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IN THE CUSTODY OF THE

BOSTON PUBLIC LIBRARY.

SHELF N°

U\

I

A N

INQUIRY

INTO THE

Nature and Caiifes

OF THE

WEALTH OF NATIONS.

VOL. 11.

Jirfm JoLouru

A N

I N Q^ U I R Y

INTO THE

Nature and Caufes

OF THE

WEALTH OF NATIONS.

By ADAM SMITH, LL. D. and F. R. S.

Formerly Profefibr of Moral Philofophy in the Univerfity of Glasgow.

V O L. II.

THE SECOND EDITION.

LONDON:

PRINTED FOR W. STRAHAN; AND T. CADELL, IN THE STRAND.

MDCCLXXVIII.

^''auams'^'J. (.

rt V"

C O N T E N T S

O F THE

SECOND VOLUME.

BOOK IV.

Of Syflems of political Oeconomy. IkTRODUCTio-N — — — Page I

CHAP. I.

Of the Principle of the Commercial or Mercantile Syjlem — 2

C H A P. IL

Of Rejlraints upon the Importation of fuch Goods from Foreign Countries as can be produced at Home — — qi

CHAP. m.

Of 'the extraordiiiary Ref mints upon the Importation of Goods ofahnojl all Kinds, from thofe Countries 'with -which the Ba- Idfice is fuppofed to be dijadvantageous — — ey

•J

Part I. Oj the Unreafonablenefs of thofe Ref raints, even upon ■ the Principles of the Commercial Syfem — _- ibid.

Digrefion concerning Banks of Depofit, particularly concerning that of Amferdam — — — ^a

CONTENTS.

Part II. Of the Unreafonahknefs of thofe extraordinary Re- flraints npon other Principles — — — Page 76

CHAP. IV.

Of Dratvbacks — — -_ 88

C H A P. V.

Of Bounties — • — — 91

D'lgrefjion concerning the Corn Trade and Corn Laivs — 106

C HA P. VI.

Of Treaties of Commerce — — , — ij2

CHAP. VII. Of Colonies — — — 148

Part I. Of the Motives for efahUJJring new Colonies ibid.

Part II. Caufes of the Profperity of neiv Colonies — ijg

Part III. Of the Ad^vantages 'which Europe has derived from the Difcovcry of America., and from that of a Paffagc to the Eaf Indies by the Cape of Good Hope — — 192

CHAP. VIII.

Of the Agricultural Sy ferns, or of thofe Sy ferns of political Oeconomy luhich reprefent the Produce of Land, as either thefole or the principal Source of the Revenue and Wealth of every Country. 259

CONTENTS.

B O O K V.

©f'the Revenue of the Sovereign or Gommonwealth.

CHAP. I. Of the Expences of the Sovereign or Commowwealth Page 293

J

Part 1. Of the Expence of Defence- ibid.

Part II. Of the Expence ofjujllce — — 315

Part 111. Of the Expence of public Works and public Inflitu- tions — — — — 331.

Article ift. Of the public Works and Ifi/lltutions for faci~ litating the Commerce of Society — — 3^2

Article id. Of the Expence of the Jnjiitutions for the Education of Youth — •— o^'Z-

Article 3d. Of the Expence of the Infitutions for the In- Jlruflion of People of all jiges — — 376

Part IV. Of the Expence of fupporting the Dignity of the Sovereign — — — . ^ i j

Conch fion of the Chapter — — — a\2

CHAP. II.

Ofihe Sources of the general or public Revenue of the Society * 414

CO xN T E N T S.

Part I. Of the Funds or Sources of Revenue tvh'ich may pc culiarly belonging to the Sovereign or Commowwealth Page 414

Part 11. Of Faxes -r- — 424

AKTiCLE I ft. Taxes upon Rent — — .428

Taxes upon the Rent of Land '— — ibid.

Taxes ivhicb are proportioned, not io the Rent., but to the Pro~ duce of Land • — — — 440

Taxes upon the Rent ofHoufes — — 444

.Article 2c1. Taxes upon Profit, or upon the Revenue arifng from Stock — ; — — 4_J4

'Taxes upon the Profit of particular Employment s — 461

Appendix to Articles ift and 2d. Taxes upon the Ca- pital Value of Lands, Hoifes, and Stock ■— — 469

Article 3d. Taxes upon the Wages of Labour — 477

Article 4th. Taxes ivhich, it is int end e ^^ Jhould fall indif" ferently upon every different Species of Revenue — 48 1

Capitation Taxes — — — ibid.

Taxes upon confumable Commodities — — 484

CHAP. III. Of public Debts — "^ ^ SIS

AN

9,

A N

I N (^ U I R Y

INTO THE

NATURE AND CAUSES

OF THE

\v:ealth of nations.

B O O K IV.

of Syftems of political Oeconomy.

INTRODUCTION.

POLITICAL ceconomy, confidered as a branch of the fcience book of a ftatefman or legiflator, propofes two diftind: objedts ; firfl, , ^'_ to provide a plentiful revenue or fubfiftence for the people, or Introduaion. more properly to enable them to provide fuch a revenue or fubfift- ence for themfelves; and fecondly, to fupply the ftate or common- wealth with a revenue fufficient for the public fervices.. It propofes to enrich both the people and the fovereign.

The different progrefs of opulence in different ages and nations, has given occafion to two different fyftems of political oeconomy, with regard to enriching the people. The one may be called the fyftem of commerce, the other that of agriculture. I fhall endeavour to explain both as fully and diflindlly as I can, and fhall begin with the fyftem of commerce. \i is the modern fyflem, and is befl underftood in our own country and in our own times.

Vol. n. B

i: THE NATURE AND CAUSES OF

CHAP. I.

Of the Principle of the commercial^ or mercantile Syflem.

IV.

BOOK ' I **HAT wealth confifts in monoy, or in gold and filver, is a JL popular notion which naturally arifes from the double func- tion of money, as the inflrument of commerce, and as the mea- fure of value. In confequence of its being the inflrument of com- merce, when we have money we can more readily obtain what- ever elfe we have occafion for, than by means of any other com- modity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any fubfequent purchafe. In confequence of its being the meafure of value, we eftimate that of all other commodities by the quantity of money which they will exchange for. We fay of a rich man that he is worth a great deal, and of a poor man that he is worth very little money. A frugal man, or a man eager to be rich, is faid to love money ; and a carelefs, a generous, or a profufe man, is faid to be indifferent about it. To grow rich is to get money; and wealth and money, in fhort, are, in common language, confidered as in every refpedl fynonymous.

A RICH country, in the fame manner as a rich man, is fup- pofed to be a country abounding in money ; and to heap up gold and filver in any country is fuppofed to be the readieft way to en- rich it. For fome time after the difcovery of America, the firfl enquiry of the Spaniards, when they arrived, upon any unknown coaft, ufed to be, if there was any gold or filver to be found in the neighbourhood. By the information which they received, they judged whether it was worth while to make a fettlement there, or if the country was worth the conquering. Piano Carpino, a monk 2 fent

THE WEALTH OF NATIONS. 3

fent ambafTador from the king of France to one of the fons of ^ "^'^ ''• the famous Gengis Khan, fays that the Tartars ufed frequently to afk hhn if there was plenty of fheep and oxen in the kingdom of France. Their enquiry had the fame obje£t with that of the Spaniards. They wanted to know if the country was rich enough to be worth the conquering. Among the Tartars, as among all other nations of fhepherds, who are generally ignorant of the ufe of money, cattle are the inftruments of commerce and the meafures of value. Wealth, therefore, according to them, con- fifted in cattle, as according to the Spaniards it confifted in gold and filver. Of the two, the Tartar notion, perhaps, was the neareft to the truth.

Mr. Locke remarks a dlftindlon between money and other moveable goods. All other moveable goods, he fays, are of fo confumable a nature that the wealth which confifts in them cannot be much depended on, and a nation which abounds in them one year may, without any exportation, but merely by their own wafte and extravagance, be in great want of them the next. Money, on the contrary, is a fleady friend, which, though it may travel about from hand to hand, yet if it can be kept from going out of the country, is not very liable to be wafted and confumed. Gold and filver, therefore, are, according to him, the moft folid and fub- ftantial part of the moveable wealth of a nation, and to multiply thofe metals ought, he thinks, upon that account, to be the great objed: of its political oeconomy.

Others admit that if a nation could be feparated from all the world, it would be of no confequence how much, or how little money circulated in it. The confumable goods which were cir- culated by means of this money, would only be exchanged for a greater or a fmaller number of pieces ; but the real wealth or poverty

B 2 of

4 THE NATURE AND CAUSES OF *

^ ^\P ^ °^ ^^^ country, they allow, would depend altogether upon th« abundance or fcarcity of thofe confumable goods. But it is other- wife, they think, with countries which have conneflions with fo- reign nations, and which are obliged to carry on foreign wars, and to maintain fleets and armies in diftant countries. This, they fay, cannot be done, but by fending abroad money to pay them with ; and a nation cannot fend much money abroad, unlefs it has a good deal at home. Every fuch nation, therefore, muft endeavour in time of peace to accumulate gold and filver, that, when occafion requires, it may have wherewithal to carry on foreign wars.

In confequence of thefe popular notions, all the different nations of Europe have fludied, though to little purpofe, every pofTible means of accumulating gold and filver in their refpedlive countries. Spain and Portugal, the proprietors of the principal mines which fupply Europe with thofe metals, have either prohibited their ex- portation under the feverefl penalties, or fubjedted it to a confiderable duty. The like prohibition feems antiently to have made a part of the policy of mofl; other European nations. It is even to be found, where we fhould leaft of all expedt to find it, in fome old Scotch ads of parliament, which forbid under heavy penalties the carrying gold or {liver forth of the kingdom. The like policy antiently took place both in France and England.

When thofe countries became commercial, the merchants found this prohibition, upon many occafions, extremely inconvenient. They could frequently buy moreadvantageoufly with gold and filver than with any other commodity, the foreign goods which they wanted, either to import into their own, or to carry to fome other foreign country. They remonftrated, therefore, againft this prohi- bition as hurtful to trade.

They

u

' TFIE WEALTH OF NATIONS. s

They reprefentcd, firfl:, that ihe exportation of gold and filver in ^ ^^ J^ ^' order to purchafe foreign goods, did not always diminifh the quantity > — > of thofe metals in the kingdom. That, on the contrary, it might frequently increafe that quantity; becaufe if the confumption of fo- reign goods was not thereby increafcd in the country, thofe goods might be re-exported to foreign countries, and being there fold for a large profit, might bring back much more treafure than was ori- ginally fent out to purchafe them. Mr. Mun compares this opera- tion of foreign trade to the feed-time and harveft of agriculture. " If *' we only behold," fays he, " the adlions of the hufbandman in the *' feed-time, when he cafteth away much good corn into the ground, *' we fhall account him rather a madman than a hufbandman. But •' when we confider his labours in the harveft, which is the end *' of his endeavours, we fhall find the worth and plentiful increafe *' of his adions."

They reprefented, fecondly, that this prohibition could not hinder the exportation of gold and filver, which, on account of the fmallnefs of their bulk in proportion to their value, could eafily be fmuggled abroad. That this exportation could only be prevented by a proper attention to, what they called, the balance of trade. That when the country exported to a greater value than it imported, a balance became due to it from foreign nations, which was necef- farily paid to it in gold and filver, and thereby increafed the quan- tity of thofe metals in the kingdom. But that when it imported to a greater value than it exported, a contrary balance became due to foreign nations, which was neceflarily paid to them in the fame manner, and thereby diminifhed that quantity. That in this cafe to prohibit the exportation of thofe metals could not prevent it, but only, by making it more dangerous, render it more expenfive. That the exchange was thereby turned more againft the country which owed the balance, than it otherwife might have been ; the merchant who purchafed a bill upon the foreign country being

obliged

THE NATURE AND CAUSES OF

obliged to pay the banker who fold it, not only for the natural rifk, trouble and expence of fending the money thither, but for the extraordinary rifk arifing from the prohibition. But that the more the exchange was againft any country, the more the balance of trade became neceffarily againft it ; the money of that country becoming neceffarily of fo much lefs value, in comparifon with that of the country to which the balance was due. That if the ex- change between England and Holland, for example, was five per cent, againft England, it would require a hundred and five ounces of filver in England to purchafe a bill for a hundred ounces of filver in Holland : that a hundred and five ounces of filver in England, therefore, would be worth only a hundred ounces of filver in Holland, and would purchafe only a proportionable quan- tity of Dutch goods : but that a hundred ounces of filver in Hol- land, on the contrary, would be worth a hundred and five ounces in England, and would purchafe a proportionable quantity of Englilh goods : That the Englifti goods which were fold to Holland would be fold fo much cheaper ; and the Dutch goods which were fold to England, fo much dearer, by the difference of the ex- change ; that the one would draw fo much lefs Dutch money to England, and the other fo much more Englifh money to Holland, as this difference amounted to : and that the balance of trade, therefore, would neceffarily be fo much more againft England, and would require a greater balance of gold and filver to be ex- ported to Holland.

Those arguments were partly folid and partly fophiftical. They were folid fo far as they afferted that the exportation of gold and filver in trade might frequently be advantageous to the country. They were folid too in afferting that no prohibition could prevent their exportation, when private people found any advantage in ex- porting them. But they were iophiftical in fuppofing, that eiihcr

to

THE WEALTH OF NATIONS. 7

to preferve or to augment the quantity of thofe metals required CHAP. more the attention of government, than to preferve or to augment the quantity of any other ufeful commodities, which the freedom of trade, without any fuch attention, never fails to fupply in the proper quantity. They were fophiftical too, perhaps, in aflerting that the high price of exchange neccflarily increafed, what they called, the unfavourable balance of trade, or occafioned the ex- portation of a greater quantity of gold and filver. That high price, indeed, was extremely difadvantageous to the merchants who had any money to pay in foreign countries. They paid fo much dearer for the bills which their bankers granted them upon thofe countries. But though the rifk arifing from the prohibition might occafion fome extraordinary expence to the bankers, it would not neceflarily carry any more money out of the country. This expence would generally be all laid out in the country, in fmug- gling the money out of it, and could feldom occafion the export- ation of a fmgle fix-pence beyond the precife fum drawn for. The high price of exchange too would naturally difpofe the mer- chants to endeavour to make their exports nearly balance their im- ports, in. order that they might have this high exchange to pay upon as fmall a fum as poffible. The high price of exchange, be- fideis, mud neceffarily have operated as a tax, in raifing the price of foreign goods, and thereby diminifhing their confumption. It would tend, therefore, not to increafe, but to diminifh, what they called, the unfavourable balance of trade, and confequently the ex- portation of gold and filver.

Such as they were, however, thofe arguments convinced the people to whom they were addrefled. They were addrefled. by merchants to parliaments, and to the councils of princes, to nobles and to country gentlemen ; by thofe who were fuppofed to underftand trade, to thofe who were confcious to themfelves that they knew nothing about the matter* That foreign trade enriched;

the;

8 THE NATURE AND CAUSES OF

BOOK, tlie country, experience demonftrated to the nobles and country

< ,/ gentlemen, as well as to the merchants ; but how, or in what

manner, none of them well knew. The merchants knew perfedly in what manner it enriched themfelves. It was their bufinefs to know it. But to know in what manner it enriched the country, was no part of their bufinefs. This fubjedl never came into their confideration, but when they had occafion to apply to their country for fome change in the laws relating to foreign trade. It then became neceflary to fay fomething about the beneficial efFeds of foreign trade, and the manner in which thofe efFeds were obftruded by the laws as they then flood. To the judges who were to decide the bufinefs, it appeared a mofl: fatisfadory account of the matter, when they were told that foreign trade brought money into the country, but that the laws in queflion hindered it from bringing fo much as it otherwife would do. Thofe arguments therefore pro- duced the wiflied-for efFed. The prohibition of exporting gold and filver was in France and England confined to the coin of thofe re- fpedive countries. The exportation of foreign coin and of bullion was made free. In Holland, and in fome other places, this liberty was extended even to the coin of the country. The attention of government was turned away from guarding againfl; the exportation of gold and filver, to watch over the balance of trade, as the only canfe which could occafion any augmentation or diminution of thofe metals. From one fruillefs care it was turned away to an- other care much more intricate, much more embarralFing, and jufl equally fruitlefs. The title of Mun's book, England's Treafure in Foreign Trade, became a fundamental maxim in the political ceconomy, not of England onlV) but of all other commercial countries. The inland or home trade, the mofl; important of all, the trade in which an equal capital affords the greatefl revenue, and creates the greatefl employment to the people of the country, was confidered as fubfidiary only to foreign trade. It neither brought money into the country, it was faid, nor carried any out of it.

3 The

THE WE ALT PI OF NATIONS. 9

The country therefore could never become either richer or poorer by C H A P.

means of it, except fo far as its profperity or decay might indirecftly v_— v 1

injfluence the rtate of foreign trade.

A COUNTRY that has no mines of its own mufl: undoubtedly draw its gold and filver from foreign countries, in the fame manner as one that has no vineyards of its own muft draw its wines. It does not feem neceffary, however, that the attention of government fliould be more turned towards the one than towards the other ob- ject. A country that has wherewithal to buy wine, will always get the wine which it has occafion for ; and a country that has where- withal to buy gold and filver, will never be in want of thofe metals. They are to be bought for a certain price like all other commodities, and as they are the price of all other commodities, fo all other com- modities are the price of thofe metals. We truft with perfed fecu- rity that the freedom of trade, without any attention of govern- ment, will always fupply us with the wine which we have occafion for : and we may truft with equal fecurity that it will always fup- ply us with all the gold and filver which we can afford to purchafe or to employ, either in circulating our commodities, or in other ufes.

The quantity of every commodity which human induftry can either purchafe or produce, naturally regulates itfelf in every country according to the effectual demand, or according to the demand of thofe who are willing to pay the whole rent, labour and profits which muft be paid in order to prepare and bring it to market. But no commodities regulate themfelves more eafily or more exadlly accord- ing to this effed:ual demand than gold and filver ; becaufe on account of the fmall bulk and great value of thofe metals, no commodities can be more eafily tranfported from one place to another, from the places where they are cheap, to thofe where they are dear, from the

Vol. II. C place*

lo THE NATURE AND CAUSES OF

BOOK places where they exceed, to thofe where they fall fhort of this ef- fedlual demand. If there was In England, for example, an ef- fedlual demand for an additional quantity of gold, a packet-boat could bring from Lifbon, or from wherever elfe it was to be had, fifty tuns of gold, which could be coined into more than five mil- lions of guineas. But if there was an efFedlual demand for grain to the fame value, to import it would require, at five guineas a tun, a million of tuns of fhipping, or a thoufand fhips of a thoufand tuns each. The navy of England would not be fufE- cient.

When the quantity of gold and filver imported into any country^ exceeds the efFedual demand, no vigilance of government can prevent their exportation. All the fanguinary laws of Spain and Portugal are not able to keep their goW and filver at home. The continual importations from Peru and Brazil exceed the efFedual demand of thofe countries, and fink the price of thofe metals there below that in the neighbouring countries. If, on the contrary^ in any particular country their quantity fell flaort of the effedual demand, fo as to raife their price above that of the neighbouring countries, the government would have no occafion to take any pains to import them. If it was even to take pains to prevent their importation, it would not be able to effeduate It. Thofe metals, when the Spartans had got wherewithal to purchafe them, broke through all the barriers which the laws of Lycurgus oppofed to their entrance into Lacedemon. All the fanguinary laws of the cuftoms are not able to prevent the importation of the teas of the Dutch and Gottenburgh taft India companies ; becaufe fomewhat cheaper than thofe of the Britifh company. A pound of tea, however, is about a hundred times the bulk of one of the higheft prices, fixteen fhillings, that is commonly paid for it in filver, and more than two thoufand times the bulk of the

fame

THE WEALTH OF NATIONS. n

fame price In gold, and confequcntly jufl fo many times more dif- ^ H a p. ficult to fmiJggle.

It Is partly owing to the eafy tranfportatlon of gold and filver from the places where they abound to thofe where they are wanted, that the price of thofe metals does not fluduate continually like that of the greater part of other commodities, which are hindered by their bulk from fhifting their fituation, when the market happens to be either over or underftocked with them. The price of thofe metals, indeed, is not altogether exempted from variation, but the changes to which it is liable are generally flow, gradual, and uni- form. In Europe, for example, it is fuppofed, without much foundation, perhaps, that, during the courfe of the prefent and preceding century, they have been conftantly, but gradually, fink- ing in their value, on account of the continual importations from, the Spanifh Weft Indies. But to make any fudden change in the price of gold and filver, fo as to raife or lower at once, fenfibly and remarkably, the money price of all other commodities, requires fuch a revolution in commerce as that occafioned by the difcovery of America.

If, notwithftanding all this, gold and filver fhould at any time fall fhort in a country which has wherewithal to purchafe them, there are more expedients for fupplying their place, than that of almoft any other commodity. If the materials of manufadture are wanted, induftry muft flop. If provifions are wanted, the people muft ftarve. But if money is wanted, barter will fupply its place, though with a good deal of inconveniency. Buying and felling upon credit, and the different dealers compenfating their credits with one another, once a month or once a year, will fupply it with lefs inconveniency. A well regulated paper money will fupply it, not only without any inconveniency, but, in fome cafes,

C 3 with

12 THE NATURE AND CAUSES OF

BOOK -vvith fome advantages. Upon every account, therefore, the atten- tion of government never was fo unneceffarily employed, as when direded to watch over the prefervation or increafe of the quantity of money in any country.

No complaint, however, is more common than that of a fcarcity of money. Money, like wine, muft always be fcarce with thofe who have neither wherewithal to buy it, nor credit to borrow it. Thofe who have either, will feldom be in want either of the money, or of the wine which they have occafion for. This complaint, however, of the fcarcity of money, is not always confined to im- provident fpendthrifts. It is fometimes general through a whole mercantile town, and the country in its neighbourhood. Over- trading is the common caufe of it. Sober men, whofe projedts have been difproportioned to their capitals, are as likely to have neither wherewithal to buy money, nor credit to borrow it, as pro- digals whofe expence has been difproportioned to their revenue. Before their projedls can be brought to bear, their ftock is gone, and their credit with it. They run about every where to borrow money, and every body tells them that they have none to lend. Even fuch general complaints of the fcarcity of money do not always prove that the ufual number of gold and filver pieces are not circulating in the country, but that many people want thofe pieces who have nothing to give for them. When the profits of trade happen to be grea:ter than ordinary, overtrading becomes a general error both among great and fmall dealers. They do not always fend more money abroad than ufual, but they buy upon credit both at home and abroad, an unufual quantity of goods, which they fend to fome diftant market, in hopes that the returns will come in before the demand for payment. The demand comes before the returns, and they have nothing at hand, with which they can either pur- chafe money, -or give folid fecurity for borrowing. It is not any

fcarcity

THE WEALTH OF NATIONS.

13

fcarclty of gold and filver, but the difficulty which fuch people find chap. in borrowing, and which their creditors find in getting payment, <- — v- — ' that occafions the general complaint of the fcarcity of money.

It would be too ridiculous to go about ferioufly to prove, that wealth does not confift in money, or in gold and filver ; but in what money purchafes, and is valuable only for purchafing. Money, no doubt, makes always a part of the national capital ; but it has al- ready been fliown that it generally makes but a fmall part, and al- ways the moft unprofitable part of it.

It is not becaufe wealth confifts more eflentlally in money than in. goods, that the merchant finds it generally more eafy to buy goods, •with money, than to buy money with goods;. but becaufe money, is the known and eftablifhed inftrument of commerce, for which every thing is readily given in exchange, but which is not always with equal readinefs to be got in exchange for every thing. The greater part of goods befides are more perifliable than money, and he may frequently fuftain a much greater lofs by keeping them. When his goods are upon hand too, he is more liable to fuch demands for money as he may not be able to anfwer, than when he has got th^ir price in his coffers. Over and above all this, his profit arifes more diredly from felling than from buying^ and he is upon all thefe accounts generally much more anxious to exchange his goods for money, than his money for goods. But though a particular merchant, with abundance of goods in his warehoufe, may fometlmes be ruined by not being able to fell them in time, a nation or country is not liable to the fame accident. The whole capital of a merchant frequently confifts in perifhable goods deftined for purchafing money. But it is but a. very fmall part of the annual produce of the land and labour of, a country which can ever be deftined for purchafing gold and filver 4.

from

14 THE NATURE AND CAUSES OF

B o o K from their neighbours. The far greater part is circulated and

V y — } confumed among themfelves; and even of the furplus which is

fent abroad, the greater part is generally deftined for the purchafe of other foreign goods. Though gold and filver, therefore, could not be had in exchange for the goods deftined to purchafe them, the nation would not be ruined. It might, indeed, fuffer fom^ lofs and inconveniency, and be forced upon fome of thofe expe- dients which are neceflary for fupplying the place of money. The annual produce of its land and labour, however, would be the fame, or very nearly the fame, as ufual, becaufe the fame, or very nearly the fame confumable capital would be employed in maintaining it. And though goods do not always draw money fo readily as money draws goods, in the long-run they draw it more neceffarily than even it draws them. Goods can ferve many other purpofes befides purchafing money, but money can ferve no other purpofe befides purchafing goods. Money, therefore, necefTarily runs after goods, but goods do not always or neceffarily run after money. The man who buys, does not always mean to fell again, but frequently to ufe or to confume ; whereas he who fells, always means to buy again. The one may frequently have done the whole, but the other can never have done more than the one-half of his bufmefs. It is not for its own fake that men defire money, but for the fake of what they can purchafe with it.

Consumable commodities, it is faid, are foon deftroyed; where- as gold and filver are of a more durable nature, and, were it not for this continual exportation, might be accumulated for ages to- gether, to the incredible augmentation of the real wealth of the country. Nothing, therefore, it is pretended, can be more dif- advantageous to any country, than the trade which confifts in the exchange of fuch lafting for fuch perifliable commodities. We do not, however, reckon that trade difadvantageous which confifts

in

THE WEALTH OF NATIONS. ij-

in the exchange of the hardware of England for the wines of France; and yet hardware is a very durable commodity, and was it not for this continual exportation, might too be accumulated for ages together, to the incredible augmentation of the pots and pans of the country. But it readily occurs that the number of fuch utenfils is in every country neceffarily limited by the ufe which there is for them ; that it would be abfurd to have more pots and pans than w-ere neceffary for cooking the victuals ufually confumed there ; and that if the quantity of viduals were to in- creafe, the number of pots and pans would readily increafe along "with it, a part of the increafed quantity of vidluals being employed in purchafing them, or in maintaining an additional number of workmen whofe bufinefs it was to make them. It fhould as readily occur that the quantity of gold and filver is in every country limited by the ufe which there is for thofe metals ; that their ufe confifts in circulating commodities as coin, and in affording a fpecies of houihold furniture as plate; that the quantity of coin in every country is regulated by the value of the commodities which are to be circulated by it : increafe that value, and immediately a part of it will be fent abroad to purchafe, wherever it is to be had, the additional quantity of coin requlfite for circulating them:, that the quantity of plate is regulated by the number and wealth of thofe private families who chul'e to indulge themfelves in that fort of magnificence : increafe the number and wealth of luch families, and a part of this increafed wealth will moft probably be employed in purchafing, wherever it is to be found, an additional quantity of plate : that to attempt to increafe the wealth of any country, either by introducing or by detaining in it an unnecefTary quantity of gold and filver, is as abfurd as it would be to attempt to increafe the good cheer of private fami/ies, by obliging them to keep ^n un- necefTary number of kitchen utenfils. As the expence of purchaf- ing thofe unnecefiary utenfils would diminifh inftead of increafing I either.

i6 THE NATURE AND CAUSES OF

BOOK either the quantity or goodnefs of the family provifions ; fo the expence of purchafing an unneceflary quantity of gold and filver muft, in every country, as neceffarily diminifh the wealth which feeds, cloaths, and lodges, which maintains and employs the people. Gold and filver, whether in the fhape of coin or of plate, are utenfils, it muft be remembered, as much as the furniture of the kitchen. Increafe the ufe for them, increafe the confumable commodities which are to be circulated, managed, and prepared by means of them, and you will infallibly increafe the quaniity ; but if you at- tempt, by extraordinary means, to increafe the quantity, you will as infallibly diminifti the ufe and even the quantity too, which in thofe metals can n&ver be greater than what the ufe requires. Were they ever to be accumulated beyond this quantity, their tranfpor- tation is fo eafy, and the lofs which attends their lying idle and un- employed fo great, that no law could prevent their being immedi- ately fent out of the country.

It is not always neceflary to accumulate gold and filver, in or- der to enable a country to carry on foreign wars, and to maintain fleets and armies in diftant countries. Fleets and armies are main- tained, not with gold and filver, but with confumable goods. The nation which, from the annual produce of its domeftic induftry, from the annual revenue arifing out of its lands, labour, and con- fumable ftock, has wherewithal to purchafe thofe confumable goods in diftant countries, can maintain foreign wars there.

A NATION may purchafe the pay and provifions of an army in a diftant country three- diff'erent ways; by fending abroad either, firft, fome part of its accumulated gold and filver ; or, fecondly, fome part of the annual produce of its manufadlures j or laft of all, fome part of its annual rude produce.

The

THE WEALTH OF NATIONS, 17

The gold and filver which can properly be confidered as accumu- lated or ftored up in any country, may be diftinguifhed into three parts ; firft, the circulating money ; fecondly, the plate of private families ; and lafl: of all, the money which may have been colleded by many years parfimony, and laid up in the treafury of the prince.

It can feldom happen that much can be fpared from the cir- culating money of the country ; becaufe in that there can fel- dom be much redundancy. The value of goods annually bought and fold in any country requires a certain quantity of money to circulate and diftribute them to their proper confumers, and can give employment to no more. The channel of circulation necefla- rily draws to itfelf a fum fufficient to fill it, and never admits any more. Something, however, is generally withdrawn from this channel in the cafe of foreign war. By the great number of people who are maintained abroad, fewer are maintained at home. Fewer goods are circulated there, and lefs money becomes neceffary to circulate them. An extraordinary quantity of paper money, of fome fort or other too, fuch as exchequer notes, navy bills, and bank bills in England, is generally ifllied upon fuch occafions, and by fupplying the place of circulating gold and filver, gives an op- portunity of fending a greater quantity of it abroad. All this, how- ever, could afford but a poor refource for maintaining a foreign war, of great expence and feveral years duration.

The melting down the plate of private families, has upon every occafion been found a ftill more infignificant one. The French, in the beginning of the lafl war, did not derive fo much advantage from this expedient as to compenfate the lofs of the fafhion.

The accumulated treafures of the prince have, in former times, afforded a much greater and more lafling refource. In the prefent times, if you except the king of Pruffia, to accumulate treafure feems to be no part of the policy of European princes.

Vol. II. D The

i8 THE NATURE AND CAUSES OF .

S ° Q ^ The funds which maintained the foreign wars of the prefent cen-

* . ' tury, the moft expenfive perhaps which hiftory records, feem to have

had little dependency upon the exportation either of the circulating money, or of the plate of private families, or of the treafure of the prince. The laft French war coft Great Britain upwards of ninety millions, including not only the feventy-five millions of new debt that was contradled, but the additional two {hillings in the pound land tax, and what was annually borrowed of the finking fund. More than two-thirds of this expence was laid out in diftant coun- tries ; in Germany, Portugal, America, in the ports of the Medi- terranean, in the Eaft and Weft Indies. The kings of England had no accumulated treafure. We never heard of any extraordinary quantity of plate being melted down. The circulating gold and filver of the country had not been fuppofed to exceed eighteen mil- lions. Since the late recoinage of the gold, however, it is believed to have been a good deal under-rated. Let us fuppofe, therefore, according to the moft exaggerated computation which I remem- ber to have either feen or heard of, that, gold and filver to- gether, it amounted to thirty millions. Had the war been carried on, by means of our money, the whole of it muft, even accord- ing to this computation, have been fent out and returned again at leaft twice, in a period of between fix and fevcn years. Should this be fuppofed, it would afford the moft decifive argument to de- monftrate how unneceflary it is for government to watch over the prefervation of money, fince upon this fuppofition the whole money of the country muft have gone from it and returned to it again, two different times in fo fhort a period, without any body's knowing any thing of the matter. The channel of circulation, however, never ap- peared more empty than ufual during any part of this period. Few people wanted money who had wherewithal to pay for it. The profits of foreign trade, indeed, were greater than ufual during the whole war ; but efpecially towards the end of it. This occafioned, what it always occafions, a general overtrading in all the ports of Great Britain ; and this again occafioned the ufual complaint of the 2 fcarcity

THE WEALTH OF NATIONS. 19

fcarclty of money, which always follows overtrading. Many peo- CHAP, pie wanted it, who had neither wherewithal to buy it, nor credit to borrow it ; and becaufe the debtors found it difficult to borrow, the creditors found it difficult to get payment. Gold and filver, however, were generally to be had for their value, by thofe who had that value to give for them.

The enormous expence of the late war, therefore, muft have been chiefly defrayed, not by the exportation of gold and filver, but by that of Britifh commodities of fome kind or other. When the government, or thofe who aded under them, contracted with a merchant for a remittance to fome foreign country, he would naturally endeavour to pay his foreign correfpondent, upon whom he had granted a bill, by fending abroad rather commodities than gold and filver. If the commodities of Great Britain were not in demand in that country, he would endeavour to fend them to fome other country, in which he could purchafe a bill upon that country. The tranfportation of commodities, when properly fuited to the market, is always attended with a confiderable profit ; whereas that of gold and filver is fcarce ever attended with any. When thofe metals are fent abroad in order to purchafe foreign commodities, the merchant's profit arifes, not from the purchafe, but from the fale of the returns. But when they are fent abroad merely to pay a debt, he gets no returns, and confequently no profit. He naturally, therefore, exerts his invention to find out a way of paying his foreign debts, rather by the exportation of commodities than by that of gold and filver. The great quantity of Britilh goods ex- ported during the courfe of the late war, without bringing back any returns, is accordingly remarked by the author of The Prefent State of the Nation.

Besides the three forts of gold and filver above mentioned, there is in all great commercial countries a good deal of bullion alter-

D 2 nately

pio THE NATURE AND CAUSES OF

^ ^nP ^ nately Imported and exported for the purpofes of foreign trade. This bullion, as it circulates among different commercial countries in the fame manner as the national coin circulates in every particular country, may be confidered as the money of the great mercantile -republick. The national coin receives its movement and direc- tion from the commodities circulated within the precindts of each particular country : the money of the mercantile republick, from thofe circulated between different countries. Both are employed in facilitating exchanges, the one between different individuals of the fame, the other between thofe of different nations. Part of this money of the great mercantile republick may have been, and probably was, employed in carrying on the late war. In time of a general war, it is natural to fuppofe that a movement and direction ihould be impreffed upon it, different from what it ufually follows in profound peace ; that it fhould circulate more about the feat of the war, and he more employed in purchafing there, and in the neighbouring countries, the pay and provifions of the different armies. But whatever part of this money of the mercantile republick, Great Britain may have annually employed in this manner, it mufl have been annually purchafed, either with Britifh commodities, or with fomething elfe that had been pur- chafed with them ; which ftill brings us back to commodities, to the annual produce of the land and labour of the country, as the ultimate refources which enabled us to carry on the war. It is na- tural indeed to fuppofe, that fo great an annual expence muft have been defrayed from a great annual produce. The expence of 1 76 1, for example, amounted to more than nineteen millions. No accumulation could have fupported fo great an annual profu- fion. There is no annual produce even of gold and filver which could have fupported it. The whole gold and filver annually imported into bath Spain and Portugal, according to the befl accounts, does not commonly much exceed fix millions fterling,

■which,

THE WEALTH OF NATIONS. ai

xu'liich, in fome years, would fcarce have paid four months expence ^ HA p. of the late war.

The commodities moft proper for being tranfported to diRant countries, in order to purchafe there, either the pay and provifions of an army, or fome part of the money of the mercantile republick to be employed in purchafing them, feem to be the finer and more improved manufactures ; fuch as contain a great value in a fmall bulk, and can, therefore, be exported to a great diflance at little expence. A country whofe induftry produces a great annual furplus of fuch manufactures, which are ufually exported to foreign countries, may carry on for many years a very expenfive foreign" war, without either exporting any confiderable quantity of gold' and filver, or even having any fuch quantity to export. A con- fiderable part of the annual furplus of its manufactures muft, indeed, in this cafe be exported, without bringing back any returns to the country, though it does to the merchant; the government pur- chafing of the merchant his bills upon foreign countries, in order to purchafe there the pay and provifions of an army. Some part of this furplus, however, may flill continue to bring back a return. The manufacturers, during the war, will have a double demand upon them, and be called upon, firft, to work up goods to be fent abroad, for paying the bills drawn upon foreign countries for the pay and provifions of the army ; and, fecondly, to work up fuch as are neceflary for purchafing the common returns that had ufually been confumed in the country. In the midft of the moft deftruCtive foreign war, therefore, the greater part of manufactures' may frequently flourlfh greatly ; and, on the contrary, they may decline on the return of the peace. They may flourifh amidft the ruin of their country, and begin to decay upon the return of its profperity: The different ftate of many different branches of the Britifh manufactures during the late war, and for fome time after the peace, may ferve as an illuftration of what has been juft now faid.

No

22 THE NATURE AND CAUSES OP

BOOK No foreign war of great expence or duration could conveniently be carried on by the exportation of the rude produce of the foil. The expence of fending fuch a quantity of it to a foreign country as might purchafe the pay and provifions of an army, would be too great. Few countries too produce much more rude produce than what is fufficient for the fubfiftence of their own inhabitants. To fend abroad any great quantity of it, therefore, would be to fend abroad a part of the neceflary fubfiftence of the people. It is otherwife with the exportation of manufaftures. The maintenance of the people employed in them is kept at home, and only the fur- plus part of their work is exported. Mr. Hume frequently takes notice of the inability of the ancient kings of England to carry on, without interruption, any foreign war of long duration. The Englilh, in thofe days, had nothing wherewithal to purchafe the pay and provifions of their armies in foreign countries, but either the rude produce of the foil, of which no confiderable part could be fpared from the home confumption, or a few manufadtures of the coarfeft kind, of which, as well as of the rude produce, the tranf- portation was too expenfive. This inability did not arife from the want of money, but of the finer and more improved manufadtures. Buying and felling was tranfadled by means of money in England then, as well as now. The quantity of circulating money mufl; have borne the fame proportion to the number and value of pur- chafes and fales ufually tranfadted at that time, which it does to thofe tranfadted at prefent ; or rather it muft have borne a greater proportion, becaufe there was then no paper, which now occupies a great part of the employment of gold and filver. Among nations to whom commerce and manufadtures are little known, the fovereign, upon extraordinary occafions, can feldom draw any confiderable aid from his fubjedts, for reafons which fhall be explained hereafter. It is in fuch countries, therefore, that he generally endeavours to accumulate a trcafure, as the only refource

againft

THE WEALTH OF NATIONS. 21

againft fuch emergencies. Independent of this neceffity, he is In ^ H A P. i'uch a fituation naturally difpofed to the parfimony requifite for ac* cumulation. In that fimple ftate, the expence even of a fovereign is not direded by the vanity which delights in the gaudy finery of a court, but is employed in bounty to his tenants, and hofpitality to his retainers. But bounty and hofpitality very feldom lead to ex- travagance ; though vanity almoft always does. Every Tartar chief, accordingly, has a treafure. The treafures of Mazepa, chief of the CofTacks in the Ukraine, the famous ally of Charles the Xllth, are faid to have been very great. The French kings of the Merovingian race had all treafures. When they divided their kingdom among their different children, they divided their treafure too. The Saxon princes, and the firft kings after the conquefl:, feem likewife to have ac- cumulated treafures. The firft exploit of every new reign was com- monly to feize the treafure of the preceding king, as the moft eflential meafure for fecuring the fucceffion. The fovereigns of improved and commercial countries are not under the fame neceffity of accu- mulating treafures, becaufe they can generally draw from their fub- je£ts extraordinary aids upon extraordinary occafions. They are likewife lefs difpofed to do fo. They naturally, perhaps neceffarily, follow the mode of the times, and their expence comes to be regu- lated by the fame extravagant vanity which directs that of all the other great proprietors in their dominions. The infignificant page- antry of their court becomes every day more brilliant, and the ex- pence of it not only prevents accumulation, but frequently encroaches upon the funds deftined for more necefTary expences. What Dercyllidas faid of the court of Perfia, may be applied to that of feveral European princes, that he faw there much fplendor but little ftrength, and many fervantsbut few foldiers.

The importation of gold and filver is not the principal, much lefs the fole benefit which a nation derives from its foreign trade.

Between

24 THE NATURE AND CAUSES OF

BOOK IV.

Between whatever places foreign trade is carried on, they all of them derive two diflin£t benefits from it. It carries out that fur- plus part of the produce of their land and labour for which there is no demand among them, and brings back in return for it fome- thing elfe for which there is a demand. It gives a value to their fuperfluities, by exchanging them for fomething elfe, which may fatlsfy a part of their v^rants, and increafe their enjoyments. By means of it, the narrownefs of the home market does not hinder the divifion of labour in any particular branch of art or manu- facture from being carried to the highefl: perfe£lion. By opening a more extenfive market for whatever part of the produce of their labour may exceed the home confumption, it encourages them to improve its produdive powers, and to augment its annual produce to the utmoft, and thereby to increafe the real revenue and wealth of the fociety. Thefe great and important fervices foreign trade is continually occupied in performing, to all the different countries between which it is carried on. They all derive great benefit from it, though that in which the merchant refides generally derives the greateft, as he is generally more employed in fupplying the wants, and carrying out the fuperfluities of his own, than of any other par- ticular country. To import the gold and filver which may be wanted, into the countries which have no mines, is, no doubt, a part of the bufinefs of foreign commerce. It is, however, a mod infig- nificant part of it. A country which carried on foreign trade merely upon this account, could fcarce have occafion to freight a fhip in a century.

It is not by the importation of gold and filver, that the dif- 00 very of America has enriched Europe. By the abundance of the American mines, thofe metals have become cheaper. A fervice of plate can now be purchafed for about a third part of the corn, ■or a third part of the labour, which it would have coil in the

fifteenth

THE WEALTH OF NATIONS. 2;

fifteenth century. With the fame annual expence of labour and commodities, Europe can annually purchafe about three times the quantity of plate which it could have purchafcd at that time. But v/hen a commodity comes to be fold for a third part of what had been its ufual price, not only thofe who purchafed it before can purchafe three times their former quantity, but it is brought down to the level of a much greater number of pur- chafers ; perhaps to more than ten, perhaps to more than twenty times the former number. So that there may be in Europe at prefent not only more than three times, but more than twenty or thirty times the quantity of plate which would have been in it, even in its prefent ftate of improvement, had the difcovery of the American mines never been made. So far Europe has, no doubt, gained a real conveniency, though furely a very trifling one. The cheapnefs of gold and filver renders thofe metals rather lefs fit for the purpofes of money than they were before. In order to make the fame purchafes, we muft load ourfelves with a greater quantity of them, and carry about a {hilling in our pocket where a groat would have done before. It is difficult to fay which is moft trifling, this inconveniency, or the oppofite conveniency. Neither the one nor the other could have made any very eflential change in the ftate of Europe. The difcovery of America, how- ever, certainly made a moft effentlal one. By opening a new and inexhauftible market to all the commodities of Europe, it gave occafion to new divifions of labouii. and improvements of art, •which, in the narrow circle of the ancient commerce, could never have taken place for want of a market to take off the greater part of their produce. The productive powers of labour were im- proved, and its produce increafed in all the different countries of Europe, and together with it the real revenue and wealth of the inhabitants. The commodities of Europe were almoft all new to America, and many of thofe of America were new- to Europe. Vol. II. E A new

.26 THE NATURE AND CAUSES OF

A new fett of exchanges, therefore, began to take place which had never been thought of before, and which (hould naturally have proved as advantageous to the new, as it certainly did to the old continent. The favage injuftice of the Europeans rendered an event, which ought to have been beneficial to all, ruinous and deflrudive to feveral of thofe unfortunate countries.

The difcovery of a paflage to the Eaft Indies, by the Cape of Good Hope, which happened much about the fame time, opened, perhaps, a flill more extenfive range to foreign commerce than even- that of America, notwithftanding the greater diftance. There were but two nations in America, in any refpedl fuperior to favages, and thefe were deftroyed almoft as foon as difcovered. The reft were mere favages. But the empires of China, Indoftan, Japan, as well as feveral others in the Eaft Indies, without having richer mines of gold or filver, were in every other refpe£t much richer, better cultivated, and more advanced in all arts and manufactures than either Mexico or Peru, even though we fhould credit, what plainly deferves no credit, the exaggerated accounts of the Spanifli writers, concerning the ancient ftate of thofe empires. But rich and civilized nations can always exchange to a much greater value with one another, than with favages and barbarians. Europe, however, has hitherto derived much lefs advantage from its com- merce with the Eaft Indies, than from that with America. The Portuguefe monopolifed the Eaft India trade to themfelves for about a century, and it was only indiredly and through them, that the other nations of Europe could either fend out or receive any goods from that country. When the Dutch, in the beginning of the laft century, began to encroach upon them, they vefted their whole Eaft India commerce in an exclufive company. The Englifh, French, Swedes, and Danes, have all followed their example, fo that no great nation in Europe has ever yet had the benefit of a 4 free

THE WEALTH OF NATIONS. 27

free commerce to the Eaft Indies. No other reafon need be afligned chap. why it has never been fo advantageous as the trade to America, which, between almoft every nation of Europe and its own colo- nies, is free to all its fubjedls. The exclufive privileges of thofe Eaft India companies, their great riches, the great favour and pro- tedion which thefe have procured them from their refpedtive govern- ments, have excited much envy againft them. This envy has fre- quently reprefented their trade as altogether pernicious, on account of the great quantities of filver, which it every year exports from the countries from which it is carried on. The parties concerned have replied, that their trad(i, by this continual exportation of filver, might, indeed, tend to impoverilh Europe in general, but not the particular country from which it was carried on ; becaufe, by the exportation of a part of the returns to other European countries, it annually brought home a much greater quantity of that metal than it carried out. Both the objection and the reply are founded in the popular notion which I have been juft now examining. It is, therefore, unneceffary to fay any thing further about either. By the annual exportation of filver to the Eaft Indies, plate is probably fomewhat dearer in Europe than it other- wife might have been ; and coined filver probably purchafes a larger quantity both of labour and commodities. The former of thefe two effeds is a very fmall lofs, the latter a very fmall advantage ; both too infignificant to deferve any part of the publick attention. The trade to the Eaft Indies, by opening a market to the commo- dities of Europe, or, what comes nearly to the fame thing, to the gold and filver which is purchafed with thofe commodities, muft neceflarily tend to increafe the annual production of European commodities, and confequently the real wealth and revenue of Europe. That it has hitherto increafcd them fo little, is pro- bably owing to the reftraints which it every where labours under.

Eg I THOUGHT

28 THE NATURE AND CAUSES OF

E o o K I THOUGHT it necefTary, though at the hazard of heing tedious*

V , > to examine at full length this popular notion that wealth confifls

in money, or in gold and filver. Money in common language, as I have already ohferved, frequently fignifies wealth; and this ambiguity of expreflion has rendered this popular notion fo fa- miliar to us, that even they, who are convinced of its abfurdity, are very apt to forget their own principles, and in the courfe of their reafonings to take it for granted as a certain and undeniable truth. Some of the befl: Englifh writers upon commerce fet out with obferving, that the wealth of a country confifls, not in its gold and filver only, but in its hnds, houfes, and confumable goods of all different kinds. In the courfe of their reafonings, however, the lands, houfes, and confumable goods feem to flip cut of their memory, and the ftrain of their argument frequently fuppofes that all wealth confifts in gold and filver, and that to multiply thofe metals is the great objed of national induftry and commerce.

The two principles being eftabliflied, however, that wealth con- fifted in gold and filver, and that thofe metals could be brought into a country which had no mines only by the balance of trade, or by exporting to a greater value than it imported ; it neceffarily became the great objedt of political ceconomy to diminifh as much as poflible the importation of foreign goods for home-confumption, and to increafe as much as poffible the exportation of the produce of domeftick induftry. Its two great engines for enriching the country, therefore, were reftraints upon importation, and encouragements to exportation.

The reftraints upon importation were of two kinds^

First, Reftraints upon the importation of fuch foreign goods for

home-confumption as could be produced at home, from whatever

country they were imported.

Secondly,

THE WEALTH OF NATIONS. 59

Secondly, Reftraints upon the importation of goods of almoft chap. all kinds from thole particular countries with which the balance of v- — »r— — ' trade was fuppofed to be difadvantageous,

Those different reftraints confifted fometimes in high duties, and fometimes in abfolute prohibitions.

Exportation was encouraged fometimes by drawbacks, fome- times by bounties, fometimes by advantageous treaties of com- merce with foreign ftates, and fometimes by the eftablifhment of colonies in diftant countries.

Drawbacks were given upon two different occafions. When the home-manufadures were fubje£l: to any duty or excife, either the whole or a part of it was frequently drawn back upon their exportation ; and when foreign goods liable to a duty were im- ported in order to be exported again, either the whole or a part of this duty was fometimes given back upon fuch export- ation.

Bounties were given for the encouragement either of fome be- ginning manufadlures, or of fuch forts of induftry of other kinds as •were fuppofed to deferve particular favour.

By advantageous treaties of commerce, particular privileges were procured in fome foreign flate for the goods and merchants of the country, beyond what were granted to thofe of other countries.

By the eflablifhment of colonies in diflant countries, not only- particular privileges, but a monopoly was freq^uently procured?

for

so THE NATURE AND CAUSES OF

BOOK for the goods and merchants of the country which eftablifhed

■1 V •

them.

The two forts of reftralnts upon importation above mentioned, together with thefe four encouragements to exportation, conftitute the fix principal means by which the commercial fyftem propofes to increafe the quantity of gold and filver in any country by turning the balance of trade in its favour. I fhall confider each of them in a particular chapter, and without taking much further notice of their fuppofed tendency to bring money into the country, I Ihall examine chiefly what are likely to be the effedts of each of them upon the annual produce of its induftry. According as they tend either to increafe or diminifh the value of this annual produce, they muft evidently tend either to increafe or diminifli the real wealth and revenue of the country.

THE WEALTH OF NATIONS.

3»

CHAP. II.

Of Reflraints upon the Importation from foreign Countries of fuch Goods as can be produced at Home.

BY reftraining, either by high duties, or by abfolute prohibitions, the importation of fuch goods from foreign countries as can be produced at home, the monopoly of the home-market is more or lefs fecured to the domeftick induftry employed in producing them. Thus the prohibition of importing either live cattle or fait provifions from foreign countries fecures to the graziers of Great Britain the monopoly of the home-market for butchers- meat. The high duties upon the importation of corn, which in times of moderate plenty amount to a prohibition, give a like ad- vantage to the growers of that commodity. The prohibition of the importation of foreign woollens is equally favourable to the woollen manufadurers. The filk manufacture, though altogether employed upon foreign materials, has lately obtained the fame advajitage. The linen manufacture has not yet obtained it, but is making great ftrides towards it. Many other forts of manu- facturers have, in the fame manner, obtained in Great Britain, either altogether, or very nearly a monopoly againft their coun^ trymen.

That this monopoly of the home-market frequently gives great- encouragement to that particular fpecles of induftry which enjoys it, and frequently turns towards that employment a greater (hare of both the labour and ftock of the fociety than would otherwife have gone to it, cannot be doubted. But whether it tends either'

to

32 THE NATURE AND CAUSES OF

B o o K tQ increafe the general induftry of the fociety, or to give it the mofl:

J V »

advantageous direction, is not, perhaps, altogether fo evident.

The general induftry of the fociety never can exceed w-hat the capital of the fociety can employ. As the number of workmen that can be kept in employment by any particular perfon muft bear a certain proportion to his capital, fo the number of thofe that can be continually employed by all the members of a great fociety muft bear a certain proportion to the whole capital of that fociety, and never can exceed that proportion. No regulation of commerce can increafe the quantity of induftry in any fociety beyond what its capital can maintain. It can only divert a part of it into a di- reilion into which it might not otherwife have gone ; and it is by no means certain that this artificial direction is likely to be more advantageous to the fociety than that into which it would have gone of its own accord.

Every individual is continually exerting himfelf to find out the moft advantageous employment for whatever capital he can com- mand. It is his own advantage, indeed, and not that of the fociety, which he has in view. But the ftudy of his own advantage natural- ly, or rather neceffarily leads him to prefer that employment which is moft advantageous to the fociety.

First, every individual endeavours to employ his capital as near home as he can, and confequently as much as he can in the fupport of domeftick induftry ; provided always that he can thereby obtain the ordinary, or not a great deal lefs than the ordinary pro- fits of ftock.

Thus upon equal or nearly equal profits, every wholefale mer- chant naturally prefers the home- trade to the foreign trade of

confumption,

THE WEALTH OF NATIONS. 33

confumptlon, and the foreign trade of confumption to the carrying CHAP, trade. In the home-trade his capital is never fo long out of his <■■ > ' fight as it frequently is in the foreign trade of confumption. He can know better the charadcr and fituation of the perfons whom he trufts, and if he fliould happen to be deceived, he knows better the laws of the country from which he muft feek redrefs. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever neceffarily brought home, or placed under his own immediate vlciv and com- mand. The capital which an Amfterdam merchant emplojs in carrying corn from Konnigfberg to Lifbon, and fruit and wine from Lifbon to Koruiigfberg, muft generally be the one-half of it at Konnigfberg and the otKer half at Lifbon. No part of it need ever come to Amfterdam. The natural refidence of fuch a merchant fhould either be at Konnigfberg or Lifbon, and it can only be fome very particular circumftances which can make him prefer the refidence of Amfterdam. The uneafinefs, however, which he feels at being feparated fo far from his capital, generally determines him to bring part both of the Konnigfberg goods which he deftines for the market of Lifbon, and of the Lifbon goods which he deftines for that of KonnigflDcrg, to Amfterdam : and though this neceflarily fubjedls him to a double charge of load- ing and unloading, as well as to the payment of fome duties and cuftoms, yet for the fake of having fome part of his capital always under his own view and command, he willingly fubmits to this extraordinary charge ; and it is in this manner that every country which has any conliderable fhare of the carrying trade, becomes always the emporium, or general market, for the goods of all the diff'erent countries whofe trade it carries on. The mer- chant, in order to fave a fecond loading and unloading, endeavours always to fell in the home-market as much of the goods of all thofe different countries as he can, and thus, fo far as he can, to Vol. II. F convert

34 THE NATURE AND CAUSES OF

convert his carrying trade into a foreign trade of confumption. A merchant, in the fame manner, who is engaged in the foreign trade of confumption, when he colledls goods for foreign markets, ■will always be glad, upon equal or nearly equal profits, to fell as great a part of them at home as he can. He faves himfelf the rifk and trouble of exportation, when, fo, far as he can, he thus converts his foreign trade of confumption into a home-trade. Home is in this manner the center, if I may fay fo, round which the capitals of the inhabitants of every country are continually cir- culating, and towards which they are always tending, though by particular caufes they may fometimes be driven off and repelled from it towards more diftant employments. But a capital em- ployed in the home-trade, it has already been fhown, neceflarily puts into motion a greater quantity of domeftic induflry, and gives revenue and employment to a greater number of the inha- bitants of the country, than an equal capital employed in the foreign trade of confumption : and one employed in the foreign trade of confumption has the fame advantage over an equal capital employed in the carrying trade. Upon equal, or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatefl: fup- port to domeftic induftry, and to give revenue and employrnent to the greateft number of people of his own country.

Secondly, every individual who employs his capital in the fup- port of domeftic induftry, neceflarily endeavours fo to diredl that induftry, that its produce may be of the greateft poffible value.

The produce of induftry is what it adds to the fubjeft or ma- terials upon which it is employed. In proportion as the value of this produce is great or fmall, fo will llkewlfe be the profits of the employer. But it is only for the fake of profit that any man em- I ploys

I

THE WEALTH OF NATIONS. 35

ploys a capital in the fupport of induftry; and he will always, there- CHAP, fore, endeavour to employ it in the fupport of that induftry of which the produce is likely to be of the greatefl value, or to exchange for the greateft quantity either of money or of other goods.

But the annual revenue of every fociety is always precifely equal to the exchangeable value of the whole annual produce of its in- duftry, or rather is precifely the fame thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the fupport of domeftick induftry, and fo to dired: that induftry that its produce may be of the greateft value; every individual neceflarily labours to render the annual re- venue of the fociety as great as he can. He generally, indeed, neither intends to promote the publick intereft, nor knows how much he is promoting it. By preferring the fupport of domeftic to that of foreign induftry he intends only his own fecurity; and by directing that induftry in fuch a manner as its produce may be of the greateft value, he intends only his own gain, and he is in this, as in many- other cafes, led by an invifible hand to promote an end which was no part of his intention. Nor is it always the worfe for the fociety that it was no part of it. By purfuing his own intereft he frequently promotes that of the fociety more efFedtually than when he really in- tends to promote it. I have never known much good done by thofe who affeded to trade for the publick good. It is an afFedation, indeed, not very common among merchants, and very few words need be employed in diflTuading them from it.

What is the fpecies of domeftick induftry which his capital can employ, and of which the produce is likely to be of the greateft value, every individual, it is evident, can, in his local fituation, judge much better than any ftatefman or lawgiver can do for him.

F 2 The

36 THE NATURE AND CAUSES OF

B o o K The ftatefman, who fhould attempt to dire£t private people in what *— — V— — / manner they ought to employ their capitals, would not only load himfelf with a moft unneceflary attention, but affume an authority which could fafely be trufted, not only to no fingle perfon, but to no council or fenate whatever, and which would nowhere be fo dangerous as in the hands of a man who had folly and prefump- tion enough to fancy himfelf fit to exercife it.

To give the monopoly of the home-market to the produce of domeftick induflry, in any particular art or manufacture, is in fome meafure to dire£t private people in what manner they ought to employ their capitals, and muft, in almofl: all cafes, be either a ufelefs or a hurtful regulation. If the produce of domeftick can be brought there as cheap as that of foreign induftry, the regulation is evidently ufelefs. If it cannot, it muft generally be hurtful. It is the maxim of every prudent mafter of a family, never to at- tempt to make at home what it will coft him more to make than to buy. The taylor does not attempt to make his own ihoes, but buys them of the ftioemaker. The fhoemaker does not attempt to make his own cloaths, but employs a taylor. The farmer attempts to make neither the one nor the other, but employs thofe different artificers. All of them find it for their intereft to employ their whole induftry in a way in which they have fome advantage over their neighbours, and to purchafe with a part of its produce, or what is the fame thing, with the price of a part of it, whatever elfe they have occafion for.

What is prudence in the conduCt of evtry pi-ivate family, can fcarce be folly in that of a great kingdom. If a foreign coun- try can fiipply us with a commodity cheaper than we ourfelves can make it, better buy it of them with lome part of the pro- duce of our own induftry, employed in a way in which we have

fome

J

THE WEALTH OF NATIONS.

a;

ibme advantage. The general induftry of the country, being CHAP, always in proportion to the capital which employs it, will not v— v— — > thereby be diminifhed, no more than that of the above-mentioned artificers ; but only left to find out the way in which it can be employed with the greatefl: advantage. It is certainly not em- ployed to the greatefl advantage, when it is thus direded to- wards an objecS: which it can buy cheaper than it can make. The value of its annual produce is certainly more or lefs diminifhed, .when it is thus turned away from producing commodities evidently of more value than the commodity which it is direded to produce. According to the fuppofition, that commodity could be purchafed from foreign countries cheaper than it can be made at home. It could, therefore, have been purchafed with a part only of the commodities, or, what is the fame thing, with a part only of the price of the commodities, which the induftry employed by an equal capital, would have produced at home,, had it been left to follow its natural courfe. The induflry of the country, therefore, is thus turned away from a more, to a lefs advantageous employment, and the ex<;hangeable value of its annual produce, inftead of being increafed, according to the intention of the lawgiver, muft necef- farily be diminifhed by every fuch regulation.

By means of fuch regulations, indeed, a particular manufadure may fometimes be acquired fooner than it could have been otherwife,, and after a certain time may be made at home as cheap or cheaper than in the foreign country. But though the induftry of the fociety may be thus carried with advantage into a particular chan- nel fooner than it could have been otherwife, it will by no means •: follow that the fum total, either of its induftry, or of its revenue,, can ever be augmented by any fuch regulation. The induftry of the fociety can augment only in proportion as its capital augments,, and its capital can augment only in proportion to what can be • gradually faved out of its revenue. But the immediate efFcd of

eseryy

si THE NATURE AND CAUSES OF

every fuch regulation is to diminifh its revenue, and what diminirhes its revenue, is certainly not very likely to augment its capital fader than it would have augmented of its own accord, had both capital and induftry been left to find out their natural employments.

Though for want of fuch regulations the fociety fhould never acquire the propofed manufacture, it would not, upon that account, neceflarily be the poorer in any one period of its duration. In every period of its duration its whole capital and induftry might ftill have been employed, though upon different objeds, in the manner that was moft advantageous at the time. In every period its revenue might have been the greateft which its capital could afford, and both capital and revenue might have been augmented with the greateft poffible rapidity.

The natural advantages which one country has over another in producing particular commodities are fometimes fo great, that it is acknowledged by all the world to be in vain to ftruggle with them. By means of glalTes, hotbeds, and hotwalls, very good grapes can be raifed in Scotland, and very good wine too can be made of them at about thirty times the expence for which at leaft equally good can be brought from foreign countries. Would it be a reafonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland ? But if there would be a manifeft abfurdity in turning towards any em- ployment, thirty times more of the capital and induftry of the country, than would be neceffary to purchafe from foreign countries an equal quantity of the commodities wanted, there muft be an abfurdity, though not altogether fo glaring, yet exadly of the fame kind, in turning towards any fuch employment a thirtieth, or even a three hundredth part more of either. Whether the ad- vantages which one country has over another, be natural or ac- quired,

THE WEALTH OF NATIONS. y^

quired, is in this refpe£t of no confequencc. As long as the one ^ ^ J^ ^- country has thofe advantages, and the other wants them, it will v_ -„~ii.^, always be more advantageous for the latter, rather to buy of the former than to make. It is an acquired advantage only, which one artificer has over his neighbour, who exercifes another trade ; and yet they both find it more advantageous to buy of one ano- ther, than to make what does not belong to their particular trades.

• Merchants and manufadurers are the people who derive the greateft advantage from this monopoly of the home market. The prohibition of the importation of foreign cattle, and of fait provifions, together with the high duties upon foreign corn, which in times of moderate plenty amount to a prohibition, are not near fo advantageous to the graziers and farmers of Great Britain, as other regulations of the fame kind are to its merchants and manu- fadurers. Manufadures, thofe of the finer kind efpecially, are more eafily tranfported from one country to another than corn or cattle. It is in the fetching and carrying manufadures, accord- ingly, that foreign trade is chiefly employed. In manufadures, a very fmall advantage will enable foreigners to underfell our own workmen, even in the home market. Jt will require a very great one to enable them to do fo in the rude produce of the foil. If the free importation of foreign manufadures was permitted, feveral of the home manufadures would probably fufFer, and fome of them, perhaps, go to ruin altogether, and a confiderable part of the flock and induflry at prefent employed in them, would be forced to find out fome other employment. But the freefl im- portation of the rude produce of the foil could have no fuch effed;; upon the agriculture of the country.

If the importation of foreign cattle, for example, wa« made ever fo free, fo few could be imported, that the grazing trade of Great

Britaia

40 THE NATURE AND CAUSES OF

BOOK Britain coiild be little afFe£l:ed by it. Live cattle are, perhaps, the '—— V- — ' only commodity of which the tranfportation is more expenfive by Tea than by land. By land they carry themfelves to market. By fea, not only the cattle, but their food and their water too muft be carried at no fmall expence and inconveniency. The fhort fca between Ireland and Great Britain, indeed, renders the importation of Irifh cattle more eafy. But though the free importation of them, which was lately permitted only for a limited time, were Tendered perpetual, it could have no confiderable effedl upon the intereft of the .graziers of Great Britain, Thofe parts of Great Britain which border upon the Irifti fca are all grazing countries. Jrifh cattle could never be imported for their ufe, but muft be drove 'through thofe very extenfive countries, at no fmall expence and in- conveniency, before they could arrive at their proper market. Fat cattle could not be drove fo far. Lean cattle, therefore, only could be imported, and fuch importation could interfere, not with the intereft of the feeding or fattening countries, to which, by reducing the price of lean cattle, it would rather be advantageous, but with that of the breeding countries only. The fmall number of ln(h cattle imported fmce their importation was permitted, together with the good price at which lean cattle ftill continue to fell, feem to demonftrate that even the breeding countries of Great Britain are never likely to be much affeded by the free importation of Irifh cattle. The common people of Ireland, indeed, are faid to have fometimes oppofed with violence the exportation of their cattle. But if the exporters had found any great advantage in continuing the trade, they could eafily, when the law was on their fide, have conquered this mobbifli oppofition.

Feeding and fattening countries, befides, muft always be highly improved, whereas breeding countries are generally un- cultivated. The high price of lean cattle, by augmenting the value

of

THE WEALTH OF NATIONS. 41

of uncultivated land, is like a bounty againfl: improvement. To any country which was highly improved throughout, it would be more advantageous to import its lean cattle than to breed them. The province of Holland, accordingly, is faid to follow this maxim at prefent. The mountains of Scotland, "Wales, and Northumber- land, indeed, are countries not capable of much improvement, and feem deftiued by nature to be the breeding countries of Great Britain. The freeft importation of foreign cattle could have no other efFe£t than to hinder thofe breeding countries from taking advantage of the incrcafing population and improvement of the reft of the kingdom, from railing their price to an exorbitant height, and from laying a real tax upon all the more improved and culti- vated parts of the country.

The freeft importation of fait provifions, in the fame manner, could have as little effeifl upon the intereft of the graziers of Great Britain as that of live cattle. Salt provifions are not only a very bulky commodity, but when compared with frefli meat, they are a commodity both of worfe quality, and as they cofl more labour and expence, of higher price. They could never, therefore, come into competition with the frefh meat, though, they might with the fait provifions of the country. They might be ufed for vidualling (hips for diflant voyages, and fuch like ufes, but could never make any confiderable part of the food of the people. The fmall quantity of fait provifions imported from Ire- land fince their importation was rendered free, is an experimental proof that our graziers have nothing to apprehend from it. It does not appear that the price of butcher's-meat has ever been fenfibly afFeded by it.

Even the free Importation of foreign corn could very little afFe£t the intereft of the farmers of Great Britain. Corn \s a much more bulky commodity than butcher's meat. A pound of

Vol. II. G wheat

42 THE NATURE AND CAUSES OF

BOOK vvheat at a penny is as dear as a pound of butcher's-meat at four- t pence. The fmall quantity of foreign corn imported even in times

of the greateft fcarcity, may fatisfy our farmers that they can have nothing to fear from the freeft importation. The average quantity imported, one year with another, amounts only, according to the very well informed author of the trails upon the corn trade, to twenty-three thoufand feven hundred and twenty-eight quarters of all forts of grain, and does not exceed the five hundredth and feventy- one part of the annual confumption. But as the bounty upon corn occafions a greater exportation in years of plenty, fo it mud of confe- quence occafion a greater importation in years of fcarcity, than in the adtual ftate of tillage, would otherwife take place. By means of it, the plenty of one year does not compenfate the fcarcity of another, and as the average quantity exported is neceflarily augmented by it, fo mufl; likev-'ife, in the actual ftate of tillage, the average quan- tity imported. If there was no bounty, as lefs corn would be ex- ported, fo it is probable that, one year with another, lefs would be imported than at prefent. The corn merchants, the fetchers and carriers of corn, between Great Britain and foreign countries, would have much lefs employment, and might fufFer confiderably ; but the country gentlemen and farmers could fufFer very little. It is in the corn merchants accordingly, rather than in the country gentlemen and farmers, that I have obferved the greateft anxiety for ^he re- newal and continuation of the bounty.

Country gentlemen and farmers are, to their great honour, of all people, the leaft fubjedl to the wretched fpirit of monopoly. The undertaker of a great manufaiflory is fometimes alarmed if another work of the fame kind is eftabllftied within twenty miles of him. The Dutch undertaker of the woollen manufacture at Abbeville, ftipulated that no work of the fame kind fliould be eftabliftied within thirty leagues of that city. Farmers and country

gentlemen,

THE WEALTH OF NATIONS. 43

gentlemen, on the contrary, are generally difpofed rather to pro- ^ H a p.

mote than to obftru<£t the cultivation and improvement of their ^- — ^ '

neighbours farms and eftates. They have no fecrets, fuch as thofe of the greater part of manufadurers, but are generally rather fond of communicating to their neighbours, and of extending as far as poffible any new practice v\'hich they have found to be ad- vantageous. Pius ^lejlus, fays old Cato, JlabiliJJimufque, mi- nimeque innjidiojus ; mmimeque male cogitantes Junt, qui in eo Jltidio occupati flint. Country gentlemen and farmers, difperfed in dif- ferent parts of the country, cannot fo eafily combine as merchants and manufadurers, who being colleded into towns, and accuftomed to that exclufive corporation fpirit which prevails in them, lia- turally endeavour to obtain againft all their countrymen, the fame exclufive privilege which they generally poflefs againft the inhabitants of their refpedive towns. They accordingly feem to have been the original inventors of thofe reftraints upon the im- portation of foreign goods, which fecure to them the monopoly of the home-market. It was probably in imitation of them, and to put themfelves upon a level with thofe, who, they found were difpofed to opprefs them, that the country gentlemen and farmers of Great Britain fo far forgot the generofity which is natural to their ftation, as to demand the exclufive privilege of fupplying their countrymen with corn and butcher's-meat. They did not perhaps take time to confider, how much lefs their Intereft could be affeded by the freedom of trade, than that of the people whofe example they followed.

To prohibit by a perpetual law the importation of foreign corn and cattle, is in reality to enad, that the population and induftry of the country iliall at no time exceed what the rude produce of its own foil can maintain.

G 2 There

44 THE NATURE AND CAUSES OF

BOOK There feem, however, to be two cafes In which it will p-enerally be advantageous to lay fome burden upon foreign, for the encou- ragement of domeftick induftry.

, The firft.is when fome particular fort of induftry is neceflary for the defence of the country. The defence of Great Britain, for example, depends very much upon the number of its failors and fhipping. The a£t of navigation, therefore, very properly endeavours to give the failors and {hipping of Great Britain the monopoly of the trade of their own country, in fome cafes, by abfolute prohibitions, and in others by heavy burdens upon the fhipping of foreign countries. The following are the principal dif- pofitions of this a£t :

First, all fhips, of which the owners, mafters, and three- fourths of the mariners are not Britifh fubjeds, are prohibited, upon pain of forfeiting fhip and cargo, from trading to the Britifh fettlements and plantations, or from being employed in the coafting trade of Great Britain.

Secondly, a great variety of the moft bulky articles of im- portation can be brought into Great Britain only, either in fuch fhips as are above defcribed, or in fliips of the country where thofe goods are produced, and of which the owners, mafters, and three-fourths of the mariners, are of that particular country; and when imported even In fhips of this latter kind, they are fubjedt to double aliens duty. If imported in fhips of any other country, the penalty is forfeiture of fhip and cargo. When this ad: was made, the Dutch were, what they ftill are, the great carriers of Europe, and by this regulation they were entirely excluded from being the carriers to Great Britain, or from importing to us the goods of any other European country.

Thirdly,

THE WEALTH OF NATIONS. 45

Thirdly, a great variety of the moft bulky articles of im- chap. portation are prohibited from being imported, even in Britifh Ihips, from any country but that in which they are produced ; under pain of forfeiting fhip and cargo. This regulation too was probably intended againft the Dutch. Holland was then, as now, the great emporium for all European goods, and by this regulation, Britifli fliips were hindered from loading in Holland the goods of any other European country.

Fourthly, fait fifh of all kinds, whale-fins, whale bone, oil, and blubber, not caught by and cured on board Britllh vefTels, when imported into Great Britain, are fubje£led to double aliens duty. The Dutch, as they are ftill the principal, were then the only fifhers in Europe that attempted to fupply foreign nations with fifh. By this regulation, a very heayy burden was laid upon their fupplying Great Britain.

When the ad of navigation was made, though England and Holland were not adually at war, the moft violent animofity fub- fifted between the two nations. It had begun during the govern- ment of the long parliament, which firft framed this ad, and it broke out foon after in the Dutch wars during that of the Protestor and of Charles the lid- It is not impoffible, therefore, that fome of the regulations of this famous adl may have proceeded from na- tional animofity. They are as wife, however, as if they had all been dictated by the moft deliberate wifdom. National animofity at that particular time aimed at the very fame obje£t which the moft deliberate wifdom would have recommended, the diminution of the naval power of Holland, the only naval power which could en- danger the fecurity of England.

The ad of navigation is not favourable to foreign commerce, or to the growth of that opulence which can arife from it. The

iatexeft

46 THE NATURE AND CAUSES OF

interefi: of a nation in its commercial relations to foreign nations is, like that of a merchant with regard to the different people with whom he deals, to buy as cheap and to fell as dear as poffible. But it will be moft likely to buy cheap, when by the moft perfe<Sl free- dom of trade it encourages all nations to bring to it the goods which it has occafion to purchafe ; and, for the fame reafon, it will be moft likely to fell dear, when its markets are thus filled with the greateft number of buyers. The a6t of navigation, it is true, lays no burden upon foreign fliips that come to export the produce of Britifh induftry. Even the antient aliens duty, which ufed to be paid upon all goods exported as well as imported, has, by feveral fubfequent ads, been taken off from the greater part of the articles of exportation. But if foreigners, either by prohibitions or high duties, are hindered from coming to fell, they cannot always afford to come to buy; becaufe coming without a cargo, they muft lofe the freight from their own country to Great Britain. By diminilhing the number of fellers, therefore, we neceifarily diminifh that of buyers, and are thus likely not only to buy foreign goods dearer, but to fell our own cheaper, than if there was a more perfect freedom of trade. As defence, however, is of much more importance than opulence, the adi of navigation is, perhaps, the wifeft of all the commercial regulations of England.

The fecond cafe, in which it will generally be advantageous to lay fome burden upon foreign for the encouragement of domeftick induftry, vs, when fome tax is impofed at home upon the produce of the latter. In this cafe, it feems reafonable that an equal tax fliould be impofed upon the like produce of the former. This would not give the monopoly of the home market to domeftick induftry, nor turn towards a particular employment a greater fhare of the ftock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally

go

THE WEALTH OF NATIONS. 47

go to it from being turned away by the tax, into a lefs natural CHAP, diredion, and would leave the competition between foreign and domeftick induftry, after the tax, as nearly as poffible upon the fame footing as before it. In Great Britain, when any fuch tax is laid upon the produce of domeftick induftry, it is ufual at the fame time, in order to flop the clamorous complaints of our merchants and manufacturers, that they will be underfold at home, to lay a much heavier duty upon the importation of all foreign goods of the fame kind.

This fecond limitation of the freedom of trade according to fome people fhould, upon fome occafions, be extended much further than to the precife foreign commodities which could come into competition with thofe which had been taxed at home. When the neceffaries of life have been taxed in any country, it becomes proper, they pretend, to tax not only the like neceffaries of life imported from other countries, but all forts of foreign goods which can come into competition with any thing that is the produce of domeftick induftry. Subfiftence, they fay, becomes necefl"arily dearer in confequence of fuch taxes ; and the price of labour mufl: always rife with the price of the labourers fubfiftence. Every com- modity, therefore, which is the produce of domeftick induftry, though not immediately taxed Itfelf, becomes dearer in confequence of fuch taxes, becaufe the labour which produces it becomes fo. Such taxes, therefore, are really equivalent, they fay, to a tax • upon every particular commodity produced at home. In order to put domeftick upon the fame footing with foreign induftry therefore, it becomes neceflary, they think, to lay fome duty upon every foreign commodity, equal to this enhancement of the price of the home com^modities with which it can come into com- petition.

Whether

48 THE NATURE AND CAUSES OF

Whether taxes upon the neceffaries of life, fuch as thofe in Great Britain upon foap, fait, 'leather, candles, &c. neceflarily ralfe tlie price of labour, and confequently that of all other commodities, I fhall confuler hereafter, when I come to treat of taxes. Suppof- ing, however, in the mean time, that they have this effed, and they have it undoubtedly, this general enhancement of the price of all commodities, in confequence of that of labour, is a cafe which differs in the two following refpeds from that of a particular com- modity, of which the price was enhanced by a particular tax imme- diately impofed upon it.

First, it might always be known with great exadnefs how far the price of fuch a commodity could be enhanced by fuch a tax : but how far the general enhancement of the price of labour might affed that of every different commodity, about which labour was employed, could never be known with any tolerable exadnefs. It would be impoffible, therefore, to proportion with any tolerable exadnefs the tax upon every foreign, to this enhancement of the price of every home commodity.

Secondly, taxes upon the neceffaries of life have nearly the fame effed upon the circumftances of the people as a poor foil and a bad climate. Provifions are thereby rendered dearer in the fame manner as if it required extraordinary labour and expence to raife them. As in the natural fcarcity arifmg from foil and cli- mate, it would be abfurd to dired the people in what manner they ought to employ their capitals and induftry, fo is it likewife in the artificial fcarcity arifing from fuch taxes. To be left to accommo- date, as well as they could, their induftry to their fituation, and to find out thofe employments in which, notwithftanding their un- favourable circumftances, they might have fome advantage either in t the

THE WEALTH OF NATIONS. 49

the'^ome or in the foreign marker, is what in both cafes would C HA ?. evidently be mofl for their advantage. To lay a new tax upon them, becaufe they arc already overburdened with taxes, and becaufe they already pay too dear for the neceflaries of life, to make them likewife pay too dear for the greater part of other commodities, is certainly a mofl: abfurd way of making amends.

Such taxes, when they have grown up to a certain height, arc a curfe equal to the barrennefs of the earth and the inclemency of the heavens; and yet it is in the richeft and moft induftrious coun- tries that they have been moft generally impofed. No other coun- tries could fupport fo great a diforder. As the ftrongefl: bodies only can live and enjoy health, under an unwholefome regimen ; fo the nations only, that in every fort of induftry have the greateft natural and acquired advantages, can fubfift and profper under fuch taxes. Holland is the country in Europe in which they abound moft, and which from peculiar circumftances continues to profper, not by means of them, as has been moft abfurdly fuppofed, but in fpite of them.

As there are two cafes in which it will generally be advantageous to lay fome burden upon foreign, for the encouragement of domef- tick induftry ; fo there are two others in which it may fometimes be a matter of deliberation ; in the one, how far it is proper to continue the free importation of certain foreign goods ; and in the other, how far, or in v;hat manner it may be proper to reftore that free import- ation after it has been for fome time interrupted.

The cafe in which it may fometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods, is, when fome foreign nation reftrains by high duties or prohibitions the importation of fome of our manufadures into

Vol. 11. H their

50 THE NATURE AND CAUSES OF

9v° ^ their country. Revenge in this cafe naturally didates retaliation, and that we fhould impofe the like duties and prohibitions upon the importation of fome or all of their manufadures into ours. Nations, accordingly, feldom fail to retaliate in this manner. The French have been particularly forward to favour their own manufa£tures by reftraining the importation of fuch foreign goods as could come into competition with them. In this confifted a great part of the policy of Mr. Colbert, who, notwithftanding his great abilities, feems in this cafe to have been impofed upon by the fophiftry of merchants and manufadurers, who are always demand- ing a monopoly againft their countrymen. It is at prefent the opinion of the moft intelligent men in France that his operations of this kind have not been beneficial to his country. That minifter, by the tarif of 1667, impofed very high duties upon a great num- ber of foreign manufaclures. Upon his refufing to moderate them in favour of the Dutch, they in 1671 prohibited the importation of. the wines, brandies, and manufa£\ures of France. The war of 1672 feems to have been in part occafioned by this commercial difpute* The peace of Nimeguen put an end to it in 1678, by moderating fome of thofe duties in favour of the Dutch, who in confequence took off their prohibition. It was about the fame time that the French and F.nglifh began mutually to opprefs each other's induftry, by the like duties and prohibitions, of which the French, however, feem to have fet the firft example. The fpirit of hof- tility which has fubfifted between the two nations ever fince, has hitherto hindered them from being moderated on either fide. In 1697 the Englilh prohibited the importation of bonelace, the ma- nufadure of Flanders. The government of that country, at that time under the dominion of Spain, prohibited in return the impor- tation of Englifh woollens. In 1700, the prohibition of importing bonelace into England, was -taken off upon condition that the im- portation of Englifh woollenxS into Flanders fhould be put on the

fame footing as before.

There

THE WEALTH OF NATIONS. 51

There may be good policy in retaliations of this kind, when chap. there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compenfate the trinfitory inconveniency of paying dearer during a fhort time for fome forts of goods. To judge whether fuch retaliations are likely to produce fuch an effed, does not, perhaps, belong fo much to the fcience of a legiflator, whofe deliberations ought to be governed by general principles which are always the fame, as to the fkill of that in- fidious and crafty animal, vulgarly called a ftatefman or politician, whofe councils are directed by the momentary fludluations of affairs. When there is no probability that any fuch repeal can be procured, it feems a bad method of compenfating the injury done to certain clafTes of our people, to do another injury ourfelves, not only to thofe clafles, but to almoft all the other clafles of them. When our neighbours prohibit fome manufa£lure of ours, we generally pro- hibit, not only the fame, for that alone would feldom affedl them confiderably, but fome other manufa(fl:ure of theirs. This may no doubt give encoutagement to fome particular clafs of workmen among ourfelves, and by excluding fome of their rivals, may en- able them to raife their price in the home-market. Thofe work- men, however, who fuffered by our neighbours prohibition will not be benefited by ours. On the contrary, they and almoft all the other clafles of our citizens will thereby be obliged to pay dearer than before for certain goods.' Every fuch law, therefore, impofes a real tax upon the whole country, not in favour of that particular clafs of workmen who were injured by our neighbours prohibition, but of fome other clafs.

The cafe in which it may fometlmes be a matter of deliberation, how far, or in what manner it is proper to reftore the free impor- tation of foreign goods, after it has been for fome time interrupted,

H 2 is,

52 THE NATURE ANDCAUSES OF

is, when particular maniifa(5l;ures, by means of high duties or prohibitions upon all foreign goods which can come into compe- tition with them, have been fo far extended as to employ a great multitude of hands. Humanity may in this cafe require that the freedom of trade fhould be reflored only by flow gradations, and with a good deal of referve and circumfpeftion Were thofe high duties and prohibitions taken away all at once, cheaper foreign goods of the fame kind might be poured fo fad into the home market, as to deprive all at once many thoafands of our people of their or- dinary employment and means of fubfiftencc. The diforder which this would occafion might no doubt be very confiderable. It would in all probability, however, be much lefs than is commonly ima- gined, for the two fo-Uowing reafous :

First, all thofe manufatftures, of which any part is commonly exported to other European countries without a bounty, could be very little affeded by the freeft importation of foreign goods. Such raanufadlures muft be fold as cheap abroad as any other foreign goods of the fame quality and kind, and confequently muft be fold cheaper at home. They would ftill, therefore, keep poffefFion of the home market, and though a capricious man of faOilon might fometimes prefer foreign wares, merely becaufe they were foreign, to cheaper and better goods of the fame kind that were made at home, this folly could, from the nature of things, extend to fo few, that it could make no fenfible impreffion upon the general employment, cf the people. But a great part of all the different branches cf cur woollen manufadlure, of our tanned leather, and of our hard- ware, are annually exported to other European countries without any bounty, and thefe are the manufadures which employ the greateft number of hands. The filk, perhaps, is the manufadure which would fuffer the moft by this freedom of trade, and after it the linen, though the latter much lefs than the former.

Secondly,

I

THE WEALTH OF NATIONS. S3

Secondly, though a great number of people fliould, by thus refloting the freedom of trade, be thrown all at once out of their ordinary employment and common method of fubfiftence, it would by no means follow that they would thereby be deprived either of employment or fubfiflence. By the redudion of the army and navy at the end of the late war more than a hundred thoufand foldiers and (camcn, a number equal to what is employed in the greateft manu- factures, were all at once thrown out of their ordinary employ- ment ; but, though they no doubt fufFered fome inconveniency, they were not thereby deprived of all employment and fubfiftence. The greater part of the feamen, it is probable, gradually betook themfelves to the merchant- fervice as they could find occafion, and in the mean time both they and the foldiers were abforbed in the great mafs of the people, and employed in a great variety of occupations. Not only no great convulfion, but no fenfible dif- order arofe from fo great a change in the fituation of more than a hundred thoufand men, all accuftomed to the ufe of arms, and many of them to rapine and plunder. The number of vagrants was fcarce anywhere fenfibly increafed by it, even the wages of labour were not reduced by it in any occupation, fo far as I have been able to learn, except in that of feamen in the merchant-fer- vice. But if we compare together the habits of a foldier and of any fort of manufadurer, we fhall find that thofe of the latter do not tend fo much to difqualify him from being employed in a new trade, as thofe of the former from being employed in any. The manufadurer has always been accuftomed to look for his fubfiftence from his labour only : the foldier to exped it from his pay. Appli- cation and induftry have been familiar to the one ; idlenefs and dif- fipation to the other. But it is furely much eafier to change the diredion of induftry from one fort of labour to another, than to turn idknefs and diftipation to any. To the greater part of ma- nufadures befides, it has already been obferved, there are other

collateral

CHAP.

II.

^4 THE NATURE AND CAUSES OF

BOOK collateral manufadures of fo fimilar a nature, that a workman

IV.

can eafily transfer his induftry from one of them to another. The greater part of fuch v^^orkmen too are occafionally employed in country labour. The flock which employed them in a particular manufadure before, will ftill remain in the country to employ an equal number of people in fome other way. The capital of the country remaining the fame, the demand for labour will likewlfe be the fame, or very nearly the fame, though it may be exerted in different places and for different occupations. Soldiers and fea- men, indeed, when difcharged from the king's fervice, are at liberty to exercife any trade, within any town or place of Great Britain or Ireland. Let the fame natural liberty of exercifing what fpecies of induftry they pleafe be reftored to all his majefty's fubjedtf , in the fame manner as to foldiers and feamen ; that is, break down the exclufive privileges of corporations, and repeal the flatute of apprenticefhip, both which are real encroachments upon natural liberty, and add to thefe the repeal of the law of fettlements, fo that a poor workman, when thrown out of employment either in one trade or in one place, may feek for it in another trade or in another place, without the fear either of a profecution or of a removal, and neither the publick nor the individuals will fuffer much more from the occafional difbanding fome particular claffes of manufadurers, than from that of foldiers. Our manufadurers have no doubt great merit with their country, but they cannot have more than thofe who defend it with their blood, nor deferve to be treated with more delicacy.

To expeft, indeed, that the freedom of trade fliould ever be entirely reftored in Great Britain, is as abfurd as to expe^S; that an Oceana or Utopia fhould ever be eftablidied in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interefls of many individuals, irrefiflibly oppofe it. Were the

officers

THE WEALTH OF NATIONS, ^5

officers of the army to oppofe with the fame zeal and unanimity ^ ^^ J^ P- any redudion in the number of forces, with which mafter manu- fadurers fet themfclves againft every law that is likely to increafe the number of their rivals in the home market; were the former " to animate their foldiers, in the fame manner as the latter enflame their workmen, to attack with violence and outrage the propofers of any fuch regulation ; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminlfh in any refpetl the monopoly which our manufacturers have obtained againft us. This monopoly has fo much increafed the number of.fome particular tribes of them, that, like an overgrown ftand- ing army, they have become formidable to the government, and upon many occafions intimidate the leglflature. The member of parliament who fupports every propofal for ftrengthening this mo- nopoly, is fure to acquire not only the reputation of underftanding trade, but great popularity and influence with an order of men whofe numbers and wealth render them of great importance. If he oppofes them, on the contrary, and ftill more if he has authority enough to be able to thwart them, neither the moft acknowledged probity, nor the higheft rank, nor the greateft publick fervices can protect him from the moft infamous abufe and detradion, from perfonal infults, nor fometimes from real danger, arifing from the infolent outrage of furious and difappointed monopolifts.

The undertaker of a great manufadure who, by the home markets being fuddenly laid open to the competition of foreigners, fhould be obliged to abandon his trade, would no doubt fufper very confiderably. That part of his capital which had ufually been employed in purchafing materials and in paying his workmen, might, without much difficulty, perhaps, find another employment. But that part of it which was fixed in workhoufes, and in the in- ftruments of trade, could fcarce be difpofed of without confiderable

3 lofs.

56 THE Nature and causes of

lofs. The equitable regard, therefore, to his intereft requires that changes of this kind fl:iould never be introduced fuddenly, but flowly, gradually, and after a very long warning. The legiflature, were it poflible that its deliberations could be always dircfted, not by the clamorous importunity of partial interefts, but by an extenfive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to eftabiifh any new monopolies of this kind, nor to extend further thofe which are already eftablifhed. Every fuch regulation introduces fome degree of real diforder into the conftitution of the ftate, which it will be difficult afterwards to cure without occafionirig another dif- order.

How far it may be proper to impofe taxes upon the importation of foreign goods, in order, not to prevent their importation, but to raife a revenue for government, I fhall confider hereafter when I come to treat of taxes. Taxes impofed with a view to prevent, or even to diminifh importation, are evidently as deftrudive of the revenue of the cuftoms as of the freedom of trade.

THE WEALT OF NATIONS. 57

CHAP. III.

Of the extraordinary Rejlramts upon the Importation of Goods of almojl all Kinds, from thofe Countries ivith ivhich the Balance is fuppofed to be dif advantageous.

PART I.

Of the Unreafonablenefs of thofe Reflraints even upon the Principles of

the Comtnercial Syfletn.

TO lay extraordinary reflraints upon the importation of goods of almoft all kinds, from thofe particular countries with which the balance of trade is fuppofed to be difadvantageous, is the fecond expedient by which the commercial fyftem propofes to increafe the quantity of gold and filver. Thus in Great Britain higher duties are laid upon the wines of France than upon thofe of Portugal. German linen may be imported upon paying certain duties ; but French linen is altogether prohibited. The principles which I have been examining, took their origin from private interefl: and the fpirit of nionopoly : thofe which I am going to examine from national prejudice and animofity. They are, accordingly, as might well be expeded, flill more unreafonable. They are fo, even upon the principles of the commercial fyftem.

First, though it were certain that in the cafe of a free trade between France and England, for example, the balance would be in favour of France, it would by no means follow that fuch a trade would be difadvantageous to England, or that the general balance of its whole trade would thereby be turned more againft it. If tbe wines of France are better and cheaper than thofe of Portugal, or its linens than thofe of Germany, it would be more advantageous

Vol. II. I for

58 THE NATURE AND CAUSES OF

B o o K for Great Britain to purchafe both the wine and the foreign linen < , ' which it had occafion for of France, than of Portugal and Ger- many. Though the value of the annual importations from France would thereby be greatly augmented, the value of the whole annual importations would be diminifhed, in proportion as the French goods of the fame quality were cheaper than thofe of the other two countries. This would be the cafe, even upon the fuppofition that the whole French goods imported were to be confumed in Great Britain.

But, fecondly, a great part of them might be re-exported to other countries, where, being fold with profit they might bring back a return equal in value, perhaps, to the prime coft of the whole French goods imported. What has frequently been faid of the Eaft India trade might poffibly be true of the French ; that though the greater part of Eaft India goods were bought with gold and filver, the re-exportation of a part of them to other countries, brought back more gold and filver to that which carried on the trade than the prime coft of the whole amounted to. One of the moft important branches of the Dutch trade, at prefent, confifts in the carriage of French goods to other European countries. Some part even of the French wine drank in Great Britain is clandeftinely imported from Holland and Zealand. If there was either a free trade between France and England, or if French goods could be imported upon paying only the fame duties as thofe of other Euro- pean nations, to be drawn back upon exportation, England might have fome £hare of a trade which is found fo advantageous to Holland.

Thirdly, and laftly, there is no certain criterion by which we can determine on which fide what is called the balance between any two countries lies, or which of them exports to the greateft value. National prejudice and animofity, prompted always by the private

intereft

THE WEALTH OF NATIONS. 59

intereft of particular traders, are the principles which generally dl- re£t our judgment upon all queftions concerning it. There are two criterions, however, which have frequently heen appealed to upon fuch occafions, the cuftom-houfe books and the courfe of ex- change. The cuftom-houfe books, I think, it is now generally ac- knowledged) are a very uncertain criterion, on account of the inac- curacy of the valuation at which the greater part of goods are rated in them, The courfe of exchange is, perhaps, almoft equally fo.

When the exchange between two places, fuch as London and Paris, is at par, it is faid to be a fign that the debts due from Lon- don to Paris are compenfated by thofe due from Paris to London. Oa the contrary, when a premium is paid at London for a bill upon Paris, it is faid to be a fign that the debts due from London to Paris are not compenfated by thofe due from Paris to London, but that a balance in money muft be fent out from the latter place ; for the rifk, trouble, and expence of exporting which, the pre- mium is both demanded and given. But the ordinary ftate of debt and credit between thofe two cities muft neceflTarily be regulated, it is faid, by the ordinary courfe of their dealings with one another. When neither of them imports from the other to a greater amount than it exports to it, the debts and credits of each may compenfate one another. But when one of them imports from the other to a greater value than it exports to it, the former necefl'arily becomes indebted to the latter in a greater fum than the latter becomes in- debted to it : the debts and credits of each do not compenfate one another, and money muft be fent out from that place of which the debts over-balance the credits. The ordinary courfe of ex- change, therefore, being an indication of the ordinary ftate of debt and credit between two places, muft likewife be an indication of the ordinary courfe of their exports and imports, as thefe neceffarily regulate that ftate.

I 2 But

6o THE NATURE AND CAUSES OF

^ *^iP ^ But though the ordinary courfe of exchange fhould be allowed to be a fufficient indication of the ordinary ftate of debt and credit between any two places, it would not from thence follow, that the balance of trade was in favour of that place which had the ordinary flate of debt and credit in its favour. The ordinary ftate of debt and credit between any two places is not always entirely regulated by the ordinary courfe of their dealings with one another; but is often influenced by that of the dealings of either with many other places. If it is ufual, for example, for the merchants of England to pay for the goods which they buy of Hamburgh, Dantzic, Riga, &c. by bills upon Holland, the ordinary ftate of debt and credit between England and Holland will not be regulated entirely by the ordinary courfe of the dealings of thofe two countries with one another, but will be influenced by that of the dealings of England with thofe other places. England may be obliged to fend out every year money to Holland, though its annual exports to that country may exceed very much the annual value of its imports from thence ; and though what is called the balance of trade may be very much in favour of" England.

In the way befides in which the par of exchange has hitherto been computed, the ordinary courfe of exchange can afl^ord no fuf- ficient indication that the ordinary ftate of debt and credit is in fa- vour of that country which feems to have, or which is fuppofed to have, the ordinary courfe of exchange in its favour : or, in other words, the real exchange may be, and, in fa£l, often is fo very diff"erent from the computed one, that from the courfe of the latter no certain conclufion can, upon many occafions, be drawn concern- ing that of the former.

When for a fum of money paid in England, containing, accord- ing to the ftandard of the Englifli mint, a certain aumber of ounces

of

THE WEALTH OF NATIONS. 6i

of pure filver, you receive a bill for a fum of money to be paid in chap. France, containing, according to the flandard of the French mint, an equal number of ounces of pure filver, exchange is faid to be at par between England and France. When you pay more, you are fuppofed to give a premium, and exchange is faid to be againft England, and in favour of France. When you pay lefs, you are fuppofed to get a premium, and exchange is faid to be againft France, and in favour of England.

But, firft we cannot always judge of the value of the current money of different countries by the ftandard of their refpedive mints. In fome it is more, in others it is lefs worn, dipt, and otherwife degenerated from that ftandard. But the value of the current coin of every country, compared with that of any other country, is in proportion, not to the quantity of pure filver which it ought to contain, but to that which it adually does contain. Be- fore the reformation of the filver coin in king William's time, exchange between England and Holland, computed, in the ufual manner, according to the ftandard of their refpedive mints, was five and twenty per cent, againft England. But the value of the cur- rent coin of England, as we learn from Mr. Lowndes, was at that time rather more than five and twenty per cent, below its ftandard value. The real exchange, therefore, may even at that time have been in favour of England, notwithftanding the computed exchange was {o much againft it ; a fmaller number of ounces of pure filver, adually paid in England, may have purchafed a bill for a greater number of ounces of pure filver to be paid in Plolland, and the man ■who was fuppofed to give, may in reality have got the premium. The French coin was, before the late reformation of the Englifh gold coin, much lefs worn than the Englifli, and was, perhaps, two or three per cent, nearer its ftandard. If the computed exchange with France, therefore, was not more than two or three per cent, againft

England,

62 THE NATURE AND CAUSES OF

B o o K England, the real exchange might have been in its favour. Since the reformation of the gold coin, the exchange has been conftantly in favour of England, and againfl: France.

• Secondly, in fome countries, the cxpence of coinage is defrayed by the government, in others, it is defrayed by th-e private people who carry their bullion to the mint, and the government even de- rives fome revenue from the coinage. In England, it is defrayed by the government, and if you carry a pound weight of ftandard filver to the mint, you get back fixty-two fhillings, containing a pound weight of the like ftandard filver. In France, a duty of eight per cent, is deduced for the coinage, which not only defrays the expence of it, but affords a fmall revenue to the government. In England, as the coinage cofts nothing, the current coin can never be much more valuable than the quantity of bullion which it actually contains. In France, the workmanfliip as you pay for it, adds to the value, in the fame manner as to that of wrought plate. A fum of French money, therefore, containing a certain weight of pure filver, is more valuable than a fum of Englifh money contain- ing an equal weight of pure filver, and muft require more bullion, or other commodities to purchafe it. Though the current coin of the two countries, therefore, were equally near the ftandards of their refpetStive mints, a fum of Englifh money could not well pur- chafe a fum of French money, containing an equal number of ounces of pure filver, nor confequently a bill upon France for fuch a fum. If for fuch a bill no more additional money was paid than what was fufficient to corapenfate the expence of the French coinage, the real exchange might be at par between the two countries, their debts and credits might mutually compenfate one another, while the computed exchange was confiderably in favour of France. If lefs than this was paid, the real exchange might be in favour of England, while the computed was in favour of France.

2 Thirdly,

THE WEALTH OF NATIONS. 63

Thirdly, and laflly, In fome places, as at Amfterdam, Ham- burgh, Venice, &c. foreign bills of exchange are paid in what they call bank money; while in others, as at London, Lifbon, Antwerp, Leghorn, &c. they are paid in the common currency of the coun- try. What is called bank money is always of more value than the fame nominal fum of common currency. A thoufand guilders in the bank of Amfterdam, for example, are of more value than a thoufand guilders of Amfterdam currency. The difference between them is called the agio of the bank, which, at Amfterdam, is gene- rally about five per cent. Suppofing the current money of the two countries equally near to the ftandard of their refpedtive mints, and that the one pays foreign bills in this common currency, while the other pays them in bank money, it is evident that the computed ex- change may be in favour of that which pays in bank money, though the real exchange fhould be in favour of that which pays in cur- rent money ; for the fame reafon that the computed exchange may be in favour of that which pays in better money, or in money nearer to its own ftandard, though the real exchange fhould be in favour of that which pays in worfe. The computed exchange, before the late reformation of the gold coin, was generally againft London with Amfterdam, Hamburgh, Venice, and, I believe, with all other places which pay in what is called bank money. It will by no means follow, however, that the real exchange wa« againft it. Since the reformation of the gold coin, it has been in favour of London even with thofe places. The computed exchange has gene- rally been in favour of London with Lilbon, Antwerp, Leghorn, and, if you except France, I believe, with moft other parts of Europe that pay in common currency ; and it is not improbable that the real exchange was fo too.

64 THE NATURE AND CAUSES OF

DigreJJion concerning Banks of Depojity particularly concerning that

oj Amflerdam.

BOOK 'nr^HE currency of a great ftate, fuch as France or England, ge-

IV.

T

nerally confifts almoft entirely of its own coin. Should this currency, therefore, be at any time worn, dipt, or otherwife de- graded below its ftandard value, the ftate by a reformation of its coin can efFedually re-eftablifli its currency. But the currency of a fmall ftate, fuch as Genoa or Hamburgh, can feldom confift al- together in its own coin, but muft be made up, in a great mea- fure, of the coins of all the neighbouring ftates with which its in- habitants have a continual intercourfe. Such a ftate, therefore, by reforming its coin, will not always be able to reform its currency. If foreign bills of exchange are paid in this currency, the uncertain value of any fum, of what is in its own nature fo uncertain, muft render the exchange always very much againft fuch a ftate, its cur- rency being, in all foreign ftates, neceflarily valued even below what it is worth.

In order to remedy the inconvenience to which this difadvanta- geous exchange muft have fubjeded their merchants, fuch fmall ftates, when, they began to attend to the intereft of trade, have frequently enaded, that foreign bills of exchange of a certain value fliould be paid, not in common currency, but by an order upon, or by a transfer in the books of a certain bank, eftablifhed upon the credit, and under the protedion of the ftate ; this bank being al- ways obliged to pay, in good and true money, exadly according to the ftandard of the ftate. The banks of Venice, Genoa, Amfter- fiam, Hamburgh, and Nuremberg, feem to have been all originally eftablifhed with this view, though fome of them may have after- wards been made fubfervient to other purpofes. The money of

fucli

THE WEALTH OF NATIONS. 65

fuch banks being better than the common currency of the coun- ^ H A P. try, neceflarily bore an agio, which was greater or fmaller, accord- ing as the currency was fuppofed to be more or lefs degraded below the flaadard of the ftate. The agio of the bank of Hamburgh, for example, which is faid to be commonly about fourteen per cent, is the fuppofed difference between the good ftandard money of the ftate, and the dipt, worn, and diminiflied currency poured into it from all the neighbouring ftates.

Before 1609 the great quantity of dipt and worn foreign coin, which the extenfive trade of Amfterdam brought from all parts of Europe, reduced the value of its currency about nine per cent. below that of good money frefh from the mint. Such money no fooner appeared than it was melted down or carried away, as it al- ways is in fuch circumftances. The merchants, with plenty of currency, could not always find a fufEcient quantity of good money to pay their bills of exchange ; and the value of thofe bills, in fpite of feveral regulations which were made to prevent it, became in a great meafure uncertain.

In order to remedy thefe inconveniencies, a bank was eftablilhed in 1609 under the guarantee of the city. This bank received both foreign coin, and the light and worn coin of the country at its real intrinfic value in the good ftandard money of the country, deduct- ing only fo much as was neceflary for defraying the expence of coinage, and the other neceffary expence of management. For the value which remained, after this fmall dedudtion was made, it gave a credit in its books. This credit was called bank money, which, as it reprefented money exadly according to the ftandard of the mint, was always of the fame real value, and intrinfically worth more than current money. It was at the fame time enaded, that all bills drawn upon or negociated at Amfterdam of the value of

Vol. II. K fix

66 THE NATURE AND CAUSES OF

BOOK fix hundred guilders and upwards fhould be paid in bank money,

* ., ' which at once took away all uncertainty in the value of thofe

bills. Every merchant, in confequence of this regulation, was obliged to keep an account with the bank in order to pay his foreign bills of exchange, which neceflarily occafioned a certain demand for bank money.

Bank money, over and above both its intrinfic fuperiority to currency, and the additional value which this demand neceflarily gives it, has likewife fome other advantages. It is fecure from fire, robbery, and other accidents ; the city of Amfterdam is bound for it ; it can be paid away by a fimple transfer, without the trouble of counting, or the rifk of tranfporting it from one place to another. In confequence of thofe different advantages, it feems from the be- ginning to have borne an agio, and it is generally believed that a-ll the money originally depofited in the bank was allowed to remain there, nobody caring to demand payment of a debt which he could fell for a premium in the market. By demanding payment of the bank, the owner of a bank credit would lofe this premium. As a fhilling frefli from the mint will buy no more goods in the market than one of our common worn (hillings, fo the good and true mo- ney which might be brought from the coffers of the bank into thofe of a private perfon, being mixed and confounded with the common currency of the country, would be of no more value than that cur- rency, from which it could no longer be readily diftinguifhed. While it remained in the coffers of the bank, its fuperiority was known and afcertained. When it had come into thofe of a private perfon, its fuperiority could not well be afcertained without more trouble than perhaps the difference was worth. By being brought from the coffers of the bank, befides, it lofl all the other advantages of bank money ; its fecurity, its eafy and fafe transferability, its ufe in paying foreign bills of exchange. Over and above all this, it

could

THE WEALTH OF NATIONS. 67

could not be brought from thofe coffers, as it will appear by and by, without previoufly paying for the keeping.

Those depofits of coin, or thofe depofits which the bank was bound to refliore in coin, conftituted the original capital of the bank, or the whole value of what was reprefented by what is called bank money. At prefent they are fuppofed to conftltute but a very fmall part of it. In order to facilitate the trade in bullion, the bank has been for thefe many years in the pradtice of giving credit in its books upon depofits of gold and filver bullion. This credit is generally about five per cent, below the mint price of fuch bullion. The bank grants at the fame time what is called a recipice or re- ceipt, intitling the perfon who makes the depofit, or the bearer, to take out the bullion again at any time within fix months, upon re- transferring to the bank a quantity of bank money equal to that for which credit had been given in its books when the depofit was made, and upon paying one-fourth per cent, for the keeping, if the depofit was in filver; and one half per cent, if it was in gold ; but at the fame time declaring, that in default of fuch pay- ment, and upon the expiration of this term, the depofit fhould belong to the bank at the price at which it had been received, or for which credit had been given in the transfer books. What is thus paid for the keeping of the depofit may be confidered as a fort of warehoufe rent ; and why this warehoufe rent fhould be fo much dearer for gold than for filver, feveral different reafons have been affigned. The finenefs of gold, it has been faid, is more difficult to be afcertained than that of filver. Frauds are more eafily praftifed, and occafion a greater lofs in the more precious metal. Silver, befidcs, being the flandard metal, the ftate, it has been faid, wifhes to encourage more the making of depofits of filver than of thofe of gold.

K 2 Deposits

CHAP.

III.

68 THE NATURE AND CAUSES OF

Deposits of bullion are mofl: commonly made when the price is fomewhat lower than ordinary ; and they are taken out again when it happens to rife. In Holland the market price of bullion is generally above the mint price, for the fame reafon that it was fo in England before the late reformation of the gold coin. The difference is faid to be commonly from about fix to fixteen ftivers upon the mark, or eight ounces of filver of eleven parts fine» and one part alloy. The bank price, or the credit which the bank gives for depofits of fuch filver (when made in foreign coin, of which the finenefs is well known and afcertained, fuch as Mexico dollars) is twenty-two guilders the mark ; the mint price is about twenty-three guilders, and the market price is from twenty-three guilders fix, to twenty-three guilders fixteen ftivers, or from two to three per cent, above the mint price *. The proportions between the bank price, the mint price, and the market price of gold bullion, are nearly the fame. A perfon can generally fell his receipt for the difference between the mint price of bullion and the market price. A receipt for bullion is almoft always worth fomething, and it very feldom happens therefore, that any body fuffers his receipt to expire, or allows his bullion to fall to the bank at the price at -which it had been received, either

* The following are the prices at which the bank of Atnfterdam at prefent ^Sep- tember, 1775) receives bullion and coin of different kinds.

SILVER.

Mexico dollars ■> Guilders.

French crowns C B — 22 per mark.

Englifli filver coin J

Mexico dollars new coin - 21 lo

Ducatoons ----- 3

Rix dollars ----- 28 Bar filver containing | ? fine filver 21 per mark, and in this proportion down to * fine, en which 5 guilders are given. Fine bars, 23 per mark.

GOLD.

TFIE WEALTH OF NATIONS. 69

by not taking it out before the end of the fix months, or by neg- lecting to pay the one- fourth or one-half per cent, in order to ob- tain a new receipt for another fix months. This, however, though it happens feldom, is faid to happen fometimes, and more frequently with regard to gold than with regard to filver, on ac- count of the higher warehoufe-rent which is paid for the keeping of the more precious metal.

The perfon who by n-iaking a depofit of bullion obtains both a bank credit and a receipt, pays his bills of exchange as they be- come due with his bank credit; and either fells or keeps his re- ceipt according as he judges that the price of bullion is likely to rife or to fall. The receipt and the bank credit feldom keep long together, and there is no occafion that they fhould. The perfon who has a receipt, and who wants to take out bullion, finds al- ways plenty of bank credits, or bank money to buy at the ordi- nary price; and the perfon who has bank money, and wants to take out bullion, finds receipts always in equal abundance.

The owners of bank credits and the holders of receipts con- ftitute two different forts of creditors againft the bank. The holder of a receipt cannot draw out the bullion for which it is granted, without reaffigning to the bank a fum of bank money equal to the price at which the bullion had been received. If he

GOLD,

Portugal coin

Guineas

Louis d'ors new

Ditto o'd - -

New ducats - - - 4 19 8 per ducat. Bar or ingot gold is received in proportion to its finenefs compared with the above foreign gold coin. Upon fine bars the bank gives 340 per mark. In general, how- ever, fomething more is given upon coin of a known finenefs, than upon gold and filver bars, of whith the finenefs cannot be afcertained but by a procefs of melt.^ ing and afTaying.

4 has

70 THE NATURE AND CAUSES OF

B O O K. i^2LS no bank money of his own, he muft purchafe it of thofe " /— ^ who have it. The owner of bank money cannot draw out bul- lion without producing to the bank receipts for the quantity which he wants. If he has none of his own, he muft buy them of thofe who have them. The holder of a receipt, when he purchafes bank money, purchafes the power of taking out a quantity of bullion, of which the mint price is five per cent, above the bank price. The agio of five per cent, therefore, which he commonly pays for it, is paid, not for an imaginary, but for a real value. The owner of bank money, when he pur- chafes a receipt, purchafes the power of taking out a quantity of bullion of which the market price is commonly from two to three per cent, above the mint price. The price which he pays for it, therefore, is paid likewife for a real value. The price of the receipt, and the price of the bank money, compound or make up between them tlie full value or price of the bullion.

Upon depofits of the coin current in the country, the bank grants receipts likewife as well as bank credits ; but thofe re- ceipts are frequently of no value, and will bring no price in the market. Upon ducatoons, for example, which in the currency pafs for three guilders three ftivers each, the bank gives a credit of three guilders only, or five per cent, below their current value. It grants a receipt likewife intitling the bearer to take out the num- ber of ducatoons depofited at any time within fix months, upon paying one-fourth per cent, for the keeping. This receipt will frequently bring no price in the market. Three guilders bank mo- ney generally fell in the market for three guilders three flivers, the full value of the ducatoons if they were taken out of the bank ; and before they can be taken out, one-fourth per cent, muft be paid for the keeping, which vt'ould be mere lofs to the holder of the receipt If the agio of the bank, however, fl^ould at any time fall to three per cent, fuch receipts might bring fomc price in the

market

THE WEALTH OF NATIONS. 71

market, and might fell for one and three-fourths per cent. But the agio of the bank being now generally about five per cent, fuch receipts are frequently allowed to expire, or as they exprefs it, to fall to the bank. The receipts which are given for depofits of gold ducats fall to it yet more frequently, becaufe a higher ware- houfe-rent, or one-half per cent, mufl be paid for the keeping of them before they can be taken out again. The five per cent, which the bank gains, when depofits either of coin or bullion are allowed to fall to it, may be confidered as the warehoufe-rent for the perpetual keeping of fuch depofits.

The fum of bank money for which the receipts are expired mufl be very confiderable. It muft comprehend the whole origi- nal capital of the bank, which, it is generally fuppofed, has been allowed to remain there from the time it was firft depofited, no- body caring either to renew his receipt or to take out his depofit, as, for the reafons already affigned, neither the one nor the other could be done without lofs. But whatever may be the amount of this fum, the proportion which it bears to the whole mafs of bank money is fuppofed to be very fmall. The bank of Amfterdam has for thefe many years paft been the great warehoufe of Europe for bullion, for which the receipts are very feldom allowed to expire, or, as they exprefs it, to fall to the bank. The far greater part of the bank money, or of the credits upon the books of the bank, is fuppofed to- have been created, for thefe many years paft, by fuch depofits which the dealers in bullion are continually both making, and withdrawing.

No demand can be made upon^ the bank but by means of a recipice or receipt. The fmaller mafs of bank money, for which the receipts are expired, is mixed and confounded with the much; greater mafs for which they are ftill in force ; fo that, though there may be a confiderable fum of bank money, for which there

are

72 THE NATURE AND CAUSES OF

BOOK are no receipts, there is no fpecilic fum or portion of it, which

' ^ ' may not at any time be demanded by one. The bank cannot be

debtor to two perfons for the fame thing ; and the owner of bank money who has no receipt cannot demand payment of the bank till he buys one. In ordinary and quiet times, he can find no dif- ficulty In getting one to buy at the market price, which generally correfponds with the price at which he can fell the coin or bullion it intitles him to take out of the bank.

It might be otherwlfe during a public calamity ; an invafion, for example, fuch as that of the French in 1672. The owners of bank money being then all eager to draw it out of the bank, in order to have it in their own keeping, the demand for receipts might raife their price to an exorbitant height. The holders of them might form extravagant expedations, and, inflead of two or three per cent, demand half the bank money for which credit had been given upon the depofits that the receipts had refpeclively been granted for. The enemy, informed of the conftitution of the bank, might even buy them up in order to prevent the carry- ing away of the treafure. In fuch emergencies, the bank, it is fuppofed, would break through its ordinary rule of making pay- ment only to the holders of receipts. The holders of receipts, who had no bank money, mufi: have received within two or three per cent, of the value- of the depofit for which their refpedlive re- ceipts had been granted. The bank, therefore, it is faid, would in this cafe make no fcruple of paying, either with money or bul- lion, the full value of what the owners of bank money who could get no receipts, were credited for in its books ; paying at the fame time two or three per cent, to fuch holders of receipts as had no bank money, that being the whole value which in this ftate of things could juftly be fuppofed due to them.

Even

THE WEALTH OF NATIONS. 73

Even in ordinary and quiet times it is the interefl: of the C HA p. holders of receipts to deprefs the agio, in order either to buy bank money (and confequently the bulUon, which their receipts would then enable them to take out of the bank) fo much cheaper, or to fell their receipts to thofe who have bank money, and who want to take out bullion, fo much dearer;. the price of a receipt being generally equal to the difference between the market price of bank money, and that of the coin or bullion for which the receipt had been granted. It is the intereft of the owners of bank money, on the contrary, to raife the agio, in order either to fell their bank money fo much dearer, or to buy a receipt fo much cheaper. To prevent the flock jobbing tricks which thofe oppofite interefls might fometimes occafion, the bank has of late years come to the refolution to fell at all times bank money for currency, at five per cent, agio, and to buy it in again at four per cent. agio. In confequence of this refolution, the agio can never either rife above five, or fink below four per cent, and the proportion between the market price of bank and that of current money, is kept at all times very near to the proportion between their intrinfic values. Before this refolution was t^ken, the market price of bank money ufed fometimes to rife fo high as nine per cent, agio, and- fometimes to fink fo low as par, according as oppo- fite interefts happened to influence the market.

The bank of Amflerdam profefTes to lend out no part of what is depofited with it, but, for every guilder for which it gives credit in its books, to keep in its repofitories the value of a guilder either in money or bullion. That it keeps in its repofitories all the money or bullion for which there are receipts in force, for which it is at all times liable to be called upon, and which, in reality, is conti- nually going from it and returning to it again, cannot well be doubted. But whether it does fo likewife with regard to that part

Vol. II. L of

^4 THE NATURE AND CAUSES OF

BOOK of its cajpital, for which the receipts are long ago expired, for which \ ' _■ in ordinary and quiet times it cannot be called upon, and which in reality is very likely to remain with it for ever, or as long as the States of the United Provinces fubfiil, may perhaps appear more uncertain. At Amfterdam, however, no point of faith- is better eftablifhed than that for every guilder, circulated as bank mo- ney, there is a ebVrefpdndent guilder la gold or filver to be found in tlie treafure of the bank. The city is guarantee that it fhould ht £b. The bank is under the diredlion of the four reigning burgo- mafters, who are changed every year. Each new fett of burgo- mafters vifits the treafure, compares it with the bonks, receives it lipon oath, and delivers it aver, with the fame awful folemnity, to the fett which fucceeds ; and in that fober and religious country oaths are not yet dlfregarded. A rotation of this kind feems alone- si fufficient fecurity againft any pradices which cannot be avowed. Amidft all the revolutions which fa<ftion has ever occafioned in the government of Arriflerdam, the prevaihng party has at no time accufed their predeceffbrs of infidelity in the adminiftratlon of the bank. No accufation could have affedled more deeply the reputa^ tion and fortune of tlie difgraced party, and if fuch an accufation could have been fupported, we may be affured that it would have been brought. In 1672, when the French king was at Utrecht, the bank of Amfterdam paid fo readily as left no doubt of the fide- lity with which it had obferved its engagements. Some of the pieces which were then brougtit from its repofitories appeared to have been fcorched with the fire which happened in the town-houfe foon after the bank was eftablifhcd. Thofe pieces, therefore, muft have lain there from that time.

What may be the amount of the treafure in the bank is a quef- tion which has long employed the fpeculations of the curious. No- thing but conjedure can be offered concerning it. It is generally

Tc-ckoned

THE WEALTH OF NATIONS. ^s

reckpned that there are about two thoufand people who keep chap. accounts with the bank, and allowing them to have, one with ano- ther, the value of fifteen hundred pounds fterling lying upon their refpedive accounts (a very large allowance), the whole quantity of bank money, and confcquently of treafure in the bank, will amount to about three millions fterling, or, at eleven guilders the pound fter- ling, thirty-three millions of guilders j a great fum, and fufficient to carry on a very extenfive circulation, but vaftly below the extra- vagant ideas which fome people have formed of this treafure.

The city of Amfterdam derives a confiderable revenue from the bank. Bcfides what may be called the warehoufe-rent above-men- tioned, each perfon, upon firft opening an account with the bank, pays a fee of ten guilders ; and for every new account three guilders three ftivers ; for every transfer two ftivers ; and if the transfer is for lefs than three hundred guilders, fix ftivers, in order to difcou- rage the multiplicity of fmall tranfadions. The perfon who neg- leds to balance his account twice in the year forfeits twenty-five guilders. The perfon who orders a transfer for more than is upon his account, is obliged to pay three per cent, for the fum over- drawn, and his order is fet afide into the bargain. The bank is fuppofed too to make a confiderable profit by the fale of the foreign coin or bullion which fometimes falls to it by the expiring of re- ceipts, and which is always kept till it can be fold with advantage. It makes a profit likewife by felling bank money at five per cent, agio, and buying it in at four. Thefe different emoluments amount to a good deal more than what is neceffary for paying the falaries of officers, and defraying the expence of management. What is paid for the keeping of bullion upon receipts, is alone fup- pofed to amount to a neat annual revenue of between one hundred and fifty thoufand and two hundred thoufand guilders. Public utility, however, and not revenue, was the original objeit of this inftitu-

L 2 tion.

76 THE NATURE AND CAUSES OF

^ ^^ ^ tlon. Its objefl was to relieve the merchants from the inconveni- ^' ■-»• ~' ence of a difadvantageous exchange. The revenue which has ari- fen from it was unforefeen, and may be conhdered as accidental. But it is now time to return from this long digrefTion, into which I have been infenfibly led in endeavouring to explain the reafons why the exchange between the countries which pay in what is called bank money, and thofe which pay in common currency, fhould' generally appear to be in favour of the former, and againfl: the latter. The former pay in a fpecies of money of which the intrin- fic value is always the fame, and exadly agreeable to the ftandard of their refpedtlve mints ; the latter in a fpecies of money of which the intrinfic value is continually varying, and is almoft always more or lefs below that ftandard.

PART ir.

Of the Unreafonablenefs of thofe extraord'wary Ref mints upon other

Principles.

IN the foregoing Part of this Chapter I have endeavoured to fliew, even upon the principles of the commercial fyftem, how unne- cefTary it is to lay extraordinary reftraints upon the importation of goods from thofe countries with which the balance of trade is fup- pofed to be difadvantageous.

Nothing, hov^'ever, can be more abfurd than this whole doc- trine of the balance of trade, upon which, not only thefe reftraints, but almofl; all the other regulations of commerce are founded. When two places trade with one another, this do£lrine fuppofes thatt if the balance be even, neither of them either lof.^s or gains ; but if it leans in any degree to one fide, that one of them loles, and the other gains in proportion to its declenfion from the exa£t equi- librium. Both fuppofitions are falfe. A trade which is forced by

means

THE WEALTH OF NATIONS. 77

means of bounties and monopolies, may be, and commonly is dif- CHAP.

advantageous to the country in whofe favour it is meant to be efla- ' ^ '

bliflied, as I fhall endeavour to flievv hereafter. But that trade which, without force or conftraint, is naturally and regularly car- ried on between any two places, is always advantageous, though iiot alw'ays equally fo, to both.

By advantage or gain, I underftand, not the increafe of the quantity of gold and filver, but that of the exchangeable value of the annual produce of the land and labour of the country, or the increafe of the annual revenue of its inhabitants.

If the balance be even, and if the trade between the two places confifl: altogether in the exchange of their native commodities, they will, upon mod occafions, not only both gain^ but they will gain equally, or very near equally : each will in this cafe afford a market for a part of the furplus produce of the other : each will replace a capital which had been employed in raifing and prepar- ing for the market this part of the furplus produce of the other» and which had been diftributed among, and given revenue and maintenance to a certain number of its inhabitants. Some part of the inhabitants of each therefore will indiredly derive their revenue and maintenance from the other. As the commodities exchanged too are fuppofed to be of equal value, fo the two capitals employed in the trade will, upon moft occafions, be equal, or very nearly equal ; and both being employed in raifing the native commodities of the two countries, the revenue and maintenance which their dif- tribution will afford to the inhabitants of each will be equal, or very nearly equal. This revenue and maintenance, thus mutually afforded, will be greater or fmaller in proportion to the extent of their dealings. If thefe fhould annually amount to an hundred thoufand pounds, for example, or to a million on each fide, each of

thera

78 THE NATI/rE AND CAUSES OF

BOOK them would afford an annual revenue, in the one cafe, of an hun- dred thoufand pounds, in the other, of a million, to the inhabitants of the other.

If their trade fhould be of fuch a nature that one of them export- ed to the other nothing but native conimodities, while the re- turns of that other confided altogether in foreign goods ; the balance, in this cafe, would ftill be fuppofed eveo, com modifies being paid for with commodities. They vi^ould, in this cafe too, both gain, but they would not gain equally ; and the inhabitants of the coun- try which exported nothing but native commodities would derive the greateft revenue from the trade. If England, for example, fhould import from France nothing but the native commodities of that country, and, not having fuch commodities of its own as were in demand there, fhould annually repay them by fending thither a large quantity of foreign goods, tobacco, we fhall fup- pofe, and Eaft India goods ; this trade, though it would give fome revenue to the inhabitants of both countries, would give more to thofe of France than to thofe of England. The whole French capital annually employed in it would annually be diftri- buted among the people of France. But that part of the Englifh capital only which was employed in producing the Englifh commo- dities with which thofe foreign goods were purchafed, would be annually diflributed among the people of England. The greater part of it would replace the capitals which had been employed in

^ Virginia, Indoftan, and China, and which had given revenue and maintenance to the inhabitants of thofe diflant countries. If the capitals were equal, or nearly equal, therefore, this employment of the French capital would augment much more the revenue of

^ the people of France, than that of the Englifli capital would the * revenue of the people of England. France would in this cafe carry on a direct foreign trade of coufumption with England ; 3 whereas

THE WEALTH OF NATIONS. 7,^,

whereas England would carry on a round-about trade of the fame ^ ^ j^ ^'■ kind with France. The different effects of a capital employed in the diredl, and of one employed in the round-about foreign trade 6f confumption, have already been fully explained.

There is not, probably, between any two countries, a trade which confifts akogether in the exchange either of native commo- dities on both fides, or of native commodities on one fide and of foreign goods on the other. Almoft all countries exchange with une another partly native and partly foreign goods. That couti- try, however, in whofe cargoes there is the greateft proportion of native, and the lead of foreign goods, will always be the prin- cipal gainer.

If it was not with tobacco and Baft India goods, but with gold and fiiver, that England paid for the commodities an- nually imported from France, the balance, in this cafe, would be fuppafed uneven, commodities not being paid for with commo- dities, but with gold and filver. The trade, however, would, in this caie, as in the foregoing, give fome revenue to the inhabitant* of both countries, but more to thofe of France than to thofe of England-. It would give fome revenue to thofe of England. The capital which h.?d been employed in producing the Englifh goods that purchafed this gold and filver, the capital which had been cfiftributed among, and given revenue to certain inhabitants of England, would thereby be replaced, and enabled to continue that employment. The whole capital of England would no more be diminiflied by this exportation of gold and filver, than by the expor- tation of an equal value of any other goods. On the contrary, it would, in mofl cafes, be augmented. No goods are fent abroad' but thofe for which the demand is fuppofed to be greater abroad than at home, and of which the returns confequently, it is expe<Sl-

sd.

8o THE NATURE AND CAUSES OF

BOOK ed, will be of more value at home than the commc^dities export- ed. If the tobacco which, in England, is worth only a hundred thoufand pounds, when fen^ to France will purchafe wine which is, in England, worth a hundred and ten thoufand pounds, the exchange will augment the capital of England by ten thoufand pounds. If a hundred thoufand pounds of Englifh gold, in the fame manner, purchafe French wine which, in England, is worth a hundred and ten thoufand, this exchange will equally augment the capital of England by ten thoufand pounds. As a merchant who has a hundred and ten thoufand pounds worth of wine in his cellar, is a richer man than he who has only a hundred thoufand pounds worth of tobacco in his warehoufe, fo is he hkewife a richer man than he who has only a hundred thoufand pounds worth of gold in his coffers. He can put into motion a greater quantity of induftry, and give revenue, maintenance, and employ- ment, to a greater number of people than either of the other two. But the capital of the country is equal to the capitals of all its different inhabitants, and the quantity of induftry which can be annually maintained in it, is equal to what all thofe different capi- tals can maintain. Both the capital of the country, therefore, and the quantity of induftry which can be annually maintained in it, muft generally be augmented by this exchange. It would, indeed, be more advantageous for England that it could purchafe the wines of France with its own hardware and broad-cloth, than with either the tobacco of Virginia, or the gold and filver of Brazil and Peru. A diredl foreign trade of confumption is always more advantageous than a round-about one. But a round-about foreign trade of confumption which is carried on with gold and filvcr, does not feem to be lefs advantageous than any other equally round- about one. Neither is a country which has no mines more likely to be exhaufted of gold and filver by this annual exportation of thofe metals, than one which does not grow tobacco by the like

annual

THE WEALTH OP NATIONS. 8i

annual exportation of that plant. As a country which has where- CHAP, withal to buy tobacco will never be long in want of it, fo neither will one be long in want of gold and filver which has wherewithal to purchafe thofe metals.

It is a lofing trade, it is fald, which a workman carries on with the alehoufe ; and the trade which a manufadluring nation would naturally carry on with a wine country, may be confidered as a trade of the fame nature. I anfwer, that the trade with the alehoufe is not neceffarily a lofing trade. In its own nature it is juft as advantageous as any other, though, perhaps, fomewhat more liable to be abufed. The employment of a brewer, and even that of a retailer of fermented liquors, are as neceffary divifions of labour as any other. It will generally be more advantageous for a workman to buy of the brewer the quantity he has occafion for than to make it himfelf, and if he is a poor workman, it will gene- rally be more advantageous for him to buy it by little and little of the retailer, than a large quantity of the brewer. He may no doubt buy too much of either, as he may of any other dealers in his neighbourhood, of the butcher, if he is a glutton, or of the draper, if he affeds to be a beau among his companions. It is advantageous to the great body of workmen notwithftanding, that all thefe trades fhould be free, though this freedom may be abufed in all of them, and is more likely to be fo, perhaps, in fome than in others. Though individuals, befides, may fometimes ruin their fortunes by an exceffive confumption of fermented liquors, there feems to be no rilk that a nation fhould do fo. Though in every country there are many people who fpend upon fuch liquors more than they can afford, there are always many more who fpend lefs. It dcferves to be remarked too that, if we confult experience, the cheapnefs of wine feems to be a caufe, not of drunkennefs, but Vol. II. M • of

82 THE NATURE AND CAUSES OF

BOOK of fobriety. The inhabitants of the wine countries are in ge- neral the foberefl people in Europe ; witnefs the Spaniards, the Italians, and the inhabitants of the fouthern provinces of France. People are feldom guilty of excefs in what is their daily fare. Nobody afFedts the charadler of liberality and good fellowfliip, by being profufe of a liquor which is as cheap as fmall beer. On the contrary, in the countries which, either from exceflive heat or cold, produce no grapes, and where wine confequently is dear and a rarity, drunkennefs is a common vice, as among the northern nations, and all thofe who live between the tropics, the negroes, for example, on the coaft of Guinea. When a French regiment comes from fome of the northern provinces of France, where wine is fomewhat dear, to be quartered in the fouthern, where it is very cheap, the foldiers, I have frequently heard it obferved, are at firft debauched by the cheapnefs and novelty of good wine ; but after a few months refidence, the greater part of them become as fober as the reft of the inhabitants. Were the duties upon foreign wines, and the excifes upon malt, beer, and ale, to be taken away all at once, it might, in the fame manner, occafion in Great Britain a pretty general and temporary drunkennefs among the middling and inferior ranks of people, which would probably be foon followed by a permanent and almoft univerfal fobriety. At prefent drunkennefs is by no means the vice of peo- ple of fafliion, or of thofe who can eafily afford the raoft expen- five liquors. A gentleman drunk with ale, has fcarce ever been feen among us. The reftraints upon the wine trade in Great Britain befides, do not fo much feem calculated to hinder the people from going, if I may fay fo, to the alehoufe, as from going where they can buy the beft and cheapeft liquor. They favour the wine trade of Portugal, and difcourage that of France. The Portuguefe, it is faid, indeed, are better cuftomcrs for our 1 manufadures

i

THE WEALTH OF NATIONS. 83

manufadures than the French, and fhould therefore be encou- CHAP, raged in preference to them. As they give us their cuftom, it is pretended, we fhould give them ours. The fneaking arts of under- ling tradefmen are thus ere£l:ed into political maxims for the con- duct of a great empire : for it is the moft underling tradefmen only who make it a rule to employ chiefly their own cuftomers. A great trader purchafes his goods always where they are cheapeft and beft, without regard to any little intereft of this kind.

By fuch maxims as thefe, however, nations have been taught that their intereft confifted in beggaring all their neighbours. Each nation has been made to look with an invidious eye upon the profperity of all the nations with which it trades, and to con- fider their gain as its own lofs. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendfhip, has become the moft fertile fource of difcord and animofity. The capricious ambition of kings and minifters has not, during the prefent and the preceding century, been more fatal to the repofe of Europe than the impertinent jealoufy of merchants and manufadurers. The violence and injuftice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can fcarce admit of a remedy. But the mean rapacity, the monopolizing fpirit of merchants and manu- fadurers, who neither are, nor ought to be the rulers of man- kind, though it cannot perhaps be corredted, may very eafily be prevented from diflurbing the tranquillity of any body but them- felves.

That it was the fpirit of monopoly which originally both in- vented and propagated this dodtrine, cannot be doubted ; and they who firfl taught it were by no means fuch fools as they who be-

M 2 lieved

84 THE NATURE AND CAUSES OF

^ ^]v° ^^ lieved it. In every country it always is and muft be the intereft: of the great body of the people to buy whatever they want of thofe who fell it cheapeft. The propofition is fo very manifeft, that it feems ridiculous to take any pains to prove it; nor could it ever have been called in queflion had not the interefted fophiftry of merchants and manufafturers confounded the common fenfe of mankind. Their intereft is, in this refpedt, diredlly oppofite to that of the great bo<ly of the people. As it is the intereft of the freemen of a corporation to hinder the reft of the inhabitants from employing any workmen but themfelves, fo it is the intereft of the merchants and manufadlurers of every country to fecure ta themielves the monopoly of the home market. Hence in Great Britain and in moft other European Countries the extraordinary duties upon almoft all goods imported by alien merchants. Hence the high duties and prohibitions upon all thofe foreign manu- fadures which can come into competition with our own. Hence too the extraordinary reftraints upon the importation of almoft all forts of goods from ' thofe countries with which the balance of trade is fuppofed to be difadvantageous ; that is, from thofe againft whom national animofity happens to be moft violently inflamed.

The wealth of a neighbouring nation, however, though danger- ous in war and politicks, is certainly advantageous in trade. In a ftate of hoftility it may enable our enemies to maintain fleets and armies fuperlor to our own ; but in a ftate of peace and commerce it muft likewife enable them to exchange with us to a greater value, and to afford a better market, either for the immediate produce of our own induftry, or for whatever is purchafed with that produce. As a rich man is likely to be a better cuftomer to the induftrious people in his neighbourhood, than a poor, (o is

likewife

THE WEALTH OF NATIONS. ?>s

likewlfe a rich nation. A rich man, indeed, who is hunfelf a '^ ^j,^ ^•

~manufa£turer, is a very dangerous neighbour to all thofe who deal "'^ — ^^ '

in the fame way. All the red: of the neighbourhood, however, by far the greatefl: number, profit by the good market which his ex- pence affords them. They even profit by his underfelling the poorer workmen who deal in the fame way with him. The ma- nufacturers of a rich nation, in the fame manner, may no doubt be very dangerous rivals to thofe of their neighbours. This very competition, however, is advantageous to the great body of the people, who profit greatly befides by the good market which the great expence of fuch a nation affords them in every other way. Private people who want to make a fortune, never think of retir- ing to the remote and poor provinces of the country, but refort either to the capital or to fome of the great commercial towns. They know, that where little wealth circulates there is little to be got, but that where a great deal is in motion, fome fhare of it may- fall to them. The fame maxims which would in this manner dire£t the common fenfe of one, or ten, or twenty individuals^ (hould re- gulate the judgment of one, or ten, or twenty millions, and fliould make a whole notion regard the riches of its neighbours, as a pro- bable caufe and occafion for itfelf to acquire riches. A nation that would enrich itfelf by foreign trade is certainly moft likely to do fo when its neighbours are all rich, induftrious, and commercial na- tions. A great nation furrounded on all fides by wandering favages and poor barbarians might, no doubt, acquire riches by the culti- vation of its own lands, and by its own interior commerce, but not by foreign trade. It feems to have been in this manner that the ancient Egyptians and the modern Chinefe acquired their great wealth. The ancient Egyptians, it is faid, negleded foreign com- merce, and the modern Chinefe, it is known, hold it in the utmoft contempt, and fcarce deign to afford it the decent protedion of tlie

laws*..

IV.

86 • THE NATURE AND CAUSES OF

BOOK laws. The modern maxims of foreign commerce, by aiming at the impoverifhment of all our neighbours, fo far as they are capable of producing their intended efFedt, tend to render that very commerce infignificant and contemptible.

There is no commercial country in Europe of which the approaching ruin has not frequently been foretold by the pre- tended doftors of this fyftem, from an unfavourable balance of trade. After all the anxiety, however, which they have excited about this, after all the vain attempts of almoft all trading nations to turn that balance in their own favoHr and againft their neigh- bours, it does not appear that any one nation in Europe has been in any refped impoverifhed by this caufe. Every town and coun- try, on the contrary, in proportion as they have opened their ports to all nations ; inftead of being ruined by this free trade, as the principles of the commercial fyftem would lead us to ex- pert, have been enriched by it. Though there are in Europe, indeed, a few towns which in fome refpeits deferve the name of free ports, there is no country which does fo. Holland, perhaps, approaches the neareft to this character of any, though ftill very remote from it; and Holland, it is acknowledged, not only derives its whole wealth, but a great part of its neceflary fubfiftence, froni foreign trade.

There is another balance, indeed, which has already been ex- plained, very different from the balance of trade, and which ac- cording as it happens to be either favourable or unfavourable, ne- ceffarily occafions the profperity or decay of every nation. This is the balance of the annual produce and confumption. If the exchangeable value of the annual produce, it has already been obferved, exceeds that of the annual confumption, the capital of

the

THE WEALTH OF NATIONS. 87

the fociety muft annually jncreafe in proportion to this excefs. CHAP. The fociety in this cafe lives within its revenue, and what is an- ^— v— -J nually faved out of its revenue, is naturally added to its capital, and employed fo as to increafe ftill further the annual produce. If the exchangeable value of the annual produce, on the contrary, fall fhort of the annual confumption, the capital of the fociety muft annually decay in proportion to this deficiency. The expence of the fociety in this cafe exceeds its revenue, and neceffarily en- croaches upon its capital. Its capital, therefore, muft neceflarily decay, and together with it, the exchangeable value of the annual produce of its induftry.

This balance of produce and confumption is entirely different from, what is called, the balance of trade. It might take place in a nation which had no foreign trade, but which was entirely feparated from all the world. It may take place in the whole globe of the earth, of which the wealth, population, and improvement may be cither gradually increafing or gradually decaying.

The balance of produce and confumption may be conftantly in favour of a nation, though what is called the balance of trade be generally againft it. A nation may import to a greater value than it exports for half a century, perhaps, together ; the gold and filver which comes into it during all tttis time may be all immediately fent out of it ; its circulating coin may gradually decay, different forts of paper money being fubftituted in its place, and even the debts too which it contra£ts in the principal nations with whom it deals, may be gradually increafing ; and yet its real wealth, the exchangeable value of the annual produce of its lands and labour, may, during the fame period, have been increafing in a much greater proportion. The ftate of our North American colonies, and of the trade which they

carried

88

THE NATURE AND CAUSES OF

BOOK carried on with Great Britain, before the commencement of the prc- fent difturbances, may ferve as a proof that this is by no means an impoffible fuppofition.

CHAP. IV.

Of Dra'a'backs,

ERCHANTS and manufacturers are not contented with the monopoly of the home market, but defire hkewlfe the moft extenfive foreign fale for their goods. Their country has no jurlfdidion in foreign nations, and therefore can feldom procure them any monopoly there. They are generally obliged, therefore, to content themfelves with petitioning for certain encouragements to exportation.

M'

Of thefe encouragements what are called Drawbacks feem to be the moft reafonable. To allow the merchant to draw back upon exportation, either the whole or a part of whatever excife or in- land duty is impofed upon domeftick induftry, can never occafion the exportation of a greater quantity of goods than what would have been exported had no duty been impofed. Such encourage- ments do not tend to turn towards any particular employment a greater fhare of the capital of the country, than what would go to it of its own accord, but only to hinder the duty from driving away any part of that fhare to other employments. They tend not to overturn that balance which naturally eftabliflies itfelf among all the various employments of the fociety; but to hinder it from being overturned by the duty. They tend not to deftroy,

but

THE WEALTH OF NATIONS. 89

"but to preferve, what it Is in mofl cafes advantageous to pre- ^ ^'^.;'^ ''•

ferve, the natural divilion and diftribution of labour in the ' ; '

foclety.

The fame thing may be faid of the drawbacks upon the re-ex- portation of foreign goods imported ; which in Great Britain gene- rally amount to by much the largeft part of the duty upon import- ation. Half the duties impofed by what is called the old fubfidy, are drav/n back univerfally, except upon goods exported to the Britifh Plantations ; and frequently the whole, almofl always a part, of thofe impofed by later fubfidies and impofls. Drawbacks were, perhaps, originally granted for the encouragement of the carrying trade, which, as the freight of the fhips is frequently paid by foreigners in money, was fuppofcd to be peculiarly fitted for bringing gold and filver into the country. But though the carry- ing trade certainly deferves no peculiar encouragement, though the motive of the inftitution was, perhaps abundantly foolifh, the inftitution itfelf feems reafonable enough. Such drawbacks cannot force into this trade a greater fhare of the capital of the country than what would have gone to it of its own accord, had there been no duties upon importation. They only prevent its being excluded altogether by thofe duties. The carrying trade, though it deferves no preference, ought not to be precluded, but to be left free like all other trades. It is a neceflary refource for thofe capi- tals which carinot find employment either in the agriculture or in the manufadures of the country, either in its home trade or in its foreign trade of confumption.

The revenue of the cuftoms, inflead of fufrering, profits from fuch drawbacks, by that part of the duty which is retained. If the whole duties had been retained, the foreign goods upon which they

Vol. II. N are

90 THE NATURE AND CAUSES OF

2 ^ G K are pald> could feldom have been exported, nor confequently im- ported, for want of a market. The duties, therefore, of which a part is retained, would never have been paid.

These reafons feem fufficiently to juftify drawbacks, and would jullify them, though the whole duties, whether upon the produce of dorneftick induftry, or upon foreign goods, were al- ways drav u bac' upon exportation. The revenue of excife would in this cafe, indee'lj fufFer a little, and that of the cuftoms a good deal more ; but the natural balance of induftry, the natural divifion and diftribution of labour, which is always more or lefs dillurbed by fuch duties, would be more nearly re-eftablifhed by fuch a regulation.

These reafons, however, will juftify drawbacks only upon ex- porting goods to thofe countries which are altogether foreign and independent, not to thofe in which our merchants and manufac- turers enjoy a monopoly. A drawback, for example, upon the ex- portation of European goods to our American colonies, will not always occafion a greater exportation than what would have taken place without it. By means of the monopoly which our merchants and manufadlurers enjoy there, the fame quantity might frequently, perhaps, be fent thither, though the whole duties were retained. The drawback, therefore, may frequently be pure lofs to the re- venue of exelfe and cuftoms, without altering the ftate of the trade, or rendering it in any refpedt more extenfive. How far fuch draw- backs can be juftified, as a proper encouragement to the induftry of our colonies, or how far it is advantageous to the mother coun- try, that they fliould be exempted from taxes which are paid by all the reft of their fellow fubjedls, will appear hereafter when 1 come to treat of colonies.

Drawbacks,'

^ THE WEALTH OF NATIONS.

Drawbacks, however, it muft always be underftood, are ufeful only in thofe cafes in Vv^hich the goods for the exportation of which they are given, are really exported to fome foreign country ; and not clandeftinely reimportcd into our own. That fome drawbacks, particularly thofe upon tobacco, have frequently been abufed in this manner, and have given occafion to many frauds equally hurtful both to the revenue and to the fair trader, is well known.

9f

CHAP. V.

Of Bowitics.

BOUNTIES upon exportation are, in Great Britain, fre- quently petitioned for, and fometimes granted to the produce of particular branches of domeftick induftry. By means of them our merchants and manufadlurers, it is pretended, will be enabled to fell their goods as cheap or cheaper than their rivals in the foreign market. A greater quantity, it is faid, will thus be export- ed, and the balance of trade confequently turned more in favour of our own country. We cannot give our workmen a monopoly in the foreign, as we have done in the home market. We cannot force foreigners to buy their goods, as we have done our own coun- trymen. The next beft expedient, it has been thought, therefore, is to pay them for buying. It is in this manner that the mercantile fyftem propofes io enrich the whole country, and to put money into all our pockets by means of the balance of trade.

N 2 Bounties,

93 THE NATURE AND CAUSES OF

BOOK Bounties, it is allowed, ouo-ht to be given to thofe branches of

iv. . . .

« , 1 trade only which cannot be carried on without them. But every

branch of trade in which the merchant can fell his goods for a price which replaces to him, with the ordinary profits of ftock, the whole capital employed in preparing and fending them to mar- ket, can be carried on without a bounty. Every fuch branch is evidently upon a level with all the other branches of trade which are carried on without bounties, and cannot therefore require one more than they. Thofe trades only require bounties in which the merchant is obliged to fell his goods for a price which does not replace to him his capital, together with the ordinary profit ; or in which he is obliged to fell them for lefs than it really cofts him to fend them to market. 1 he bounty is given in order to make up this lofs, and to encourage him to continue, or perhaps to be- gin, a trade of which the expence is fuppofed to be greater than the returns, of which every operation eats up a part of the capi- tal employed in it, and which is of fuch a nature, that, if all other trades refemblcd it, there would foon be no capital left in the country.

The trades, it is to be obferved, which are carried on by means of bounties, are the only ones which can be carried on between two nations for any confiderable time together, in fuch a manner as that one of them fhall always and regularly lofe, or fell its good's for lefs than it really cofts to fend them to market. But if the bounty did not repay to the merchant what he would otherwife lofe upon the price of his goods, his own intereft would foon oblige him to employ his ftock in another way, or to find out a trade in which the price of the goods would replace to him, with the ordi- nary profit, the capital employed in fending them to market. The effedl of bounties, like that of all the other expedients of the mer- cantile fyftera, can only be to force the trade of a country into a

7 channel

THE WEALTH OF NATIONS.

93

channel much lefs advantageous than that in which it would natu- chap. rally run of its own accord. \ L _}

The Ingenious and well informed author of the trails upon the corn trade has fhown very clearly, that fince the bounty upon the exportation of corn was firft eilablllhed, the price of the corn exported, valued moderately enough, has exceeded that of the corn imported, valued very high, by a much greater fum than the amount of the whole bounties which have been paid during that period. This, he imagines, upon the true principles of the mer- cantile fyftem, is a clear proof that this forced corn trade is bene- ficial to the nation ; the value of the exportation exceeding that of the importation by a much greater fum than the whole extraor- dinary expence which the publick has been at in order to get it exported. He does not confider that this extraordinary expence, or the bounty, is the fmalleft part of the expence which the exporta- tion of corn really cofts the fociety. The capital which the far- rr;er employed in raifing it muft likewife be taken iato the account. Unlefs the price of the corn when fold in the foreign markets re- places, not only the bounty, but this capital, together with the ordinary profits of flock, the fociety is a lofer by the difference, or the national ftock is fo much diminifhcd. But the very reafon for which it has been thought neceffary to grant a bounty, is the fup- pofed infufficiency of the price to do this.

The average price of corn, it has been faid, has fallen confider- ably fince the eftablifhrniCnt of the bounty. That the average price of corn began to fall fomewhat towards the end of the lafl cen- tury, and has continued to do fo during the courfe of the fixty- four firft years of the prefent, I have already endeavoured to fliow. But this event, fuppofing it to be a-s real as I believe it to be, muft have happened in fpite of the bounty, and cannot poffibly have happened In confequence of it.

In

91

THE NATURE AND CAUSES OF

In years of plenty, it has already been obferved, the bounty, by occafioning an extraordinary exportation, necefl'arily keeps up the price of corn in the home market above what it would naturally fall to. To do fo was the avowed purpofe of the inftitution. In years of fcarcity, though the bounty is frequently fufpended, yet the great exportation which it occafions in years of plenty, muft frequently hinder more or lefs the plenty of one year from relieving the fcarcity of another. Both in years of plenty, and in years of fcarcity, therefore, the bounty neceflarily tends to raife the money price of corn fomewhat higher than it otherwife would be in the home market.

That, in the adual ftate of tillage, the bounty mufl: neceflarily have this tendency, will not, I apprehend, be difputed by any rea- fonable perfon. But it has been thought by many people, that by fecuring to the farmer a better price than he could otherwife expert in the adlual ftate of tillage, it tends to encourage tillage ; and that the confcquent increafe of corn may, in a long period of years, lower its price more than the bounty can raife it in the aQual ftate which tillage, may, at the end of that period, happen to be in.

I ANSWER, that this might be the cafe if the efFed of the bounty was to raife the real price of corn, or to enable the farmer with an equal quantity of it to maintain a greater number of labourers in the fame manner, whether liberal, moderate, or fcanty, that other labourers are commonly maintained in his neighbourhood. But neither the bounty, it is evident, nor any other human inftitution, can have any fuch eff^ed. It is not the real, but the nominal price of corn only, which can be at all atfeded by the bounty.

The real efFedl of the bounty is not fo much to raife the real value of corn, as to degrade the real value of filver; or to make an €qual quantity of it exchange for a fmaller quantity, not only of

corn,

THE WEALTH OF NATIONS.

95^

corn, but of all other commodities : for the money price of corn chap. regulates that of all other commodities.

It regulates the money price of labour, which muft always be fuch as to enable the labourer to purchafe a quantity of corn fuf- ficient to maintain him and his family either in the liberal, mode- rate, or fcanty manner in which the advancing, ftationary or de- clining circumftances of the fociety oblige his employers to main- tain him.

It regulates the money price of all the other parts of the rude produce of land, which, in every period of improvement, muft bear a certain proportion to that of corn, though this proportion is different in different periods. It regulates, for example, the money price of grafs and hay, of butcher's meat, of horfes, and the maintenance of horfes, of land carriage confequently, or of the greater part of the inland commerce of the country.

By regulating the money price of all the other parts of the rude produce of land, it regulates that of the materials of all' manufac- tures. By regulating the money price of labour, it regulates that of manufacturing art and induftry. And by regulating both, it regulates that of the complete manufacture. The money price of labour, and of every thing that is the produce either of land or labour, muft necelTarily either rife or fall in proportion to the mo- ney price of corn^

Though in confequence of the bounty, therefore, the farmer fhould be enabled to fell his corn for four fhillings the buflicl in- ftead of three and fixpence, and to pay his landlord a money rent proportionable to this rife in the money price of his produce ; yet, if in confequence of this rife in the price of corn, four fhillings will purchafe no more goods of any other kind than three and fix-

8 ' pence

9^ THE NATURE AND CAUSES OF

D o o K pence would have done before, neither the circumftances of the

IV. « r—i farmer, nor thofe of the landlord, will be in the fmalleft degree

mended by this change. The farmer will not be able to cultivate

better: the landlord will not be able to live better.

That degradation in the value of filver which is the efFe£t of the fertility of the mines, and which operates equally, or very near equally, through the greater part of the commercial world, is a matter of very little confequence to any particular country. The confequent rife of all money prices, though it does not make thofe who receive them really richer, does not make them really poorer. A fervice of plate becomes really cheaper, and. every thing elfe re« mains precifely of the fame real value as before.

But that degradation in the value of filver which, being the efl'eiSI: eitlier of the peculiar fituation, or of the political inftitu- tions of a particular country, takes place only in that country, is a matter of very great confequence, which, far from tending to make any body really richer, tends to make every body really poorer. The rife in the money price of all commodities, which is in this cafe peculiar to that country, tends to difcourage more or lefs every fort of induftry which is carried on within it, and to enable foreign nations, by furnifliing almofl all forts of goods for a fmallcr quantity of filver than its own workmen can afford to do, to underfell them, not only in the foreign, but even in the home market.

It is the peculiar fituation of Spain and Portugal as proprietors of the mines, to be the didributors of gold and filver to all the other countries of Europe. Thofe metals ought naturally, there- fore, to be fomewhat cheaper in Spain and Portugal than in any other part of Europe. The difference, however, fhould be no

more

THE WEALTH OFNATIONS.

97

V,

— '

more than the amount of the freight and infurance ; and, on ac- ^ H A P. count of the great value and fmall bulk of thofe metals, their freight is no great matter, and their infurance is the lame as that of any other goods of equal value. Spain and Portugal, there- fore, could fuffer very little from their peculiar fituation, if they did not aggravate its difad vantages by their political inftitutions.

Spain by taxing, and Portugal by prohibiting the exportation of gold and filver, load that exportation with the expence of fmug- gling, and raife the value of thofe metals in other countries fo much more above what it is in their own, by the whole .amount of this expence. When you dam up a ftream of water, as foon as the dam is full, as much water mufl: run over tljc dam-head as if there was no dam at all. The prohibition of exportation can- not detain a greater quantity of gold and filver in Spain and Por- tU2;al than what they can afford to employ, than what the annual produce of their land and labour will allow them to employ, in coin, plate, gilding, and other ornaments of gold and filver. When they have got this quantity the dam is full, and the whole ftream which flows in afterwards muft run over. The annual exportation of gold and filver from Spain and Portugal accordingly is, by all accounts, notwithftanding thefe reftraints, very near equal to the whole annual importation. As the water, however, mufl: always be deeper behind the dam-head than before it, fo the quantity of gold and filver which thefe reftraints detain in Spain and Por- tugal muft, in proportion to the annual produce of their land and labour, be greater than what is to be found in other countries. The higher and ftronger the dam-head, the greater muft be the difference in the depth of water behind and before it. The higher the tax, the higher the penalties with which the prohibition is guard- ed, the more vigilant and fevere the police which looks after the execution of the law, the greater muft be the difference in the

Vol. II. O propor-

98 THE NATURE AND CAUSES OF

BOOK proportion of gold and filver to the annual produce of the land ^■, ^ / and labour of Spain and Portugal, and to that of other countries. It is faid accordingly to be very confiderable, and that you fre- quently find there a profufion of plate in houfes, where there is nothing elfe which would, in other countries, be thought fuitable or correfpondent to this fort of magnificence. The cheapnefs of gold and filver, or what is the fame thing, the dearnefs of all commodities, which is the neceflary efFedl of this redundancy of the precious metals, difcourages both the agriculture and manufac- tures of Spain and Portugal, and enables foreign nations to fupply them with many forts of rude, and with almoft all forts of manu- factured produce, for a fmaller quantity of gold and filver than what they themfelves can either raife or make them for at home. The tax and prohibition operate in two different ways. They not only lower very much the value of the precious metals in Spain and Portugal, but by detaining there a certain quantity of thofe metals which would otherwife flow over other countries, they keep up their value in thofe other countries fomewhat above what k otherwife would be, and thereby give thofe countries a double advan- tage in their commerce with Spain and Portugal. Open the flood- gates and there will prefentlybe lefs water above, and more below, the dam-head, and it will foon come to a level in both places. Remove the tax and the prohibition, and as the quantity of gold and filver will diminifh confiderably in Spain and Portugal, fo it will increafe fomewhat in other countries, and the value of thofe metals, their proportion to the annual produce of land and labour, will foon come to a level, or very near to a level, in all. The lofs which Spain and Portugal could fuftain by this exportation of their gold and filver would be altogether nominal and imaginary. The nomi- nal value of their goods, and of the annual produce of their land and labour would fall, and would be exprefled or reprefented by a fmaller quantity of filver than before: but their real value would 9 be

THE WEALTH OF NATIONS. 95>

be the fame as before, and would be fufficient to maintain, com- ^ ^'^ ^ ^'

mand, and employ, the fame quantity of labour. As the nomi- ' , — -^

nal value of their goods would fall, the real value of what re- mained of their gold and filver would rife, and a fmalier quantity of thofe metals would anfwer all the fame purpofes of commerce and circulation which had employed a greater quantity before. The gold and filver which would go abroad would not go abroad for nothing, but would bring back an equal value of goods of fome kind or another. Thofe goods too would not be all matters of mere luxury and expence, to be confumed by idle people who pro- duce nothing in return for their confumption. As the real wealth and revenue of idle people would not be augmented by this extraor- dinary exportation of gold and filver, fo neither would their con- fumption be much augmented by it. Thofe goods would, proba- bly, the greater part of them, and certainly fome part of them, confift in materials, tools, and provifions, for the employment and maintenance of induftrious people, who would reproduce, with a profit, the full value of their confumption. A part of the dead flock of the fociety would thus be turned into active flock, and would put into motion a greater quantity of induftry than had been employed before. The annual produce of their land and labour would immediately be augmented a little, and in a few years would, probably, be augmented a great deal ; their induflry being thus re- li(?ved from one of the moll opprefTive burdens which it at prefent labours under.

The bounty upon the exportation of corn neccflarily ope- rates exactly in the fame way as this abfurd policy of Spain and Portugal. Whatever be the adtual ftate of tillage, it renders our corn fomewhat dearer in the home market than it otherwife would be in that ftate, and fomewhat cheaper in the foreign ; and as the average money price of corn regulates more or lefs that of

O q all

too THE NATURE AND CAUSES OF

^ ^S^ ^ all other commodities, it lowers the value of filver confiderably in ../ the one, and tends to raife it a little in the other. It enables foreigners, the Dutch in particular, not only to eat our corn cheaper than they olherwife could do, but fometimes to eat it cheaper than even our own people can do upon the fame occa- fions ; as we are affured by an excellent authority, that of Sir Matthew Decker. It hinders our own workmen from furnlfhing their goods for fo fnall a quantity of filver as they otherwife niight do ; and enables the Dutch to furnifh their's for a fmaller. It tends to render our manufadures fomewhat dearer in every mar- ket, and their's fomewhat cheaper than they otherwife would be, and confcquently to give their induftry a double advantage over our own.

The bounty, as it raifes in the home market, not the real, but only the nominal price of our corn, as it augments, not the quantity of labour which a certain quantity of corn can maintain and employ, but only the quantity of filver which it will exchange for, it difcourages our manufadures without rendering the fmalleft real fervice either to our farmers or country gentlemen. It puts, indeed, a little more money into the pockets of both, and it will perhaps be fomewhat difficult to perfuade the greater part of them that this is not rendering them a very real fervice. But if this money finks in its value, in the quantity of labour, provifions, and commodities of all different kinds which it is capable of purchafing, as much as it rifes in its quantity, the fervice will be merely no- minal and imaginary.

There is, perhaps, but one fct of men in the whole com- monwealth to whom the bounty either was or could be really ferviceable. Thefe were the corn merchants, the exporters and importers of corn. In years of plenty the bounty neceffarily

occafioned

THE WEALTH OF NATIONS. loi

occafioned a greater exportation than would otherwife have taken chap. place; and by hindering the plenty of one year from, relieving the fcarcity of another, it occafioned in years of fcarcity a greater importation than would otherwife have been neceflary. It in- creafed the bufinefs of the corn merchant in both, and in years of fcarcity, it not only enabled him to import a greater quantity, but to fell it for a better price, and confequently with a greater profit than he could otherwife have made, if the plenty of one year had not been more or lefs hindered from relieving the fcar- city of another. It is in this fet of men, accordingly, that I have obferved the greatefl zeal for the continuance or renewal of the bounty.

Our country gentlemen, when they impofed the high duties upon the importation of foreign corn, which in times of moderate plenty amount to a prohibition, and when they eftabliflied' the bounty, feem to have imitated the conduct of our manufacturers. By the one inftitution, they fecured to themfelves the monopoly of the home market, and by the other they endeavoured to prevent that market from ever being overftocked with their commodity. By both they endeavoured to raife its real value, in the fame man- ner as our manufacturers had, by the like inflitutions, raifed the real value of many different forts of manufadured goods. They did not perhaps attend to the great and eflTential difference which nature has eftablilTied between corn and almoft every other fort of goods. When either by the monopoly of the home market, or by a bounty upon exportation, you enable our woollen or linen manufafturers to fell their goods for fomewhat a belter price than they otherwife could get for them, you raife, not only the nomi- nal, but the real price of thofe goods. You render them equiva- lent to a greater quantity of labour and fubfiflence, you encreafe not only the nominal, but the real profit, the real wealth and

7 , revenue

I02 THE NATURE AND CAUSES OF

BOOK revenue of thofe manufafturers, and vou enable them either to IV. ' .

' y ' live better th^emfelves, or to employ a greater quantity of labour

in thofe particular manufaQures. You really encourage thofe manufadures, and dired towards them a greater quantity of the induftry of the country, than what would probably go to them of its own accord. But when by the like inftitutions you raife the nominal or money-price of corn, you do not raife its real value. You do not increafe the real wealth, the real revenue either of our farmers or country gentlemen. You do not encou- rage the growth of corn, becaufe you do not enable them to maintain and employ more labourers in raifing it. The nature of things has flamped upon corn a real value which cannot be altered by merely altering its money price. No bounty upon exportation, no monopoly of the home market can raife that value. The freeft com- petition cannot lower it. Through the world in general that value is equal to the quantity of labour which it can maintain, and in every particular place it is equal to the quantity of labour which it can maintain in the way, whether liberal, moderate, or fcanty, in which labour is commonly maintained in that place. Woollen or linen cloth are not the regulating commodities by which the real value of all other commodities mufl: be finally meafured and deter- mined. Corn is. The real value of every other commodity is finally meafured and determined by the proportion which its average money pirice bears to the average money price of corn. The real value of corn does not vary with thofe variations in its average money price, which fometimes occur from one century to another. It is the real value of filver which varies with them.

Bounties upon the exportation of any home-made commodity are liable, firft, to that general objcdion which may be made to all the different expedients of the mercantile fyftem ; the objedion of forcing fome part of the induftry of the country into a channel

lefs

THE WEALTH OF NATIONS'. 103

lefs advantageous than that in which it would run of its own ^ ^"^ '^ P- accord : and, fecondly, to the particular objedion ,of forcing it, t_-v-— ' not only into a channel that is lefs advantageous, but into one that is adually difadvantageous ; the trade which cannot be carried on but by means of a bounty being neceffarily a lofing trade. The bounty upon the exportation of corn is liable to this further objedion, that it can in no rerpe<ll: promote the raifing of that par- ticular commodity of which it was meant to encourage the produc- tion. When our country gentlemen, therefore, demanded the efta- blifhment of the bounty, though they a£led in imitation of our merchants and manufadlurers, they did not aft with that com- pleat comprchenfion of their own interefl: which commonly diredts the conduct of thofe two other orders of people. They loaded the public revenue with a very confiderable expence ; but they did not in any refpe£t increafe the real value of their own commodity, and by lowering fomewhat the real value of filver they difcouraged in fome degree the general induftry of the country, and inflead of advancing, retarded more or lefs the improvement of their own lands, which necefl'arily depends upon the general induflry of the country.

To encourage the produftion of any commodity, a bounty upon produftion, one fhould imagine, would have a more diredt operation than one upon exportation. It has, however, been more rarely granted. The prejudices eftabliflied by the commer- cial fyftem have taught us to believe that national wealth arifes more immediately from exportation than from production. It has been more favoured accordingly, as the more immediate means of bringing money into the country. Bounties upon produdion, it has been faid too, have been found by experience more liable to frauds than thofe upon exportation. How far this is true, I know not. That bounties upon exportation have been abufed to many

fraudulent

104 THE NATURE AND CAUSES OF

BOOK fraudulent purpofes, is very well known. But It Is not the Intereft of merchants and manufadurers, the great inventors of all thefe expedients, that the home market fhould be overftocked with their goods, an event which a bounty upon produ£llon might fome- times occafion. A bounty upon exportation, by enabling them to fend abroad the furplus part, and to keep up the price of what remains in the home market, effe£tually prevents this. Of all the expedients of the mercantile fyftem, accordingly, it is the one of which they are the fondefl:. I have known the different under- takers of fome particular works agree privately among themfelves to give a bounty out of their own pockets upon the exportation of a certain proportion of the goods which they dealt in. This expedient fucceeded fo well that it more than doubled the price of their goods In the home market, notwithftanding a very confider- able Increafe in the produce. The operation of the bounty upon corn muft have been wonderfully different, if it has lowered the money price of that commodity.

Something like a bounty upon produdion, however, has "been granted upon fome particular occafions. The encourage- ments given to the white-herring and whale-fifheries may, perhaps^ be confidered as fomewhat of this nature. They tend diredlly to render the goods cheaper in the home market than they otherwife would be in the a<5tual ftate of produdlion. In other refpedts their effects are the fame as thofe of bounties upon exportation. By means of them a part of the capital of the country is em- ployed in bringing goods to market, of which the price does not repay the coft, together with the ordinary profits of flock. But though the bounties to thofe fifheries do not contribute to the opulence of the nation, they may perhaps be defended as con- ducing to its defence, by augmenting the number of Its failors and fhipping. This may frequently be done by means of fuch

bounties.

THE WEALTH OF NATIONS. 105

bounties, at a much fmaller cxpence than by keeping up a great ^ ^^^ P- {landing navy, if I may ufe fuch an expreffion, in time of peace, in the fame manner as a {landing army.

Some other bounties may be vindicated perhaps upon the fame principle. It is of importance that the kingdom {hould depend as little as po{lible upon its neighbours for the manufa(flures necefTary for its defence ; and if thefe cannot otherwife be maintained at home, it is reafonable that all other branches of induftry fhould be taxed in order to fupport them. The bounties upon the import- ation of naval {lores from America, upon Britiih made fail-cloth, and upon Britiih made gunpowder, may perhaps all three be vindi- cated upon this principle. The firfl is a bounty upon the produc- tion of America, for the ufe of Great Britain. The two others are bounties upon exportation.

What is called a bounty isf ometimes no more than a drawback^ and confequently is not liable to the fame obje£lions as what is pro- perly a bounty. The bounty, for example, upon refined fugar ex- ported may be confidered as a drawback of the duties upon the brown and mufcovado fugars, from which it is made. The bounty upon wrought filk exported, a drawback of the duties upon raw and thrown filk imported. The bounty upon gunpowder exported, a drawback of the duties upon brimftone and faltpetre imported. In the language of the cufloms thofe allowances only are called draw- backs, which are given upon goods exported in the fame form in which they are imported. When that form has been altered by ma- nufacture of any kind, they are called bounties.

Premiu.ais given by the publick to artifls and manufacturers who excel in their particular occupations, are not liable to the fame objedions as bounties. By encouraging extraordinary dex- terity and ingenuity, they ferve to keep up the emulation of the

Vi^T TT, 1* workmen

io6 THE NATURE AND CAUSES OF

BOOK workmen ailually employed in thofe refpeiStive occupations, and are , } not confiderable enough to turn towards any one of them a greater fhare of the capital of the country thau what would go to it of its own accord. Their tendency is not to overturn the natural balance of emplo^^ments, but to render the work which is done in each as perfect and compleat as poffible. The expenee of premiums, befides, is very trifling; that of bounties very great. The bounty upon corn alone has fometimes cofl: the publick in one year, more than three </