direction of
the vein, and half as much in breadth. He becomes pro-
prietor of this portion of the mine, and can work it without
paying any acknowledgment to the landlord. The interest
of the duke of Cornwall has given occasion to a regulation
nearly of the same kind in that ancient duchy. In waste
and uninclosed lands any person who discovers a tin mine,
may mark out its limits to a certain extent, which is called
bounding a mine. The bounder becomes the real proprietor
of the mine, and may either work it himself, or give it in
lease to another, without the consent of the owner of the
land, to whom, however, a very small acknowledgment must
be paid upon working it. In both regulations the sacred
rights of private property are sacrificed to the supposed in-
terests of public revenue.
The same encouragement is given in Peru to the discovery
and working of new gold mines ; and in gold the king's tax
amounts only to a twentieth part of the standard metal. It
was once a fifth, and afterwards a tenth, as in silver ; but
it was found that the work could not bear even the lowest
of these two taxes. If it is rare, however, say the same
authors, Frezier and Ulloa, to find a person who has made
his fortune by a silver, it is still much rarer to find one who
has done so by a gold mine. This twentieth part seems to
be the whole rent which is paid by the greater part of the
gold mines in Chili and Peru. Gold too is much more liable
to be smuggled than even silver ; not only on account of the
superior value of the metal in proportion to its bulk, but on
182 WEALTH OF NATIONS
account of the peculiar way in which nature produces it.
Silver is very seldom found virgin, but, like most other
metals, is generally mineralized with some other body, from
which it is impossible to separate it in such quantities as
will pay for the expence, but by a very laborious and tedious
operation, which cannot well be earned on but in work-
houses erected for the purpose, and therefore exposed to the
inspection of the king's officers. Gold, on the contrary, is
almost always found virgin. It is sometimes found in pieces
of some bulk; and even when mixed in small and almost
insensible particles with sand, earth, and other extraneous
bodies, it can be separated from them by a very short and
simple operation, which can be carried on in any private
house by any body who is possessed of a small quantity of
mercury. If the king's tax, therefore, is but ill paid upon
silver, it is likely to be much worse paid upon gold ; and rent
must make a much smaller part of the price of gold, than
even of that of silver.
The lowest price at which the precious metals can be sold,
or the smallest quantity of other goods for which they can
be exchanged during any considerable time, is regulated by
the same principles which fix the lowest ordinary price of all
other goods. The stock which must commonly be employed,
the food, cloaths, and lodging which must commonly be con-
sumed in bringing them from the mine to the market, deter-
mine it. It must at least be sufficient to replace that stock,
with the ordinary profits.
Their highest price, however, seems not to be necessarily
determined by any thing but the actual scarcity or plenty of
those metals themselves. It is not determined by that of
any other commodity, in the same manner as the price of
coals is by that of wood, beyond which no scarcity can ever
raise it. Increase the scarcity of gold to a certain degree,
and the smallest bit of it may become more precious than a
diamond, and exchange for a greater quantity of other
goods.
The demand for those metals arises partly from their
utility, and partly from their beauty. If you except iron,
they are more useful, perhaps, than any other metal. As
they are less liable to rust and impurity, they can more easily
RENT OF I-AND FROM MATERIALS 183
be kept clean; and the utensils either of the table or the
kitchen are often upon that account more agreeable when
made of them. A silver boiler is more cleanly than a lead,
copper, or tin one ; and the same quality would render a
gold boiler still better than a silver one. Their principal
merit, however, arises from their beauty, which renders
them peculiarly fit for the ornaments of dress and furniture.
No paint or dye can give so splendid a colour as gilding.
The merit of their beauty is greatly enhanced by their
scarcity. With the greater part of rich people, the chief
enjoyment of riches consists in the parade of riches, which in
their eye is never so complete as when they appear to pos-
sess those decisive marks of opulence which nobody can
possess but themselves. In their eyes the merit of an object
which is in any degree either useful or beautiful, is greatly
enhanced by its scarcity, or by the great labour which it re-
quires to collect any considerable quantity of it, a labour
which nobody can afford to pay but themselves Such ob-
jects they are willing to purchase at a higher price than
things much more beautiful and useful, but more com^mon.
These qualities of utility, beauty, and scarcity, are the orig-
inal foundation of the high price of those metals, or of the
great quantity of other goods for which they can every-
where be exchanged. This value was antecedent to and in-
dependent of their being employed as coin, and w"as the
quality which fitted them for that employment. That em-
ployment, however, by occasioning a new demand, and by
diminishing the quantity which could be employed in any
other way, may have afterwards contributed to keep up or
increase their value.
The demand for the precious stones arises altogether from
their beauty. They are of no use, but as ornaments ; and
the merit of their beauty is greatly enhanced by their scar-
city, or by the difficulty and expence of getting them from
the mine. Wages and profit accordingly make up. upon most
occasions, almost the whole of their high price. Rent comes
in but for a very small share ; frequently for no share ; and
the most fertile mines, only afford any considerable rent.
When Tavernier, a jeweller, visited the diamond mines of
Golconda and Visiapour, he was informed that the sovereign
184 WEALTH OF NATIONS
of the country, for whose benefit they were wrought, ha3
ordered all of them to be shut up, except those which yielded
the largest and finest stones. The others, it seems, were to
the proprietor not worth the working.
As the price both of the precious metals and of the precious
stones is regulated all over the world by their price at the
most fertile mine in it, the rent which a mine of either can
afford to its proprietor is in proportion, not to its absolute,
but to what may be called its relative fertility, or to its
superiority over other mines of the same kind. If new mines .
were discovered as much superior to those of Potosi as they
were superior to those of Europe, the value of silver might
be so much degraded as to render even the mines of Potosi
not worth the working. Before the discovery of the Spanish
West Indies, the most fertile mines in Europe may have
afforded as great a rent to their proprietor as the richest
mines in Peru do at present. Though the quantity of sil-
ver was much less, it might have exchanged for an equal
quantity of other goods, and the proprietor's share might
have enabled him to purchase or command an equal quan-
tity either of labour or of commodities. The value both of
the produce and of the rent, the real revenue which they
afforded both to the public and to the proprietor, might have
been the same.
The most abundant mines either of the precious metals or
of the precious stones could add little to the wealth of the
world. A produce of which the value is principally derived
from its scarcity, is necessarily degraded by its abundance.
A service of plate, and the other frivolous ornaments of
dress and furniture, could be purchased for a smaller quan-
tity of labour, or for a smaller quantity of commodities; and
in this would consist the sole advantage which the world
could derive from that abundance.
It is otherwise in estates above ground. The value both
of their produce and of their rent is in proportion to their
absolute, and not to their relative fertility. The land which
produces a certain quantity of foods, cloaths, and lodging,
can always feed, cloath, and lodge a certain number of
people ; and whatever may be the proportion of the landlord,
it will always give him a proportionable command of the
RENT OF LAND FROM MATERIALS 185
labour of those people, and of the commoJities with which
that labour can supply him. The value of the most barren
lands is not diminished by the neighbourhood of the most
fertile. On the contrary, " it is generally increased by it.
The great number of people maintained by the fertile lands
afford a market to many parts of the produce of the barren,
which they could never have found among those whom their
own produce could maintain.
Whatever increases the fertility of land in producing food,
increases not only the value of the lands upon which the im-
provement is bestowed, but contributes likewise to increase
that of many other lands, by creating a new demand for
their produce. That abundance of food, of which, in conse-
quence of the improvement of land, many people have the
disposal beyond what they themselves can consume, is the
great cause of the demand both for the precious metals and
the precious stones, as well as for every other conveniency
and ornament of dress, lodging, household furniture, and
equipage. Food not only constitutes the principal part of the
riches of the world, but it is the abundance of food which
gives the principal part of their value to many other sorts
of riches. The poor inhabitants of Cuba and St. Domingo,
when they were first discovered by the Spaniards, used to
wear little bits of gold as ornaments in their hair and other
parts of their dress. They seemed to value them as we
would do any little pebbles of somewhat more than ordinary
beauty, and to consider them as just worth the picking up,
but not worth the refusing to anybody who asked them.
They gave them to their new guests at the first request,
without seeming to think that they had made them any very
valuable present. They were astonished to observe the rage
of the Spaniards to obtain them ; and had no notion that
there could any-where be a country in which many people
had the disposal of so great a superfluity of food, so scanty
always among themselves, that for a very small quantity of
those glittering baubles they would willingly give as much
as might maintain a whole family for many years. Could
they have been made to understand this, the passion of the
Spaniards would not have surprised them.
186 WEALTH OF NATIONS
PART III
Of the Variations in the Proportion between the respective
Values of that Sort of Produce which always affords
Rent, and of that which sometimes does and
SOMETIMES does NOT AFFORD ReNT
The increasing abundance of food, in consequence of
increasing improvement and cultivation, must necessarily
increase the demand for every part of the produce of land
which is not food, and which can be applied either
to use or to ornament. In the whole progress of im-
provement, it might therefore be expected, there should be
only one variation in the comparative values of those two
different sorts of produce. The value of that sort which
sometimes does and sometimes does not afford rent, should
constantly rise in proportion to that which always affords
some rent. As art and industry advance, the materials of
cloathing and lodging, the useful fossils and minerals of the
earth, the precious metals and the precious stones should
gradually come to be more and more in demand, should
gradually exchange for a greater and a greater quantity of
food, or in other words, should gradually become dearer and
dearer. This accordingly has been the case with most of
these things upon most occasions, and would have been the
case with all of them upon all occasions, if particular acci-
dents had not upon some occasions increased the supply of
some of them in a still greater proportion than the demand.
The value of a free-stone quarry, for example, will neces-
sarily increase with the increasing improvement and popu-
lation of the country round about it ; especially if it should
be the only one in the neighbourhood. But the value of a
silver mine, even though there should not be another within
a thousand miles of it, will not necessarily increase with the
improvement of the country in which it is situated. The
market for the produce of a free-stone quarry can seldom
extend more than a few miles round about it, and the de-
mand must generally be in proportion to the improvement
and population of that small district. But the market for
the produce of a silver mine may extend over the whole
known world. Unless the world in general, therefore, be
FOOD AND MATERIALS COMPARED 187
advancing in improvement and population, the demand for
silver might not be at all increased by the improvement even
of a large country in the neighbourhood of the mine. Even
though the world in general were improving, yet, if, in
the course of its improvement, new mines should be dis-
covered, much more fertile than any which had been known
before, though the demand for silver would necessarily in-
crease, yet the supply might increase in so much a greater
proportion, that the real price of that metal might gradually
fall ; that is, any given quantity, a pound weight of it, for
example, might gradually purchase or command a smaller
and a smaller quantity of labour, or exchange for a smaller
and a smaller quantity of corn, the principal part of the
subsistence of the labourer.
The great market for silver is the commercial and civilized
part of the world.
If by the general progress of improvement the demand of
this market should increase, while at the same time the sup-
ply did not increase in the same proportion, the value of
silver would gradually rise in proportion to that of corn.
Any given quantity of silver would exchange for a greater
and a greater quantity of corn ; or, in other words, the aver-
age money price of corn would gradually become cheaper
and cheaper.
If, on the contrary, the supply by some accident should
increase for many years together in a greater proportion
than the demand, that metal would gradually become cheaper
and cheaper ; or, in other words, the average money price of
corn would, in spite of all improvements, gradually become
dearer and dearer.
But if, on the other hand, the supply of the metal should
increase nearly in the same proportion as the demand, it
would continue to purchase or exchange for nearly the same
quantity of corn, and the average money price of corn
would, in spite of all improvements, continue very nearly
the same.
These three seem to ej^haust all the possible combinations
of events which can happen in the progress of improvement ;
and during the course of the four centuries preceding the
present, if we may judge by what has happened both in
188 WEALTH OF NATIONS
France and Great Britain, each of those three different
combinations seem to have taken place in the European
market, and nearly in the same order too in which I have
here set them down.
DIFFERENT EFFECTS OF THE PROGRESS OF IMPROVEMENT
UPON THREE DIFFERENT SORTS OF RUDE PRODUCE
These different sorts of rude produce may be divided into
three classes. The first comprehends those which it is scarce
in the power of human industry to multiply at all. The sec-
ond, those which it can multiply in proportion to the demand.
The third, those in which the efficacy of industry is either
limited or uncertain. In the progress of wealth and im-
provement, the real price of the first may rise to any degree
of extravagance, and seems not to be limited by any certain
boundary. That of the second, though it may rise greatly,
has, however, a certain boundary beyond which it cannot well
pass for any considerable time together. That of the third,
though its natural tendency is to rise in the progress of im-
provement, yet in the same degree of improvement it may
sometimes happen even to fall, sometimes to continue the
same, and sometimes to rise more or less, according as dif-
ferent accidents render the efforts of human industry, in
multiplying this sort of rude produce, more or less suc-
cessful.
FIRST SORT
The first sort of rude produce of which the price rises in
the progress of improvement, is that which it is scarce in the
power of human industry to multiply at all. It consists in
those things which nature produces only in certain quanti-
ties, and which being of a very perishable nature, it is im-
possible to accumulate together the produce of many differ-
ent seasons. Such are the greater part of rare and singular
birds and fishes, many different sorts of game, almost all
wild-fowl, all birds of passage in particular, as well as many
other things. When wealth and the luxury which accom-
panies it increase, the demand for those is likely to increase
with them, and no effort of human industry may be able to
PRICE OF RARE BIRDS AND FISH 189
increase the supply much beyond what it was before this
increase of the demand. The quantity of such commodities,
therefore, remaining the same, or nearly the same, while the
competition to purchase them is continually increasing, their
price may rise to any degree of extravagance, and seems not
to be limited by any certain boundary. If woodcocks should
become so fashionable as to sell for twenty guineas a-piece,
no effort of human industry could increase the number of
those brought to market, much beyond what it is at present.
The high price paid by the Romans, in the time of their
greatest grandeur, for rare birds and fishes, may in this man-
ner easily be accounted for. These prices were not the effects
of the low value of silver in those times, but of the high
value of such rarities and curiosities as human industry
could not multiply at pleasure. The real value of silver was
higher at Rome, for some time before and after the fall of
the republic, than it is through the great part of Europe at
present. Three sestertii, equal to about sixpence sterling,
was the price which the republic paid for the modius or peck
of the tithe wheat of Sicily. This price, however, was prob-
ably below the average market price, the obligation to de-
liver their wheat at this rate being considered as a tax upon
the Sicilian farmers. When the Romans, therefore, had oc-
casion to order more corn than the tithe of wheat amounted
to, they were bound by capitulation to pay for the surplus
at the rate of four sestertii, or eight-pence sterling, the peck;
and this had probably been reckoned the moderate and rea-
sonable, that is, the ordinary or average contract price of
those times ; it is equal to about one-and-twenty shillings the
quarter. Eight-and-twenly shillings the quarter was, before
the late years of scarcity, the ordinary contract price of
English wheat, which in quality is inferior to the Sicilian,
and generally sells for a lower price in the European mar-
ket. The value of silver, therefore, in those ancient times,
must have been to its value in the present, as three to four
inversely ; that is, three ounces of silver would then have pur-
chased the same quantity of labour and commodities which
four ounces will dq at present. When we read in Pliny,
therefore, that Seius bought a white nightingale, as a present
for the empress Agrippina, at the price of six thousand ses-
190 WEALTH OF NATIONS
tertii, equal to about fifty pounds of our present money; and
that Asinius Celer purchased a surmullet at the price of eight
thousand sestertii, equal to about sixty-six pounds thirteen
shillings and fourpence of our present money; the extrava-
gance of those prices, how much soever it may surprise us,
is apt, nothwithstanding, to appear to us about one-third less
than it really was. Their real price, the quantity of labour
and subsistence which was given away for them, was about
one-third more than their nominal price is apt to express to
us in the present times. Seius gave for the nightingale the
command of a quantity of labour and subsistence equal to
what 66/. I3.y. 4d. would purchase in the present times, and
Asinius Celer gave for the surmullet the command of a quan-
tity equal to what 88/. 17.?. 9c?. i/^ would purchase. What
occasioned the extravagance of those high prices was, not
so much the abundance of silver, as the abundance of labour
and subsistence, of which those Romans had the disposal,
beyond what was necessary for their own use. The quantity
of silver, of which they had the disposal was a good deal less
than what the command of the same quantity of labour and
subsistence would have procured to them in the present
times.
SECOND SORT
The second sort of rude produce of which the price rises
in the progress of improvement, is that which human industry
can multiply in proportion to the demand. It consists in
those useful plants and animals, which, in uncultivated coun-
tries, nature produces with such profuse abundance, that
they are of little or no value, and which, as cultivation ad-
vances, are therefore forced to give place to some more
profitable produce. During a long period in the progress of
improvement, the quantity of these is continually diminish-
ing, while at the same time the demand for them is con-
tinually increasing. Their real value, therefore, the real
quantity of labour which they will purchase or command,
gradually rises, till at last it gets so high as to render them
as profitable a produce as any thing else which human in-
dustry can raise upon the most fertile and best cultivated
land. When it has got so high it cannot well go higher. If
PRICE OF CATTLE, ETC. 191
it did, more land and more industry would soon be employed
to increase their quantity.
When the price of cattle, for example, rises so high that it
is as profitable to cultivate land in order to raise food for
them, as in order to raise food for man, it cannot well go
higher. If it did, more corn land would soon be turned into
pasture. The extension of tillage, by diminishing the quan-
tity of wild pasture, diminishes the quantity of butcher's-
meat which the country naturally produces without labour
or cultivation, and by increasing the number of those who
have either corn, or, what comes to the same thing, the price
of corn, to give in exchange for it, increases the demand.
The price of butcher's-meat, therefore, and consequently of
cattle, must gradually rise till it gets so high, that it becomes
as profitable to employ the most fertile and best cultivated
lands in raising food for them as in raising corn. But it
must always be late in the progress of improvement before
tillage can be so far extended as to raise the price of cattle
to this height; and till it has got to this height, if the country
is advancing at all, their price must be continually rising.
There are, perhaps, some parts of Europe in which the price
of cattle has not yet got to this height. It had not got to
this height in any part of Scotland before the union. Had
the Scotch cattle been always confined to the market of Scot-
land, in a country in which the quantity of land, which can
be applied to no other purpose but the feeding of cattle, is so
great in proportion to what can be applied to other purposes,
it is scarce possible, perhaps, that their price could ever have
risen so high as to render it profitable to cultivate land for
the sake of feeding them. In England, the price of cattle,
it has already been observed, seems, in the neighbourhood of
London, to have got to this height about the beginning of
the last century; but it was much later probably before it
got to it through the greater part of the remoter counties;
in some of which, perhaps, it may scarce yet have got to it.
Of all the different substances, however, which compose this
second sort of rude produce, cattle is, perhaps, that of which
the price, in the progress of improvement, first rises to this
height.
Till the price of cattle, indeed, has got to this height, it
192 WEALTH OF NATIONS
seems scarce possible that the greater part, even of those
lands which are capable of the highest cultivation, can be
completely cultivated. In all farms too distant from any
town to carry manure from it, that is, in the far greater part
of those of every extensive country, the quantity of well-
cultivated land must be in proportion to the quantity of
manure which the farm itself produces ; and this again must
be in proportion to the stock of cattle which are maintained
upon it. The land is manured either by pasturing the cattle
upon it, or by feeding them in the stable, and from thence
carrying out their dung to it. But unless the price of the
cattle be sufficient to pay both the rent and profit of culti-
vated land, the farmer cannot afiford to pasture them upon
it ; and he can still less afford to feed them in the stable. It
is with the produce of improved and cultivated land only,
that cattle can be fed in the stable ; because to collect the
scanty and scattered produce of waste and unimproved lands
would require too much labour and be too expensive. If the
price of the cattle, therefore, is not sufficient to pay for the
produce of improved and cultivated land, when they are al-
lowed to pasture it, that price will be still less sufficient to
pay for that produce when it must be collected with a good
deal of additional labour, and brought into the stable to
them. In' these circumstances, therefore, no more cattle
can, with profit, be fed in the stable than what are necessary
for tillage. But these can never afford manure enough for
keeping constantly in good condition, all the lands which
they are capable of cultivating. What they afford being
insufficient for the whole farm, will naturally be reserved for
the lands to which it can be most advantageously or con-
veniently applied ; the most fertile, or those, perhaps, in the
neighbourhood of the farm-yard. These, therefore, will be
kept constantly in good condition and fit for tillage. The
rest will, the greater part of them, be allowed to lie waste,
producing scarce any thing but some miserable pasture, just
sufficient to keep alive a few straggling, half-starved cattle ;
the farm, though much under-stocked in proportion to what
would be necessary for its complete cultivation, being very
frequently overstocked in proportion to its actual produce.
A portion of this waste land, however, after having been
PRICE OF CATTLE, ETC. 193
pastured in this wretched manner for six or seven years to-
gether, may be ploughed up, when it will yield, perhaps, a
poor crop or two of bad oats, or of some other coarse grain,
and then, being entirely exhausted, it must be rested and
pastured again as before, and another portion ploughed up
to be in the same manner exhausted and rested again in its
turn. Such accordingly was the general system of manage-
ment all over the low country of Scotland before the union.
The lands which were kept constantly well manured and in
good condition, seldom exceeded a third or a fourth part of
the whole farm, and sometimes did not amount to a fifth or
a sixth part of it. The rest were never manured, but a cer-
tain portion of them was in its turn, notwithstanding, regu-
larly cultivated and exhausted. Under this system of man-
agement, it is evident, even that part of the lands of Scot-
land which is capable of good cultivation, could produce but
little in comparison of what it may be capable of producing.
But how disadvantageous soever this system may appear, yet
before the union the low price of cattle seems to have ren-
dered it almost unavoidable. If, notwithstanding a great
rise in their price, it still continues to prevail through a con-
siderable part of the country, it is owing, in many places, no
doubt, to ignorance and attachment to old customs, but in
most places to the unavoidable obstructions which the nat-
ural course of things opposes to the immediate or speedy
establishment of a better system : first, to the poverty of the
tenants, to their not having yet had time to acquire a stock
of cattle sufficient to cultivate their lands more completely,
the same rise of price which would render it advantageous
for them to maintain a greater stock, rendering it more diffi-
cult for them to acquire it ; and, secondly, to their not having
yet had time to put their lands in condition to maintain this
greater stock properly, supposing they were capable of ac-
quiring it. The increase of stock and the improvement of
land are two events which must go hand in hand, and of
which the one can no-where much out-run the other. With-
out some increase of stock, there can be scarce any improve-
ment of land, but there can be no considerable increase of
stock but in consequence of a considerable improvement of
land; because otherwise the land could not maintain it.
194 WEALTH OF NATIONS
These natural obstructions to the establishment of a better
system, cannot be removed but by a long course of frugality
and industry ; and half a century or a century more, perhaps,
must pass away before the old system, which is wearing out
gradually, can be completely abolished through all the dif-
ferent parts of the country. Of all the commercial advan-
tages, however, which Scotland has derived from the union
with England, this rise in the price of cattle is, perhaps, the
greatest. It has not only raised the value of all highland
estates, but it has, perhaps, been the principal cause of the
improvement of the low country.
In all new colonies the great quantity of waste land, which
can for many years be applied to no other purpose but the
feeding of cattle, soon renders them extremely abundant,
and in every thing great cheapness is the necessary conse-
quence of great abundance. Though all the cattle of the
European colonies in America were originally carried from
Europe, they soon multiplied so much there, and became of
so little value, that even horses were allowed to run wild in
the woods without any owner thinking it worth while to
claim them. It must be a long time after the first establish-
ment of such colonies, before it can become profitable to feed
cattle upon the produce of cultivated land. The same causes,
therefore, the want of manure, and the disproportion between
the stock employed in cultivation, and the land which it is
destined to cultivate, are likely to introduce there a system
of husbandry not unlike that which still continues to take
place in so many parts of Scotland. Mr. Kalm, the Swedish
traveller, when he gives an account of the husbandry of
some of the English colonies in North America, as he found
it in 1749, observes, accordingly, that he can with difficulty
discover there the character of the English nation, so well
skilled in all the different branches of agriculture. They
make scarce any manure for their corn fields, he says ; but
when one piece of ground has been exhausted by continual
cropping, they clear and cultivate another piece of fresh
land; and when that is exhausted, proceed to a third. Their
cattle are allowed to wander through the woods and other
uncultivated grounds, where they are half-starved ; having
long ago extirpated almost all the annual grasses by crop-
PRICE OF CATTLE, ETC. 195
ping them too early in the spring, before they had time to
form their flowers, or to shed their seeds. The annual
grasses were, it seems, the best natural grasses in that part
of North America ; and when the Europeans first settled
there, they used to grow very thick, and to rise three or four
feet high. A piece of ground which, when he wrote, could
not maintain one cow, would in former times, he was as-
sured, have maintained four, each of which would have given
four times the quantity of milk that one was capable of giv-
ing. The poorness of the pasture had, in his opinion, occa- i
sioned the degradation of their cattle, which degenerated |
sensibly from one generation to another. They were prob- i
ably not unlike that stunted breed which was common all
over Scotland thirty or forty years ago, and which is now
so much mended through the greater part of the low coun-
try, not so much by a change of the breed, though that ex-
pedient has been employed in some places, as by a more
plentiful method of feeding them.
Though it is late, therefore, in the progress of improve-
ment before cattle can bring such a price as to render it
profitable to cultivate land for the sake of feeding them; yet
of all the different parts which compose this second sort of
rude produce, they are perhaps the first which bring this
price ; because till they bring it, it seems impossible that im-
provement can be brought near even to that degree of per-
fection to which it has arrived in many parts of Europe.
As cattle are among the first, so perhaps venison is among
the last parts of this sort of rude produce which bring this
price. The price of venison in Great Britain, how extrava-
gant soever it may appear, is not near sufficient to compen-
sate the expence of a deer park, as is well known to all those
who have had any experience in the feeding of deer. If it
was otherwise, the feeding of deer would soon become an
article of common farming; in the same manner as the feed-
ing of those small birds called Turdi was among the ancient
Romans. Varro and Columella assure us that it was a most
profitable article. The fattening of ortolans, birds of passage
which arrive lean in the country, is said to be so in some
parts of France. If venison continues in fashion, and the
wealth and luxury of Great Britain increase as they have
196 WEALTH OF NATIONS
done for some time past, its price may very probably rise
still higher than it is at present.
Between that period in the progress of improvement vi^hich
brings to its height the price of so necessary an article as
cattle, and that which brings to it the price of such a super-
fluity as venison, there is a very long interval, in the course
of which many other sorts of rude produce gradually arrive
at their highest price, some sooner and some later, according
to different circumstances.
Thus in every form the offals of the barn and stables will
maintain a certain number of poultry. These, as they are
fed with what would otherwise be lost, are a mere save-all;
and as they cost the farmer scarce any thing, so he can afford
to sell them for very little. Almost all that he gets is pure
gain, and their price can scarce be so low as to discourage
him from feeding this number. But in countries ill culti-
vated, and, therefore, but thinly inhabited, the poultry, which
are thus raised without expence, are often fully sufficient to
supply the whole demand. In this state of things, therefore,
they are often as cheap as butcher's-meat, or any other sort
of animal food. But the whole quantity of poultry, which
the farm in this manner produces without expence, must
always be much smaller than the whole quantity of butcher's-
meat which is reared upon it; and in times of wealth and
luxury what is rare, with only nearly equal merit, is always
preferred to what is common. As wealth and luxury in-
crease, therefore, in consequence of improvement and culti-
vation, the price of poultry gradually rises above that of
butcher's-meat, till at last it gets so high that it becomes
profitable to cultivate land for the sake of feeding them.
When it has got to this height, it cannot well go higher. If
it did, more land would soon be turned to this purpose. In
several provinces of France, the feeding of poultry is con-
sidered as a very important article in rural economy, and
sufficiently profitable to encourage the farmer to raise a con-
siderable quantity of Indian corn and buck-wheat for this
purpose. A middling farmer will there sometimes have four
hundred fowls in his yard. The feeding of poultry seems
scarce yet to be generally considered as a matter of so much
importance in England. They are certainly, however, dearer
PRICE OF CATTLE, ETC. 197
in England than in France, as England receives considerable
supplies from France. In the progress of improvement, the
period at which every particular sort of animal food is
dearest, must naturally be that which immediately precedes
the general practice of cultivating land for the sake of rais-
ing it. For some time before this practice becomes general,
the scarcity must necessarily raise the price. After it has
become general, new methods of feeding are commonly fallen
upon, which enable the farmer to raise upon the same quan-
tity of ground a much greater quantity of that particular
sort of animal food. The plenty not only obliges him to sell
cheaper, but in consequence of these improvements he can
afford to sell cheaper ; for if he could not afford it, the plenty
would not be of long continuance. It has been probably in
this manner that the introduction of clover, turnips, carrots,
cabbages, &c., has contributed to sink the common price of
butcher's-meat in the London market somewhat below what
it was about the beginning of the last century.
The hog, that finds his food among ordure, and greedily
devours many things rejected by every other useful anim.al,
is, like poultry, originally kept as a save-all. As long as the
number of such animals, which can thus be reared at little
or no expence, is fully sufficient to supply the demand, this
sort of butcher's-meat comes to market at a much lower
price than any other. But when the demand rises beyond
what this quantity can supply, when it becomes necessary to
raise food on purpose for feeding and fattening hogs, in the
same manner as for feeding and fattening other cattle, the
price necessarily rises, and becomes proportionably either
higher or lower than that of other butcher's-meat, according
as the nature of the country, and the state of its agriculture,
happen to render the feeding of hogs more or less expensive
than that of other cattle. In France, according to Mr.
Buffon, the price of pork is nearly equal to that of beef. In
most parts of Great Britain it is at present somewhat higher.
The great rise in the price of both hogs and poultry has
in Great Britain been frequently imputed to the diminution
of the number of cottagers and other small occupiers of
land; an event which has in every part of Europe been the
immediate forerunner of improvement and better cultivation.
198 WEALTH OF NATIONS
but which at the same time may have contributed to raise
the price of those articles, both somewhat sooner and some-
what faster than it would otherwise have risen. As the
poorest family can often maintain a cat or a dog, without
any expence, so the poorest occupiers of land can commonly
maintain a few poultry, or a sow and a few pigs, at very
little. The little offals of their own table, their whey,
skimmed milk and butter-milk, supply those animals with a
part of their food, and they find the rest in the neighbouring
fields without doing any sensible damage to any body. By
diminishing the number of those small occupiers, therefore,
the quantity of this sort of provisions which is thus pro-
duced at little or no expence, must certainly have been a
good deal diminished, and their price must consequently have
been raised both sooner and faster than it would otherwise
have risen. Sooner or later, however, in the progress of
improvement, it must at any rate have risen to the utmost
height to which it is capable of rising: or to the price which
pays the labour and expence of cultivating the land which
furnishes them with food as well as these are paid upon the
greater part of other cultivated land.
The business of the dairy, like the feeding of hogs and
poultry, is originally carried on as a save-all. The cattle
necessarily kept upon the farm, produce more milk than
either the rearing of their own young, or the consumption of
the farmer's family requires ; and they produce most at one
particular season. But of all the productions of land, milk
is perhaps the most perishable. In the warm season, when
it is most abundant, it will scarce keep four-and-twenty hours.
The farmer, by making it into fresh butter, stores a small
part of it for a week : by making it into salt butter, for a
year: and by making it into cheese, he stores a much greater
part of it for several years. Part of all these is reserved
for the use of his own family. The rest goes to market, in
order to find the best price which is to be had, and which can
scarce be so low as to discourage him from sending thither
whatever is over and above the use of his own family. If it
is very low, indeed, he will be likely to manage his dairy in
a very slovenly and dirty manner, and will scarce perhaps
think it worth while to have a particular room or building
PRICE OF CATTLE, ETC. 199
on purpose for it, but will suffer the business to be carried
on amidst the smoke, filth, and nastiness of his own kitchen;
as was the case of almost all the farmers dairies in Scotland
thirty or forty years ago, and as is the case of many of them
still. The same causes which gradually raise the price of
butcher's-meat, the increase of the demand, and, in conse-
quence of the improvement of the country, the diminution of
the quantity which can be fed at little or no expence, raise,
in the same manner, that of the produce of the dairy, of which
the price naturally connects with that of butcher's-meat, or
with the expence of feeding cattle. The increase of price
pays for more labour, care, and cleanliness. The dairy be-
comes more worthy of the farmer's attention, and the quality
of its produce gradually improves. The price at last gets so
high that it becomes worth while to employ some of the most
fertile and best cultivated lands in feeding cattle merely for
the purpose of the dairy ; and when it has got to this height,
it cannot well go higher. If it did, more land would soon be
turned to this purpose. It seems to have got to this height
through the greater part of England, where much good land
is commonly employed in this manner. If you except the
neighbourhood of a few considerable towns, it seems not yet
to have got to this height anywhere in Scotland, where com-
mon farmers seldom employ m.uch good land in raising food
for cattle merely for the purpose of the dairy. The price
of the produce, though it has risen very considerably within
these few years, is probably still too low to admit of it. The
inferiority of the quality, indeed, compared with that of the
produce of English dairies, is fully equal to that of the price.
But this inferiority of quality is, perhaps, rather the effect
of this lowness of price than the cause of it. Though the
quality was much better, the greater part of what is brought
to market could not, I apprehend, in the present circum-
stances of the country, be disposed of at a much better price ;
and the present price, it is probable, would not pay the ex-
pence of the land and labour necessary for producing a much
better quality. Through the greater part of England, not-
withstanding the superiority of price, the dairy is not reck-
oned a more profitable employment of land than the raising of
corn, or the fattening of cattle, the two great objects of
200 WEALTH OF NATIONS
agriculture. Through the greater part of Scotland, there-
fore, it cannot yet be even so profitable.
The lands of no country, it is evident, can ever be com-
pletely cultivated and improved, till once the price of every
produce, which human industry is obliged to raise upon them,
has got so high as to pay for the expence of complete im-
provement and cultivation. In order to do this, the price of
each particular produce must be sufficient, first, to pay the
rent of good corn land, as it is that which regulates the rent
of the greater part of other cultivated land ; and secondly, to
pay the labour and expence of the farmer as well as they are
commonly paid upon good corn-land ; or, in other words, to
replace with the ordinary profits the stock which he employs
about it. This rise in the price of each particular produce,
must evidently be previous to the improvement and cultiva-
tion of the land which is destined for raising it. Gain is the
end of all improvement, and nothing could deserve that name
of which loss was to be the necessary consequence. But loss
must be the necessary consequence of improving land for the
sake of a produce of which the price could never bring back
the expence. If the complete improvement and cultivation
of the country be, as it most certainly is, the greatest of all
public advantages, this rise in the price of all those different
sorts of rude produce, instead of being considered as a pub-
lic calamity, ought to be regarded as the necessary forerunner
and attendant of the greatest of all public advantages.
This rise too in the nominal or money-price of all those
different sorts of rude produce has been the effect, not of any
degradation in the value of silver, but of a rise in their real
price. They have become worth, not only a greater quantity
of silver, but a greater quantity of labour and subsistence
than before. As it costs a greater quantity of labour and
subsistence to bring them to market, so when they are
brought thither, they represent or are equivalent to a greater
quantity.
THIRD SORT
The third and last sort of rude produce, of which the price
naturally rises in the progress of improvement, is that in
which the efficacy of human industry, in augmenting the
PRICE OF WOOL, HIDES, ETC. 201
quantity, is either limited or uncertain. Though the real
price of this sort of rude produce, therefore, naturally tends
to rise in the progress of improvement, yet, according as
different accidents happen to render the efforts of human
industry more or less successful in augmenting the quantity,
it may happen sometimes even to fall, sometimes to continue
the same in very different periods of improvement, and some-
times to rise more or less in the same period.
There are some sorts of rude produce which nature has
rendered a kind of appendages to. other sorts ; so that the
quantity of the one which any country can afford, is neces-
sarily limited by that of the other. The quantity of wool or
of raw hides, for example, which any country can afford, is
necessarily limited by the number of great and small cattle
that are kept in it. The state of its improvement, and the
nature of its agriculture, again necessarily determine this
number.
The same causes, which, in the progress of improvement,
gradually raise the price of butcher's-meat, should have the
same effect, it may be thought, upon the prices of wool and
raw hides, and raise them too nearly in the same proportion.
It probably would be so, if in the rude beginnings of im-
provement the market for the latter commodities was con-
fined within as narrow bounds as that for the former. But
the extent of their respective markets is commonly extremely
different.
The market for butcher's-meat is almost every-where con-
fined to the country which produces it. Ireland, and some
part of British America indeed, carry on a considerable trade
in salt provisions ; but they are, I believe, the only countries
in the commercial world which do so, or which export to
other countries any considerable part of their butcher's-meat.
The market for wool and raw hides, on the contrary, is in
the rude beginnings of improvement very seldom confined to
the country which produces them. They can easily be trans-
ported to distant countries, wool without any preparation,
and raw hides with very little : and as they are the materials
of many manufactures, the industry of other countries may
occasion a demand for them, though that of the country
which produces them might not occasion any.
202 WEALTH OF NATIONS
In countries ill cultivated, and therefore but thinly in-
habited, the price of the wool and the hide bears always a
much greater proportion to that of the whole beast, than in
countries where, improvement and population being further
advanced, there is more demand for butcher's-meat. Mr.
Hume observes, that in the Saxon times, the fleece was esti-
mated at two-fifths of the value of the whole sheep, and that
this was much above the proportion of its present estimation.
In some provinces of Spain, I have been assured, the sheep
is frequently killed merely for the sake of the fleece and the
tallow. The carcase is often left to rot upon the ground, or
to be devoured by beasts and birds of prey. If this sometimes
happens even in Spain, it happens almost constantly in Chili,
at Buenos Ayres, and in many other parts of Spanish Amer-
ica, where the horned cattle are almost constantly killed
merely for the sake of tkc hide and the tallow. This too
used to happen almost constantly in Hispaniola, while it was
infested by the Buccaneers, and before the settlement, im-
provement, and populousness of the French plantations
(which now extend round the coast of almost the whole west-
ern half of the island) had given some value to the cattle of
the Spaniards, who still continue to possess, not only the
eastern part of the coast, but the whole inland and mountain-
ous part of the country.
Though in the progress of improvement and population,
the price of the whole beast necessarily rises, yet the price
of the carcase is likely to be much more affected by this rise
than that of the wool and the hide. The market for the car-
case, being in the rude state of society confined always to the
country which produces it, must necessarily be extended in
proportion to the improvement and population of that country.
But the market for the wool and the hides even of a bar-
barous country often extending to the whole commercial
world, it can very seldom be enlarged in the same proportion.
The state of the whole commercial world can seldom be
much afifected by the improvement of any particular country;
and the market for such commodities may remain the same,
or very nearly the same, after such improvements, as before.
It should, however, in the natural course of things rather
upon the whole be somewhat extended in consequence of
PRICE OF WOOL, HIDES, ETC. 203
them. If the manufactures, especially, of which those com-
modities are the materials, should ever come to flourish in
the country, the market, though it might not be much en-
larged, would at least be brought much nearer to the place of
growth than before; and the price of those materials might
at least be increased by what had usually been the expence
of transporting them to distant countries. Though it might
not rise therefore in the same proportion as that of butcher's-
meat, it ought naturally to rise somewhat, and it ought cer-
tainly not to fall.
In England, however, notwithstanding the flourishing state
of its woollen manufacture, the price of English wool has
fallen very considerably since the time of Edward III. There
are many authentic records which demonstrate that during
the reign of that prince (towards the middle of the four-
teenth century, or about 1339) what was reckoned the mod-
erate and reasonable price of the tod or twenty-eight pounds
of English wool was not less than ten shillings of the money
of those times, containing, at the rate of twenty-pence the
ounce, six ounces of silver Tower-weight, equal to about
thirty shillings of our present money. In the present times,
one-and-twenty shillings the tod may be reckoned a good price
for very good English wool. The money-price of wool,
therefore, in the time of Edward III, was to its money-price
in the present times as ten to seven. The superiority of its
real price was still greater. At the rate of six shillings and
eight-pence the quarter, ten shillings was in those ancient
times the price of twelve bushels of wheat. At the rate of
twenty-eight shillings the quarter, one-and-twenty shillings
is in the present time the price of six bushels only. The pro-
portion between the real prices of ancient and modern times,
therefore, is as twelve to six, or as two to one. In those
ancient times a tod of wool would have purchased twice the
quantity of subsistence which it will purchase at present;
and consequently twice the quantity of labour, if the real
recompence of labour had been the same in both periods.
This degradation both in the real and nominal value of
wool, could never have happened in consequence of the nat-
ural course of thinq^s. It has accordingly been the efifect of
violence and artifice: First, of the absolute prohibition of
204 WEAI-TH OF NATIONS
exporting wool from England; Secondly, of the permission
of importing it from Spain duty free ; Thirdly, of the pro-
hibition of exporting it from Ireland to any other country
but England. In consequence of these regulations, the mar-
ket for English wool, instead of being somewhat extended in
consequence of the improvement of England, has been con-
fined to the home market, where the wool of several other
countries is allowed to come into competition with it, and
where that of Ireland is forced into competition with it.
As the woollen manufactures too of Ireland are fully as much
discouraged as is consistent with justice and fair dealing, the
Irish can work up but a small part of their own wool at
home, and are, therefore, obliged to send a greater proportion
of it to Great Britain, the only market they are allowed.
I have not been able to find any such authentic records
concerning the price of raw hides in ancient times. Wool
was commonly paid as a subsidy to the king, and its valuation
in that subsidy ascertains, at least in some degree, what was
its ordinary price. But this seems not to have been the case
with raw hides. Fleetwood, however, from an account in
1425, between the prior of Burcester Oxford and one of his
canons, gives us their price, at least as it was stated, upon
that particular occasion ; viz. five ox hides at twelve shillings ;
five cow hides at seven shillings and three pence; thirty-six
sheep skins of two years old at nine shillings ; sixteen calves
skins at two shillings. In 1425, twelve shillings contained
about the same squantity of silver as four-and-twenty shil-
lings of our present money. An ox hide, therefore, was in
this account valued at the same quantity of silver at 4s. 4-5ths
of our present money. Its nominal price was a good deal
lower than at present. But at the rate of six shillings and
eight-pence the quarter, twelve shillings would in those times
have purchased fourteen bushels and four-fifths of a bushel
of wheat, which, at three and six-pence the bushel, would in
the present times cost 5i.y. 4c?. An ox hide, therefore, would
in those times have purchased as much corn as ten shillings
and three-pence would purchase at present. Its real value
was equal to ten shillings and three-pence of our present
money. In those ancient times, when the cattle were half
starved during the greater part of the winter, we cannot
PRICE OF WOOL, HIDES, ETC. 205
suppose that they were of a very large size. An ox hide
which weighs four stone of sixteen pounds averdupois, is
not in the present times reckoned a bad one; and in those
ancient times would probably have been reckoned a very good
one. But at half a crown the stone, which at this moment
(February 1773) I understand to be the common price, such
a hide would at present cost only ten shillings. Though its
nominal price, therefore, is higher in the present than it was
in those ancient times, its real price, the real quantity of sub-
sistence which it will purchase or command, is rather some-
what lower. The price of cow hides, as stated in the above
account, is nearly in the common proportion to that of ox
hides. That of sheep skins is a good deal above it. They
had probably been sold with the wool. That of calves skins,
on the contrary, is greatly below it. In countries where the
price of cattle is very low. the calves, which are not in-
tended to be reared in order to keep up the stock, are gen-
erally killed very young; as was the case in Scotland twenty
or thirty years ago. It saves the milk, which their price
would not pay for. Their skins, therefore, are commonly
good for little.
The price of raw hides is a good deal lower at present
than it was a few years ago ; owing probably to the taking
off the duty upon seal skins, and to the allowing, for a
limited time, the importation of raw hides from Ireland and
from the plantations duty free, which was done in 1769.
Take the whole of the present century at an average, their
real price has probably been somewhat higher than it was in
those ancient times. The nature of the commodity renders it
not quite so proper for being transported to distant markets
as wool. It suffers more by keeping. A salted hide is reck-
oned inferior to a fresh one. and sells for a lower price.
This circumstance must necessarily have some tendency to
sink the price of raw hides produced in a country which
does not manufacture them, but is obliged to export them ;
and comparatively to raise that of those produced in a country
which does manufacture them. It must have some ten-
dency to sink their price in a barbarous, and to raise it in an
improved and manufacturing country. It must have had
some tendency therefore to sink it in ancient, and to raise it
206 WEALTH OF NATIONS
in modern times. Our tanners besides have not been quite
so successful as our clothiers, in convincing the wisdom of
the nation, that the safety of the commonwealth depends
upon the prosperity of their particular manufacture. They
have accordingly been much less favoured. The exportation
of raw hides has, indeed, been prohibited, and declared a
nuisance: but their importation from foreign countries has
been subjected to a duty; and though this duty has been taken
off from those of Ireland and the plantations (for the limited
time of five years only), yet Ireland has not been confined
to the market of Great Britain for the sale of its surplus
hides, or of those which are not manufactured at home. The
hides of common cattle have but within these few years
been put among the enumerated commodities which the
plantations can send no- where but to the mother country;
neither has the commerce of Ireland been in this case op-
pressed hitherto, in order to support the manufactures of
Great Britain.
Whatever regulations tend to sink the price either of wool
or of raw hides below what it naturally would be, must, in
an improved and cultivated country, have some tendency to
raise the price of butcher"s-meat. The price both of the
great and small cattle, which are fed on improved and culti-
vated land, must be sufficient to pay the rent which the land-
lord, 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, there-
fore, is not paid by the wool and the hide, must be paid by
the carcase. The less there is paid for the one, th ^ 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 in-
terest as landlords and farmers cannot be much affected by
such regulations, though their interest as consumers may, by
the rise in the price of provisions. It would be quite other-
wise, however, in an unimproved and uncultivated country,
where the greater part of the lands could be applied to no
other purpose but the feeding of cattle, and where the wool
and the hide made the principal part of the value of those
PRICE OF WOOL, HIDES, ETC. 207
cattle. Their interest as landlords and farmers would in this
case be very deeply affected by such regulations, and their
interest as consumers very little. The fall in the price of
the wool and the hide, would not in this case raise the price
of the carcase ; because the greater part of the lands of the
country being applicable to no other purpose but the feeding
of cattle, the same number would still continue to be fed.
The same quantity cf butcher's-meat would still come to
market. The demand for it would be no greater than before.
Its price, therefore, would be the same as before. The whole
price of cattle would fall, and along with it both the rent
and the profit of all those lands of which cattle was the prin-
cipal produce, that is, cf the greater part of the lands of the
country. The perpetual prohibition of the exportation of
wool, which is commonly, but very falsely, ascribed to Ed-
ward III, would, in the then circumstances of the country,
have been the most destructive regulation which could well
have been thought of. It would not only have reduced the
actual value of the greater part of the lands of the kingdom,
but by reducing the price of the most important species of
small cattle, it would have retarded very much its subsequent
improvement.
The wool of Scotland fell very considerably in its price in
consequence of the union with England, by which it was ex-
cluded from the great market of Europe, and confined to the
narrow one of Great Britain. The value of the greater part
of the lands in the southern counties of Scotland, which are
chiefly a sheep country, would have been very deeply affected
by this event, had not the rise in the price of butcher's-meat
fully compensated the fall in the price of wool.
As the efficacy of human industry, in increasing the quan-
tity either of wool or of raw hides, is limited, so far as it
depends upon the produce of the country where it is ex-
erted ; so it is uncertain as far as it depends upon the produce
of other countries. It so far depends, not so much upon the
quantity which they produce, as upon that which they do not
manufacture; and upon the restraints which they may or
may not think proper to impose upon the exportation of this
sort of rude produce. These circumstances, as they are alto-
gether independent of domestic industry, so they necessarily
208 WEALTH OF NATIONS
render the efficacy of its efforts more or less uncertain. In
multiplying this sort of rude produce, therefore, the efficacy
of human industry is not only limited, but uncertain.
In multiplying another very important sort of rude prod-
uce, the quantity of fish that is brought to market, it is
likewise both limited and uncertain. It is limited by the
local situation of the country, by the proximity or distance
of its different provinces from the sea, by the number of its
lakes and rivers, and by what may be called the fertility or
barrenness of those seas, lakes and rivers, as to this sort of
rude produce. As population increases, as the annual prod-
uce of the land and labour of the country grows greater and
greater, there come to be more buyers of fish, and those
buyers too have a greater quantity and variety of other
goods, or, what is the same thing, the price of a greater
quantity and variety of other goods, to buy with. But it will
generally be impossible to supply the great and extended mar-
ket without employing a quantity of labour greater than in
proportion to what had been requisite for supplying the nar-
row and confined one. A market which, from requiring only
one thousand, comes to require annually ten thousand ton of
fish, can seldom be supplied without employing more than
ten times the quantity of labour which had before been suf-
ficient to supply it. The fish must generally be sought for
at a greater distance, larger vessels must be employed, and
more expensive machinery of every kind made use of. The
real price of this commodity, therefore, naturally rises in the
progress of improvement. It has accordingly done so, I
believe, more or less in every country.
Though the success of a particular day's fishing may be a
very uncertain matter, yet, the local situation of the country
being supposed, the general efficacy of industry in bringing
a certain quantity of fish to market, taking the course of a
year, or of several years together, it may perhaps be thought,
is certain enough ; and it, no doubt, is so. As it depends
more, however, upon the local situation of the country, than
upon the state of its wealth and industry; as upon this ac-
count it may in different countries be the same in very dif-
ferent periods of improvement, and very different in the same
period ; its connection with the state of improvement is uncer-
PRICE OF WOOL, HIDES, ETC. 209
tain, and it is of this sort of uncertainty that I am here
speaking.
In increasing the quantity of the different minerals and
metals which are drawn from the bowels of the earth, that
of the more precious ones particularly, the efificacy of human
industry seems not to be limited, but to be altogether un-
certain.
The quantity of the precious metals which is to be found
in any country is not limited by any thing in its local situ-
ation, such as the fertility or barrenness of its own mines.
Those metals frequently abound in countries which possess
no mines. Their quantity in every particular country seems
to depend upon two different circumstances ; first, upon its
power of purchasing, upon the state of its industry, upon
the annual produce of its land and labour, in consequence of
which it can afford to employ a greater or a smaller quantity
of labour and subsistence in bringing or purchasing such
superfluities as gold and silver, either from its own mines or
from those of other countries ; and, secondly, upon the fer-
tility or barrenness of the mines which may happen at any
particular time to supply the commercial world with those
metals. The quantity of those metals in the countries most
remote from the mines, must be more or less affected by this
fertility or barrenness, on account of the easy and cheap
transportation of those metals, of their small bulk and great
value. Their quantity in China and Indostan must have been
more or less affected by the abundance of the mines of
America.
So far as their quantity in any particular country de-
pends upon the former of those two circumstances (the
power of purchasing), their real price, like that of all other
■luxuries and superfluities, is likely to rise with the wealth and
improvement of the country, and to fall with its poverty and
depression. Countries which have a great quantity of labour
.and subsistence to spare, can afford to purchase any particu-
lar quantity of those metals at the expence of a greater
quantity of labour and subsistence, than countries which
have less to spare.
So far as their quantity in any particular country depends
upon the latter of those two circumstances (the fertility or
210 WEALTH OF NATIONS
barrenness of the mines which happen to supply the com-
mercial world), their real price, the real quantity of labour
and subsistence which they will purchase or exchange for,
will, no doubt, sink more or less in proportion to the fertility,
and rise in proportion to the barrenness, of those mines.
The fertility or barrenness of the mines, however, which
may happen at any particular time to supply the commercial
world, is a circumstance which, it is evident, may have no
sort of connection with the state of industry in a particular
country. It seems even to have no very necessary connec-
tion with that of the world in general. As arts and com-
merce, indeed, gradually spread themselves over a greater
and a greater part of the earth, the search for new mines,
being extended over a wider surface^, may have somewhat a
better chance for being successful, than when confined within
narrower bounds. The discovery of new mines, however, as
the old ones come to be gradually exhausted, is a matter of
the greatest uncertainty, and such as no human skill or in-
dustry can ensure. All indications, it is acknowledged, are
doubtful, and the actual discovery and successful working
of a new mine can alone ascertain the reality of its value, or
even of its existence. In this search there seem to be no
certain limits either to the possible success, or to the possible
disappointment of human industry. In the course of a cen-
tury or two, it is possible that new mines may be discovered
more fertile than any that have ever yet been known; and it
is just equally possible that the most fertile mine then known
may be more barren than any that was wrought before the
discovery of the mines of America. Whether the one or the
other of those two events may happen to take place, is of
very little importance to the real wealth and prosperity of
the world., to the real value of the annual produce of the land
and labour of mankind. Its nominal value, the quantity of
gold and silver by which this annual produce could be ex-
pressed or represented, would, no doubt, be very different;
but its real value, the real quantity of labour which it could
purchase or command, would be precisely the same. A shil-
ling might in the one case represent no more labour than a
penny does at present ; and a penny in the other might repre-
sent as much as a shilling does now. But in the one case he
RENT OF LAND: PRICE OF MANUFACTURES ?.\l
who had a shilling in his pocket, would be no richer than he
who has a penny at present ; and in the other he who had a
penny would be just as rich as he who has a shilling now.
The cheapness and abundance of gold and silver plate, would
be the sole advantage which the world could derive from the
one event, and the dearness and scarcity of those trifling
superfluities the only inconveniency it could suffer from the
other.
EFFECTS OF THE PROGRESS OF IMPROVEMENT UPON THE
REAL PRICE OF MANUFACTURES
It is the natural effect of improvement, however, to dimin-
ish gradually the real price of almost all manufactures. That
of the manufacturing workmanship diminishes, perhaps, in
all of them without exception. In consequence of better ma-
chinery, of greater dexterity, and of a more proper division
and distribution of work, all of which are the natural effects
of improvement, a much smaller quantity of labour becomes
requisite for executing any particular piece of work; and
though, in consequence of the flourishing circumstances of
the society, the real price of labour should rise very consid-
erably, yet the great diminution of the quantity will generally
much more than compensate the greatest rise which can hap-
pen in the price.
There are, indeed, a few manufactures, in which the nec-
essary rise in the real price of the rude materials will more
than compensate all the advantages which improvement can
introduce into the execution of the work. In carpenters and
joiners work, and in the coarser sort of cabinet work, the
necessary rise in the real price of barren timber, in conse-
quence of the improvement of land, will more than compen-
sate all the advantages which can be derived from the best
machinery, the greatest dexterity, and the most proper divi-
sion and distribution of work.
But in all cases in which the real price of the rude mate-
rials either does not rise at all, or does not rise very much,
that of the manufactured commodity sinks very considerably.
This diminution of price has, in the course of the present
and preceding century, been most remarkable in those manu-
212 WEALTH OF NATIONS
factures of which the materials are the coarser metals. A
better movement of a watch, than about the middle of the
last century could have been bought for twenty pounds, may
now perhaps be had for twenty shillings. In the work of
cutlers and locksmiths, in all the toys which are made of the
coarser metals, and in all those goods which are commonly
known by the name of Birmingham and Sheffield ware, there
has been, during the same period, a very great reduction of
price, though not altogether so great as in watch-work. It
has, however, been suflicient to astonish the workmen of
every other part of Europe, who in many cases acknowledge
that they can produce no work of equal goodness for double,
or even for triple the price. There are perhaps no manufac-
tures in which the division of labour can be carried further,
or in which the machinery employed admits of a greater
variety of improvements, than those of which the materials
are the coarser metals.
In the clothing manufacture there has, during the same
period, been no such sensible reduction of price. The price
of superfine cloth, I have been assured, on the contrary, has,
within these five-and-twenty or thirty years, risen somewhat
in proportion to its quality; owing, it was said, to a con-
siderable rise in the price of the material, which consists
altogether of Spanish wool. That of the Yorkshire cloth,
which is made altogether of English wool, is said indeed,
during the course of the present century, to have fallen a
good deal in proportion to its quality. Quality, however, is
so very disputable a matter, that I look upon all information
of this kind as somewhat uncertain. In the clothing manu-
facture, the division of labour is nearly the same now as it
was a century ago, and the machinery employed is not very
different. There may, however, have been some small im-
provement in both, which may have occasioned some reduc-
tion of price.
But the reduction will appear much more sensible and un-
deniable, if we compare the price of this manufacture in the
present times with what it was in a much remoter period,
towards the end of the fifteenth century, when the labour
was probably much less subdivided, and the machinery em-
ployed much more imperfect, than it is at present.
RENT OF LAND: PRICE OF MANUFACTURES 213
In 1487, being the 4th of Henry VII. it was enacted, that
''whosoever shall sell by retail a broad yard of the finest
scarlet grained, or of other grained cloth of the finest
making, above sixteen shillings, shall forfeit forty shillings
for every yard so sold." Sixteen shillings, therefore, con-
taining about the same quantity of silver as four-and-twenty
shillings of our present money, was, at that time, reckoned
not an unreasonable price for a yard of the finest cloth; and
as this is a sumptuary law, such cloth, it is probable, had
usually been sold somewhat dearer. A guinea may be reck-
oned the highest price m the present times. Even though the
quality of the cloths, therefore, should be supposed equal,
and that of the present times is most probably much superior,
yet, even upon this supposition, the money price of the finest
cloth appears to have been considerably reduced since the
end of the fifteenth century. But its real price has been
much more reduced. Six shillings and eight-pence was then,
and. long afterwards, reckoned the average price of a quarter
of wheat. Sixteen shillings, therefore, was the price of two
quarters and more than three bushels of wheat. Valuing a
quarter of wheat in the present times at eight-and-twenty
shillings, the real price of a yard of fine cloth must, in those
times, have been equal to at least three pounds six shillings
and sixpence of our present money. The man who bought
it must have parted with the command of a quantity of
labour and subsistence equal to what that sum would pur-
chase in the present times.
The reduction in the real price of the coarse manufacture,
though considerable, has not been so great as in that of the
fine.
In 1463, being the 3d of Edward IV., it was enacted, that
"no servant in husbandry, nor common labourer, nor servant
to any artificer inhabiting out of a city or burgh, shall use
or wear in their clothing any cloth above two shillings the
broad yard." In the 3d of Edward IV. two shillings con-
tained very nearly the same quantity of silver as four of our
present money. But the Yorkshire cloth which is now sold
at four shillings the yard, is probably much superior to any
that was then made for the wearing of the very poorest order
of common servants. Even the money price of their cloth-
214 WEALTH OF NATIONS
ing, therefore, may, in proportion to the quality, be some-
what cheaper in the present than it was in those ancient
times. The real price is certainly a good deal cheaper. Ten-
pence was then reckoned what is called the moderate and
reasonable price of a bushel of wheat. Two shillings, there-
fore, was the price of two bushels and near two pecks of
wheat, which in the present times, at three shillings and six-
pence the bushel, would be worth eight shillings and nine-
pence. For a yard of this cloth the poor servant must have
parted with the power of purchasing a quantity of sub-
sistence equal to what eight shillings and nine-pence would
purchase in the present times. This is a sumptuary law too,
restraining the luxury and extravagance of the poor. Their
clothing, therefore, had commonly been much more ex-
pensive.
The same order of people are, by the same law, prohibited
from wearing hose, of which the price should exceed four-
teen-pence the pair, equal to about eight-and-twenty pence of
our present money. But fourteen-pence was in those times
the price of a bushel and near two pecks of wheat; which, in
the present times, at three and sixpence the bushel, would
cost five shillings and three-pence. We should in the present
times consider this as a very high price for a pair of stock-
ings to a servant of the poorest and lowest order. He must,
however, in those times have paid what was really equivalent
to this price for them.
In the time of Edward IV. the art of knitting stockings
was probably not known in any part of Europe. Their hose
were made of common cloth, which may have been one of
the causes of their dearness. The first person that wore
stockings in England is said to have been Queen Elizabeth.
She received them as a present from the Spanish ambassador.
Both in the coarse and in the fine woollen manufacture,
the machinery employed was much more imperfect in those
ancient, than it is in the present times. It has since received
three very capital improvements, besides, probably, many
smaller ones of which it may be difficult to ascertain either
the number or the importance. The three capital improve-
ments are: first. The exchange of the rock and spindle for
the spinning-wheel, which, with the same quantity of labour.
RENT OF LAND: PRICE OF MANUFACTURES 215
will perform more than double the quantity of work. Sec-
ondly, the use of several very ingenious machines which
facilitate and abridge in a still greater proportion the wind-
ing of the worsted and woollen yarn, or the proper arrange-
ment of the warp and woof before they are put into the
loom; an operation which, previous to the inventions of
those machines, must have been extremely tedious and
troublesome. Thirdly, the employment of the fulling mill
for thickening the cloth, instead of treading it in water.
Neither wind nor water mills of any kind were known in
England so early as the beginning of the sixteenth century,
nor, so far as I know, in any other part of Europe north of
the Alps. They had been introduced into Italy some time
before.
The consideration of these circumstances may, perhaps, in
some measure explain to us why the real price both of the
coarse and of the fine manufacture, was so much higher in
those ancient, than it is in the present times. It cost a
greater quantity of labour to bring the goods to market.
When they were brought thither, therefore, they must have
purchased or exchanged for the price of a greater quantity.
The coarse manufacture probably was, in those ancient
times, carried on in England, in the same manner as it al-
ways has been in countries where arts and manufactures are
in their infancy. It was probably a houshold manufacture,
in which every different part of the work was occasionally
performed by all the different members of almost every pri-
vate family ; but so as to be their work only when they had
nothing else to do, and not to be the principal business from
which any of them derived the greater part of their sub-
sistence. The work which is performed in this manner, it
has already been observed, comes always much cheaper to
market than that which is the principal or sole fund of the
workman's subsistence. The fine manufacture, on the other
hand, was not in those times carried on in England, but in
the rich and commercial country of Flanders; and it was
probably conducted then, in the same manner as now, by
people who derived the whole, or the principal part of their
subsistence from it. It was besides a foreign manufacture,
and must have paid some duty, the ancient custom of ton-
216 WEALTH OF NATIONS
nage and poundage at least, to the king. This duty, indeed,
would not probably be very great. It was not then the policy
of Europe to restrain, by high duties, the importation of for-
eign manufactures, but rather to encourage it, in order that
merchants might be enabled to supply, at as easy a rate as
possible, the great men with the conveniencies and luxuries
which they wanted, and which the industry of their own
country could not afford them.
The consideration of these circumstances may perhaps
in some measure explain to us why, in those ancient times,
the real price of the coarse manufacture was, in proportion
to that of the fine, so much lower than in the present times.
CONCLUSION OF THE CHAPTER
I shall conclude this very long chapter with observing that
every improvement in the circumstances of the society tends
either directly or indirectly to raise the real rent of land, to
increase the real wealth of the landlord, his power of pur-
chasing the labour, or the produce of the labour of other
people.
The extension of improvement and cultivation tends to
raise it directly. The landlord's share of the produce neces-
sarily increases with the increase of the produce.
That rise in the real price of those parts of the rude prod-
uce of land, which is first the effect of extended improvement
and cultivation, and afterwards the cause of their being still
further extended, the rise in the price of cattle, for example,
tends too to raise the rent of land directly, and in a still
greater proportion. The real value of the landlord's share,
his real command of the labour of other people, not only
rises with the real value of the produce, but the proportion
of his share to the whole produce rises with it. That prod-
uce, after the rise in its real price, requires no more labour
to collect it than before. A smaller proportion of it will,
therefore, be sufficient to replace, with the ordinary profit,
the stock which employs that labour. A greater proportion
of it must, consequently, belong to the landlord.
All those improvements in the productive powers o£
labour, which tend directly to reduce the real price of manu-
RENT OF LAND: CONCLUSION 217
factures, tend indirectly to raise the real rent of land. The
landlord exchanges that part of his rude produce, which is
over and above his own consumption, or what comes to the
same thing, the price of that part of it, for manufactured
produce. Whatever reduces the real price of the latter,
raises that of the former. An equal quantity of the former
becomes thereby equivalent to a greater quantity of the lat-
ter; and the landlord is enabled to purchase a greater quan-
tity of the conveniencies, ornaments^ or luxuries, which he
has occasion for.
Every increase in the real wealth of the society, every in-
crease in the quantity of useful labour employed within it,
tends indirectly to raise the real rent of land. A certain pro-
portion of this labour naturally goes to the land. A greater
number of men and cattle are employed in its cultivation,
the produce increases with the increase of the stock which
is thus employed in raising it, and the rent increases with
the produce.
The contrary circumstances, the neglect of cultivation and
improvement, the fall in the real price of any part of the
rude produce of land; the rise in the real price of manufac-
tures from the decay of manufacturing art and industry, the
declension of the real wealth of the society, all tend, on the
other hand, to lower the real rent of land, to reduce the real
wealth of the landlord, to diminish his power of purchasing
either the labour, or the produce of the labour of other
people.
The whole annual produce of the land and labour of every
country, or what comes to the same thing, the whole price of
that annual produce, naturally divides itself, it has already
been observed, into three parts ; the rent of land, the wages
of labour, and the profits of stock ; and constitutes a revenue
to three different orders of people ; to those who live by rent,
to those who live by wages, and to those who live by profit.
These are the three great, original and constituent orders of
every civilized society, from whose revenue that of every
other order is ultimately derived.
The interest of the first of those three great orders, it ap-
pears from what has been just now said, is strictly and in-
separably connected with the general interest of the society.
218 WEALTH OF NATIONS
Whatever either promotes or obstructs the one, necessarily
promotes or obstructs the other. When the pubUc dchber-
ates concerning any regulation of commerce or police, the
proprietor of land never can mislead it, with a view to pro-
mote the interest of their own particular order ; at least,
if they have any tolerable knowledge of that interest. They
are, indeed, too often defective in this tolerable knowledge.
They are the only one of the three orders whose revenue
costs them neither labour nor care, but comes to them, as
it were, of its own accord, and independent of any plan or
project of their own. That indolence, which is the natural
effect of the ease and security of their situation, renders
them too often, not only ignorant, but incapable of that ap-
plication of mind which is necessary in order to foresee and
understand the consequences of any public regulation.
The interest of the second order, that of those who live by
wages, is as strictly connected with the interest of the society
as that of the first. The wages of the labourer, it has al-
ready been shewn, are never so high as when the demand
for labour is continually rising, or when the quantity em-
ployed is every year increasing considerably. When this
real wealth of the society becomes stationary, his wages are
soon reduced to what is barely enough to enable him to
bring up a family, or to continue the race of labourers.
When the society declines, they fall even below this. The
order of proprietors may, perhaps, gain more by the pros-
perity of the society, than that of labourers: but there is no
order that suffers so cruelly from its decline. But though
the interest of the labourer is strictly connected with that
of the society, he is incapable either of comprehending that
interest, or of understanding its connexion with his own.
His condition leaves him no time to receive the necessary
information, and his education and habits are commonly
such as to render him unfit to judge even though he was
fully informed. In the public deliberations, therefore, his
voice is little heard and less regarded, except upon some par-
ticular occasions, when his clamour is animated, set on, and
supported by his employers, not for his, but their own par-
ticular purposes.
His employers constitute the third order, that of those who
RENT OF LAND: CONCLUSION 219
live by profit. It is the stock that is employed for the sake
of profit, which puts into motion the greater part of the
useful labour of every society. The plans and projects of
the employers of stock regulate and direct all the most im-
portant operations of labour, and profit is the end proposed
by all those plans and projects. But the rate of profit does
not, like rent and wages, rise with the prosperity, and fall
with the declension, of the society. On the contrary, it is
naturally low in rich, and high in poor countries, and it is
always highest in the countries which are going fastest to
ruin. The interest of this third order, therefore, has not the
same connexion with the general interest of the society as
that of the other two. Merchants and master manufacturers
are, in this order, the two classes of people who commonly
employ the largest capitals, and who by their wealth draw
to themselves the greatest share of the public consideration.
A? during their whole lives they are engaged in plans and
projects, they have frequently more acuteness of understand-
ing than the greater part of country gentlemen. As their
thoughts, however, are commonly exercised rather about
the interest of their own particular branch of business, than
about that of the society, their judgment, even when given
with the greatest candour (which it has not been upon every
occasion), is much more to be depended upon with regard to
the former of those two objects, than with regard to the
latter. Their superiority over the country gentleman is, not
so much in their knowledge of the public interest, as in their
having a better knowledge of their own interest than he has
of his. It is by this superior knowledge of their own interest
that they have frequently imposed upon his generosity, and
persuaded him to give up both his own interest and that of
the public, from a very simple but honest conviction, that
their interest, and not his, was the interest of the public. The
interest of the dealers, however, in any particular branch of
trade or manufacture, is always in some respects different
from, and even opposite to, that of the public. To widen the
market and to narrow the competition, is always the interest
of the dealers. To widen the market may frequently be
agreeable enough to the interest of the public ; but to narrow
the competition must always be against it, and can serve only
220 RENT OF LAND: CONCLUSION
to enable the dealers, by raising their profits above what they
naturally would be, to levy, for their own benefit, an ab-
surd tax upon the rest of their fellow-citizens. The proposal
of any new law or regulation of commerce which comes from
this order, ought always to be listened to with great precau-
tion, and ought never to be adopted till after having been long
and carefully examined, not only with the most scrupulous,
but with the most suspicious attention. It comes from an
order of men, whose interest is never exactly the same with
that of the public, who have generally an interest to deceive
and even to oppress the public, and who accordingly have,
upon many occasions, both deceived and oppressed it.
BOOK II
Of the Nature, Accumulation, and Employment of Stock
INTRODUCTION
IN that rude state of society in which there is no division
of labour, in which exchanges are seldom made, and in
which every man provides every thing for himself, it is
not necessary that any stock should be accumulated or stored
up beforehand, in order to carry on the business of the so-
ciety. Every man endeavours to supply by his own industry
his own occasional wants as they occur. When he is hungry,
he goes to the forest to hunt ; when his coat is worn out, he
clothes himself with the skin of the first large animal he
kills: and when his hut begins to go to ruin, he repairs it, as
well as he can, with the trees and the turf thaj: are nearest it.
But when the division of labour has once been thoroughly
introduced, the produce of a man's own labour can supply
but a very small part of his occasional wants. The far
greater part of them are supplied by the produce of other
men's labour, which he purchases with the produce, or, what
is the same thing, with the price of the produce of his own.
But this purchase cannot be made till such time as the prod-
uce of his own labour has not only been completed, but sold.
A stock of goods of different kinds, therefore, must be stored
up somewhere sufficient to maintain him, and to supply him
with the materials and tools of his work, till such time, at
least, as both these events can be brought about. A weaver
cannot apply himself entirely to his peculiar business, unless
there is beforehand stored up somewher-e, either in his own
possession or in that of some other person, a stock sufficient
to maintain him, and to supply him with the materials and
tools of his work, till he has not only completed but sold
221
222 WEALTH OF NATIONS
his web. This accumulation must, evidently, be previous to
his applying his industry for so long a time to such a peculiar
business.
As the accumulation of stock must, in the nature of things,
be previous to the division of labour, so labour can be more
and more subdivided in proportion only as stock is previously
more and more accumulated. The quantity of materials
which the same number of people can work up, increases in
a great proportion as labour comes to be more and more
subdivided; and as the operations of each workman are
gradually reduced to a greater degree of simplicity, a variety
of new machines come to be invented for facilitating and
abridging those operations. As the division of labour ad-
vances, therefore, in order to give constant employment to
an equal number of workmen, an equal stock of provisions,
and a greater stock of materials and tools than what would
have been necessary in a ruder state of things, must be accu-
mulated beforehand. But the number of workmen in every
branch of business generally increases with the division of
labour in that branch, or rather it is the increase of their
number which enables them to class and subdivide themselves
in this manner.
As the accumulation of stock is previously necessary for
carrying on this great improvement in the productive powers
of labour, so that accumulation naturally leads to this im-
provement. The person who employs his stock in maintain-
ing labour, necessarily wishes to employ it in such a manner
as to produce as great a quantity of work as possible. He
endeavours, therefore, both to make among his workmen
the most proper distribution of employment, and to furnish
them with the best machines which he can either invent or
afford to purchase. His abilities in both these respects are
generally in proportion to the extent of his stock, or to the
number of people whom it can employ. The quantity of in-
dustry, therefore, not only increases in every country with
the increase of the stock which employs it, but, in conse-
quence of that increase, the same quantity of industry pro-
duces a much greater quantity of work.
Such are in general the effects of the increase of stock
upon industry and its productive powers.
INTRODUCTION 223
In the following book I have endeavoured to explain the
nature of stock, the effects of its accumulation into capitals
of different kinds, and the effects of the different employ-
ments of those capitals. This book is divided into five chap-
ters. In the first chapter, I have endeavoured to show what
are the different parts or branches into which the stock,
either of an individual, or of a great society, naturally
divides itself. In the second, I have endeavoured to explain
the nature and operation of money considered as a particular
branch of the general stock of the society. The stock which
is accumulated into a capital, may either be employed by
the person to whom it belongs, or it may be lent to some
other person. In the third and fourth chapters, I have en-
deavoured to examine the manner in which it operates in
both these situations. The fifth and last chapter treats of
tl'.e different effects which the different employments of
capital inmiediately produce upon the quantity both of na-
tional industry, and of the annual produce of land and
labour.
CHAPTER I
Of the Division of Stock
WHEN the stock which a man possesses is no more
than sufficient to maintain him for a few days or a
few weeks, he seldom thinks of deriving any rev-
enue from it. He consumes it as sparingly as he can, and
endeavours by his labour to acquire something which may
supply its place before it be consumed altogether. His rev-
enue is, in this case, derived from his labour only. This is
the state of the greater part of the labouring poor in all
countries.
But when he possesses stock sufficient to maintain him for
months or years, he naturally endeavours to derive a revenue
from the greater part of it; reserving only so much for his
immediate consumption as may maintain him till this revenue
begins to come in. His whole stock, therefore, is distin-
guished into two parts. That part which, he expects, is to
afford him this revenue, is called his capital. The other is
that which supplies his immediate consumption ; and which
consists either, first, in that portion of his whole stock which
was originally reserved for this purpose ; or, secondly, in his
revenue, from whatever source derived, as it gradually comes
in ; or, thirdly, in such things as had been purchased by either
of these in former years, and which are not yet entirely con-
sumed; such as a stock of clothes, household furniture, and
the like. In one, or other, or all of these three articles, con-
sists the stock which men commonly reserve for their own
immediate consumption.
There are two different ways in which a capital may be
employed so as to yield a revenue or profit to its employer.
First, it may be employed in raising, manufacturing, or
purchasing goods, and selling them again with a profit. The
capital employed in this manner yields no revenue or profit to
224
DIVISION OF STOCK 225
ks employer, while it either remains in his possession, or
continues in the same shatpe. The goods of the merchant
yield him no revenue or profit till he sells them for money,
and the money yields him as little till it is again exchanged
for goods. His capital is continually going from him in one
shape, and returning to him in another, and it is only by
means of such circulation, or successive exchanges, that it
can yield him any profit. Such capitals, therefore, may very
properly be called circulating capitals.
Secondly, it may be employed in the improvement of
land, in the purchase of useful machines and instruments
of trade, or in such-like things as yield a revenue or profit
without changing masters, or circulating any further. Such
capitals, therefore, may very properly be called fixed
capitals.
Different occupations require very different proportions
between the fixed and circulating capitals employed in them.
The capital of a merchant, for example, is altogether a
circulating capital. He has occasion for no machines or
instruments of trade, unless his shop, or warehouse, be con-
sidered as such.
Some part of the capital of every master artificer or manu-
facturer must be fixed in the instruments of his trade. This
part, however, is very small in some, and very great in
others. A master taylor requires no other instruments of
trade but a parcel of needles. Those of the master shoe-
maker are a little, though but a very little, more expensive.
Those of the weaver rise a good deal above those of the
shoemaker. The far greater part of the capital of all such
master artificers, however, is circulated, either in the wages
of their workmen, or in the price of their materials, and re-
paid with a profit by the price of the work.
In other works a much greater fixed capital is required.
In a great iron-work, for example, the furnace for melting
the ore, the forge, the slitt-mill, are instruments of trade
which cannot be erected without a very great expence. In
coal-works, and mines of every kind, the machinery neces-
sary both for drawing out the water and for other purposes,
is frequently still more expensive.
That part of the capital of the farmer which is employed
H — HC X
226 WEALTH OF NATIONS
in the instruments of agriculture is a fixed ; that which is
employed in the wages and maintenance of his labouring
servants, is a circulating capital. He makes a profit of the
one by keeping it in his own possession, and of the other by
parting with it. The price or value of his labouring cattle is
a fixed capital in the same manner as that of the instruments
of husbandry: Their maintenance is a circulating capital
in the same manner as that of the labouring servants. The
farmer makes his profit by keeping the labouring cattle, and
by parting with their maintenance. Both the price and the
maintenance of the cattle which are bought in and fattened,
not for labour, but for sale, are a circulating capital. The
farmer makes his profit by parting with them. A flock of
sheep or a herd of cattle that, in a breeding country, is
bought in, neither for labour, nor for sale, but in order to
make a profit by their wool, by their milk, and by their in-
crease, is a fixed capital. The profit is made by keeping
them. Their maintenance is a circulating capital. The
profit is made by parting with it; and it comes back with
both its own profit, and the profit upon the whole price of
the cattle, in the price of the wool, the milk, and the increase.
The whole value of the seed too is properly a fixed capital.
Though it goes backwards and forwards between the ground
and the granary, it never changes masters, and therefore
does not properly circulate. The farmer makes his profit,
not by its sale, but by its increase.
The general stock of any country or society is the same
with that of all its inhabitants or members, and therefore
naturally divides itself into the same three portions, each of
which has a distinct function or office.
The First, is that portion which is reserved for immediate
corisumption, and of which the characteristic is, that it af-
fords no revenue or profit. It consists in the stock of food,
clothes, household furniture. Sic, which have been purchased
by their proper consumers, but which are not yet entirely
consumed. The whole stock of mere dwelling-houses too
subsisting at any one time in the country, make a part of this
first portion. The stock that is laid out in a house, if it is
to be the dwelling-house of the proprietor, ceases from llat
moment to serve in the function of a capital, or to afford any
DIVISION OF STOCK 227
revenue to its owner. A dwelling-house, as such, contributes
nothing to the revenue of its inhabitant ; and though it is, no
doubt, extremely useful to him, it is as his clothes and house-
hold furniture are useful to hiin, which, however, make a
part of his expence, and not of his revenue. If it is to be
let to a tenant for rent, as the house itself can produce noth-
ing, the tenant must aKvays pay the rent out of some other
revenue which he derives either from labour, or stock, or
land. Though a house, therefore, may yield a revenue to its
proprietor, and thereby serve in the function of a capital to
him, it cannot yield any to the public, nor serve in the func-
tion of a capital to it, and the revenue of the whole body of
the people can never be in the smallest degree increased by
it. Clothes, and household furniture, in the same manner,
sometimes yield a revenue, and thereby serve in the function
of a capital to particular persons. In countries where
masquerades are common, it is a trade to let out masquerade
dresses for a night. Upholsterers frequently let furniture by
the month or by the year. Undertakers let the furniture of
funerals by the day and by the week. Many people let fur-
nished houses, and get a rent, not only for the use of the
house, but for that of the furniture. The revenue, however,
which is derived from such things, must always be ultimately
drawn from some other source of revenue. Of all parts of
the stock, either of an individual, or of a society, reserved
for immediate consumption, what is laid out in houses is
most slowly consumed. A stock of clothes may last several
years: a stock of furniture half a century or a century: but a
stock of houses, well built and properly taken care of, may
last many centuries. Though the period of their total con-
sumption, however, is more distant, they are still as really
a stock reserved for immediate consumption as either clothes
or household furniture.
The Second of the three portions into which the general
stock of the society divides itself, is the fixed capital; of
which the character tistic is, that it affords a revenue or
profit without circulating or changing masters. It consists
chiefly of the four following articles:
First, of all useful machines and instruments of trade
which facilitate and abridge labour :
228 WEALTH OF NATIONS
Secondly, of all those profitable buildings which are the
means of procuring' a revenue, not only to their proprietor
who lets them for a rent, but to the person who possesses
them and pays that rent for them ; such as shops, warehouses,
workhouses, farmhouses, with all their necessary buildings,
stables, granaries, &c. These are very different from mere
dwelling houses. They are a sort of instruments of trade,
and may be considered in the same light:
Thirdly, of the improvements of land, of what has been
profitably laid out in clearing, draining, enclosing, manuring,
and reducing it into the condition most proper for tillage
and culture. An improved farm may very justly be regarded
in the same light as those useful machines which facilitate
and abridge labour, and by means of which, an equal circu-
lating capital can afford a much greater revenue to its em-
ployer. An improved farm is equally advantageous and more
durable than any of those machines, frequently requiring no
other repairs than the most profitable application of the
farmer's capital employed in cultivating it :
Fourthly, of the acquired and useful abilities of all the
inhabitants or members of the society. The acquisition of
such talents, by the maintenance of the acquirer during his
education, study, or apprenticeship, always costs a real ex-
pence, which is a capital fixed and realized, as it were, in his
person. Those talents, as they make a part of his fortune,
so do they likewise of that of the society to which he
belongs. The improved dexterity of a workman may be
considered in the same light as a machine or instrument
of trade which facilitates and abridges labour, and which,
though it costs a certain expence, repays that expence with
a profit.
The Third and last of the three portions into which the
general stock of the society naturally divides itself, is the cir-
culating capital ; of which the characteristic is, that it affords
a revenue only by circulating or changing masters. It is
composed likewise of four parts :
First, of the money by means of which all the other three
are circulated and distributed to their proper consumers:
Secondly, of the stock of provisions which are in the pos-
session of the butcher, the grazier, the farmer, the corn-
DIVISION OF STOCK 229
merchant, the brewer, &c. and from the sale of which they
expect to derive a profit:
Thirdly, of the materials, whether altogether rude, or
more or less manufactured, of clothes, furniture and build-
ing, which are not yet made up into any of those three
shapes, but which remain in the hands of the growers, the
manufacturers, the mercers, and drapers, the timber-mer-
chants, the carpenters and joiners, the brick-makers, &c.
Fourthly, and lastly, of the work which is made up and
completed, but which is still in the hands of the merchant or
manufacturer, and not yet disposed of or distributed to the
proper consumers; such as the finished work which we fre-
quently find ready-made in the shops of the smith, the
cabinet-maker, the goldsmith, the jeweller, the china-mer-
chant, &c. The circulating capital consists in this manner,
of the provisions, materials, and finished work of all kinds
that are in the hands of their respective dealers, and of the
money that is necessary for circulating and distributing them
to those who are finally to use, or to consume them.
Of these four parts three, provisions, materials, and fin-
ished work, are, either annually, or in a longer or shorter
period, regularly withdrawn from it, and placed either in the
fixed capital or in the stock reserved for immediate con-
sumption.
Every fixed capital is both originally derived from, and
requires to be continually supported by a circulating capital.
All useful machines and instruments of trade are originally
derived from a circulating capital, which furnishes the ma-
terials of which they are made, and the maintenance of the
workmen who make them. They require too a capital of the
same kind to keep them in constant repair.
No fixed capital can yield any revenue but by means of a
circulating capital. The most Useful machines and instru-
ments of trade will produce nothing without the circulating
capital which affords the materials they are employed upon,
and the maintenance of the workmen who employ them.
Land, however improved, will yield no revenue without a
circulating capital, which maintains the labourers who culti-
vate and collect its produce.
To maintain and augment the stock which may be reserved
230 WEALTH OF NATIONS
for immediate consumption, is the sole end and purpose both
of the fixed and circulating capitals. It is this stock which
feeds, clothes, and lodges the people. Their riches or pov-
erty depends upon the abundant or sparing supplies which
those two capitals can afford to the stock reserved for im-
mediate consumption.
So great a part of the circulating capital being continually
withdrawn from it, in order to be placed in the other two
branches of the general stock of the society; it must in its
turn require continual supplies, without which it would soon
cease to exist. These supplies are principally drawn from
three sources, the produce of land, of mines, and of fisheries.
These afford continual supplies of provisions and materials,
of which part is afterwards wrought up into finished work,
and by which are replaced the provisions, materials, and
finished work continually withdrawn from the circulating
capital. From mines too is drawn what is necessary for
maintaining and augmenting that part of it which consists in
money. For though, in the ordinary course of business, this
part is not, like the other three, necessarily withdrawn from
it, in order to be placed in the other two branches of the
general stock of the society, it must, however, like all other
things, be wasted and worn out at last, and sometimes too
be either lost or sent abroad, and must, therefore, require
continual, though, no doubt, much smaller supplies.
Land, mines, and fisheries, require all both a fixed and a
circulating capital to cultivate them: and their produce re-
places with a profit, not only those capitals, but all the others
in the society. Thus the farmer annually replaces to the
manufacturer the provisions which he had consumed and
the materials which he had wrought up the year before; and
the manufacturer replaces to the farmer the finished work
which he had wasted and worn out in the same time. This
is the real exchange that is annually made between those
two orders of people, though it seldom happens that the rude
produce of the one and the manufactured produce of the
other, are directly bartered for one another; because it sel-
dom happens that the farmer sells his corn and his cattle,
his flax and his wool, to the very same person of whom he
chuses to purchase the clothes, furniture, and instruments of
DIVISION OF STOCK 231
trade which he wants. He sells, therefore, his rude produce
for money, with which he can purchase, wherever it is to be
had, the manufactured produce he has occasion for. Land
even replaces, in part at least, the capitals with which fish-
eries and mines are cultivated. It is the produce of land
which draws the fish from the waters ; and it is the produce
of the surface of the earth which extracts the minerals from
its bowels.
The produce of land, mines, and fisheries, when their nat-
ural fertility is equal, is in proportion to the extent and
proper application of the capitals employed about them.
When the capitals are equal and equally well applied, it is in
proportion to their natural fertility.
In all countries where there is tolerable security, everj
man of common understanding will endeavour to employ
whatever stock he can command, in procuring either present
enjoyment or future profit. If it is employed in procuring
present enjoyment, it is a stock reserved for immediate con-
sumption. If it is employed in procuring future profit, it
must procure this profit either by staying with him, or by
going from him. In the one case it is a fixed, in the other
it is a circulating capital. A man must be perfectly crazy
who, where there is tolerable security, does not employ all
the stock which he commands, whether it be his own or
borrowed of other people, in some one or other of those
three ways.
In those unfortunate countries, indeed, where men are
continually afraid of the violence of their superiors, they
frequently bury and conceal a great part of their stock, in
order to have it always at hand to carry with them to some
place of safety, in case of their being threatened with any
of these disasters to which they consider themselves as at
all times exposed. This is said to be a common practice in
Turkey, in Indostan, and, I believe, in most other govern-
ments of Asia. It seems to have been a common practice
among our ancestors during the violence of the feudal gov-
ernment. Treasure-trove was in those times considered as
no contemptible part of the revenue of the greatest sover-
eigns in Europe. It consisted in such treasure as was found
concealed in the earth, and to which no particular person
232 WEALTH OF NATIONS
could prove any right. This was regarded in those times
as so important an object, that it was always considered as
belonging to the sovereign, and neither to the finder nor to
the proprietor of the land, unless the right to it had been
conveyed to the latter by an express clause in his charter.
It was put upon the same footing with gold and silver mines,
which, without a special clause in the charter, were never
supposed to be comprehended in the general grant of the
lands, though mines of lead, copper, tin, and coal were, as
things of smaller consequence.
CHAPTER 11
Of Money Considered as a Particular Branch of the
General Stock of the Society, or of the Expence
OF Maintaining the National Capital
IT has been shewn in the First Book, that the price of the
greater part of commodities resolves itself into three
parts, of which one pays the wages of the labour, an-
other the profits of the stock, and a third the rent of the
land which had been employed in producing and bringing
them to market: that there are, indeed, some commodities
of which the price is made up of two of those parts only,
the wages of labour, and the profits of stock : and a very few
in which it consists altogether in one, the wages of labour:
but that the price of every commodity necessarily resolves
itself into some one, or other, or all of these three parts;
every part of it which goes neither to rent nor to wages,
being necessarily profit to somebody.
Since this is the case, it has been observed, with regard
to every particular commodity, taken separately; it must be
so with regard to all the commodities which compose the
whole annual produce of the land and labour of every coun-
try, taken complexly. The whole price or exchangeable
value of that annual produce, must resolve itself into the
same three parts, and be parcelled out among the different
inhabitants of the country, either as the wages of their
labour, the profits of their stock, or the rent of their land.
But though the whole value of the annual produce of the
land and labour of every country is thus divided among and
constitutes a revenue to its different inhabitants ; yet as in
the rent of a private estate we distinguish between the
gross rent and the neat rent, so may we likewise in the
revenue of all the inhabitants of a great country.
The gross rent of a private estate comprehends whatever
233
234 WEALTH OF NATIONS
is paid by the farmer ; the neat rent, what remains free to
the landlord, after deducting the expence of management,
of repairs, and all other necessary charges; or what, without
hurting his estate, he can afford to place in his stock re-
served for immediate consumption, or to spend upon his
table, equipage, the ornaments of his house and furniture,
his private enjoyments and amusements. His real wealth is
in proportion, not to his gross, but to his neat rent.
The gross revenue of all the inhabitants of a great coun-
try, comprehends the whole annual produce of their land
and labour; the neat revenue, what remains free to them after
deducting the expence of maintaining; first, their fixed; and,
secondly, their circulating capital; or what, without en-
croaching upon their capital, they can place in their stock
reserved for immediate consumption, or spend upon their
subsistence, conveniencies, and amusements. Their real
wealth too is in proportion, not to their gross, but to their
neat revenue.
The whole expence of maintaining the fixed capital, must
evidently be excluded from the neat revenue of the society.
Neither the materials necessary for supporting their useful
machines and instruments of trade, their profitable buildings,
&c. nor the product of the labour necessary for fashioning
those materials into the proper form, can ever make any
part of it. The price of that labour may indeed make a
part of it; as the workmen so employed may place the whole
value of their wages in their stock reserved for immediate
consumption. But in other sorts of labour, both the price
and the produce go to this stock, the price to that of the
workmen, the produce to that of other people, whose sub-
sistence, conveniencies, and amusements, are augmented by
the labour of those workmen.
The intention of the fixed capital is to increase the pro-
ductive powers of labour, or to enable the same number of
labourers to perform a much greater quantity of work. In a
farm where all the necessary buildings, fences, drains, com-
munications, &c. are in the most perfect good order, the
same number of labourers and labouring cattle will raise a
much greater produce, than in one of equal extent and
equally good ground, but not furnished with equal conveni-
MONEY 235
encies. In manufactures the same number of hands, assisted
with the best machinery, will work up a much greater quan-
tity of goods than with more imperfect instruments of trade.
The expence which is properly laid out upon a fixed capital
of any kind, is always repaid with great profit, and increases
the annual produce by a much greater value than that of
the support which such improvements require. This sup-
port, however, still requires a certain portion of that produce.
A certain quantity of materials, and the labour of a certain
number of workmen, both of which might have been imme-
diately employed to augment the food, clothing and lodging,
the subsistence and conveniencies of the society, are thus
diverted to another employment, highly advantageous indeed,
but still different from this one. It is upon this account
that all such improvements in mechanics, as enable the same
number of workmen to perform an equal quantity of work
with cheaper and simpler machinery than had been usual
before, are always regarded as advantageous to every so-
ciety. A certain quantity of materials, and the labour of a
certain number of workmen, which had before been em-
ployed in supporting a more complex and expensive ma-
chinery, can afterwards be applied to augment the quantity
of work which that or any other machinery is useful only
for performing. The undertaker of some great manufac-
tory who employs a thousand a-year in the maintenance of
his machinery, if he can reduce this expence to five hundred,
will naturally employ the other five hundred in purchasing
an additional quantity of materials to be wrought up by
an additional number of workmen. The quantity of that
work, therefore, which his machinery was useful only for
performing, will naturally be augmented, and with it all the
advantage and conveniency which the society can derive
from that work.
The expence of maintaining the fixed capital in a great
country, may very properly be compared to that of repairs
in a private estate. The expense of repairs may frequently
be necessary for supporting the produce of the estate, and
consequently both the gross and the neat rent of the land-
lord. When by a more proper direction, however, it can be
diminished without occasioning any diminution of produce.
236 WEALTH OF NATIONS
the gross rent remains at least the same as before, and the
neat rent is necessarily augmented.
But though the whole expence of maintaining the fixed
capital is thus necessarily excluded from the neat revenue of
the society, it is not the same case with that of maintaining
the circulating capital. Of the four parts of which this
latter capital is composed, money, provisions, materials, and
finished work, the three last, it has already been observed,
are regularly withdrawn from it, and placed either in the
fixed capital of the society, or in their stock reserved for
immediate consumption. Whatever portion of those con-
sumable goods is not employed in maintaining the former,
goes all to the latter, and makes a part of the neat revenue
of the society. The maintenance of those three parts of
the circulating capital, therefore, withdraws no portion of
the annual produce from the neat revenue of the society, be-
sides what is necessary for maintaining the fixed capital.
The circulating capital of a society is in this respect dif-
ferent from that of an individual. That of an individual is
totally excluded from making any part of his neat revenue,
which must consist altogether in his profits. But though the
circulating capital of every individual makes a part of that
of the society to which he belongs, it is not upon that ac-
count totally excluded from making a part likewise of their
neat revenue. Though the whole goods in a merchant's shop
must by no means be placed in his own stock reserved for
immediate consumption, they may in that of other people,
who, from a revenue derived from other funds, may regu-
larly replace their value to him, together with its profits,
without occasioning any diminution either of his capital or
of theirs.
Money, therefore, is the only part of the circulating capi-
tal of a society, of which the maintenance can occasion any
diminution in their neat revenue.
The fixed capital, and that part of the circulating capital
which consists in money, so far as they affect the revenue
of the society, bear a very great resemblance to one another.
First, as those machines and instruments of trade, &c., re-
quire a certain expence, first to erect them, and afterwards
to support them, both which expences, though they make a
MONEY 237
part of the gross, are deductions from the neat revenue of
the society; so the stock of money which circulates in any
country must require a certain expence, first to collect it, and
afterwards to support it, both which expences, though they
make a part of the gross, are, in the same manner, deductions
from the neat revenue of the society. A certain quantity
of very valuable materials, gold and silver, and of very
curious labour, instead of augmenting the stock reserved for
immediate consumption, the subsistence, conveniencies, and
amusements of individuals, is employed in supporting that
great but expensive instrument of commerce, by means of
which every individual in the society has his subsistence,
conveniencies, and amusements, regularly distributed to him
in their proper proportion.
Secondly, as the machines and instruments of trade, &c.
which compose the fixed capital either of an individual or of
a society, make no part either of the gross or of the neat
revenue of either; so money, by means of which the whole
revenue of the society is regularly distributed among all its
different members, makes itself no part of that revenue. The
great wheel of circulation is altogether dift'erent from the
goods which are circulated by means of it. The revenue of
the society consists altogether in those goods, and not in the
wheel which circulates them. In computing either the gross
or the neat revenue of any society, we must always, from
their whole annual circulation of money and goods, deduct
the whole value of the money, of which not a single farthing
can ever make any part of either.
It is the ambiguity of language only which can make this
proposition appear either doubtful or paradoxical. When
properly explained and understood, it is almost self-evident.
When we talk of any particular sum of money, we some-
times mean nothing but the metal pieces of which it is com-
posed; and sometimes we include in our meaning some ob-
scure reference to the goods which can be had in exchange
for it, or to the power of purchasing which the possession of
it conveys. Thus when we say, that the circulating money of
England has been computed at eighteen millions, we mean
only to express the amount of the metal pieces, which some
writers have computed, or rather have supposed to circulate
238 WEALTH OF NATIONS
in that country. But when we say that a man is worth fifty
or a hundred pounds a-year, we mean commonly to express
not only the amount of the metal pieces which are annually
paid to him, but the value of the goods which he can annually
purchase or consume. We mean commonly to ascertain
what is or ought to be his way of living, or the quantity and
quality of the necessaries and conveniencies of life in which
he can with propriety indulge himself.
When, by any particular sum of money, we mean not only
to express the amount of the metal pieces of which it is com-
posed, but to include in its signification some obscure refer-
ence to the goods which can be had in exchange for them,
the wealth or revenue which it in this case denotes, is equal
only to one of the two values which are thus intimated some-
what ambiguously by the same word, and to the latter more
properly than to the former, to the money's worth more
properly than to the money.
Thus if a guinea be the weekly pension of a particular
person, he can in the course of the week purchase with it a
certain quantity of subsistence, conveniencies, and amuse-
ments. In proportion as this quantity is great or small, so
are his real riches, his real weekly revenue. His weekly
revenue is certainly not equal both to the guinea, and to what
can be purchased with it, but only to one or other of those
two equal values ; and to the latter more properly than to the
former, to the guinea's worth rather than to the guinea.
If the pension of such a person was paid to him, not in
gold, but in a weekly bill for a guinea, his revenue surely
would not so properly consist in the piece of paper, as in
what he could get for it. A guinea may be considered as a
bill for a certain quantity of necessaries and conveniencies
upon all the tradesmen in the neighbourhood. The revenue
of the person to whom it is paid, does not so properly consist
in the piece of gold, as in what he can get for it, or in what
he can exchange it for. If it could be exchanged for noth-
ing, it would, like a bill upon a bankrupt, be of no more
value than the most useless piece of paper.
Though the weekly or yearly revenue of all the different
inhabitants of any country, in the same manner, may be,
and in reality frequently is paid to them in money, their
MONEY 239
real riches, however, the real weekly or yearly revenue of all
of them taken together, must always be great or small in
proportion to the quantity of consumable goods which they
can all of them purchase with this money. The vv'hole rev-
enue of all of them taken together is evidently not equal to
both the money and the consumable goods; but only to one
or other of those two values, and to the latter more prop-
erly than to the former.
Though we frequently, therefore, express a person's rev-
enue by the metal pieces which are annually paid to him, it
is because the amount of those pieces regulates the extent of
his power of purchasing, or the value of the goods which he
can annually afford to consume. We still consider his rev-
enue as consisting in this power of purchasing or consuming,
and not in the pieces which convey it.
But if this is suflficiently evident even with regard to an
individual, it is still more so with regard to a society. The
amount of the metal pieces which are annually paid to an
individual, is often precisely equal to his revenue, and is
upon that account the shortest and best expression of its
value. But the amount of the metal pieces which circulate
in a society, can never be equal to the revenue of all its
members. As the same guinea which pays the weekly pen-
sion of one man to-day, may pay that of another to-morrow,
and that of a third the day thereafter, the amount of the
metal pieces which annually circulate in any country, must
always be of much less value than the whole money pen-
sions annually paid with them. But the power of pur-
chasing, or the goods which can successively be bought with
the whole of those money pensions as they are successively
paid, must always be precisely of the same value with those
pensions; as must likewise be the revenue of the different
persons to whom they are paid. That revenue, therefore,
canr/)t consist in those metal pieces, of which the amount is
so much inferior to its value, but in the power of purchasing,
in the goods which can successively be bought with them as
they circulate from hand to hand.
Money, therefore, the great wheel of circulation, the great
instrument of commerce, like all other instruments of trade,
though it makes a part and a very valuable part of the capi-
240 WEALTH OF NATIONS
tal, makes no part of the revenue of the society to which it
belongs; and though the metal pieces of which it is com-
posed, in the course of their annual circulation, distribute to
every man the revenue which properly belongs to him, they
make themselves no part of that revenue.
Thirdly, and lastly, the machines and instruments of trade,
&c. which compose the fixed capital, bear this further resem-
blance to that part of the circulating capital which consists
in money; that as every saving in the expence of erecting
and supporting those machines, which does not diminish the
productive powers of labour, is an improvement of the neat
revenue of the society ; so every saving in the expence of
collecting and supporting that part of the circulating capital
which consists in money, is an improvement of exactly the
same kind.
It is sufficiently obvious, and it has partly too been ex-
plained already, in what manner every saving in the expence
of supporting the fixed capital is an improvement of the neat
revenue of the society. The whole capital of the undertaker
of every work is necessarily divided between his fixed and
his circulating capital. While his whole capital remains the
same, the smaller the one part, the greater must necessarily
be the other. It is the circulating capital which furnishes
the materials and wages of labour, and puts industry into
motion. Every saving, therefore, in the expence of main-
taining the fixed capital, which does not diminish the pro-t
ductive powers of labour, must increase the fund which
puts industry into motion, and consequently the annual
produce of land and labour, the real revenue of every society.
The substitution of paper in the room of gold and silver
money, replaces a very expensive instrument of commerce
with one much less costly, and sometimes equally convenient.
Circulation comes to be carried on by a new wheel, which it
costs less both to erect and to maintain than the old one.
But in what manner this operation is performed, and in what
manner it tends to increase either the gross or the neat rev-
enue of the society, is not altogether so obvious, and may
therefore require some further explication.
There are several different sorts of paper money; but the
circulating notes of banks and bankers are the species which
MONEY 241
is best known, and which seems best adapted for this purpose.
When the people of any particular country have such con-
fidence in the fortune, probity, and prudence of a particular
banker, as to believe that he is always ready to pay upon
demand such of his promissory notes as are likely to be at
any time presented to him; those notes come to have the
same currency as gold and silver money, from the confidence
that such money can at any time be had for them.
A particular banker lends among his customers his own
promissory notes, to the extent, we shall suppose, of a hun-
dred thousand pounds. As those notes serve all the purposes
of money, his debtors pay him the same interest as if he had
lent them so much money. This interest is the source of
his gain. Though some of these notes are continually
coming back upon him for payment, part of them continue
to circulate for months and years together. Though he has
generally in circulation, therefore, notes to the extent of a
hundred thousand pounds, twenty thousand pounds in gold
and silver may, frequently, be a sufficient provision for
answering occasional demands. By this operation, therefore,
twenty thousand pounds in gold and silver perform all the
functions which a hundred thousand coild otherwise have
performed. The same exchanges may be made, the same
quantity of consumable goods may be circulated and dis-
tributed to their proper consumers, by means of his promis-
sory notes, to the value of a hundred thousand pounds, as by
an equal value of gold and silver money. Eighty thousand
pounds of gold and silver, therefore, can, in this manner, be
spared from the circulation of the country; and if different
operations of the same kind should, at the same time, be
carried on by many different banks and bankers, the whole
circulation may thus be conducted with a fifth part only of
the gold and silver which would otherwise have been
requisite.
Let us suppose, for example, that the whole circulating
money of some particular country amounted, at a particular
time, to one million sterling, that sum being then sufficient
for circulating the whole annual produce of their land and
labour. Let us suppose too, that some time thereafter, dif-
ferent banks and bankers issued promissory notes, payable
242 WEALTH OF NATIONS
to the bearer, to the extent of one million, reserving in theif
different coffers two hundred thousand pounds for answer-*
ing occasional demands. There would remain, therefore, in
circulation, eight hundred thousand pounds in gold and
silver, and a million of bank notes, or eighteen hundred thou-
sand pounds of paper and money together. But the annual
produce of the land and labour of the country had before
required only one million to circulate and distribute it to its
proper consumers, and that annual produce cannot be imme-
diately augmented by those operations of banking. One mil-
lion, therefore, will be sufficient to circulate it after them.
The goods to be bought and sold being precisely the same as
before, the same quantity of money will be sufficient for
buying and selling them. The channel of circulation, if I
may be allowed such an expression, will remain precisely the
same as before. One million we have supposed sufficient to
fill that channel. Whatever, therefore, is poured into it be-
yond this sum, cannot run in it, but must overflow. One
million eight hundred thousand pounds are poured into it.
Eight hundred thousand pounds, therefore, must overflow,
that sum being over and above what can be employed in the
circulation of the country. But though this sum cannot be
employed at home, it is too valuable to be allowed to lie idh.
It will, therefore, be sent abroad, in order to seek that profit-
able employment v/hich it cannot find at home. But the
paper cannot go abroad; because at a distance from tlic
banks which issue it, and from the country in which payment
of it can be exacted by law, it will not be received in cor.i-
mon payments. Gold and silver, therefore, to the amount of
eight hundred thousand pounds will be sent abroad, and the
channel of home circulation will remain filled with a million
of paper, instead of the million of those metals which filled
it before.
But though so great a quantity of gold and silver is thus
sent abroad, we must not imagine that it is sent abroad for
nothing, or that its proprietors make a present of it to for-
eign nations. They will exchange it for foreign goods of
some kind or another, in order to supply the consumption
either of some other foreign country, or of their own.
If they employ it in purchasing goods in one foreign coun-
MONEY 243
try in order to supply the consumption of another, or in
what is called the carrying trade, whatever profit they make
will be an addition to the neat revenue of their own country.
It is like a new fund, created for carrying on a new trade;
domestic business being now transacted by paper, and the
gold and silver being converted into a fund for this new
trade.
If they employ it in purchasing foreign goods for home
consumption, they may either, first, purchase such goods as
are likely to be consumed by idle people who produce noth-
ing, such as foreign wines, foreign silks, &c. ; or, secondly,
they may purchase an additional stock of materials, tools,
and provisions, in order to maintain and employ an addi-
tional number of industrious people, who re-produce, with
a profit, the value of their annual consumption.
So far as it is employed in the first way, it promotes prodi-
gality, increases expence and consumption without increasing
production, or establishing any permanent fund for support-
ing that expence, and is in every respect hurtful to the
society.
So far as it is employed in the second way, it promotes
industry; and though it increases the consumption of the so-
ciety, it provides a permanent fund for supporting that con-
sumption, the people who consume rc-producing, with a profit,
the whole value of their annual consumption. The gross
revenue of the society, the annual produce of their land and
labour, is increased by the whole value which the labour of
those workmen adds to the materials upon which they are
employed; and their neat revenue by what remains of this
value, after deducting what is necessary for supporting the
tools and instruments of their trade.
That the greater part of the gold and silver which, being
forced abroad by those operations of banking, is employed in
purchasing foreign goods for home consumption, is and must
be employed in purchasing those of this second kind, seems
not only probable but almost unavoidable. Though some
particular men may sometimes increase their expence very
considerably though their revenue does not increase at all,
we may be assured that no class or order of men ever does
so; because, though the principles of common prudence do
244 WEALTH OF NATIONS
not always govern the conduct of every individual, they al-
ways influence that of the majority of every class or order.
But the revenue of idle people, considered as a class or order,
cannot, in the smallest degree, be increased by those opera-
tions of banking. Their expence in general, therefore, cannot
be much increased by them, though that of a few indi-
viduals among them may, and in reality sometimes is. The
demand of idle people, therefore, for foreign goods, being
the same, or very nearly the same, as before, a very small
part of the money, which being forced abroad by those opera-
tions of banking, is employed in purchasing foreign goods for
home consumption, is likely to be employed in purchasing
those for their use. The greater part of it will naturally be
destined for the employment of industry, and not for the
maintenance of idleness.
When we compute the quantity of industry which the cir-
culating capital of any society can employ, we must always
have regard to those parts of it only, which consist in pro-
visions, materials, and finished work : the other, which con-
sists in money, and which serves only to circulate those three,
must always be deducted. In order to put industry into
motion, three things are requisite ; materials to work upon,
tools to work with, and the wages or recompence for the
sake of which the work is done. Money is neither a ma-
terial to work upon, nor a tool to work with ; and though the
wages of the workman are commonly paid to him in money,
his real revenue, like that of all other men, consists, not in
the money, but in the money's worth ; not in the metal pieces,
but in what can be got for them.
The quantity of industry which any capital can employ,
must, evidently, be equal to the number of workmen whom
it can supply with materials, tools, and a maintenance suit-
able to the nature of the work. Money may be requisite for
purchasing the materials and tools of the work, as well as
the maintenance of the workmen. But the quantity of in-
dustry which the whole capital can employ, is certainly not
equal both to the money which purchases, and to the ma-
terials, tools, and maintenance, which are purchased with it;
but only to one or other of those two values, and to the latter
more properly than to the former.
MONEY 245
When paper is substituted in the room of gold and silver
money, the quantity of the materials, tools, and maintenance,
which the whole circulating capital can supply, may be in-
creased by the whole value of gold and silver which used to
be employed in purchasing them. The whole value of the
great wheel of circulation and distribution, is added to the
goods which are circulated and distributed by means of it.
The operation, in some measure, resembles that of the under-
taker of some great work, who, in consequence of some im-
provement in mechanics, takes down his old machinery, and
adds the difference between its price and that of the new to
his circulating capital, to the fund from which he furnishes
materials and wages to his workmen.
What is the proportion which the circulating money of any
country bears to the whole value of the annual produce cir-
culated by means of it, it is, perhaps, impossible to determine.
It has been computed by different authors at a fifth, at a
tenth, at a twentieth, and at a thirtieth part of that value.
But how small soever the proportion which the circulating
money may bear to the whole value of the annual produce,
as but a part, and frequently but a small part, of that prod-
uce, is ever destined for the maintenance of industry, it
must always bear a very considerable proportion to that part.
When, therefore, by the substitution of paper, the gold and
silver necessary for circulation is reduced to, perhaps, a fifth
part of the former quantity, if the value of only the greater
part of the other four-fifths be added to the funds which are
destined for the maintenance of industry, it must make a
very considerable addition to the quantity of that industry,
and, consequently, to the value of the annual produce of land
and labour.
An operation of this kind has, within these five-and-twenty
or thirty years, been performed in Scotland, by the erection
of new banking companies in almost every considerable town,
and even in some country villages. The effects of it have
been precisely those above described. The business of the
country is almost entirely carried on by means of the paper
of those different barrking companies, with which purchases
and payments of all kinds are commonly made. Silver very
seldom appears except in the change of a twenty shillings
246 WEALTH OF NATIONS
bank note, and gold still seldomer. But though the conduct
of all those different companies has not been unexceptionable,
and has accordingly required an act of parliament to regu-
late it; the country, notwithstanding, has evidently derived
great benefit from their trade. I have heard it asserted, that
the trade of the city of Glasgow, doubled in about fifteen
years after the first erection of the banks there ; and that the
trade of Scotland has more than quadrupled since the first
erection of the two public banks at Edinburgh, of which the
one, called The Bank of Scotland, was established by act of
parliament in 1695; the other, called The Royal Bank, by
royal charter in 1727. Whether the trade, either of Scot-
land in general, or of the city of Glasgow in particular, has
really increased in so great a proportion, during so short a
period, I do not pretend to know. If either of them has in-
creased in this proportion, it seems to be an effect too great
to be accounted for by the sole operation of this cause. That
the trade and industry of Scotland, however, have increased
very considerably during this period, and that the banks have
contributed a good deal to this increase, cannot be doubted.
The value of the silver money which circulated in Scot-
land before the union, in 1707, and which, immediately after
it, was brought into the bank of Scotland in order to be re-
coined, amounted to 411,117/. 10s. gd. sterling. No account
has been got of the gold coin ; but it appears from the ancient
accounts of the mint of Scotland, that the value of the gold
annually coined somewhat exceeded that of the silver. There
were a good many people too upon this occasion, who, from a
diffidence of repayment, did not bring their silver into the
bank of Scotland : and there was, besides, some English coin,
which was not called in. The whole value of the gold and
silver, therefore, which circulated in Scotland before the
union, cannot be estimated at less than a million sterling. It
seems to have constituted almost the whole circulation of
that country ; for though the circulation of the bank of Scot-
land, which had then no rival, was considerable, it seems
to have made but a very small part of the whole. In the
present times the whole circulation of Scotland cannot be
estimated at less than two millions, of which that part which
consists in gold and silver, most probably, does not amount to
MONEY 247
half a million. But though the circulating gold and sitver of
Scotland have suffered so great a diminution during this
period, its real riches and prosperity do not appear to have
suffered any. Its agriculture, manufactures, and trade, on
the contrar;f, the annual produce of its land and labour, have
evidently been augmented.
It is chiefly by discounting bills of exchange, that is, by
advancing money upon them before they are due, that the
greater part of banks and bankers issue their promissory
notes. They deduct always, upon whatever sum they ad-
vance, the legal interest till the bill shall become due. The
payment of the bill, when it becomes due, replaces to the
bank the value of what had been advanced, together with a
clear profit of the interest. The banl-cer who advances to the
merchant whose bill he discounts, not gold and silver, but
his own promissory notes, has the advantage of being able
to discount to a greater amount by the whole value of his
promissory notes, which he finds by experience, are com-
monly in circulation. He is thereby enabled to make his
clear gain of interest on so much a larger sum.
The commerce of Scotland, which at present is not very
great, was still more inconsiderable when the two first bank-
ing companies were established; and those companies would
have had but little trade, had they confined their business to
the discounting of bills of exchange. They invented, there-
fore, another method of issuing their promissory notes; by
granting, what they called, cash accounts, that is by giving
credit to the extent of a certain sum (two or three thousand
pounds, for example), to any individual who could procure
two persons of undoubted credit and good landed estate to
become surety for him, that whatever money should be ad-
vanced to him, within the sum for which the credit had been'
given, should be repaid upon demand, together with the legal
interest. Credits of this kind are, I believe, commonly
granted by banks and bankers in all different parts of the
world. But the easy terms upon which the Scotch banldng
companies accept of re-payment are, so far as I know,
peculiar to them, and have, perhaps, been the principal cause,
both of the great trade of those companies, and of the benefit
which the country has received from it.
248 WEALTH OF NATIONS
Whoever has a credit of this kind with one of those com-
panies, and borrows a thousand pounds upon it, for example,
may repay this sum piece-meal, by twenty and thirty pounds
at a time, the company discounting a proportionable part of
the interest of the great sum from the day on which each
of those small sums is paid in, till the whole be in this man-
ner repaid. All merchants, therefore, and almost all men of
business, find it convenient to keep such cash accounts with
them, and are thereby interested to promote the trade of
those companies, by readily receiving their notes in all pay-
ments, and by encouraging all those with whom they have
any influence to do the same. The banks, when their cus-
tomers apply to them for money, generally advance it to
them in their own promissory notes. These the merchants
pay away to the manufacturers for goods, the manufacturers
to the farmers for materials and provisions, the farmers to
their landlords for rent, the landlords repay them to the
merchants for the conveniencies and luxuries with which
they supply them, and the merchants again return them to
the banks in order to balance their cash accounts, or to
replace what they may have borrowed of them; and thus
almost the whole money business of the country is trans-
acted by means of them. Hence the great trade of those
companies.
By means of those cash accounts every merchant can, with-
out imprudence, carry on a greater trade than he otherwise
could do. If there are two merchants, one in London, and
the other in Edinburgh, who employ equal stocks in the
same branch of trade, the Edinburgh merchant can, without
imprudence, carry on a greater trade, and give employment
to a greater number of people than the London merchant.
The London merchant must always keep by him a consid-
erable sum of money, either in his own coffers, or in those
of his banker, who gives him no interest for it, in order to
answer the demands continually coming upon him for pay-
ment of the goods which he purchases upon credit. Let the
ordinary amount of this sum be supposed five hundred
pounds. The value of the goods in his warehouse must
always be less by five hundred pounds tlian it would have
been, had he not been obliged to keep such a sum unemployed.
MONEY 249
Let us suppose that he generally disposes of his whole stock
upon hand, or of goods to the value of his whole stock upon
hand, once in the year. By being obliged to keep so great
a sum unemployed, he must sell in a year five hundred pounds
worth less goods than he might otherwise have done. His
annual profits must be less by all that he could have made
by the sale of five hundred pounds worth more goods; and
the number of people employed in preparing his goods for
the market, must be less by all those that five hundred pounds
more stock could have employed. The merchant in Edin- v
burgh, on the other hand, keeps no money unemployed for
answering such occasional demands. When they actually
come upon him, he satisfies them from his cash account with
the bank, and gradually replaces the sum borrowed with the
money or paper which comes in from the occasional sales of
his goods. With the saiTie stock, therefore, he can, without
imprudence, have at all times in his warehouse a larger quan-
tity of goods than the London merchant; and can thereby
both make a greater profit himself, and give constant em-
ployment to a greater number of industrious people who
prepare those goods for the market. Hence the great benefit
which the country has derived from this trade.
The facility of discounting bills of exchange, it may be
thought, indeed, gives the English merchants a conveniency
equivalent to the cash accounts of the Scotch merchants.
But the Scotch merchants, it must be remembered, can dis-
count their bills of exchange as easily as the English mer-
chants ; and have, besides, the additional conveniency of their
cash accounts.
The whole paper money of every kind which can easily
circulate in any country never can exceed the value of the
gold and silver, of which it supplies the place, or which (the
commerce being supposed the same) would circulate there,
if there was no paper money. Lf twenty shilling notes, for
example, are the lowest paper money current in Scotland,
the whole of that currency which can easily circulate there
cannot exceed the sum of gold and silver which would be
necessary for transacting the annual exchange of twenty
shillings value and upwards usually transacted within that
country. Should the circulating paper at any time exceed
250 WEALTH OF NATIONS
that sum, as the excess could neither be sent abroad nor be
employed in the circulation of the country, it must immedi-
ately return upon the banks to be exchanged for gold and
silver. Many people would immediately perceive that they
had more of this paper than was necessary for transacting
their business at homo, and as they could not send it abroad,
they would immediately demand payment of it from the
banks. When this superfluous paper was converted into
gold and silver, they could easily find a use for it by sending
it abroad; but they could find none while it remained in
the shape of paper. There would immediately, therefore,
be a run upon the banks to the whole extent of this super-
fluous paper, and, if they shewed any difficulty or backward-
ness in payment, to a much greater extent; the alarm, which
this would occasion, necessarily increasing the run.
Over and above the expences which are common to every
branch of trade ; such as the expence of house-rent, the wages
of servants, clerks, accountants, &c. ; the expences peculiar
to a bank consist chiefly in two articles: First, in the ex-
pence of keeping at all times in its coffers, for answering
the occasional demands of the holders of "its notes, a large
sum of money, of which it loses the interest: And, secondly,
in the expence of replenishing those coffers as fast as they
are emptied by answering such occasional demands.
A banking company, which issues more paper than can be
employed in the circulation of the country, and of which the
excess is continually returning upon them for payment, ought
to increase the quantity of geld and silver, which they keep
at all times in their coffers, not only in proportion to this
excessive increase of their circulation, but in a much greater
proportion; their notes returning upon them much faster
than in proportion to the excess of their quantity, guch a
company, therefore, ought to increase the first article of
their expence, not only in proportion to this forced increase
of their business, but in a much greater proportion.
The coffers of such a company too, though they ought to be
filled ranch fuller, yet must em.pty themselves much faster
than if their business was confined within more reasonable
bounds, and must reauire, not only a more violent, but 2.
more constant and uninterrupted exertion of expence m
MONEY 251
order to replenish them. The coin too, which is thus con-
tinually drawn in such large quantities from their coffers,
cannot be employed in the circulation of the country. It
comes in place of a paper which is over and above what can
be employed in that circulation, and is therefore over and
above what can be employed in it too. But as that coin will
not be allowed to lie idle, it must, in one shape or another,
be sent abroad, in order to find that profitable employment
which it cannot find at home ; and this continual exportation
of gold and silver, by enhancing the difficulty, must neces-
sarily enhance still further the expence of the bank, in find-
ing new gold and silver in order to replenish those coffers,
which empty themselves so very rapidly. Such a company,
therefore, must, in proportion to this forced increase of their
business, increase the second article of their expence still
more than the first.
Let us suppose that all the paper of a particular bank,
which the circulation of the country can easily absorb and
employ, amounts exactly to forty thousand pounds ; and that
for answering occasional demands, this bank is obliged to
keep at all times in its coffers ten thousand pounds in gold
and silver. Should this bank attempt to circulate forty-four
thousand pounds, the four thousand pounds which are over
and above what the circulation can easily absorb and em-
ploy, will return upon it almost as fast as they are issued.
For answering occasional demands, therefore, this bank
ought to keep at all times in its coffers, not eleven thousand
pounds only, but fourteen thousand pounds. It will thus gain
nothing by the interest of the four thousand pounds excessive
circulation ; and it will lose the whole expence of continually
collecting four thousand pounds in gold and silver, which
will be continually going out of its coffers as fast as they
are brought into them.
Had every particular banking company always understood
and attended to its own particular interest, the circulation
never could have been overstocked with paper money. But
every particular banking company has not always under-
stood or attended to its own particular interest, and
the circulation has frequently been overstocked with paper
money.
252 WEALTH OF NATIONS
By issuing too great a quantity of paper, of which the
excess was continually returning, in order to be exchanged
for gold and silver, the bank of England was for many years
together obliged to coin gold to the extent of between eight
hundred thousand pounds and a million a year; or at an
average, about eight hundred and fifty thousand pounds.
For this great coinage the bank (in consequence of the worn
and degraded state into which the gold coin had fallen a few
years ago) was frequently obliged to purchase gold bullion
at the high price of four pounds an ounce, which it soon
after issued in coin at 3/. lys. lo^i. an ounce, losing in this
manner between two and a half and three per cent, upon the
coinage of so very large a sum. Though the bank therefore
paid no seignorage, though the government was properly at
the expence of the coinage, this liberality of government did
not prevent altogether the expence of the bank.
The Scotch banks, in consequence of an excess of the
same kind, were all obliged to employ constantly agents at
London to collect money for them, at an expence which was
seldom below one and a half or two per cent. This money
was sent down by the waggon, and insured by the carriers
at an additional expence of three quarters per cent, or fif-
teen shillings on the hundred pounds. Those agents were
not always able to replenish the coffers of their employers
so fast as they were emptied. In this case the resource of
the banks was, to draw upon their correspondents in London
bills of exchange to the extent of the sum which they wanted.
When those correspondents afterwards drew upon them for
the payment of this sum, together with the interest and a
commission, some of those banks, from the distress into
which their excessive circulation had thrown them, had
sometimes no other means of satisfying this draught but
by drawing a second set of bills either upon the same, or
upon some other correspondents in London ; and the same
sum, or rather bills for the same sum, would in this manner
make sometimes more than two or three journies: the debtor
bank, paying always the interest and commission upon the
whole accumulated sum. Even those Scotch banks which
never distinguished themselves by their extreme imprudence,
were sometimes obliged to employ this ruinous resource.
MONEY 253
The gold coin which was paid out either by the bank of
England, or by the Scotch banks, in exchange for that part
of their paper which was over and above what could be em-
ployed in the circulation of the country, being likewise over
and above what could be employed in that circulation, was
sometimes sent abroad in the shape of coin, sometimes
melted down and sent abroad in the shape of bullion, and
sometimes melted down and sold to the bank of England at
the high price of four pounds an ounce. It was the newest,
the heaviest, and the best pieces only which were carefully
picked out of the whole coin, and either sent abroad or
melted down. At home, and while they remained in the
shape of coin, those heavy pieces were of no more value
than the light : But they were of more value abroad, or when
melted down into bullion, at home. The bank of England,
notwithstanding their great annual coinage, found to their
astonishment, that there was every year the same scarcity
of coin as there had been the year before ; and that notwith-
standing the great quantity of good and new coin which was
every year issued from the bank, the state of the coin, instead
of growing better and better, became every year worse and
worse. Every year they found themselves under the neces-
sity of coining nearly the same quantity of gold as they had
coined the year before, and from the continual rise in the
price of gold bullion, in consequence of the continual wear-
ing and clipping of the coin, the expence of this great annual
coinage became every year greater and greater. The bank
of England, it is to be observed, by supplying its own coffers
with coin, is indirectly obliged to supply the whole kingdom,
into which coin is continually flowing from those coffers in
a great variety of ways. Whatever coin therefore was wanted
to support this excessive circulation both of Scotch and
English paper money, whatever vacuities this excessive circu-
lation occasioned in the necessary coin of the kingdom, the
bank of England was obliged to supply them. The Scotch
banks, no doubt, paid all of them very dearly for their own
imprudence and inattention. But the bank of England paid
very dearly, not only for its own imprudence, but for the
much greater imprudence of almost all the Scotch banks.
The over-trading of some bold projectors in both parts
254 WEALTH OF NATIONS
of the united king'dom, was the original cause of this ex~
cessive circulation of paper money.
What a bank can with propriety advance to a merchant
or undertaker of any kind, is not either the whole capital
with which he trades, or even any considerable part of that
capital; but that part of it only, which he would otherwise
be obliged to keep by him unemployed, and in ready m.oney
for answering occasional demands. If the paper money
which the bank advances never exceeds this value, it can
never exceed the value of the gold and silver, which would
necessarily circulate in the country if there was no paper
money ; it can never exceed the quantity which the circula-
tion of the country can easily absorb and employ.
When a bank discounts to a merchant a real bill of ex-
change drawn by a real creditor upon a real debtor, and
which, as soon as it becomes due, is really paid by that
debtor; it only advances to him a part of the value which
he would otherwise be obliged to keep by him unemployed
and in ready mcfriey for answering occasional demands. The
payment of the bill, when it becomes due, replaces to the
bank the value of what it had advanced, together with the
interest. The cofifers of the bank, so far as its dealings are
confined to such customers, resemble a water pond, from
which, though a stream is continually running out, yet an-
other is continually running in, fully equal to that which runs
out; so that, without any further care or attention, the pond
keeps always equally, or very near equally full. Little or
no expence can ever be necessary for replenishing the cof-
fers of such a bank.
A merchant, without over-trading, may frequently have
occasion for a sum of ready money, even when he has no
bills to discount. When a bank, besides discounting his bills,
advances him likewise upon such occasions, such sums upon
his cash account, and accepts of a piece meal repayment as
the money comes in from the occasional sale of his goods,
upon the easy terms of the banking companies of Scotland;
it dispenses him entirely from the necessity of keeping any
part of his stock by him unemployed and in ready money
for answering occasional demands. When such demands
actually come upon him, he can answer them sufficiently from
MONEY 255
his cash account. The bank, however, in dcaliug with such
customers, ought to observe with great attention, whether
in the course of some short pciioj (of four, five, six, or
eight months, for example) the sum of the repayments which
it commonly receives from them, is, or is not, fully equal to
that of the advances which it commonly mal:es to them. If,
within the course of such short periods, the sum of the re-
payments from certain customers is, upon most occasions,
fully equal to that of the advances, it may safely continue to
deal with such customers. Though the stream v\fhich is in
this case continually running out from its coffers may be
very large, that which is continually running into them must
be at least equally large ; so that without any further care or
attention those coffers are likely to be always equally or very
nearly equally full; and scarce ever to require any extraor-
dinary expence to replenish them. If, cii the contrary, the
sum of the repayments from certain other customers falls
commonly very much short of the advances which it makes
to them, it cannot with any safety continue to deal with such
customers, at least if they continue to deal with it in this
manner. The stream which is in this case continually run-
ning out from its coffers is necessarily much larger than that
which is continually running in ; so that, unless they are re-
plenished by some great and continual effort of expence,
those coffers must soon be exhausted altogether.
The banking companies of Scotland, accordingly, were for
a long time very careful to require frequent and regular re-
payments from all their customers, and did not care to deal
with any person, whatever might be his fortune or credit,
who did not make, what they called, frequent and regular
operations with them. By this attention, besides saving
almost entirely the extraordinary expence of replenishing
their coffers, they gained two other very considerable ad-
vantages.
First, by this attention they were enabled to make some
tolerable judgment concerning the thriving or declining cir-
cumstances of their debtors, without being obliged to look
out for any other evidence besides what their own books
afforded them; men being for the most part either regular
or irregular in their repayments, according as their circum-
256 WEALTH OF NATIONS
stances are either thriving or decHning. A private man
who lends out his money to perhaps half a dozen or a dozen
of debtors, may, either by himself or his agents, observe and
enquire both constantly and carefully into the conduct and
situation of each of them. But a banking company, which
lends n:oney to perhaps five hundred different people, and
of which the attention is continually occupied by objects of
a very different kind, can have no regular information con-
cerning the conduct and circumstances of the greater part of
its debtors beyond what its own books afford it. In requir-
ing frequent and regular repayments from all their custom-
ers, the banking companies of Scotland had probably this
advantage in view.
Secondly, by this attention they secured themselves from
the possibility of issuing more paper money than what the
circulation of the country could easily absorb and employ.
When they observed, that within moderate periods of time
the repayments of a particular customer were upon most
occasions fully equal to the advances which they had made
to him, they might be assured that the paper money which
they had advanced to him, had not at any time exceeded the
quantity of gold and silver which he would otherwise have
been obliged to keep by him for answering occasional de-
mands; and that, consequently, the paper money, which they
had circulated by this means, had not at any time exceeded
the quantity of gold and silver which would have circu-
lated in the coimtry, had there been no paper money. The
frequency, regularity and amounts of his repayments would
sufficiently demonstrate that the amount of their advances
had at no time exceeded that part of his capital which he
would otherwise have been obliged to keep by him unem-
ployed and in ready money for answering occasional de-
mands ; that is, for the purpose of keeping the rest of his
capital in constant employment. It is this part of his capital
only which, within moderate periods of time, is continually
returning to every dealer in the shape of money, whether
paper or coin, and continually going from him in the same
shape. If the advances of the bank had commonly exceeded
this part of his capital, the ordinary amount of his repay-
ments could not, within moderate periods of time, have
MONEY 257
equalled the ordinary amount of its advances. The stream
which, by means of his dealings, was continually running
into the coffers of the bank, could not have been equal to
the stream which, by means of the same dealings, was con-
tinually running out. The advances of the bank paper, by
exceeding the quantity of gold and silver which, had there
been no such advances, he would have been obliged to keep
by him for answering occasional demands, might soon come
to exceed the whole quantity of gold and silver which (the
commerce being supposed the same) would have circulated
in the country had there been no paper money; and conse-
quently to exceed the quantity which the circulation of the
country could easily absorb and employ ; and thte excess of
this paper money would immediately have returned upon tlie
bank in order to be exchanged for gold and silver. This
second advantage, though equally real, was not perhaps so
well understood by all the different banking companies of
Scotland as the first.
When, partly by the conveniency of discounting bills, and
partly by that of cash accounts, the creditable traders of any
country can be dispensed from the necessity of keeping any
part of their stock by them unemployed and in ready money
for answering occasional demands, they can reasonably ex-
pect no farther assistance from banks and bankers, who,
when they have gone thus far, cannot, consistently with
their own interest and safety, go farther. A bank cannot,
consistently with its own interest, advance to a trader the
whole or even the greater part of the circulating capital
with which he trades ; because, though that capital is con-
tinually returning to him in the shape of money, and going
from him in the same shape, yet the whole of the returns
is too distant from the whole of the outgoings, and the sum
of his repayments could not equal the sum of its advances
within such moderate periods of time as suit the conveniency
of a bank. Still less could a bank afford to advance him any
considerable part of his fixed capital; of the capital which
the undertaker of an iron forge, for example, employs in
erecting his forge and dwelling-house, his work-houses and
ware-houses, the dwelling-house of his workman, &c. ; of
the capital which the undertaker of a mine employs in sink-
I — HC X
258 WEALTH OF NATIONS
ing his shafts, in erecting engines for drawing out the water,
in making roads and waggon-ways, &c. ; of the capital which
the person who undertakes to improve land employs in clear-
ing, draining, enclosing, manuring and ploughing waste and
uncultivated fields, in building farm-houses, with all their
necessary appendages of stables, granaries, &c. The returns
of the fixed capital are in almost all cases much slower than
tliose of the circulating capital; and such expences, even
when laid out with the greatest prudence and judgment, very
seldom return to the undertaker till after a period of many
years, a period by far too distant to suit the conveniency of a
bank. Traders and other undertakers may, no doubt, with
great propriety, carry on a very considerable part of their
projects with borrowed money. In justice to their creditors,
however, their own capital ought, in this case, to be sufficient
to ensure, if I may say so, the capital of those creditors ; or
to render it extremely improbable that those creditors should
incur any loss, even though the success of the project should
fall very much short of the expectation of the projectors.
Even with this precaution too, the money which is borrowed,
and which it is meant should not be repaid till after a period
of several years, ought not to be borrowed of a bank, but
ou?^ht to be borrowed upon bond or mortgage, of such private
people as propose to live upon the interest of their money,
without taking the trouble themselves to employ the capital;
and who are upon that account willing to lend that capital
to such people of good credit as are likely to keep it for sev-
eral years. A bank, indeed, which lends its money without
the expence of stampt paper, or of attornies fees for draw-
ing bonds and mortgages, and which accepts of repayment
upon the easy terms of the banking companies of Scotland;
would, no doubt, be a very convenient creditor to such
traders and undertakers. But such traders and undertakers
would, surely, be most inconvenient debtors to such a bank.
*******♦.
It is not by augmenting the capital of the country, but by
rendering a greater part of that capital active and productive
than would otherwise be so, that the most judicious opera-
tions of banking can increase the industry of the country.
That part of his capital which a dealer is obliged to keep
MONEY 259
by him unemployed, and in rcaJy money for answering occa-
sional demands, is so much dead stock, which, so long as it
remains in this situation, produces nothing cither to him or
to his country. The judicious operations of banking enable
him to convert this dead stock into active and productive
stock ; into materials to work upon, into tools to work with,
and into provisions and subsistence to work for; into stock
which produces something both to himself and to his coun-
try. The gold and silver money which circulates in any
country, and by means of which the produce of its land and
labour is annually circulated and distributed to the proper
consumers, is, in the same manner as the ready money of the
dealer, all dead stock. It is a very valuable part of the cap-
ital of the country, which produces nothing to the country.
The judicious operations of banking, by substituting paper
in the room of a great part of this gold and silver, enables
the country to convert a great part of this dead stock into
active and productive stock ; into stock which produces some-
thing to the country. The gold and silver money which cir-
culates in any country may very properly be compared to a
highway, which, while it circulates and carries to market all
the grass and corn of the country, produces itself not a single
pile of either. The judicious operations of banking, by pro-
viding, if I may be allowed so violent a metaphor, a sort of
waggon-way through the air ; enable the country to convert,
as it v/ere, a great part of its highways into good pastures
and corn-fields, and thereby to increase very considerably
the annual produce of its land and labour. The commerce
and industry of the country, however, it must be acknowl-
edged, though they may be somewhat augmented, cannot be
altogether so secure, when they are thus, as it were, sus-
pended upon the Dasdalian wings of paper money, as when
they travel about upon the solid ground of gold and silver.
Over and above the accidents to which they are exposed
from the unskilfulncss of the conductors of this paper
money, they are liable to several others, from which no pru-
dence of will of those conductors can guard them.
An unsuccessful war, for example, in which the enemy got
possession of the capital, and consequently of that treasure
which supported the credit of the paper money, would occa-
260 WEALTH OF NATIONS
sion a much greater confusion in a country where the whole
circulation was carried on by paper, than in one where the
greater part of it was carried on by gold and silver. The
usual instrument of commerce having lost its value, no ex-
changes could be made but either by barter or upon credit.
All taxes having been usually paid in paper money, the prince
would not have wherewithal either to pay his troops, or to
furnish his magazines; and the state of the country would
be much more irretrievable than if the greater part of its
circulation had consisted in gold and silver. A prince, anx-
ious to maintain his dominions at all times in the state in
which he can most easily defend them, ought, upon this ac-
count, to guard, not only against that excessive multiplica-
tion of paper money which ruins the very banks which issue
it; but even against that multiplication of it, which enables
them to fill the greater part of the circulation of the country
with it.
The circulation of every country may be considered as
divided into two different branches; the circulation of the
dealers with one another, and the circulation between the
dealers and the consumers. Though the same pieces of
money, whether paper or metal, may be employed sometimes
in the one circulation and sometimes in the other; yet as
both are constantly going on at the same time, each requires
a certain stock of money of one kind or another, to carry
it on. The value of the goods circulated between the differ-
ent dealers, never can exceed the value of those circulated
between the dealers and the consumers; whatever is bought
by the dealers, being ultimately destined to be sold to the
consumers. The circulation between the dealers, as it is
carried on by wholesale, requires generally a pretty large
sum for every particular transaction. That between the deal-
ers and the consumers, on the contrary, as it is generally
carried on by retail, frequently requires but very small ones,
a shilling, or even a halfpenny, being often sufficient. But
small sums circulate much faster than large ones. A shilling
changes masters more frequently than a guinea, and a half-
penny more frequently than a shilling. Though the annual
purchases of all the consumers, therefore, are at least equal
in value to those of all the dealers, they can generally be
MONEY 261
transacted with a much smaller quantity of money ; the same
pieces, by a more rapid circulation, serving as the instrument
of many more purchases of the one kind than of the other.
Paper money may be so regulated, as either to confine
itself very much to the circulation between the different deal-
ers, or to extend itself likewise to a great part of that be-
tween the dealers and the consumers. Where no bank notes
are circulated under ten pounds value, as in London, paper
money confines itself very much to the circulation between
the dealers. When a ten pound bank note comes into the
hands of a consumer, he is generally obliged to change it
at the first shop where he has occasion to purchase five
shillings worth of goods; so that it often returns into the
hands of a dealer, before the consumer has spent the forti-
eth part of the money. Where bank notes are issued for so
small sums as twenty shillings, as in Scotland, paper money
extends itself to a considerable part of the circulation be-
tween dealers and consumers. Before the act of parliament,
which put a stop to the circulation of ten and five shilling
notes, it filled a still greater part of that circulation. In the
currencies of North America, paper was commonly issued for
so small a sum as a shilling, and filled almost the whole of
that circulation. In some paper currencies of Yorkshire, it
was issued even for so small a sum as a sixpence.
Where the issuing of bank notes for such very small sums
is allowed and commonly practised, many mean people are
both enabled and encouraged to become bankers. A person
whose promissory note for five pounds, or even for twenty
shillings, would be rejected by every body, will get it to be
received without scruple when it is issued for so small a sum
as a sixpence. But the frequent bankruptcies to which such
beggarly bankers must be liable, may occasion a very con-
siderable inconveniency, and sometimes even a very great
calamity, to many poor people who had received their notes
in payment.
It were better, perhaps, that no bank notes were issued
in any part of the kindom for a smaller sum than five pounds.
Paper money would then, probably, confine itself, in every
part of the kindom, to the circulation between the different
dealers, as much as it does at present in London, where no
262 WEALTH OF NATIONS
bank notes are issued under ten pounds value; five pounds
being, in most parts of the kingdom^ a sum which, though
it will purchase, perhaps, little more than half the quantity
of goods, is as much considered, and is as seldom spent all
at once, as ten pounds are amidst the profuse expence of
London.
Where paper money, it is to be observed, is pretty much
confined to the circulation between dealers and dealers, as at
London, there is always plenty of gold and silver. Where
it extends itself to a considerable part of the circulation be-
tween dealers and consumers, as in Scotland, and still more
in North America, it banishes gold and silver almost entirely
from the country; almost all the ordinary transactions of its
interior commerce being thus carried on by paper. The sup-
pression of ten and five shilling bank notes, somewhat re-
lieved the scarcity of gold and silver in Scotland; and the
suppression of twenty shilling notes, would probably relieve
it still more. Those metals are said to have become more
abundant in America, since the suppression of some of their
paper currencies. They are said, likewise, to have been more
abundant before the institution of those currencies.
Though paper money should be pretty much confined to the
circulation between dealers and dealers, yet banks and bank-
ers might still be able to give nearly the same assistance to
the industry and commerce of the country, as they had done
when paper money filled almost the whole circulation. The
ready money which a dealer is obliged to keep by him. for
answering occasional demands, is destined altogether for the
circulation between himself and other dealers, of whom he
buys goods. Lie has no occasion to keep any by him for the
circulation between himself and the consumers, who are his
customers, and who bring ready money to him, instead of
taking any from him. Though no paper money, therefore,
was allowed to be issued, for such sums as would confine it
pretty much to the circulation between dealers and dealers;
yet, partly by discounting real bills of exchange, and partly
by lending upon ca?h accounts, banks and bankers, might
still be able to relieve the greater part of those dealers from
the necessity of keeping any considerable part of their stock
by them, unemployed and in ready money, for answering
MONEY 263
occasional demands. They might still be able to give the
utmost assistance which banks and bankers can, with pro-
priety, give to traders of every kind.
To restrain private people, it may be said, from receiving
in payment the promissory notes of a banker, for any sum
whether great or small, when they themselves are willing to
receive them; or, to restrain a banker from issuing such
notes, when all his neighbours are willing to accept of them,
is a manifest violation of that natural liberty which it is the
proper business of law, not to infringe, but to support. Such
regulations may, no doubt, be considered as in some respect
a violation of natural liberty. But those exertions of the
natural liberty of a few individuals, which might endanger
the security of the whole society, are, and ought to be, re-
strained by the laws of all governments ; of the most free, as
well as of the most despotical. The obligation of build-
ing party walls, in order to prevent the communication
of fire, is a violation of natural liberty, exactly of the same
kind with the regulations of the banking trade which are
here proposed.
A paper money consisting in bank notes, issued by people
of undoubted credit, payable upon demand Vv'ithout any con-
dition, and in fact always readily paid as soon as presented,
is, in every respect, equal in value to gold and silver money ;
since gold and silver money can at any time be had for it.
Whatever is either bought or sold for such paper, must neces-
sarily be bought or sold as cheap as it could have been for
gold and silver.
The increase of paper money, it has been said, by aug-
menting the quantity, and consequently diminishing the value
of the whole currency, necessarily augments the money price
of commodities. But as the quantity of gold and silver, which
is taken from the currency, is always equal to the quantity
of paper which is added to it, paper money does not neces-
sarily increase the quantity of the whole currency. From the
beginning of the last century to the present time, provisions
never were cheaper in Scotland than in 1759, though, from
the circulation of ten and five shilling bank notes, there was
then more paper money in the country than at present. The
proportion between the prices of provisions in Scotland and
264 WEALTH OF NATIONS
that in England, is the same now as before the great multi-
plication of banking companies in Scotland. Corn is, upon
most occasions, fully as cheap in England as in France;
though there is a great deal of paper money in England and
scarce any in France. In 1751 and in 1752, when Mr. Hume
published his Political Discourses, and soon after the great
multiplication of paper money in Scotland, there was a very
sensible rise in the price of provisions, owing, probably to
the badness of the seasons, and not to the multiplication of
paper money.
It would be otherwise, indeed, with a paper money con-
sisting in promissory notes, of which the immediate payment
depended, in any respect, either upon the good will of those
who issued them ; or upon a condition which the holder of the
notes might not always have it in his power to fulfil; or of
which the payment was not exigible till after a certain num-
ber of years, and which in the meantime bore no interest.
Such a paper money would, no doubt, fall more or less below
the value of gold and silver, according as the difficulty or un-
certainty of obtaining immediate payment was supposed to
be greater or less; or according to the greater or less dis-
tance of time at which payment was exigible.
Some years ago the different banking companies of Scot-
land were in the practice of inserting into their bank notes,
what they called an Optional Clause, by which they prom-
ised payment to the bearer, either as soon as the note should
be presented, or, in the option of the directors, six months
after such presentment, together with the legal interest for
the said six months. The directors of some of those banks
sometimes took advantage of this optional clause, and some-
times threatened those who demanded gold and silver in ex-
change for a considerable number of their notes, that they
would take advantage of it, unless such demanders would
content themselves with a part of what they demanded. The
promissory notes of those banking companies constituted at
that time the far greater part of the currency of Scotland,
which this uncertainty of payment necessarily degraded be-
low the value of gold and silver money. During the con-
tinuance of this abuse (which prevailed chiefly in 1762, 1763
and 1764), while the exchange between London and Carlisle
MONEY 265
was at par, that between London and Dumfries would some-
times be four per cent, against Dumfries, though this town
is not thirty miles distant from Carlisle. But at Carlisle, bills
were paid in gold and silver ; whereas at Dumfries they were
paid in Scotch bank notes, and the uncertainty of getting
those bank notes exchanged for gold and silver coin had thus
degraded them four per cent, below the value of that coin.
The same act of parliament which suppressed ten and five
shilling bank notes, suppressed likewise this optional clause,
and thereby restored the exchange between England and Scot-
land to its natural rate, or to what the course of trade and
remittances might happen to make it.
In the paper currencies of Yorkshire, the payment of so
small a sum as a sixpence sometimes depended upon the con-
dition that the holder of the note should bring the change
of a guinea to the person who issued it; a condition, which
the holders of such notes might frequently find it very difficult
to fulfil, and which must have degraded this currency below
the value of gold and silver money. An act of parlia-
ment, accordingly, declared all such clauses unlawful, and
suppressed, in the same manner as in Scotland, all
promissory notes, payable to the bearer, under twenty
shillings value.
The paper currencies of North America consisted, not in
bank notes payable to the bearer on demand, but in a gov-
ernment paper, of which the payment was not exigible till
several years after it was issued: And though the colony
governments paid no interest to the holders of this paper,
they declared it to be, and in fact rendered it, a legal tender of
payment for the full value for which it was issued. But
allowing the colony security to be perfectly good, a hundred
pounds payable fifteen years hence, for example, in a country
where interest is at six per cent, is worth little more than
forty pounds ready money. To oblige a creditor, therefore,
to accept of this as full payment for a debt of a hundred
pounds actually paid down in ready money, was an act of such
violent injustice, as has scarce, perhaps, been attempted by
the government of any other, country which pretended to be
free. It bears the evident marks of having originally been,
what the honest and downright Doctor Douglas assures us it
266 WEALTH OF NATIONS
was, a scheme of fraudulent debtors to cheat their creditors,
The government of Pensylvania, indeed, pretended, upon
their first emission of paper money, in 1722, to render their
paper of equal value with gold and silver, by enacting pen-
alties against all those who made any difference in the price
of their goods when they sold them for a colony paper, and
when they sold them for gold and silver ; a regulation equally
tyrannical, but much less effectual than that which it was
meant to support. A positive law may render a shilling a
legal tender for a guinea; because it may direct the courts
of justice to discharge the debtor who has made that tender.
But no positive law can oblige a person who sells goods,
and who is at liberty to sell or not to sell, as he pleases, to
accept of a shilling as equivalent to a guinea in the price
of them. Notwithstanding any regulation of this kind, it
appeared by the course of exchange with Great Britain, that
c. hundred pounds sterling was occasionally considered as
equivalent, in some of the colonies, to a hundred and thirty
pounds, and in others to so great a sum as eleven hundred
pounds currency; this difference in the value arising from
the difference in the quantity of paper emitted in the differ-
ent colonies, and in the distance and probability of the term
of its final discharge and redemption.
No law, therefore, could be more equitable than the act of
parliament, so unjustly complained of in the colonies, which
declared that no paper currency to be emitted there in time
coming should be a legal tender of payment.
Pensylvania was always more moderate in its emissions of
paper money than any other of our colonies. Its paper
currency accordingly is said never to have sunk below the
value of the gold and silver which was current in the colony
before the first emission of its paper money. Before that
emission, the colony had raised the denomination of its coin,
and had, by act of assembly, ordered five shillings sterling
to pass in the colony for six and three-pence, and afterwards
for six and eight-pence. A pound colony currency, there-
fore, even when that currency v/as gold and silver, was more
than thirty per cent, below the value of a pound sterling,
and when that currency was turned into paper, it was seldom
much more than thirty per cent, below that value. The
MONEY 267
pretence for raising the denomination of the coin was to
prevent the exportation of gold and silver, by making equal
quantities of those metals pass for greater sums in the colony
than they did in the mother country. It was found, how-
ever, that the price of all goods from the mother country
rose exactly in proportion as they raised the denomination
of their coin, so that their gold and silver were exported as
fast as ever.
The paper of each colony being received in the payment
of the provincial taxes, for the full value for which it had
been issued, it necessarily derived from this use some ad-
ditional value, over and above what it would have had, from
the real or supposed distance of the term of its final discharge
and redemption. This additional value was greater or less,
according as the quantity of paper issued was more or less
above what could be employed in the payment of the taxes
of the particular colony which issued it. It was in all the
colonies very much above what could be employed in this
manner.
A prince, who should enact that a certain proportion of his
taxes should be paid in a paper money of a certain kind,
might thereby give a certain value to this paper money; even
though the term of its final discharge and redemption should
depend altogether upon the will of the prince. If the bank
which issued this paper was careful to keep the quantity of
it always somewhat below what could easily be employed in
this manner, the demand for it might be such as to make it
even bear a premium, or sell for somewhat more in the
market than the quantity of gold or silver currency for which
it was issued.
Some people account in this manner for what is
called the Agio of the bank of Amsterdam, or for the
superiority of bank money over current money, though this
bank money, as they pretend, cannot be taken out of the bank
at the will of the owner. The greater part of foreign bills
of exchange must be paid in bank money, that is, by a.
transfer in the books of the bank; and the directors of the
bank, they allege, are careful to keep the whole quantity of
bank money always below what this use occasions a demand
for. It is upon this account, they say, that bank money sells
268 WEALTH OF NATIONS
for a premium, or bears an agio of four or five per cent,
above the same nominal sum of the gold and silver currency
of the country. This account of the bank of Amsterdam,
however, it will appear hereafter, is in a great measure
chimerical.
A paper currency which falls below the value of gold and
silver coin, does not thereby sink the value of those metals,
or occasion equal quantities of them to exchange for a
smaller quantity of goods of any other kind. The proportion
between the value of gold and silver and that of goods of any
other kind, depends in all cases, not upon the nature or quan-
tity of any particular paper money, which may be current in
any particular country, but upon the richness or poverty of
the mines, which happen at any particular time to supply
the great market of the commercial world with those metals.
It depends upon the proportion between the quantity of
labour which is necessary in order to bring a certain quantity
of gold and silver to market, and that which is necessary in
order to bring thither a certain quantity of any other sort
of goods.
If bankers are restrained from issuing any circulating bank
notes, or notes payable to the bearer, for less than a certain
sum; and if they are subjected to the obligation of an imme-
diate and unconditional payment of such bank notes as soon
as presented, their trade may, with safety to the public, be
rendered in all other respects perfectly free. The late multi-
plication of banking companies in both parts of the united
kingdom, an event by which many people have been much
alarmed, instead of diminishing, increases the security of the
public. It obliges all of them to be more circumspect in their
conduct, and, by not extending their currency beyond its due
proportion to their cash, to guard themselves against those
malicious runs, which the rivalship of so many competitors
is always ready to bring upon them. It restrains the circu-
lation of each particular company within a narrower circle,
and reduces their circulating notes to a smaller number. By
dividing the whole circulation into a greater number of parts,
the failure of any one company, an accident which, in the
course of things, must sometimes happen, becomes of less
consequence to the public. This free competition too obliges
MONEY
all bankers to be more liberal in their dealings with their
customers, lest their rivals should carry them away. In gen-
eral, if any branch of trade, or any division of labour, be
advantageous to the public, the freer and more general the
competition, it will always be the more so.
CHAPTER III
Of the Accumulation of Capital, or of Productive and
Unproductive Labour
THERE is one sort of labour which adds to the value of
the subject upon which it is bestowed: there is an-
other which has no such effect. The former, as it
produces a value, may be called productive ; the latter, un-
productive labour. Thus the labour of a manufacturer adds,
generally, to the value of the materials which he works upon,
that of his own maintenance, and of his master's profit. The
labour of a menial servant, on the contrary, adds to the value
of nothing. Though the manufacturer has his wages ad-
vanced to him by his master, he, in reality, costs him no
expense, the value of those wages being generally restored,
together with a profit, in the improved value of the subject
upon which his labour is bestowed. But the maintenance
of a menial servant never is restored. A man grows rich
by employing a multitude of manufacturers : he grows poor,
by maintaining a multitude of menial servants. The labour of
the latter, however, has its value, and deserves its reward
as well as that of the former. But the labour of the manu-
facturer fixes and realizes itself in some particular subject
or vendible commodity, which lasts for some time at least
after that labour is past. It is, as it were, a certain quantity
of labour stocked and stored up to be employed, if necessary,
upon some other occasion. That subject, or what is the
same thing, the price of that subject, can afterwards, if
necessary, put into motion a quantity of labour equal to that
which had originally produced it. The labour of the menial
servant, on the contrary, does not fix or realize itself in
any particular subject or vendible commodity. His ser-
vices generally perish in the very instant of their perform-
ance, and seldom leave any trace or value behind them,
270
ACCUMULATION OF CAPITAL 271
for which an equal quantity of service could afterwards be
procured.
The labour of some of the most respectable orders in the
society is, like that of menial servants, unproductive of any
value, and does not fix or realize itself in any permanent
subject, or vendible commodity, which endures after that
labour is past and for which an equal quantity of labour
could afterwards be procured. The sovereign, for ex-
ample, with all the officers both of justice and war who
serve under him, the whole army and navy, are unproductive
labourers. They are the servants of the public, and are
maintained by a part of the annual produce of the industry
of other people. Their service, how honourable, how useful,
or how necessary soever, produces nothing for which an
equal quantity of service can afterwards be procured. The
protection, security, and defence of the commonwealth, the
effect of their labour this year, will not purchase its pro-
tection, security, and defence for the year to come. In the
same class must be ranked, some both of the gravest and
most important, and some of the most frivolous professions:
churchmen, lawyers, physicians, men of letters of all kinds;
players, buffoons, musicians, opera-singers, opera-dancers,
&c. The labour of the meanest of these has a certain value,
regulated by the very same principles which regulate that of
every sort of labour; and that of the noblest and most usefid,
produces nothing which could afterwards purchase or pro-
cure an equal qur.ntity of labour. Like the declamation of
the actor, the harangue of the orator, or the tune of the
musician, the work of all of them perishes in the very instant
of its production.
Both productive and unproductive labourers, and those
who do not labour at all, are all equally maintained by the
annual produce of the land and labour of the country. This
produce, how great soever, can never be infinite, but must
have certain limits. According, therefore, as a smaller or
greater proportion of it is in any one year employed in main-
taining unproductive hands, the more in the one case and
the less in the other will remain for the productive, and the
next year's produce M"ill be rrreater or smaller accordingly;
the whole annual produce, if wc except the spontaneous pro-
272 WEALTH OF NATIONS
ductions of the earth, being the efiFect of productive labour.
Though the whole annual produce of the land and labour
of every country, is, no doubt, ultimately destined for sup-
plying the consumption of its inhabitants, and for procuring
a revenue to them; yet when it first comes either from the
ground, or from the hands of the productive labourers, it
naturally divides itself into two parts. One of them, and
frequently the largest, is, in the first place, destined for
replacing a capital, or for renewing the provisions, materials,
and finished work, which had been withdrawn from a capi-
tal; the other for constituting a revenue either to the owner
of this capital, as the profit of his stock; or to some other
person, as the rent of his land. Thus, of the produce of
land, one part replaces the capital of the farmer; the other
pays his profit and the rent of the landlord; and thus con-
stitutes a revenue both to the owner of this capital, as the
profits of his stock; and to some other person, as the rent
of his land. Of the produce of a great manufactory, in the
same manner, one part, and that always the largest, replaces
the capital of the undertaker of the work; the other pays
his profit, and thus constitutes a revenue to the owner of tiiis
capital.
That part of the annual produce of the land and labour of
any country which replaces a capital, never is immediately
employed to maintain any but productive hands. It pays the
wages of productive labour only. That which is imme-
diately destined for constituting a revenue either as profit or
as rent, may maintain indifferent^ either productive or un-
productive hands.
Whatever part of his stock a man employs as a capital,
he always expects is to be replaced to him with a profit. He
employs it, therefore, in maintaining productive hands only;
and after having served in the function of a capital to him, it
constitutes a revenue to them. Whenever he employs any
part of it in maintaining unproductive hands of any kind,
that part is, from that moment, withdrawn from his capital,
and placed in his stock reserved for immediate consumption.
Unproductive labourers, and those who do not labour at
all, are all maintained by revenue; either, first, by that part
of the annual produce which is originally destined for con-
ACCUMULATION OF CAPITAL 273
stituting a revenue to some particular persons, either as the
rent of land or as the profits of stock ; or, secondly, by that
part which, though orginally destined for replacing a capital
and for maintaining productive labourers only, yet when it
comes into their hands, whatever part of it is over and above
their necessary subsistence, may be employed in maintaining
indifferently either productive or unproductive hands. Thus,
not only the great landlord or the rich merchant, but even
the common workman, if his wages are considerable, may
maintain a menial servant ; or he may sometimes go to a play
or a puppet-show, and so contribute his share towards main-
taining one set of unproductive labourers; or he may pay
some taxes, and thus help to maintain another set, more hon-
ourable and useful, indeed, but equally unproductive. No
part of the annual produce, however, which had been ori-
ginally destined to replace a capital, is ever directed towards
maintaining unproductive hands, till after it has put into
motion its full complement of productive labour, or all that
it could put into motion in the way in which it was em-
ployed. The workman must have earned his wages by work
done, before he can employ any part of them in this manner.
That part too is generally but a small one. It is his spare
revenue only, of which productive labourers have seldom a
great deal. They generally have some, however; and in the
payment of taxes the greatness of their number may com-
pensate, in some measure, the smallness of their contribution.
The rent of land and the profits of stock are everywhere,
therefore, the principal sources from which unproductive
hands derive their subsistence. These are the two sorts
of revenue of which the owners have generally most to
spare. They might both maintain indifferently either pro-
ductive or unproductive hands. They seem, however, to
have some predilection for the latter. The expence of a
great lord feeds generally more idle than industrious people.
The rich merchant, though with his capital he maintains
industrious people only, yet by his expence, that is, by the
employment of his revenue, he feeds commonly the very
same sort as the great lord.
The proportion, therefore, between the productive and un-
productive hands, depends very much in every country upon
274 WEALTH OF NATIONS
the proportion between that part of the annual produce,
Avhich, as soon as it comes cither from the ground or from
the hands of the productive labourers, is destined for re-
placing a capital, and that which is destined for constituting
a revenue, either as rent, or as profit. This proportion is
very different in rich from what it is in poor countries.
Thus, at present, in the opulent countries of Europe, a
very large, frequently the largest portion of the produce of
the land, is destined for replacing the capital of the rich and
independent farmer ; the other for paying his profits, and the
rent of the landlord. But anciently, during the prevalency
of the feudal government, a very small portion of the prod-
uce was sufiicient to replace the capital employed in culti-
vation. It consisted commonly in a few wretched cattle,
maintained altogether by the spontaneous produce of un-
cultivated land, and which might, therefore, be considered
as a part of that spontaneous produce. It generally too
belonged to the landlord, and was by him advanced to the
occupiers of the land. All the rest of the produce properly
belonged to him too, either as rent for his land, or as profit
upon this paultry capital. The occupiers of land were gen-
erally bondmen, whose persons and effects were equally his
property. Those who were not bondmen were tenants at
will, and though the rent which they paid was often nomi-
nally little more than a quit-rent, it really amounted to the
whole produce of the land. Their lord could at all times com-
mand their labour in peace, and their service in war.
Though they lived at a distance from his house, they were
equally dependent upon him as his retainers who lived
in it.
But the whole produce of the land undoubtedly belongs to
him, who can dispose of the labour and service of all those
whom it maintains. In the present state of Europe, the
share of the landlord seldom exceeds a third, sometimes not
a fourth part of the whole produce of the land. The rent of
land, however, in all the improved parts of the country, has
been tripled and quadrupled since those ancient times ; and
this third or fourth part of the annual produce is, it seems,
three or four times greater than the whole had been before.
In the progress of improvement, rent, though it increases
ACCUMULATION OF CAPITAL 275
in proportion to the extent, diminishes in proportion to the
produce of the land.
In the opulent countries of Europe, great capitals are at
present employed in trade and manufactures. In the ancient
state, the little trade that was stirring, and the few homely
and coarse manufactures that were carried on, required but
very small capitals. These, however, must have yielded very
large profits. The rate of interest was nowhere less than
ten per cent, and their profits must have been sufficient to
afford this great interest. At present the rate of interest, in
the improved parts of Europe, is no-where higher than six
per cent, and in some of the most improved it is so low as
four, three, and two per cent. Though that part of the
revenue of the inhabitants which is derived from the profits
of stock is always much greater in rich than in poor coun-
tries, it is because the stock is much greater : in proportion
to the stock the profits are generally much less.
That part of the annual produce, therefore, which, as soon
as it comes either from the ground, or from, the hands of
the productive labourers, is destined for replacing a capital,
is not only much greater in rich than in poor countries, but
bears a much greater proportion to that which is immediately
destined for constituting a revenue either as rent or as profit.
The funds destined for the maintenance of productive labour,
are not only much greater in the former than in the latter,
but bear a much greater proportion to those which, though
they may be employed to maintain either productive or
unproductive hands, have generally a predilection for the
latter.
The proportion between those different funds necessarily
determines in every country the general character of the
inhabitants as to industry or idleness. We are more indus-
trious than our forefathers ; because in the present times the
funds destined for the maintenance of industry, are much
greater in proportion to those which are likely to be em-
ployed in the maintenance of idleness, than they were two or
three centuries ago. Our ancestors were idle for want of a
sufficient encouragement to industry. It is better, says the
proverb, to play for nothing, than to work for nothing. In -
mercantile and manufacturing towns, where the inferior
276 WEALTH OF NATIONS
ranks of people are chiefly maintained by the employment of
capital, they are in general industrious, sober, and thriving;
as in many English, and in most Dutch towns. In those
towns which are principally supported by the constant or
occasional residence of a court, and in which the inferior
ranks of people are chiefly maintained by the spending of
revenue, they are in general idle, dissolute, and poor; as at
Rome, Versailles, Compiegne, and Fontainbleau. If you
except Rouen and Bourdeaux, there is little trade or industry
in any of the parliament towns of France ; and the inferior
ranks of people, being chiefly maintained by the expence of
the members of the courts of justice, and of those who come
to plead before them, are in general idle and poor. The
great trade of Rouen and Bourdeaux seems to be altogether
the effect of their situation. Rouen is necessarily the entre-
pot of almost all the goods which are brought either from
foreign countries, or from the maritime provinces of France,
for the consumption of the great city of Paris. Bourdeaux
is in the same manner the entrepot of the wines which grow
upon the banks of the Garonne, and of the rivers which run
into it, one of the richest wine countries in the world, and
which seems to produce the wine fittest for exportation, or
best suited to the taste of foreign nations. Such advan-
tageous situations necessarily attract a great capi4;al by the
great employment which they afford it; and the employ-
ment of this capital is the cause of the industry of those two
cities. In the other parliament towns of France, very little
more capital seems to be employed than what is necessary for
supplying their own consumption; that is, little more than
the smallest capital which can be employed in them. The
same thing may be said of Paris, Madrid, and Vienna. Of
those three cities, Paris is by far the most industrious: but
Paris itself is the principal market of all the manufactures
established at Paris, and its own consumption is the principal
object of all the trade which it carries on. London, Lisbon,
and Copenhagen, are, perhaps, the only three cities in
Europe, which are both the constant residence of a court,
and can at the same time be considered as trading cities,
or as cities which trade not only for their own consumption,
but for that of other cities and countries. The situation of
ACCUMULATION OF CAPITAL 277
all the three is extremely advantageous, and naturally fits
them to be the entrepots of a great part of the goods destined
for the consumption of distant places. In a city where a
great revenue is spent, to employ with advantage a capital
for any other purpose than for supplying the consumption
of that city, is probably more difificult than in one in which
the inferior ranks of people have no other maintenance but
what they derive from the employment of such a capital.
The idleness of the greater part of the people who are main-
tained by the expence of revenue, corrupts, it is probable,
the industry of those who ought to be maintained by the
employment of capital, and renders it less advantageous to
employ a capital there than in other places. There was little
trade or industry in Edinburgh before the Union. When
the Scotch parliament was no longer to be assembled in it,
when it ceased to be the necessary residence of the principal
nobility and gentry of Scotland, it became a city of some
trade and industry. It still continues, however, to be the
residence of the principal courts of justice in Scotland, of
the boards of customs and excise, &c. A considerable
revenue, therefore, still continues to be spent in it. In trade
and industry it is much inferior to Glasgow, of which the
inhabitants are chiefly maintained by the employment of
capital. The inhabitants of a large village, it has sometimes
been observed, after having made considerable progress in
manufactures, have become idle and poor, in consequence of
a great lord's having taken up his residence in their neigh-
bourhood.
The proportion between capital and revenue, therefore,
seems everywhere to regulate the proportion between in-
dustry and idleness. Wherever capital predominates, indus-
try prevails ; wherever revenue, idleness. Every increase or
diminution of capital, therefore, naturally tends to increase
or diminish the real quantity of industry, the number of pro-
ductive hands, and consequently, the exchangeable value of
the annual produce of the land and labour of the country, the
real wealth and revenue of all its inhabitants.
Capitals are increased by parsimony, and diminished by
prodigality and misconduct.
Whatever a person saves from his revenue he adds to his
278 WEALTH OF NATIONS
capital, and either employs it himself in maintaining an addi-
tional number of productive hands, or enables some other
person to do so, by lending it to him for an interest, that is,
for a share of the profits. As the capital of an individual
can be increased only by what he saves from his annual
revenue or his annual gains, so the capital of a society, which
is the same with that of all the individuals who compose it,
can be increased only in the same manner.
Parsimony, and not industry, is the immediate cause of
the increase of capital. Industry, indeed, provides the sub-
ject which parsimony accumulates. But whatever industry
m.ight acquire, if parsimony did not save and store up, the
capital would never be the greater.
Parsimony, by increasing the fund which is destined for
the maintenance of productive hands, tends to increase the
number of those hands whose labour adds to the value of
the subject upon which it is bestowed. It tends therefore to
increase the exchangeable value of the annual produce of the
land and labour of the country. It puts into motion an addi-
tional quantity of industry, which gives an additional value to
the annual produce.
What is annually saved is as regularly consumed as what
is annually spent, and nearly in the rame time too; but it is
consumed by a different set of people. That portion of his
revenue which a rich man annually spends, is in most cases
consumed by idle guests, and menial servants, who leave
nothing behind them in return for their consumption. That
portion which he annually saves, as for the sake of the profit
it is immediately employed as a capital, is consumed in the
same manner, and nearly in the same time too, but by a
different set of people, by labourers, manufacturers, and arti-
ficers, who re-produce with a profit the value of their annual
consumption. His revenue, we shall suppose, is paid him
in money. Had he spent the whole^ the food, clothing, and
lodging, which the whole could have purchased, would have
been distributed among the former set of people. By saving
a part of it, as that part is for the sake of the profit imme-
diately employed as a capital either by himself or by some
other person, the food, clothing, and lodging, which may be
purchased with it, are necessarily reserved for the latter.
ACCUMULATION OF CAPITAL 279
The consumption is the same, but the consumers are
different.
By what a frugal man annually saves, he not only affords
maintenance to an additional number of productive hands,
for that or the ensuing year, but, like the founder of a public
workhouse, he establishes as it w^ere a perpetual fund for
the maintenance of an equal number in all times to come.
The perpetual allotment and destination of this fund, indeed,
is not alvv^ays guarded by any positive law^, by any trust-right
or deed of mortmain. It is alw^ays guarded, however, by a
very powerful principle, the plain and evident interest of
every individual to whom any share of it shall ever belong.
No part of it can ever afterwards be employed to maintain
any but productive hands, without an evident loss to the
person who thus perverts it from its proper destination.
The prodigal perverts it in this manner. By not confining
his expence within his income, he encroaches upon his capi-
tal. Like him who perverts the revenues of some pious foun-
dation to profane purposes, he pays the wages of idleness
with those funds which the frugality of his forefathers had,
as it were, consecrated to the maintenance of industry. By
diminishing the funds destined for the employment of pro-
ductive labour, he necessarily diminishes, so far as it depends
upon him, the quantity of that labour which adds a value to
the subject upon which it is bestowed, and, consequently, the
value of the annual produce of the land and labour of the
whole country, the real wealth and revenue of its inhabi-
tants. If the prodigality of some was not compensated by
the frugality of others, the conduct of every prodigal, by
feeding the idle with the bread of the industrious, tends not
only to beggar himself, but to impoverish his country.
Though the expence of the prodigal should be altogether in
home-made, and no part of it in foreign commodities, it?
effect upon the productive funds of the society would still
be the same. Every year there would still be a certain
quantity of food and clothing, which ought to have main-
tained productive, employed in maintaining unproductive
hands. Every year, therefore, there would still be some
diminution in what would otherwise have been llie value
of the annual produce of the land and labour of the country.
280 WEALTH OF NATIONS
This expence, it may be said indeed, not being in foreign
goods, and not occasioning any exportation of gold and
silver, the same quantity of money would remain in the
country as before. But if the quantity of food and clothing,
which were thus consumed by unproductive, had been dis-
tributed among productive hands, they would have re-pro-
duced, together with a profit, the full value of their con-
sumption. The same quantity of money would in this case
equally have remained in the country, and there would be-
sides have been a reproduction of an equal value of con-
sumable goods. There would have been two values instead
of one.
The same quantity of money, besides, cannot long remain
in any country in which the value of the annual produce
diminishes. The sole use of money is to circulate consum-
able goods. By means of it^ provisions, materials, and
finished work, are bought and sold, and distributed to their
proper consumers. The quantity of money, therefore, which
can be annually employed in any country, must be determined
by the value of the consumable goods annually circulated
within it. These must consist either in the immediate prod-
uce of the land and labour of the country itself, or in some-
thing which had been purchased with some part of that prod-
uce. Their value, therefore, must diminish as the value of
that produce diminishes, and along with it the quantity of
money which can be employed in circulating them. But the
money which by this annual diminution of produce is an-
nually thrown out of domestic circulation, will not be al-
lowed to lie idle. The interest of whoever possesses it,
requires that it should be employed. But having no employ-
ment at home, it will, in spite of all laws and prohibitions,
be sent abroad, and employed in purchasing consumable
goods which may be of some use at home. Its annual ex-
portation will in this manner continue for some time to add
something to the annual consumption of the country beyond
the value of its own annual produce. What in the days of
its prosperity had been saved from that annual produce, and
employed in purchasing gold and silver, will contribute for
some little time to support its consumption in adversity. The
exportation of gold and silver is^ in this case, not the cause.
ACCUMULATION OF CAPITAL 281
but the effect of its declension, and may even, for some little
time, alleviate the misery of that declension.
The quantity of money, on the contrary, must in every
country naturally increase as the value of the annual produce
increases. The value of the consumable goods annually cir-
culated within the society being greater, will require a
greater quantity of money to circulate them. A part of the
increased produce, therefore, will naturally be employed in
purchasing, wherever it is to be had, the additional quantity
of gold and silver necessary for circulating the rest. The
increase of those metals will in this case be the effect, not
the cause, of the public prosperity. Gold and silver are pur-
chased every-where in the same manner. The food, cloth-
ing, and lodging, the revenue and maintenance of all those
whose labour or stock is employed in bringing them from the
mine to the market, is the price paid for them in Peru as
well as in England. The country which has this price to
pay, will never be long without the quantity of those metals
which it has occasion for ; and no country will ever long
retain a quantity which it has no occasion for.
Whatever, therefore, we may imagine the real wealth and
revenue of a country to consist in, whether in the value of
the annual produce of its land and labour, as plain reason
seems to dictate ; or in the quantity of the precious metals
which circulate within it, as vulgar prejudices suppose ; in
either view of the matter, every prodigal appears to be a
public enemy, and every frugal man a public benefactor.
The effects of misconduct are often the same as those of
prodigality. Every injudicious and unsuccessful project in
agriculture, mines, fisheries, trade, or manufactures, tends in
the same manner to diminish the funds destined for the main-
tenance of productive labour. In every such project, though
the capital is consumed by productive hands only, yet, as by
the injudicious manner in which they are employed, they do
not reproduce the full value of their consumption, there must
always be some diminution in what would otherwise have
been the productive funds of the society.
It can seldom happen, indeed, that the circumstances of a
great nation can be much affected either by the prodigality
or misconduct of individuals ; the profusion or imprudence
282 WEALTH OF NATIONS
of some, being always more than compensated by the fru-
gality and good conduct of others.
With regard to profusion, the principle which prompts to
expence, is the passion for present enjoyment; which, though
sometimes violent and very difficult to be restrained, is in
general only momentary and occasional. But the principle
which prompts to save, is the desire of bettering our con-
dition, a desire which, though generally calm and dispas-
sionate, comes with us from the womb, and never leaves us
till we go into the grave. In the whole interval which
separates those two moments, there is scarce perhaps a single
instant in which any man is so perfectly and completely satis-
fied with his situation, as to be without any wish of altera-
tion or improvement of any kind. An augmentation of for-
tune is the means by which the greater part of men propose
and wish to better their condition. It is the means the most
vulgar and the most obvious ; and the most likely way of aug-
menting their fortune, is to save and accumulate some part
of what they acquire, either regularly and annually, or upon
some extraordinary occasions. Though the principle of
expence, therefore, prevails in almost all men upon some
occasions, and in some men upon almost all occasions, yet
in the greater part of men, taking the whole course of their
life at an average, the principle of frugality seems not onlj
to predominate but to predominate very greatly.
With regard to misconduct, the number of prudent and
successful undertakings is every-where much greater than
that of injudicious and unsuccessful ones. After all our
complaints of the frequency of bankruptcies, the unhappy
men who fall into this misfortune make but a very small
part of the whole number engaged in trade, and all other
sorts of business; not much more perhaps than one in a
thousand. Bankruptcy is perhaps the greatest and most
humiliating calamity which can befal an innocent man. The
greater part of men, therefore, are sufficiently careful to
avoid it. Some, indeed, do not avoid it; as some do not
avoid the gallows.
Great nations are never impoverished by private, though
they sometimes are by public prodigality and misconduct.
The whole, or almost the whole public revenue, is in most
ACCUMULATION OF CAPITAL 283
countries employed in maintaining unproductive hands.
Such are the people who compose a numerous and splendid
court, a great eccleciastical establishment, great fleets and
armies, who in time of peace produce nothing, and in time of
war acquire nothing which can compensate the expence of
maintaining them, even while the war lasts. Such people,
as they themselves produce nothing, are all maintained by
the produce of other men's labour. When multiplied, there-
fore, to an unnecessary number, they may in a particular
year consume so great a share of this produce, as not to
leave a sufficiency for maintaining the productive labourers,
who should reproduce it next year. The next year's produce,
therefore, will be less than that of the foregoing, and if the
same disorder should continue, that of the third year will be
still less than that of the second. Those improductive hands,
who should be maintained by a part only of the spare revenue
of the people, may consume so great a share of their whole
revenue, and thereby oblige so great a number to encroach
upon their capitals, upon the funds destined for the main-
tenance of productive labour, that all the frugality and good
conduct of individuals may not be able to compensate the
waste and degradation of produce occasioned by this violent
and forced encroachment.
This frugality and good conduct, however, is upon most
occasions, it appears from experience, sufficient to compen-
sate, not only the private prodigality and misconduct of
individuals, but the public extravagance of government. The
uniform, constant, and uninterrupted effort of every man
to better his condition, the principle from which the public
and national, as well as private opulence is originally de-
rived, is frequently powerful enough to maintain the natural
progress of things toward improvement, in spite both of the
extravagance of government, and of the greatest errors of
administration. Like the unknown principle of animal life,
it frequently restores health and vigour to the constitution,
in spite, not only of the disease, but of the absurd prescrip-
tions of the doctor.
The annual produce of the land and labour of any nation
can be increased in its value by no other means, but by in-
creasing either the number of its productive labourers, or
284 WEALTH OF NATIONS
the productive powers of those labourers who had before
been employed. The number of its productive labourers, it
is evident, can never be much increased, but in consequence
of an increase of capital, or of the funds destined for main-
taining them. The productive powers of the same number
of labourers cannot be increased, but in consequence either
of some addition and improvement to those machines and
instruments which facilitate and abridge labour ; or of a
more proper division and distribution of employment. In
either case an additional capital is almost always required.
It is by means of an additional capital only^ that the under-
taker of any work can either provide his workmen with
better machinery, or make a more proper distribution of
employment among them. When the work to be done con-
sists of a number of parts, to keep every man constantly
employed in one way, requires a much greater capital than
where every man is occasionally employed in every different
part of the work. When we compare, therefore, the state
of a nation at two different periods, and find, that the annual
produce of its land and labour is evidently greater at the
latter than at the former, that its lands are better cultivated,
its manufactures more numerous and more flourishing, and
its trade more extensive, w'e may be assured that its capital
must have increased during the interval between those two
periods, and that more must have been added to it by the
good conduct of some, than had been taken from it either
by the private misconduct of others, or by the public extrava-
gance of government. But we shall find this to have been
the case of almost all nations, in all tolerably quiet and
peaceable times, even of those who have not enjoyed the
most prudent and parsimonious governments. To form a
right judgment of it, indeed, we must compare the state of
the country at periods somewhat distant from one another.
The progress is frequently so gradual, that, at near periods,
the improvement is not only not sensible, but from the de-
clension either of certain branches of industry, or of certain
districts of the country, things which sometimes happen
though the country in general be in great prosperity, there
frequently arises a suspicion, that the riches and industry of
the whole are decaying.
ACCUMULATION OF CAPITAL 285
The annual produce of the land and labour of England,
for example, is certainly much greater than it was, a little
more than a century ago, at the restoration of Charles II.
Though, at present, few people, I believe, doubt of this, yet
during this period, five years have seldom passed away in
which some book or pamphlet has not been published, writ-
ten too with such abilities as to gain some authority with
the public, and pretending to demonstrate that the wealth
of the nation was fast declining^ that the country was de-
populated, agriculture neglected, manufactures decaying, and
trade undone. Nor have these publications been all party
pamphlets, the wretched offspring of falsehood and venality.
Many of them have been written by very candid and very
intelligent people ; who wrote nothing but what they be-
lieved, and for no other reason but because they believed it.
The annual produce of the land and labour of England
again, was certainly much greater at the restoration, than
we can suppose it to have been about an hundred years be-
fore, at the accession of Elizabeth. At this period, too, we
have all reason to believe, the country was much more
advanced in improvement, than it had been about a century
before, towards the close of the dissensions between the
houses of York and Lancaster. Even then it was, probably,
in a better condition than it had been at the Norman con-
quest, and at the Norman conquest, than during the con-
fusion of the Saxon Heptarchy. Even at this early period,
it was certainly a more improved country than at the invasion
of Julius Caesar, when its inhabitants were nearly in the
same state with the savages in North America.
In each of those periods, however, there was, not only
much private and public profusion, many expensive and
unnecessary wars, great perversion of the annual produce
from maintaining productive to maintain unproductive
hands; but sometimes, in the confusion of civil discord, such
absolute waste and destruction of stock, as might be sup-
posed, not only to retard, as it certainly did, the natural accu-
mulation of riches, but to have left the country, at the end
of the period, poorer than at the beginning. Thus, in the
happiest and most fortunate period of them all, that which
has passed since the restoration, how many disorders and
286 WEALTH OF NATIONS
misfortunes have occurred, which, could they have been
foreseen, not only the impoverishment, but the total ruin
of the country would have been expected from them? The
fire and the plague of London, the two Dutch wars, the dis-
orders of the revolution, the war in Ireland, the four ex-
pensive French wars of 1688, 1702, 1742, and 1756, together
with the two rebellions of 171 5 and 1745. In the course of
the four French wars, the nation has contracted more than
a hundred and forty-five millions of debt, over and above all
the other extraordinary annual expence which they occa-
sioned, so that the whole cannot be computed at less than
two hundred millions. So great a share of the annual prod-
uce of the land and labour of the country, has, since the
revolution, been employed upon different occasions, in main-
taining an extraordinary number of unproductive hands.
But had not those wars given this particular direction to so
large a capital, the greater part of it would naturally have
been employed in maintaining productive hands, whose
labour would have replaced, with a profit, the whole value of
their consumption. The value of the annual produce of the
land and labour of the country, would have been considerably
increased by it every year, and every year's increase would
have augmented still more that of the following year. More
houses would have been built, more lands would have been
improved, and those which had been improved before would
have been better cultivated, more manufactures would have
been established, and those which had been established be-
fore would have been more extended ; and to what height the
real wealth and revenue of the country might, by this time,
have been raised, it is not perhaps very easy even to imagine.
But though the profusion of government must, undoubt-
edly, have retarded the natural progress of England towards
wealth and improvement, it has not been able to stop it.
The annual produce of its land and labour is, undoubtedly,
much greater at present than it was either at the restoration
or at the revolution. The capital, therefore, annually em-
ployed in cultivating this land, and in maintaining this
labour, must likewise be much greater. In the midst of all
the exactions of government, this capital has been silently
and gradually accumulated by the private frugality and good
ACCUMULATION OF CAPITAL 287
conduct of individuals, by their universal, continual, and
uninterrupted effort to better their own condition. It is this
effort, protected by law and allowed by liberty to exert itself
in the manner that is most advantageous, which has main-
tained the progress of England towards opulence and im-
provement in almost all former times, and which, it is to be
hoped, will do so in all future times. England, however, as
it has never been blessed with a very parsimonious govern-
ment, so parsimony has at no time been the characteristical
virtue of its inhabitants. It is the highest impertinence and
presumption, therefore, in kings and ministers to pretend
to watch over the economy of private people, and to restrain
their expence, either by sumptuary laws, or by prohibiting
tlie importation of foreign luxuries. They are themselves
always, and without any exception, the greatest spendthrifts
in the society. Let them look well after their own expence,
and they may safely trust private people with theirs. If
their own extravagance does not ruin the state, that of their
subjects never will.
As frugality increases, and prodigality diminishes the pub-
lic capital, so the conduct of those whose expence just equals
their revenue, without either accumulating or encroaching,
neither increases nor diminishes it. Some modes of ex-
pence, however, seem to contribute more to the growth of
public opulence than others.
The revenue of an individual may be spent, either in
things which are consumed immediately, and in which one
day's expence can neither alleviate nor support that of an-
other ; or it may be spent in things more durable, which can
therefore be accumulated, and in which every day's expence
may, as he chuses, either alleviate or support and heighten
the effect of that of the following day. A man of fortune,
for example, may either spend his revenue in a profuse and
sumptuous table, and in maintaining a great number of
menial servants, and a multitude of dogs and horses ; or
contenting himself with a frugal table and few attendants,
he may lay out the greater part of it in adorning his house
or his country villa, in useful or ornamental buildings, in
useful or ornamental furniture, in collecting books, statues,
pictures ; or in things more frivolous, jewels, baubles, in-
288 WEALTH OF NATIONS
genious trinkets of different kinds ; or, what is most trifling
of all, in amassing a great wardrobe of fine clothes, like the
favourite and minister of a great prince who died a few
years ago. Were two men of equal fortune to spend their
revenue, the one chiefly in the one way, the other in the
other, the magnificence of the person whose expence had
been chiefly in durable commodities, would be continually
increasing, every day's expence contributing something to
support and heighten the effect of that of the following day:
that of the other, on the contrary, would be no greater at
the end of the period than at the beginning. The former too
would, at the end of the period, be the richer man of the two.
He would have a stock of goods of some kind or other,
which, though it might not be worth all that it cost, would
always be worth something. No trace or vestige of the
expence of the latter would remain, and the effects of ten or
twenty years profusion would be as completely annihilated
as if they had never existed.
As the one mode of expence is more favourable than the
other to the opulence of an individual, so is it likewise to
that of a nation. The houses, the furniture, the clothing of
the rich, in a little time, become useful to the inferior and
middling ranks of people. They are able to purchase them
when their superiors grow weary of them, and the general
accommodation of the whole people is thus gradually im-
proved, when this mode of expence becomes universal among
men of fortune. In countries which have long been rich,
you will frequently find the inferior ranks of people in pos-
session both of houses and furniture perfectly good and en-
tire, but of which neither the one could have been built, nor
the other have been made for their use. What was for-
merly a seat of the family of Seymour, is now an inn upon
the Bath road. The marriage-bed of James the First of
Great Britain, which his Queen brought with her from Den-
mark, as a present fit for a sovereign to make to a sovereign,
was, a few years ago, the ornament of an ale-house at Dun-
fermline. In some ancient cities, which either have been
long stationary, or have gone somewhat to decay, you will
sometimes scarce find a single house which could have been
built for its present inhabitants. If you go into those houses
ACCUMULATION OF CAPITAL 289
too, you will frequently find many excellent, though anti-
quated pieces of furniture, which are still very fit for use,
and which could as little have been made for them. Noble
palaces, magnificent villas, great collections of books, statues,
pictures, and other curiosities, are frequently both an orna-
ment and an honour, not only to the neighbourhood, but to
the whole country to which they belong. Versailles is an
ornament and an honour to France, Stowe and Wilton to
England. Italy still continues to command some sort of
veneration by the number of monuments of this kind which
it possesses, though the wealth which produced them has
decayed, and though the genius which planned them seems
to be extinguished, perhaps, from not having the same em-
ployment.
The expence too, which is laid out in durable commodities,
is favourable, not only to accumulation, but to frugality. If
a person should at any time exceed in it, he can easily reform
without exposing himself to the censure of the public. To
reduce very much the number of his servants, to reform his
table from great profusion to great frugality, to lay down
his equipage after he has once set it up, are changes which
cannot escape the observation of his neighbours, and which
are supposed to imply some acknowledgment of preceding
bad conduct. Few, therefore, of those who have once been
so unfortunate as to launch out too far into this sort of ex-
pence, have afterwards the courage to reform, till ruin and
bankruptcy oblige them. But if a person has, at any time,
been at too great an expence in building, in furniture, in
books or pictures, no imprudence can be inferred from his
changing his conduct. These are things in which further
expence is frequently rendered unnecessary by former ex-
pence; and when a person stops short, he appears to do so,
not because he has exceeded his fortune, but because he has
satisfied his fancy.
The expence, besides, that is laid out in durable commodi-
ties, gives maintenance, commonly, to a greater number of
people, than that which is employed in the most profuse
hospitality. Of two or three hundred weight of provisions,
which may sometimes be served up at a great festival, one-
half, perhaps, is thrown to the dunghill, and there is always
290 WEALTH OF NATIONS
a great deal wasted and abused. But if the expence of this
entertainment had been employed in setting to work masons,
carpenters, upholsterers, mechanics, &c. a quantity of pro-
visions, of equal value, would have been distributed among a
still greater number of people, who would have bought them
in penny-worths and pound weights, and not have lost or
thrown away a single ounce of them. In the one way, be-
sides, this expence maintains productive, in the other unpro-
ductive hands. In the one way, therefore, it increases, in
the other, it does not increase, the exchangeable value of
the annual produce of the land and labour of the country.
I would not, however, by all this be understood to mean,
that the one species of expence always betokens a more
liberal or generous spirit than the other. When a man of
fortune spends his revenue chiefly in hospitality, he shares
the greater part of it with his friends and companions ; but
when he employs it in purchasing such durable commodities,
he often spends the whole upon his own person, and gives
nothing to any body without an equivalent. The latter
species of expence, therefore, especially when directed
towards frivolous objects, the little ornaments of dress and
furniture, jewels, trinkets, gewgaws, frequently indicates,
not only a trifling, but a base and selfish disposition. A.I1
that I mean is, that the one sort of expence, as it always
occasions some accumulation of valuable commodities, as it
is more favourable to private frugality, and, consequently,
to the increase of the public capital, and as it maintains pro-
ductive, rather than unproductive hands, conduces more than
the other to the growth of public opulence.
CHAPTER IV
Of Stock Lent at Interest
THE stock which is lent at interest is always considered
as a capital by the lender. He expects that in due
time it is to be restored to him, and that in the mean
time the borrower is to pay him a certain annual rent for
the use of it. The borrower may use it either as a capital,
or as a stock reserved for immediate consumption. If he
uses it as a capital, he employs it in the maintenance of pro-
ductive labourers, who reproduce the value with a profit.
He can, in this case, both restore the capital and pay the
interest without alienating or encroaching upon any other
source of revenue. If he uses it as a stock reserved for
immediate consumption, he acts the part of a prodigal, and
dissipates in the maintenance of the idle, what was destined
for the support of the industrious. He can, in this case,
neither restore the capital nor pay the interest, without either
alienating or encroaching upon some other source of revenue,
such as- the property or the rent of land.
The stock which is lent at interest is, no doubt, occasion-
ally employed in both these ways, but in the former much
more frequently than in the latter. The man who borrows
in order to spend will soon be ruined, and he who lends to
him will generally have occasion to repent of his folly. To
borrow or to lend for such a purpose, therefore, is in all
cases, where gross usury is out of the question, contrary to
the interest of both parties; and though it no doubt happens
sometimes that people do both the one and the other; yet,
from the regard that all men have for their own interest, we
may be assured, that it cannot happen so very frequently as
we are sometimes apt to imagine. Ask any rich man of
common prudence, to which of the two sorts of people he has
lent the greater part of his stock, to those who, he thinks,
291
292 WEALTH OF NATIONS
will employ it profitably, or to those who will spend it idly,
and he will laugh at you for proposing the question. Even
among borrowers, therefore, not the people in the world
most famous for frugality, the number of the frugal and in-
dustrious surpasses considerably that of the prodigal and
idle.
The only people to whom stock is commonly lent, without
their being expected to make any very profitable use of it,
are country gentlemen who borrow upon mortgage. Even
they scarce ever borrow merely to spend. What they bor-
row, one may say, is commonly spent before they borrow it.
They have generally consumed so great a quantity of goods,
advanced to them upon credit by shopkeepers and trades-
men, that they .find it necessary to borrow at interest in
order to pay the debt. The capital borrowed replaces the
capitals of those shopkeepers and tradesmen, which the
countrv, gentlemen could not have replaced from the rents
of their estates. It is not properly borrowed in order to be
spent, but in order to replace a capital which had been spent
before.
Almost all loans at interest are made in money, either of
paper, or of gold and silver. But what the borrower really
wants, and what the lender really supplies him with, is not
the money, but the money's worth, or the goods which it can
purchase. If he wants it as a stock for immediate consump-
tion, it is those goods only which he can place in that stock.
If he wants it as a capital for employing industry, it is from
those goods only that the industrious can be furnished with
the tools, materials, and maintenance, necessary for carry-
ing on their work. By means of the loan, the lender, as it
were, assigns to the borrower his right to a certain portion
of the annual produce of the land and labour of the country,
to be employed as the borrower pleases.
The quantity of stock, therefore, or, as it is commonly
expressed, of money which can be lent at interest in any
country, is not regulated by the value of the money, whether
paper or coin, which serves as the instrument of the different
loans made in that country, but by the value of that part of
the annual produce which, as soon as it com.es either from
the ground, or from the hands of the productive labourers,
STOCK LENT AT INTEREST 293
is destined not only for replacing a capital, but such a capital
as the owner does not care to be at the trouble of employing
himself. As such capitals are commonly lent out and paid
back in money, they constitute what is called the monied in-
terest. It is distinct, not only from the landed, but from the
trading and manufacturing interests, as in these last the
owners themselves employ their own capitals. Even in the
monied interest, however, the money is, as it were, but the
deed of assignment, which conveys from one hand to another
those capitals which the owners do not care to employ them-
selves. Those capitals may be greater in almost any pro-
portion, than the amount of the money which serves as the
instrument of their conveyance ; the same pieces of money
successively serving for many different loans, as well as for
many different purchases. A, for example, lends to W a
thousand pounds, with which W immediately purchases of B
a thousand pounds worth of goods. B having no occasion
for the money himself, lends the identical pieces to X, with
which X immediately purchases of C another thousand
pounds worth of goods. C in the same manner, and for the
same reason, lends them to Y, who again purchases goods
with them of D. In this manner the same pieces, either of
coin or of paper, may, in the course of a few days, serve as
the instrument of three different loans, and of three
different purchases, each of which is, in value, equal
to the whole amount of those pieces. What the three
monied men. A, B, and C, assign to the three bor-
rowers, W, X, Y, is the power of making those purchases.
In this power consist both the value and the use of the loans.
The stock lent by the three monied men, is equal to the value
of the goods which can be purchased with it, and is three
times greater than that of the money with which the pur-
chases are made. Those loans, however, may be all per-
fectly well secured, the goods purchased by the different
debtors being so employed, as, in due time, to bring back,
with a profit, an equal value either of coin or of paper.
And as the same pieces of money can thus serve as the in-
strument of different loans to three, or for the same reason,
to thirty times their value, so they may likewise successively
serve as the instrument of repayment.
294 WEALTH OF NATIONS
A capital lent at interest may, in this manner, be consid-
ered as an assignment from the lender to the borrower of a
certain considerable portion of the annual produce ; upon
condition that the borrower in return shall, during the con-
tinuance of the loan, annually assign to the lender a smaller
portion, called the interest; and at the end of it, a portion
equally considerable with that which had originally been
assigned to him, called the repayment. Though money,
either coin or paper, serves generally as the deed of assign-
ment both to the smaller, and to the more considerable por-
tion, it is itself altogether different from what is assigned
by it.
In proportion as that share of the annual produce which,
as soon as it comes either from the ground, or from the
hands of the productive labourers, is destined for replacing
a capital, increases in any country, what is called the monied
interest naturally increases with it. The increase of those
particular capitals from which the owners wish to derive a
revenue, without being at the trouble of employing them
themselves, naturally accompanies the general increase ot
capitals; or, in other words, as stock increases, the quantity
of stock to be lent at interest grows gradually greater and
greater.
As the quantity of stock to be lent at interest increases,
the interest, or the price which must be paid for the use of
that stock, necessarily diminishes, not only from those gen-
eral causes which make the market price of things commonly
diminish as their quantity increases, but from other causes
which are peculiar to this particular case. As capitals in-
crease in any country, the profits which can be made by
employing them necessarily diminish. It becomes gradually
more and more difficult to find within the country a profitable
method of employing any new capital. There arises in con-
sequence a competition between different capitals, the owner
of one endeavouring to get possession of that employment
which is occupied by another. But upon most occasions he
can hope to justle that other out of this employment, by no
other means but by dealing upon more reasonable terms. He
must not only sell what he deals in somewhat cheaper, but
in order to get it to sell, he must sometimes too buy it dearer.
STOCK 1-ENT AT INTEREST 295
The demand for productive labour, by the increase of the
funds which are destined for maintaining it, grows every day
greater and greater. Labourers easily find employment, but
the owners of capitals find it difficult to get labourers to
employ. Their competition raises the wages of labour, and
sinks the profits of stock. But when the profits which can
be made by the use of a capital are in this manner dimin-
ished, as it were, at both ends, the price which can be paid
for the use of it, that is, the rate of interest, must necessarily
be diminished with them.
Mr. Locke, Mr. Law, and Mr. Montesquieu, as well as
many other writers, seem to have imagined that the increase
of the quantity of gold and silver, in consequence of the dis-
covery of the Spanish West Indies, was the real cause of the
lowering of the rate of interest through the greater part of
Europe. Those metals, they say, having become of less
value themselves, the use of any particular portion of them
necessarily became of less value too, and consequently the
price which could be paid for it. This notion, which at first
sight seems so plausible, has been so fully exposed by Mr.
Hume, that it is perhaps, unnecessary to say any thing more
about it. The following very short and plain argument,
however, may serve to explain more distinctly the fallacy
which seems to have misled those gentlemen.
Before the discovery of the Spanish West Indies, ten per
cent, seems to have been the common rate of interest through
the greater part of Europe. It has since that time in differ-
ent countries sunk to six, five, four, and three per cent. Let
us suppose that in every particular country the value of sil-
ver has sunk precisely in the same proportion as the rate of
interest; and that in those countries, for example, where
interest has been reduced from ten to five per cent., the same
quantity of silver can now purchase just half the quantity
of goods which it could have purchased before. This sup-
position will not, I believe, be found any-where agreeable to
the truth ; but it is the most favourable to the opinion which
we are going to examine ; and even upon this supposition it
is utterly impossible that the lowering of the value of silver
could have the smallest tendency to lower the rate of in-
terest. If a hundred pounds are in those countries now of
296 WEALTH OF NATIONS
no more value than fifty pounds were then, ten pounds must
now be of no more value than five pounds were then. What-
ever were the causes which lowered the value of the capital,
the same must necessarily have lowered that of the interest,
and exactly in the same proportion. The proportion between
the value of the capital and that of the interest, must have
remained the same, though the rate had never been altered.
By altering the rate, on the contrary, the proportion between
those two values is necessarily altered. If a hundred pounds
now are worth no more than fifty were then, five pounds now
can be worth no more than two pounds ten shillings were
then. By reducing the rate of interest, therefore, from ten
to five per cent., we give for the use of a capital, which is
supposed to be equal to one-half of its former value, an in-
terest which is equal to one-fourth only of the value of the
former interest.
Any increase in the quantity of silver, while that of the
commodities circulated by means of it remained the same,
could have no other effect than to diminish the value of that
metal. The nominal value of all sorts of goods would be
greater, but their real value would be precisely the same as
before. They would be exchanged for a greater number of
pieces of silver; but the quantity of labour which they could
command, the number of people whom they could maintain
and employ, would be precisely the same. The capital of the
country would be the same, though a greater number of
pieces might be requisite for conveying any equal portion of
it from one hand to another. The deeds of assignment, like
the conveyances of a verbose attorney, would be more cum-
bersome, but the thing assigned would be precisely the same
as before, and could produce only the same effects. The
funds for maintaining productive labour being the same, the
demand for it would be the same. Its price or wages, there-
fore, though nominally greater, would really be the same.
They would be paid in a greater number of pieces of silver;
but they would purchase only the same quantity of goods.
The profits of stock would be the same both nominally and
really. The wages of labour are commonly computed by the
quantity of silver which is paid to the labourer. When that
is increased, therefore, his wages appear to be increased,
STOCK LENT AT INTEREST 297
though they may sometimes be no greater than before. But
the profits of stock are not computed by the number of
pieces of silver with which they are paid, but by the propor-
tion which those pieces bear to the whole capital employed.
Thus in a particular country five shillings a week are said
to be the common wages of labour, and ten per cent, the com-
mon profits of stock. But the whole capital of the country
being the same as before, the competition between the dif-
ferent capitals of individuals into which it was divided would
likewise be the same. They would all trade with the same
advantages and disadvantages. The common proportion be-
tween capital and profit, therefore, would be the same, and
consequently the common interest of money ; what can
commonly be given for the use of money being necessa-
rily regulated by what can commonly be made by the use
of it.
